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Billionaire Eric Sprott is well known in the investment community for his commitment to precious metals investing, and his track record of earning consistently high returns for his precious metals and natural resource-focused hedge funds. His Toronto-based hedge and mutual fund company, Sprott Asset Management LP, has over $10 billion in assets under management, including $763 million in equity assets per its most recent SEC 13-F filing for Q1/2013. Its lead hedge fund strategy Sprott Hedge Fund LP has delivered 11.2% annualized returns since inception in 2000 versus 2.6% for the S&P 500. Just over half of its portfolio is invested in the gold, silver and platinum mining industry, and about two-thirds of the portfolio is invested in small-cap and micro-cap companies. The company was spun-off the asset management business of Sprott Securities, now called Cormark Securities Inc., which Mr. Sprott founded in 1981.
Sprott's top precious metals pick in Q1/2013 is MAG Silver Corp. (MVG), a Canadian company engaged in the acquisition, exploration and development of silver properties in Mexico, in which Sprott bought a large new $26.2 million position, four times the size of its next largest buy during the quarter. Besides Sprott, MVG was also the top precious metals pick in Q1/2013 for another leading gold-focused fund in our list, Tocqueville Asset Management, that added $17.1 million in Q1/2013 to its $24.0 million prior quarter position.
MVG shares, like many of its peers in the precious metals group, have been down recently and are trading near 52-week lows. However, the decline in its shares may be related more to its mid-November eviction from the Cinco de Mayo silver mining property in Mexico by the local community of Ejido Benito, seeking to establish a 100-year mining moratorium in the area. In the week prior to the eviction, MVG shares traded near all-time highs, after mounting a strong 100% rally in the preceding six months, and they have since given back almost all of those pre-November gains.
While the eviction is a significant setback for the company, it is likely that it will be resolved in the company's favor. Per the company, both the calling of the meeting and the way the voting was conducted at the meeting was illegal, motivated by a group of radical activists opposed to mining and industrial agricultural development in the region, and does not reflect the will of the majority of the community. Accordingly, the company is pursuing legal remedies to have the resolutions passed at the meeting be declared null and void, Besides, the company has seven other silver mining properties in Mexico, and with a 40% drop from the eviction news, the market at current prices may already have factored in a complete loss of the Cinco de Mayo property (an unlikely event). Gold stocks have been in a strong decline for the last 18 months, and the index as represented by the Market Vectors Gold Miners ETF (GDX) is trading near multi-year lows. We believe that the index is primed for a cyclical and secular rebound in the short- to intermediate-term, and when that happens, MVG shares are likely to rebound at a faster pace than many of its peers.
Besides MVG, Sprott also increased its position in Platinum Group Metals (PLG), that is engaged in the exploration and mining of precious metals in South Africa and Canada, adding 4.5 million shares in Q1 to its 0.2 million share prior quarter position in the company.
High conviction bearish moves by Sprott in Q1/2013 in the precious metals group included:
- Yamana Gold Inc. (AUY), a Canadian company engaged in the exploration and development of gold properties in South America and Mexico, in which Sprott sold half of its 0.18 million share prior quarter position.
- McEwen Mining Inc. (MUX), that is engaged in the exploration and development of gold, silver and copper in various properties in Nevada, Mexico and Argentina, in which Sprott cut 1.00 million shares from its 2.74 million share prior quarter position.
- 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 Sprott cut over a third of its 0.06 million share prior quarter position.
- Coeur d'Alene Mines Corp. (CDE), that is engaged in the exploration and development of silver and gold mines in the U.S., Mexico, South America, and Australia, in which Sprott cut 0.34 million shares from it 1.18 million share prior quarter position.
Sprott's largest holdings in the precious metals group in Q1/2013 also included stocks of the following companies:
- First Majestic Silver (AG), a Canadian company engaged in the mining and acquisition of silver properties in Mexico, in which Sprott held a 4.40 million share or $71 million position, cutting a minor 0.38 million share during the quarter.
- 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 Sprott held a 0.77 million share or $24 million position, cutting a minor 6,784 shares during the quarter.
- Pan American Silver Corp. (PAAS), that is a Canadian mining company focused on silver, with mining operations in Mexico, Peru, Argentina and Bolivia, in which Sprott held 0.75 million share or $12 million position, cutting a minor 35,024 shares during the quarter.
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 is believed to be accurate, but no guarantees or representations are made.
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