Funds manager seeks golden touch in mines

Investing

June 17, 1996|By Bill Atkinson

MONEY manager Richard H. Fontaine looks dapper in his business suit, but on occasion you can find him in shorts and sneakers, slogging through the jungle or baking in the desert on the edge of a desolate, wind-swept gold mine in Uzbekistan.

A couple of months ago, Fontaine, who at 44 runs three no-load mutual funds from his office in Towson, headed deep into rain forests on a helicopter with about 25 geologists and portfolio managers to visit gold mines in Guiana, French Guiana and Suriname.

The helicopter skimmed the treetops of the rain forest before landing in a clearing near a gold mine operated by one of his holdings, Golden Star Resources Ltd.

"It was kind of cool," said Fontaine, president of a firm bearing his name.

He wanted to see what all the hubbub was over Golden Star's mines. The Denver company's stock cratered after cyanide at its Omai mine burst through a dam and spilled into a river last August. Fontaine capitalized on the bad news, loading up on the cheap stock:

"It was a tempest in a teapot. It only killed about 200 pounds of fish."

While Fontaine certainly doesn't come off as a tree hugger, his investment in Golden Star paid off because the company struck diamonds this year, and the stock has jumped to the $13 range, up from about $4.

Fontaine said he bought the shares for an average price of $5 each.

Fontaine says the company won't know for at least five years whether the diamonds are top quality, but he's heard a rumor that they are.

"If that is the case, it [the stock] is going north," he said.

After a dry spell, Fontaine's funds have started to produce.

Fontaine Global Income Fund was up 25 percent as of May 31; Fontaine Capital Appreciation Fund was up 42 percent; and Fontaine Global Growth Fund was up 63.6 percent.

These are small funds. Global Growth and Global Income each has about $2 million in assets under management, and Capital Appreciation has about $7.2 million, Fontaine said. It's the only one that appears in newspapers, and its shares are traded on the Nasdaq under FAPPX.

Fontaine is a conservative manager, and he was a hero at T. Rowe Price, where he ran the company's Capital Appreciation Fund.

Shortly before the stock market crashed in October 1987, Fontaine put his clients' money in cash. "I was 80 percent in cash when the market crashed," he said in a booming voice.

During the 2 1/2 years that he ran the fund, it had a total return of 40 percent, beating the Standard & Poor's 500 Stock-index's 20 percent for that period, he said.

He started his own firm in 1989 and built the portfolio to $400 million from $50 million. But Fontaine kept 50 percent to 60 percent of the money he managed in cash over most of the past five years. His clients left because as the stock market climbed upward, they felt they could get better returns elsewhere.

His portfolio has since withered to $100 million, he said.

"We misjudged the market top," he said. "We just held way too much cash."

Fontaine says his funds shrank because he didn't think the government would hold down interest rates to spur the economy in the early 1990s. And he didn't think so many people would start investing in stocks, which has helped propel the market to record highs.

"We realized people still had the desire to get rich," Fontaine said. "We started trying to focus more and more on how this would play out."

So, he recently shifted strategies, holding less cash and putting more money in companies that mine precious metals. He believes the stock market is in its final stages of its bull rally, and during this period more money begins flowing into such commodities as gold, zinc, silver and oil.

These investments, he says, will act as a hedge against a falling stock market.

His pride and joy is Fontaine Global Growth. At the end of 1995, the fund had about $550,000 in assets under management, and now it has grown to about $2 million, he said.

He owns about 18 percent of the fund, 4 percent of Capital Appreciation and 50 percent of Global Income, where his retirement is stashed.

Nearly 67 percent of Global Growth is invested in mining companies and 8 percent is in petroleum operations.

Besides Golden Star, Greenstone Resources Ltd. has been another solid pick. The Toronto-based mining company, which is the fund's largest holding, hit a high in May of $14.875 a share, and it's now trading in the $11 range. The good news for Fontaine is that he bought the stock at $4.61 in March, he said.

Nearly 3.4 percent of Global Growth is invested in Inco Ltd., a huge Toronto-based mining company that trades in the $30-a-share range. The stock has been flat, however.

Fontaine has been beat up by Hecla Mining Co. in Coeur d'Alene, Idaho. He says the company's management bought a mine that hasn't produced, and shares have fallen to $7 a share from a high of $12.875 on Sept. 11, 1995. Fontaine bought the stock at an average price of $8, he said.

He's still increasing his shares in Hecla.

"I'm a value player," he said.

To round out Global Growth, Fontaine holds shares in McCormick & Co., USF&G Corp. and Wal-Mart Stores Inc.

Wal-Mart, he says, has the "best management in the business. They are the people I'd least like to be competing with."

Fontaine snapped up Wal-Mart because on his trip to the jungle he saw one of the retailers' stores prospering in Sao Paulo, Brazil.

But gold and other precious metals are the best bet as far as Fontaine is concerned. He argues that the supply of gold is shrinking while demand is growing, and those very simple economics will drive up its price.

On Friday, gold continued its slide, falling to $384.10 a troy ounce.

"I personally believe gold will reach $500," he said. "Gold is something real."

As for the stock market?

"I have been a bear on the market for a long time," Fontaine said. "The stock market is ridiculously overvalued."

Pub Date: 6/17/96

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