New York-based Tocqueville Asset Management LP, with over $9.0 billion in 13-F assets per its latest Q4/2012 filing last Thursday, runs its flagship Tocquville Gold Fund that has $2.0 billion in assets. The Tocqueville Gold Fund has been profiled in Barron's, Kiplinger, Money Magazine and other financial publications many times, and it has a trailing 10-year return of 14.3% v/s a 7.1% for the S&P 500. While its weighting in gold in its latest 4Q/12 is about the same as the prior quarter, at about 30%, the latest quarter filing shows a move away from the larger-cap gold stocks and into smaller-cap gold stocks. Thus, during the quarter, it sold stock in large-cap gold stocks such as Randgold Resources Ltd. (GOLD), Goldcorp Inc. (GG) and Eldorado Gold Corp. (EGO), and it increased its weighting in many small-cap gold stocks, including Primero Mining Corp. (PPP), Mag Silver Corp. (MVG) and Aurico Gold Inc. (AUQ).
Tocqueville's top pick for Q4/2012 is PPP, a Canadian gold and silver mining company, with operations in Mexico. Tocqueville holds a substantial 8.1% of outstanding shares, adding 1.28 million shares to its 6.31 million share prior-quarter position. The 8.1% stake ranks second, after its 9.1% holding in another small-cap gold mining company, Gold Resource Corp. (GORO). We would also like to note here that this is the second gold-focused company that we have covered for Q4/2012, the other being Billionaire Precious Metals Guru Eric Sprott's fund, and PPP also ranked as Sprott's top pick in Q4/2012. Also, for the most recent available quarter, Wall Street's legendary or guru funds added 0.42 million shares in Q3/2012 to their 0.09 million share prior quarter position in the company.
PPP shares have been one of the strongest performers lately in the precious metals space, up over 150% from the lows last summer, while the average gold stock as represented by the Market Vectors Gold Miners ETF (GDX) is down about 5%-10% during that same period. The company just announced its 2013 outlook late last month, with Q4/2012 production of 26,300 gold equivalent oz. coming in at the top end of its guidance, and cash costs of $365 per gold oz. v/s its earlier guidance of $384. Furthermore, the company lifted production guidance for 2013, now expected to be up to 17% higher compared to last year, compared to the 9% year-over-year increase in the last quarter. It also projected 200,000 gold equivalent oz. production in 2015, at 80% above the levels recorded in 2012.
While PPP stock is up significantly, and is near its all-time highs, it trades at a respectable 12.4x trailing-twelve-month (TTM) earnings, a discount to the industry average of 13.4. Meanwhile, earnings growth has been strong, having doubled in 2012 v/s 2011, and can be expected to continue higher given the projected 80% increase in production in the next three years. Also, the company has a lower financial risk as it has a lower debt to capital ratio of 0.07 compared to the average of 0.10 for its peers in the industry. With lower financial risk, higher growth, and a lower than average P/E, we believe the stock is an attractive buy, and would accumulate it on dips, especially if it nears the 200-day moving average near $5.
Besides PPP, Tocqueville's other top high conviction picks in Q4/2012 include:
- Turquoise Hill Resources, a Canadian company engaged in the exploration of gold, silver and copper mines in central Asia and the Asian-Pacific region, including Australia, in which Tocqueville added 2.04 million shares to its 5.15 million share prior quarter position.
- MAG Silver Corp., a Canadian company engaged in the acquisition, exploration and development of silver properties in Mexico, in which Tocqueville added 0.70 million shares to its 1.82 million share prior quarter position.
- Aurico Gold Inc. , formerly known as Gammon Gold, that is a Canadian company engaged in the exploration and development of gold and silver mining properties in Mexico, in which Tocqueville added 0.26 million shares to its 0.22 million share prior quarter position.
Additional precious metals companies in which Tocqueville is bullish based on it holding a large position at the end of Q4/2012 included:
- Newmont Mining Corp. (NEM), that produces gold in the U.S., Australia, Peru, Indonesia, Canada, New Zealand, Ghana and Mexico, in which Tocqueville held its largest position in the precious metals group, at 3.45 million shares or $160 million, including cutting a minor 65,195 shares during Q4/2012.
- Eldorado Gold Corp., a Canadian company acquiring, exploring and producing gold and mineral properties in Turkey, China, Brazil and Greece, in which Tocqueville held its second largest position in the precious metals group, at 11.82 million shares or $152 million, cutting a relatively minor 0.61 million shares during Q4/2012.
- Goldcorp Inc., a Canadian company engaged in mining and exploration of silver, copper and gold throughout North and South America, in which Tocqueville holds its third largest position in the precious metals group, at 3.73 million shares or $137 million, cutting a relatively minor 0.19 million shares during Q4/2012.
- Silver Wheaton Corp. (SLW), a Canadian buyer of purchase agreements for silver and gold from mining companies operating in Mexico, Sweden and Peru, in which Tocqueville held its fourth largest position in the precious metals group, at 3.51 million shares or $126.6 million, cutting a minor 6,350 shares during Q4/2012.
- Yamana Gold Inc. (AUY), a Canadian company engaged in the exploration and development of gold properties in South America and Mexico, in which Tocqueville held 6.23 million shares at the end of Q4/2012, including adding 2,900 shares during the quarter.
High conviction bearish moves by Tocqueville in Q4/2012 in the precious metals group included:
- Barrick Gold Corporation (ABX), a Canadian company engaged in production of gold and copper in Peru, Canada, U.S., Australia, Chile, and five other countries, in which Tocqueville sold out of its entire 0.60 million share prior quarter position.
- Randgold Resources ADR, that is engaged in the exploration and development of gold properties primarily in Mali and Cote D'Ivorie, in which Tocqueville cut 0.18 million shares from its 1.13 million share prior quarter position.
Credit: Fundamental data in this article and company descriptions are based on SEC filings, Zacks Investment Research, Yahoo, Thomson Reuters and Briefing.com. The information and data are believed to be accurate, but no guarantees or representations are made.
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