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Family Offices’ Gold Allocations Are Modest – With One Exception

Alastair Graham

23 December 2019

This publication has been working with data analysed by which explores trends in the single family offices space (see here to register for a trial). This latest analysis from Highworth’s founder and managing director, Alastair Graham, examines what family offices are doing in the realm of gold: considered by many still to be the ultimate safe-haven asset. OK, over to Alastair:

The possibility of a hard Brexit in December 2020, the continuing US-China trade war, indications of an economic downturn in Europe, Hong Kong unrest, all point to the probability of volatility in financial markets and a sharpening of economic risk carried over from 2019 to 2020. 

In the 2019 UBS/Campden Wealth report on family offices, 55 per cent of the family offices surveyed expect a recession in 2020. 

Gold, commonly seen as a hedge against economic risk since time immemorial, has reflected a rising sense of possible market turbulence to come. From December 2016 to December 2018 the price of gold moved from $1,145.9/oz to $1,219.8/oz, a modest rise of only 6.4 per cent over the two-year period. However, from December 2018 to December 17, 2019 the price had risen to $1,475.8/oz, a gain of 21 per cent.

Have family offices been piling into gold over the past year? Some undoubtedly did and have both contributed to, and enjoyed, the hefty price rise of the yellow metal. General enthusiasm among family offices has, however, been muted. The UBS/Campden Wealth report, which surveyed 360 family offices in the US, Europe and Asia, found that allocation to gold took only 0.8 per cent of an average portfolio’s value. 

A review of a much larger number of family offices – a total of 850 single family offices in 64 countries outside the US to be found in the online Global Single Family Offices Database from Wealthbriefing and Highworth Research – found that only 7 per cent were invested in precious metals in 2019, with only four countries, the “usual suspects” of Canada, Australia, South Africa and the UK, countries with an historic “bullion heritage”, showing a percentage of family offices investing above the overall average.

The Wealthbriefing/Highworth SFO Database does, however, show up one striking exception to the apparently listless approach shown by family offices to gold investment. 

Background to the wealth of Naguib Sawiris
La Mancha Holding is a family-owned investment company of Naguib Sawiris, the eldest of the three sons of Onsi Sawiris who founded Orascom Construction Industries in 1950. The Sawiris family is among the wealthiest in the Middle East.

Fortune gained from building telecom assets in emerging markets
Naguib Sawiris founded Orascom Telecom Holdings in Egypt in 1997 in partnership with France Telecom and Motorola Egypt. Through organic growth and a series of acquisitions of telecom companies in Pakistan, eleven African countries, and Yemen, the company grew and floated on the Cairo Stock exchange in 2000. In 2012 Wind Telecom, the parent of Orascom Telecom Holdings, was acquired by Vimpelcom, for $6.5 billion in stock and cash to create the world’s sixth largest telecom provider. The sale yielded $1.5 billion in cash and a 20% stake in Vimpelcom worth $5 billion. 

Forbes Billionaires 2019 has assessed the wealth of Naguib Sawiris at $3 billion.

Three family investment companies for telecom, gold mining, and real estate interests
Following the sale of the majority of his telecom assets, Naguib Sawiris diversified his investment interests principally into mining and real estate. He now leads three family investment companies: Orascom TMT Investments, which holds his residual telecom and IT investment interests; Ora Developers, which include his real estate investment interests; and La Mancha Holding, which contains his increasingly extensive gold mining investments. 

Gold mining assets valued at $1 billion held through La Mancha Holding
A total exception to the generality of UHNW individuals and their family offices, Naguib Sawiris has committed roughly a third of his capital not to bullion stored in a vault nor to gold ETFs but actually to mining gold on a substantial scale. He is continuing to build a portfolio of significant holdings in the gold mining sector which he regards as appropriate for an investor to hold “when there are crises around” or “for someone who wants to have a balanced portfolio” as he commented in an interview in 2018 with CNBC

His vehicle for investment in gold is La Mancha Holding Sàrl, registered in Luxembourg, supported by an investment team in London, and with gold mine assets reported by the company in April 2019 amounting to $1 billion. 

The build-up of Sawiris’ gold portfolio
In 2012 Sawiris initiated his gold portfolio by paying $492 million to acquire miner La Mancha Resources, which he has used as a vehicle to acquire stakes in other gold miners. These have included a 31 per cent stake in Evolution Mining, the third largest ASX listed Australian gold miner, producing 753,000 ozs per year, and with a market cap on December 9, 2019 of A$6.61 billion ($4.51 billion). Sawiris’ stake has now been reduced to 7.65 per cent.

In November 2019 Evolution concluded a transaction with Newmont Goldcorp, the world’s largest gold miner, to buy the Red Lake gold mining complex in Canada for C$553 million, plus a further C$100 million if new resources are discovered at the mine. Current production is 276,000 ozs.

La Mancha also has a 29.8 per cent stake in Endeavour Mining of Canada, producing 1.2 million ozs per year from mines in the Ivory Coast, Burkina Faso, and Ghana, and with a market cap on December 9, 2019 of C$2.64 billion ($1.99 billion). In December 2019, Endeavour bid £1.47 billion ($1.9 billion) for London-listed Centamin PLC, which operates a gold mine in Egypt. If the Endeavour bid succeeds, the combination will have a market value of nearly $4 billion.

Further, in August 2018 La Mancha Holding invested $125.7 million for a 30 per cent stake in Toronto-listed Golden Star Resources, producing 220,000 ozs per year and with a market cap of C$483 million.

In November 2019, La Mancha invested £6.3 million for a 35 per cent stake in London-listed gold miner Altus Strategies PLC.

Naguib Sawiris disclosed in a speech at the 2018 World Economic Forum that he plans to take advantage of consolidation in the gold mining sector by investing in the acquisition of further gold mines with 10-year life spans and an output of 150,000 to 250,000 ozs per year.