Putting Mines Over What Matters

There are a lot words that can be used to describe mining companies, but "silly" usually isn't one of them.

But Graham French, portfolio manager of the (VGPMX)Vanguard Precious Metals and Mining fund (VGPMX), says that "silliness" is creeping into the mining industry as cash-flush metal companies start on a quest of "big for big's sake."

He identifies copper producer Phelps Dodge(PD) and zinc miner Teck Cominco(TCK) as poster children for shareholder disregard as both companies engaged in a frenzied summer bidding war for nickel producer Inco(N).

French refuses to buy stock in Phelps and Teck, since he believes that the companies have placed size over shareholders. He also fears that continued boom times in the sector could lead to wasteful company cultures and maybe even "corporate-jet land," where "every director thinks they should fly in the corporate jet."

French's fund boasts an annualized five-year return of 36.6% and Morningstar's only overall five star rating for specialty precious-metals funds.

The bad news is that Vanguard closed the doors to new investors in February, putting a halt to the $20 million to $25 million a day that was pouring into the fund, which now tops $3.4 billion.

The good news is that French gave TheStreet.com some useful investing tips when we spoke with him recently.

TheStreet.com: What are the top holdings in your fund?

French: Rio Tinto(RTP), [8%], Lonmin, [8%], Impala Platinum, [7%], Aber Diamonds, [7%], Meridian Gold (MDG), [5.5%], and Barrick Gold (ABX), [5%].

About 50% of the fund is in gold and precious metals and 50% in other minerals. (In addition, French is not allowed to go short and avoids actively trading stocks, keeping turnover to 25%.)