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On November 20, 1996, Worth OnLine featured Richard Fontaine, president and CEO of Richard Fontaine Associates, for "Conference Call." Fontaine travels the world visiting exploratory mines and developing countries, researching stocks for his Fontaine's Global Growth, Global Income, and Capital Appreciation mutual funds. The following is an edited transcript of the evening's chat. The opinions expressed within are those of Fontaine, and do not represent the views of Worth OnLine, Worth magazine, or Capital Publishing.



Fontaine2:     I'm Richard Fontaine, I've been a portfolio manager for 16 years. Eight years with T. Rowe Price, and eight years as head of my own firm Richard Fontaine Associates, based in Baltimore, Maryland. We have a small mutual fund family, and institutional investment management firm. Our three funds are the Fontaine Global Growth Fund FONGX, The Fontaine Capital Appreciation Fund, FAPPX, and the Fontaine Global Income Fund, FOGX. This year, the Global Growth Fund is up 48 percent as of tonight, with a compound three year annualized rate of return through the end October of 20.7 percent. The Fontain Capital Appreciation Fund is up 21.5 percent as of tonight, and a three-year annualized return of 14 percent. The Fontaine Global Income Fund is up 17.9 percent YTD, with a three year annualized return of 11.9 percent. Tonight I'll be talking about my investment style, and what I think are the best investment with the Dow Jones at 6500. Andy McLoughlin will be logged on as FontTrust, Correction-Global Income's symbol is FOGIX and he will answer performance questions and combined expense ratios and things like that. Do you have any questions?

Nicholas1:     Do you have any info on Deustch Telephone. The IPO occurred Monday.

FontTrust:     No, the Trust does not hold any Deustch Telephone.

Fontaine2:     One of our largest holdings is Golden Star Resources GSR, a Denver based gold and diamond exploration company. It has very exciting gold exploration potential in South America, especially in French Guyana and Brazil. And they also have a significant diamond property in Dachine, French Guyana. Another one of our large holdings is Southwest Gold SWG, in Toronto, which has numerous exploration properties looking for gold and copper in Peru. We also have extensive holdings in Pan African Resources Corp., which is a gold and mineral exploration company with operations in five coutnries in Central and Western Africa.

KIMBOBALEX:     How does the political instability in Peru affect your outlook?

Fontaine2:     The political instability in Peru has been reduced significantly in the past seven years. Peru is now rapidly emerging as a major mineral exporter of both gold and copper. The importance of these to their export earnings give us confidence that the political environment will continue to remain acceptable for foreign capital.

LSavojr:     Rich, what countries would you recommend to invest in now?

Fontaine2:     I think Brazil is very exciting because two years ago they changed their constitution to allow foreign mining companies to operate in their country. Brazil has tremendous mineral resources and prior to the last two years, they have been largely under-developed.

MIB42:     Trans America Industries, Ltd. What do you think..??

Fontaine2:     MIB: I'm not familiar with Trans America at all.

JMG3233:     Any thoughts on the new regime in Pakistan, with Ms. Bhutto now removed

Fontaine2:     A small position in our portfolio is in the country of the Central African Republic, which also has significant political problems, but our company Asquith Resources Inc., a Canadian based mineral exploration company has been able to develop an exciting gold exploration property that we feel might contain as much as a million ounces of gold.

MIB42:     How about Sonoma out of Vancouver?
FontTrust:     No thoughts on either Pakistan or Sonoma

Jhill41555:     what do you think about TOTAL?

LSavojr:     Rich, what companies would you recommend to take a look at for the long term in the Brazilian market?

Fontaine2:     One of the largest mining companies CRVD, which is the Brazilian nationalized mining co. They are in the process of being privatized by the Brazilian government. I feel this will be an excellent high quality, long term investment.

KIMBOBALEX:     Do you think the outlook is still good for short term growth?

Fontaine2:     Yes, we are very excited about our potential going forward because many of the gold and mineral exploration companies peaked in late May and have really been going through a correction phase for the past six months. We've been able to weather this phase well, and add to stocks we feel strongly about. Our overall investment strategy is to try and position ourselves for what will be the next investment environment over the next several years. We feel that the tremendous speculative bubble that has been created in the US stock market is being driven by an accesively liberal monetary policy both in the US and Japan. We want to own those companies that will benefit as the liquidity that is currently bubbling US stock prices ultimately flows into driving up the prices of hard assets. So our current strategy of investment is to buy commodity rich companies who have extensive natural resources and will benefit from any escalation of the dollar dominated prices of those commodities. For example, we own INCO, N on NYSE, 34.50, which is one of the largest producers of nikel which is used in the production of stainless steel. It is a market that has seen tremendous growth over the past decade, and is forecasted to have a four to five percent annual growth rate per year through the end of the decade.

Nikonok:     Have you been a buyer or seller of GSR?

Fontaine2:     We have been buying Golden Star Resources based on the tremendous potential we see for their diamond properties in French Guyana which are now starting to look as if they might be one of the largest diamond discoveries ever found. And... their new gold mining property in the Para Province of Brazil called Andorinas, which is looking to have extremely high grade gold deposits.

MAX1240:     Do you visit those mines?

Fontaine2:     We recently returned from Mexico where we looked at three different mines owned by Santa Cruz Gold, SCG, which is one of our gold-mining stocks that we own. We have also visited mines and exploration properties in Guyana, Suriname, French Guyana, Cuba, Panama, Canada, US, and Uzbeckistan.

JMclellanj:     What do you think of the Ashanti move on Golden Shamrock?

Fontaine2:     I thought it was a good acquisition for Ashanti, which should give them some needed management help as they have had some problems with their operations in Gana over the past several years.

Nikonok:     Are you familiar with KWG Resources?

Fontaine2:     We are negative on KWG.

MAX1240:     Do you have any fertilizer stocks?

Fontaine2:     We do not own any fertilizer stocks.

JMG3233:     What is your outlook for the price of gold in the next three months?

Fontaine2:     We think gold has been going through an extremely long consolidation phase in the 380 to 400 range. We expect a breakout from the $400 range in the next few months.

SLeon34358:     I'm thinking of taking retirement money out of US market and opening an account with the Bank of Copenhagen to invest in hard currency, European stock markets that I think have lagged in the US, like France?

Fontaine2:     The US dollar has appreciated significantly over the last few years. Ultimately, we expect it to continue to its long term decline over most hard currencies. So... diversifying yourself out of the US dollar over the long term is probaly a smart move. International funds are affected by many factors: 1: foreign stock markets, and which ones those international funds are exposed to. Plus, the largest single factor is probaly the movement of the dollar vs. other currencies where a US investor could have the perception that his international funds have appreciated simply b/c the US dollar has declined against other currencies.

SLeon34358:     Thanks. Any suggestions within my parameters?

Fontaine2:     Yeah, keep your money in assets that are denominated in hard currencies of countries that have a strong enough economy that the government of that country won't be tempted to devalue their currency in an attempt to restart their own export industries. Specifically, you'd want to diversify your investments not just into Danish currency, but into German, Dutch, French, and the Yen, as well as making sure that you don't forget that if one stock market in the world goes down significantly (US), it is very likely that the other stock markets will follow suit. So stay either in money market-like instruments, short to intermediate bonds, or the equities of companies that have large and growing hard asset valuations underpinning their price.

Cigar1025:     Dumb question, will the US market ever have a serious correction in the near future?

Fontaine2:     I doubt it. Dumb answer ; )

Cigar1025:     What is your favorite foreign market at the moment?

Fontaine2:     Our favorite foreign market is Canada. The Canadian dollar will continue to appreciate against the US dollar and will rise from the current .74 per to above .80 cents. On top of that, Canada is at the forefront of taking advantage of a major investment opportunity of bringing modern mining, production, and exploration technology to the former socialist and/orcommunist countries in South and Central America and Africa. Canada's neutral foreign policy and extensive mining experience positions their entrepreneurs well to be able to take advantage of this major new worldwide development.

CPage91061:     What about China, Hong Kong in general?

Fontaine2:     China and Hong Kong will be the same country within seven months and I think they will continue their rapid development toward becoming one of the world's great economies.

SLeon34358:     Is ECU or Swiss the better bet on LT hard Currency appreciation?

Fontaine2:     SLeon: the difficulties in predicting long-term currency fluctuations have humbled almost all predictors. I think you would be foolish to ignore diversification in such an important question. I would recommend that you run a strategy of 25 percent in Deutch marks, 25 percent in US dollars, 25 percent in Yen, and 25 percent in Swiss Francs.

Nikonok:     Are you invested in oil/gas at all?

Fontaine2:     Yes, we own large international oil companies as an offset to our aggressive positions in small-cap mineral exploration companies. While we like the prospects for oil, a small fund like ours also needs the flexibility and liquidity to have a portion of its assets highly liquid. And so we have consciously chosen to invest only in large-cap oil companies at this time.

Cigar1025:     Fontaine, wear do you see the long bond by say.....June...under 6%?????

Fontaine2:     Personally I think the long bond will be above 7 percent by June.

Oedoed:     When the US market takes a plunge do international funds usually follow?

Fontaine2:     Nobody knows. It is very likely that if you have a speculative liquidity driven market in the US, that that speculation and liquidity is also helping prop up international markets around the world. And it is highly likely that there will be more correlation in their movement if there were to be a plunge than most of the pundits would like you to think. I think you have to be more thoughtful about your investment strategy if you do think a plunge is possible, and choose not just international funds in general. but funds that have a conscious strategy of trying to retain shareholder value through holding diversified asset categories such as preferred stocks, cash, foreign bonds, and a large portion of their equity investments invested in non-US dollar denominated stocks. This gives you the possible protection that if the US dollar drops significantly, coincidentally with a stock market plung, your international fund investment could hold up better than US stocks and US stock mutual funds.

OK, one of the main factors that we think is going to drive gold higher over the next year is the tremendous demand for gold in the form of a store of value all around the world where people are attracted to gold's historical ability to retain value over time. As the emerging economies in China, INdia and SE Asia have allowed hundreds of millions of people to raise their standard of living over the last 20 yrs., many of those people are faced with weak paper currencies in totalitarian goverments that would destroy the idividual's wealth if some political action caused a change in the political regime or a prolonged period of social upheaval. A good example of this is that 10 years ago the Soviet Union and its 265 million people had all of their wealth in ruble denominated accounts that traded around 4 to the dollar. The ruble today trades at less than 4,000 to the dollar, and hundreds of  millions of people have seen their entire life's work evaporate. This is a lesson that is well understood by the hundreds of millions of people in India, China, or Thailand, that as they are able for the first time in their lives amass some personal wealth, they are strongly motivated to store some of that wealth in the only currency that isn't a debt of a gov.--and that's gold. All other currencies are just IOUs from a govermnet. While the German, Swiss or US currencies are perceived as being strong and unassailable, we've all seen in our personal lifetimes the US dollar's decline by over 80 percent in the last 30 years. Faced with that rate of deterioration,  which equals about 4 percent a year, a strategy of storing some portion of your wealth in gold or other hard assets begins to take on a tremendous interest for anyone intersted in long term investing.

WKelly7577:     What percentage of a portfolio do you think should be international?

Fontaine2:     Any portfolio ought to be 25 to 30 percent non-US.

SBS471:     I have a question about stock splits.  How do you profit from them?

Fontaine2:     Stock splits theoretically should have absolutely no impact on the price of a stock. But they do, because nobody believes that. But it is an increase in the ability to purchase the lower priced shares, this supposedly drives the appreciation. In reality, in my experience, what appears to happen is that companies only split their stock when they are confident that the growth in their company's earnings can be sustained. So the market reads this as a very positive signal. It tends to bid up the price of the stock.JMG3233:     Rich, Barrick Gold was in the news today re: exploration in Peru and Argentina. Any thoughts

Cosmed:     Regarding mining stocks, do you feel that there is currently an advantage in buying one region over another, say North American over Australia?

Fontaine2:     Cosmed: Latin America and Asia are both going to be exciting emerging markets in the next 10 years. Latin America is probay less well undestood, and still has more problems ahead of it, and therefore probably has the greatest potential. Mining stocks are currently very cheaply priced in Australia, and therefore offer tremendous investment potential.

Cosmed:     Regarding Aussie mines, can you name a few worth examining?

Fontaine2:     Currently, we do not own any Aussie mines, and are just starting the research process to be able to invest there.

WKelly7577:     I have heard the Nordic countries are good to invest in, yes or no?

Fontaine2:     We currently have no Nordic investment, nor any particular expertise in that area.

Fontaine2:     I'm going to give you my top 10 small cap exploration companies. OK? Cambiex Exploration Inc., CBX on the Toronto exchange, currently 1.10. Our long-term target is 3 to 5 bucks. Guyanor Resources, a French company, trades in Toronto, currently 11 Canadian. Long-term target 50. GRL/B. One of my other top ten is INCO/Voisey Bay Nikel, N/V in Toronto, which owns 25 percent of the earnings from the Diamond Fields Nikel property in Labrador Canada, which has one of the world's largest, lowest-cost nickel deposits. Currently selling at 36 Canadian. By 2001, when full production begins at the property, the stock will be over 65 Canadian per share. Atna Resources is an aggressive mineral exploration company with very attractive properties in the Yukon in N. Canada where they have discovered very high quality zinc and silver ore that should lead to a doubling in this stock in the next 18 months.

DAN356:     Philips Dodge where do they fit into the gold and silver picture?

Fontaine2:     Phelps Dodge is 69 on the NYSE: PD, and is probably the best-managed US copper company. It is a significant holding in our Cap Appreciation Fund. We think this stock will benefit from the higher copper prices we predict over the next 12 months. Westmin Resources WMI in Toronto, 7 Canadian, will appreciate 50 percent over the next 12 months from a combo. of its newly acquired copper properties in Chile, its extensive zinc mines in British Columbia, and its exciting new exploration property in the Yukon -- the Wolverine/Lynx deposits. Gold Corp, G/A in Toronto and on Nasdaq, is an old mine where recently very significant high grade ore has been found in the existing mine that will turn this company into a very sigificant, very low-cost gold producer over the next three to five years. 800 million market cap gold mining co.-- Getchell Gold Corp.-- whose sole operation is in Nevada and has been a powerful performer for our Cap Appreciation and Global Growth Funds appreciating over 45 percent since July.

Cosmed:     How do you feel about Barrick, is it worth getting into now?

Fontaine2:     Barrick is a great well-managed gold company whose best growth is behind it. Whenever you produce three million ounces of gold a year, it is very difficult not only to replace that production, but to grow your assets at anywhere near the rates that Barrick has had over the last ten years.

SwHitch:     Advantages/Disadvantages of global vs. international funds?

Fontaine2:     Advantage of global over intl. funds is that global funds aren't artificially restricted from buying US companies when that is the best value you can find.

DAN356:     Gold Star Resources what do you think of this company?

Fontaine2:     Gold Star is one of my top picks for 1997. We think that that stock might well double over the next 12 months.

WKelly7577:     What country in the Pacific Rim is most appealing to you?

Fontaine2:     Indonesia. We think they have extensive mineral properties. One of our largest holdings is Freeport Macmoran Copper and Gold, FCX, which has one of the world's lowest cost copper deposits, and one of the largest gold reserves in the world.

WKelly7577:     What do you think about Global Marine Drilling & Noble Drilling?

Fontaine2:     Global Marine and Noble are both excellent drilling companies enjoying tremendous growth in their business. We don't follow them that closely, but they are both good companies.

I want to thank you very much for the excellent questions. If you want any information or would like to talk in more depth with me, I can be reached at 800/247-1550, betw. 9 and 5 ET. Thank you all for being here tonight.

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Copyright 1996 Capital Publishing Limited Partnership. All rights reserved.