David Christensen: The Long-Term Investing
Source: Sally Lowder of
After more than 50 years of investing for long-term
shareholder profit, David Christensen, head of ASA Gold and
Precious Metals Limited-one of the world's oldest and largest
closed-end precious metal investment funds-is seeing some new
opportunities emerge. Seniors are trading at unbelievable values
and, for the first time in a long time, acting as dividend income
stocks, he says. In this exclusive interview with
The Gold Report
conducted at the Denver Gold Forum, he shares some of his top 10
and top 30 picks.
: Alacer Gold Corp. - Anglo American Plc. - AngloGold Ashanti
Ltd. - ASA Ltd. - Barrick Gold Corp. -
Gold Fields Ltd.
- Impala Platinum Holdings Ltd. -
NovaGold Resources Inc.
- Tahoe Resources Inc.
The Gold Report:
We are here at the Denver Gold Forum in the middle of beautiful
Colorado Springs. David, why don't you tell us a little bit about
ASA Gold and Precious Metals Ltd. (ASA:NYSE)
and your background.
Sure. I have a 28-year history in the precious metals markets. I
started as Portfolio Manager at the Franklin Precious Metals
Funds, which I managed for about a decade. At the time, of
course, gold was largely out of favor. The first day I came into
the fund, gold was $500/oz. (ounce). In the next decade, it
proceeded to go to $250/oz. Around that time I was approached by
Merrill Lynch to join the metals and mining group. I became the
global head of metals and mining research, specializing in the
precious metals sector and running the team. After this, I went
off to industry, conducting feasibility studies and working on
the corporate side as a consultant and vice-president of
corporate development for a couple of companies. I have been a
director of mining companies as well, including Hecla Mining Co.
(HL:NYSE), and am presently on the board of the Denver Gold
I was approached by the ASA board about five years ago to take
over the management of the closed-end fund, which is one of the
oldest precious metals funds in the world. It was formed in 1958
by Charles Engelhard, who was also the founder and chairman of
Engelhard Industries Inc., one of the largest precious metals
refineries in the world.
Where was that headquartered?
Engelhard was in London at the time. The fund was listed in New
York as a way for American investors to invest in the growth of
the industry, which, at that time, was the development in the
Witwatersrand Basin in South Africa. This was the late 1950s when
miners were developing all the South African gold fields. At that
time, there were no international settlement facilities, no ADR
(American Depository Receipts) markets, etc. So, ASA, which stood
for American South African, was the only foreign-registered,
closed-end fund listed on the New York Stock Exchange (NYSE). As
a result, a number of exceptions were made for the fund. It
listed and raised $28 million (
) in 1958. Ever since, it has been one of the largest precious
metals funds in the industry. ASA has always been a very
long-term investor, seeking high-quality companies with strong
management teams. When the market was out of favor, we still had
the resources to help finance the industry and provide capital to
companies in need of capital. Our long-term perspective is our
ASA must represent some of the most long-term precious metals
bulls on the planet, particularly in the U.S.
We have shareholders who have been in the fund since 1960. We
have held some of our holdings since 1958. The annual dividend
income of some of our holdings exceeds our cost basis by a factor
of 4. It's like buying a share at a nickel and getting two dimes
in income every year. These are benchmark companies that everyone
AngloGold Ashanti Ltd. (AU:NYSE; ANG:JSE; AGG:ASX; AGD:LSE)
Gold Fields Ltd. (GFI:NYSE)
Impala Platinum Holdings Ltd. (IMP:JSE)
Anglo American Plc. (AAUK:NASDAQ)
Are there any restrictions about where these companies are
No. The fund was originally South African based. In 2004, we
moved to Bermuda and re-registered the company because of tax
changes in South Africa. By moving, we protected our shareholders
and became a globally diversified, precious metals fund. So
today, the South African gold portion of the portfolio comprises
just under 10% of the overall holdings. There is about 10% in
South African platinum companies, and the rest are global metals
and mining companies.
Are there several funds within ASA, or is it just one fund?
It's one fund, one task, and what is unique is we are not an
external manager. ASA is more akin to an operating company than a
fund. No management fee goes out. We keep expense ratios and
operating expenses low for our shareholders. The greater the
total return, the happier the board is with our performance. But
there is no management fee where we are stripping 100 basis
points out of the fund each period. Our income statement shows
every line item and every expense.
Interesting. So, how is the fund weighted in terms of metals?
At the moment, it's about 86% gold, 10% platinum and palladium
with the balance in silver, diamonds and diversified.
But no base metals.
About 4% of the portfolio is in Anglo American, a diversified
miner, which represents our largest base metals exposure. It's a
company we think is inexpensive and undervalued and we like its
prospects in the long term.
So it's really geared toward gold.
It's effectively a gold fund. In a rampant bull market, it may
tend to slightly underperform. But we are trying to look through
to the long term and not rely on gold going $1,900/oz. as opposed
to $1,800/oz. to pick up that last little incremental basis
point. Instead, we look forward five or 10 years to companies
that we think are going to deliver long-term growth with a strong
management team rather than speculate on the day-to-day movement
of the gold price.
I see you are headquartered in San Mateo, Calif., which is an
unusual place to be for a gold fund. Why?
I like that answer.
For 50 years, ASA was decentralized with management in New
Jersey, Buffalo, South Africa, Bermuda and Washington. We had
directors scattered around the world. Two years ago we
consolidated in one location and it really refined the focus. We
have grown the management team and added a research analyst.
Plus, three very large gold funds are also in the Bay Area. As
a consequence, a lot of companies come through the area on a
regular basis. At least four companies of significant size walk
through the door every single week. Anyone from
Goldcorp Inc. (G:TSX; GG:NYSE)
Barrick Gold Corp. (ABX:TSX; ABX:NYSE)
to some of the more junior companies are regular visitors to the
office. The other benefit of our Bay Area location is that we are
near an international airport. I can get to Australia overnight.
I can be in South Africa the next day. I can be in New York for a
meeting very quickly. It is a very strategic location. And
frankly, the weather is a lot better than in New York.
Or Toronto. I lived in Toronto for two years but my family
ultimately preferred California.
What is the value in today's dollars in the fund?
Today, the fund has approximately $675M in assets. Because it is
a closed-end fund, it tends to trade at a discount to its net
asset value (
) as traded on the NYSE. You can buy a portfolio that in some
ways is similar to other open-end gold funds, but pay a 10%
discount by buying shares of ASA. All things being equal, you're
buying the same assets on sale.
Also, a lot of us believe that a lot of equities in some of these
major funds-and we'll talk about the equities in a minute-are
undervalued, so you have that leverage as well.
It's actually kind of frustrating. The senior gold companies-and
many of the juniors-have actually underperformed the gold price
in the last year. In fact, our own discount has gone from 1% to
10% in the last 10 months. We think the stocks in our portfolio
are undervalued. I have an option today as a portfolio manager to
go out and add to Barrick, or
Tahoe Resources Inc. (THO:TSX)
Alacer Gold Corp. (ASR:TSX)
, but I can also buy my own portfolio at a discount. In the last
couple of weeks, we have actually been very active in the
marketplace, buying our own shares. We put out a press release
two weeks ago, announcing that we were actively repurchasing
shares. We acquired 100,000 shares in a single block and have
continued to be active in the market ever since.
Let's talk about the equities. What is your asset allocation
between seniors, juniors and small caps?
The fund can go anywhere in the asset capitalization spectrum we
want. Today, the portfolio's top 10 holdings are largely the
senior gold companies. The next 20 holdings really drive the
performance of the fund. One of those is Alacer Gold Corp. with
about 3% of assets. Alacer is a $3B market cap company that was
formed through the combination of two companies: Anatolia
Minerals (ANO:TSX) and Avoca Resources. It is a very liquid
company with assets in Australia and Turkey. It has an
exceptionally strong management team and has been doing a very
good job of delivering returns for shareholders.
Another one that would fit this bill, which has been a very
strong company for ASA, is Tahoe Resources. Headquartered in
Reno, Nev., it has one large development asset in Guatemala. As a
former silver mining company board member, I have seen a lot of
silver assets and believe that this is truly one of the richest
silver projects. In fact, a number of good companies in this
industry have lost management to Tahoe simply because of the
It has had an impressive growth profile for such a new public
It doesn't have its permits yet and it's in Guatemala. But if you
look at the industry today, where a lot of the go-to, hot stocks
we are seeing promoted are in West Africa, Asia and Latin
America, frankly Guatemala is just not that bad. To put the risk
in perspective, ask which country you would rather go to on a
family vacation? Would you rather take them to Burkina Faso or
Having been to Guatemala, I'd pick Guatemala.
Pretty much a no-brainer.
What are some of the other gold-focused companies that have
Over the last couple of years, the portfolio took a very
significant position in
NovaGold Resources Inc. (NG:TSX; NG:NYSE.A)
. In December 2008, after the market crash, gold stocks decreased
in valuation by 50%, and no capital was available in the
marketplace. As a closed-end fund not subject to shareholder
redemptions, ASA was able to step in and help, with a syndicate,
to provide capital to save NovaGold when it got into trouble.
That position became a phenomenal performer.
We have seen an impressive recovery with that stock.
NovaGold stock went from $.50 to $14, and now it's trading at
about $7/share. It was a situation where we saw a significantly
undervalued asset and were able to step in with some liquidity
when it was appropriate. We have trimmed our position but remain
happy with our current involvement.
Isn't NovaGold looking at producing in early 2013? It has a lot
of blue sky with the whole bulk tonnage open pit operation.
The reduction of ASA's position in NovaGold wasn't because of
fundamentals for the company. The position had simply grown to be
one of our top 10 and it was time to take some money off the
table and reallocate it to what might be the next opportunity in
Let's talk about the next opportunity.
One of the reasons we attend these conferences is to search for
those next opportunities. We have seen a number of interesting
stories in the last couple of days, which have the potential to
be very significant companies over the next few years. A lot of
them, interestingly, are recovery situations where they have
tripped in the last two years and as a consequence,
underperformed. We think some are poised to turn around and start
improving. Also, for the first time in probably 10 years, the
seniors look to be a very good value. Juniors have gone from
trading at, say, 60%-70% net present value (
) to 1.3-1.4 times. They have become expensive. In fact, we are
not seeing a lot of the seniors chasing the juniors or the mid
caps today simply because the valuations have gotten out of
And the mergers and acquisitions (M&A) activity we are seeing
is probably less robust than we were expecting.
I would call most of what we are seeing opportunistic M&A. It
is based on finding two assets next to each other and putting
them together. That is different than cherry-picking new
Would the recent acquisition of Agnico-Eagle Mines Ltd. (AEM:TSX;
AEM:NYSE) merging with
Grayd Resource Corp. (GYD:TSX.V)
be an example?
That's a perfect example of an opportunistic situation where
there is a synergy of assets as opposed to company A going out
and finding a new log to put on the fire. But the seniors, like
Barrick, GoldCorp and, ironically, the South Africans are doing
an exceedingly good job in terms of value right now. Many of them
are trading at attractive discounts. Over the last few weeks, we
have started to see some seniors outperform the juniors, which is
And that presents an opportunity for the typical U.S. investor
that is unusual because it derisks the entry into the precious
Very much so. You are buying Barrick as a diversified portfolio
of 50 assets or more. No single asset is going to make or break
this company, as opposed to a junior operating a single asset
that could vanish tomorrow. A senior is just a less speculative
investment. They are also going to throw off significant cash for
the next couple of years. Many of them are trading at six times
cash flow. I mean, these are unbelievable values.
It's unusual to think about investing in a mining stock as an
income stock. We just haven't seen that with many of the seniors
over the years.
The industry traditionally had a dividend-income yield of about
0.6%. Today, it's approaching 2% and it will probably head toward
3%. Dividend distributions are becoming increasingly strong. Part
of this is because of the massive increases in cash flow these
companies are seeing. It's funny how things change. In the late
1980s, I can remember when people bought the South African gold
stocks when they were yielding 12%, 13%, 14%, and sold them when
they got to 3%. Today, they are hoping to get back to 3%. At that
time, individual assets distributed 100% of their cash flow.
Today, consolidated companies invest to regenerate growth. Times
have changed, but it's good to see a return of the dividend
yields. Over the last nine months, we have seen approximately a
70% increase in our projected income to the portfolio.
Thank you so much, David. We really appreciate you sharing these
David Christensen is president, CEO and CIO of ASA Gold and
Precious Metals Ltd. He joined the company in 2007 as vice
president of Investments and was promoted to his current
positions in 2009. Prior to joining ASA, Christensen worked with
Gabriel Resources, a junior gold company, most recently as vice
president of Corporate Development. He worked on the feasibility
study and financing plans for the development of the Rosia
Montana project. From 2002-2003, Christensen was director of
Fundamental Equity Research focusing on the North American mining
industry at Credit Suisse First Boston. At CSFB, he earned a
StarMine ranking for some of the most accurate earnings
estimates. Prior to CSFB, Christensen worked at Merrill Lynch,
ultimately as first vice president, global coordinator of Mining
Research and Precious Metals. During this time, he was
consistently ranked by the
Wall Street Journal
and Reuters as one of the precious metals industry's best
analysts. He began his career at the Franklin Templeton Group.
Christensen has served as director of the Denver Gold Group since
2010. He also served as director of Hecla Mining Company and
chairman of Agnico-Eagle Delaware (LLC), a financing subsidiary
of Agnico-Eagle Mines Ltd. Christensen received his B.S. in
Business Administration at California State University,
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1.) Sally Lowder of
The Gold Report
conducted this interview. She personally and/or her family own
shares of the following companies mentioned in this interview:
2.) The following companies mentioned in the interview are
The Gold Report:
Grayd Resource Corp., NovaGold Resources and Gold Fields.
3.) David Christensen: I personally and/or my family own shares
of the following companies mentioned in this interview: ASA Gold
and Precious Metals Limited and Hecla Mining Company. I
personally and/or my family am paid by the following companies
mentioned in this interview: ASA Gold and Precious Metals
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