SAN FRANCISCO (TheStreet) -- Mining stocks may outperform shares in other industries as the demand for so-called hard assets, especially gold, strengthens on concern about accelerating inflation, says Malcolm Gissen, who helps manage the Encompass Fund (ENCPX) .
The mutual fund has returned 34% in the past year, twice that of its peer group. The Encompass Fund soared 137% in 2009, compared with 25% for its rivals.
Welcome to TheStreet.com's Fund Manager Five Spot, where America's top mutual fund managers give their best stock picks and views on the market in a five-question format.
Why are you bullish on mining stocks?
The Encompass Fund owns about 25% in gold and silver companies and maybe 10% in other metals. There's a large or good chance of inflation. There's a great demand for these resources. It's expensive to produce those resources and, therefore, the companies that produce them will do very well.
Video: Stocks Could Lift Gold >>
There will be uranium shortages in the next few years. There are more than 30 uranium plants being built worldwide. Currently, a substantial amount of the uranium in the world comes from the decommissioning of Russian weapons systems. That treaty goes away in 2013. There are indications from (Prime Minister Vladimir) Putin he might not renew it. UEC has very large uranium resources in Texas. They bought a mill that they can use to produce uranium, and they are expected to be the next American producer of uranium. It's deeply undervalued at a little over $2. You could possibly double your money in this investment over the next couple of years.
You also like Aura Minerals, a Canadian miner.
Aura is a gold and copper company. It's based in Canada. And their operations and resources are in Latin America. They increased a few months ago their projections for production this year from 90,000 ounces to 185,000 to 195,000 ounces. At more than $1,200 an ounce, that means they should have more than $200 million in revenue. We don't think that's recognized in the marketplace. They have four other properties where they will get into production in the next couple of years, and we think this is also a deeply undervalued stock.
Another Canadian-listed company that you're particularly high on is SouthGobi Resources, which specializes in coal mining in Mongolia.
SouthGobi owns a property that's about 20 miles from the Chinese border. And that property has an enormous resource of coal. They're in production, they operate 24/7. They just recently bought a bigger scoop so they could take more coal out of the ground. Their trucks drive the coal right to the border 20 miles away, where the Chinese have built a facility to unload that coal, put it onto railroad cars and drive it directly to power plants.
In addition, SouthGobi will soon get into metallurgical coal, for which they will get a much higher price than they are getting now for thermal coal.
What's your favorite hard asset?
I would probably have to say gold because I think that there's a tremendous demand. People are concerned about inflation. They are concerned about their currencies, and gold offers them an opportunity to feel better, to sleep at night. There are a lot of reasons why gold prices will go higher.
-- Reported by Gregg Greenberg in New York.
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Before joining TheStreet.com, Gregg Greenberg was a writer and segment producer for CNBC's Closing Bell. He previously worked at FleetBoston and Lehman Brothers in their Private Client Services divisions, covering high net-worth individuals and midsize hedge funds. Greenberg attended New York University's School of Business and Economic Reporting. He also has an M.B.A. from Cornell University's Johnson School of Business, and a B.A. in history from Amherst College.