Investec fund bets on small gold producers

By Pratima Desai

LONDON (Reuters) - Small and medium-sized gold producers with rising output which hasn't been hedged are bid targets and a better bet than large firms in the sector, Investec Asset Management says.

Daniel Sacks, a portfolio manager, at Investec told Reuters that small producers will gain more from record high bullion prices than large ones because they haven't sold their future output at prices well below current levels.

"We look for companies with no hedged production, rising volumes and good cost containment, whose earnings should therefore rise by more than gold," Sacks said.

"Gold majors like Newmont have battled to replace mined reserves and have acquired junior producers and explorers to make up for a lack of exploration success."

Apart from New York-listed Newmont Mining (NEM.N: Quote, Profile, Research), Sacks also expects other major gold producers such as South African gold miners Anglogold Ashanti (ANGJ.J: Quote, Profile, Research), Gold Fields (GFIJ.J: Quote, Profile, Research) and Harmony Gold (HARJ.J: Quote, Profile, Research) to underperform.

His preference, is for smaller companies like Toronto-listed Kinross Gold (K.TO: Quote, Profile, Research), London-listed Randgold Resources (RRS.L: Quote, Profile, Research) and Australia's Lihir Gold (LGL.AX: Quote, Profile, Research).

"The gold market is still relatively diverse and we like companies which could be targets for majors," Sacks said.

"(Canada's) Great Basin Gold (GBG.TO: Quote, Profile, Research) is our preferred junior. It has two mines in development, one in the Witwatersrand, and the other in Nevada."