Many leading fund managers, including BlackRock, Jana Partners and Van Eck Associates, filed forms 13-D and 13-G with the SEC recently, indicating that they had amended their ownership in U.S. exchange traded basic materials companies.
The 13-D/G reports are statements of significant ownership of more than 5% of the voting class of a company's securities, and they are also important due to their timeliness. While 13-F filings are quarterly, and are required to be reported within 45 days after the end of the quarter, 13-D/G's are required to be filed within ten days of the underlying transaction. Furthermore, 13-D/G's are often a precursor to a hostile takeover, company breakup or other "change of control" events, and will often include a letter to management explaining the reason for their taking a large stake in the company, thereby giving more insight into the transaction.
BlackRock, the largest institutional manager in the world, with over $3.6 trillion under management, including $1.1 trillion in 13-F assets, filed SEC form SC 13G/A last Wednesday, indicating that it holds 14.49 million shares of Cliffs Natural Resources (CLF), an increase from 13.25 million shares that it indicated holding at the end of Q1/2013. CLF has been a favorite with the world's largest or mega fund managers like BlackRock, as during the latest available Q4/2012 for which consensus pick data is available, mega funds together added 2.92 million shares to their 66.62 million share prior quarter position in the company, and together they held 45.5% of the outstanding shares in the company.
CLF is a mining and natural resources company, producing iron ore pellets, lumps and fines iron ore, and metallurgical coal products. It operates six iron ore mines in MI, MN and eastern Canada; two iron ore mining complexes in western Australia; five metallurgical coal mines located in WV and AL; and one thermal coal mine in WV. It accounts for a 45% share of the market for iron ore pellets in North America, and is also a major supplier of a metallurgical coal.
In its latest Q1 released at the end of last month, the company reported a strong quarter, with earnings of 60c, well above analyst estimates of 32c, and EBITDA of $309 million v/s the $235 million analyst estimate. However, tax rate changes accounted for a major portion of the beat, as assuming a normalized 30% tax would have reduced earnings to 37c, although still well above the 32c estimate. At its closing price above $21 on Tuesday, the stock trades at a 11-12 forward P/E, at a premium to the average of 7.3 for its peers in the iron ore mining group, while earnings are projected to fall from $3.46 in FY 2012 to $1.85 in FY 2014.
The stock has collapsed almost 80% from its highs two years ago, and has been consolidating at the lows, forming a strong "technical" base at the bottom for the last six weeks. While the outlook for iron ore pricing looks bearish for this year and next, given the surplus capacity expected to hit the markets, a pickup in the U.S. domestic economy and growth acceleration in China and other emerging markets could provide a floor to the stock. Overall, though, we believe the stock is still a risky investment given the headwinds in terms of the lower price outlook for iron ore, and we would look to buying it only on dips well below $20.
Besides CLF, the following are additional institutional 13-D/G filings last month in the basic materials sector (see table above):
- Consol Energy Inc. (CNX), is a producer of bituminous coal and coal-bed methane gas primarily in the northern and central Appalachian and Illinois basins, in which BlackRock, the world's largest institutional manager with $3.6 trillion under management, filed SEC form SC 13G/A on April 10th indicating that it holds 15.81 million shares, adding 0.27 million shares to the 15.54 million shares that it reported holding at the end of Q1/2013.
- James River Coal Co. (JRCC), is engaged in the exploration and production of steam, bituminous and industrial-grade coal in Kentucky and Indiana, in which BlackRock filed SEC form SC 13G/A on April 10th indicating that it holds 1.33 million shares, cutting 0.56 million shares from the 1.89 million shares that it reported holding at the end of Q1/2013.
- Huntsman Corp. (HUN), is engaged in the manufacture and sale of differentiated organic and inorganic chemical products worldwide for use in a variety of industrial and consumer applications, in which NY-based long-short equity hedge fund Soroban Capital Partners filed SEC form SC 13G on April 15th indicating that it holds 13.44 million shares, a new position since it last reported its holdings for Q4/2012.
- Allied Nevada Gold Corp. (ANV), is engaged in the exploration, acquisition, development and operation of gold properties in NV, in which Toronto-based GCIC, Ltd., formerly known as Goodman & Co., filed SEC form SC 13G on May 1st indicating that it holds 3.93 million shares, cutting 1.85 million shares from the 5.78 million shares that it reported holding at the end of Q4/2012.
- Ashland Inc. (ASH), is a provider of chemicals, plastics, automotive oil and specialty chemicals and also supplies water treatment solutions, in which New York-based event-driven shareholder activist hedge fund manager JANA Partners, led by Barry Rosenstein and Gary Claar, filed SEC form SC 13D on April 11th indicating that it holds 5.81 million shares, a new position since it last filed for Q4/2012.
- Aurico Gold Inc. (AUQ), formerly known as Gammon Gold, is a Canadian company engaged in the exploration and development of gold and silver mining properties in Mexico, in which basic materials focused Van Eck Associates, with $21.8 billion in 13-F assets, filed SEC form SC 13G/A on April 9th indicating that it held 24.67 million shares, cutting 0.43 million shares from the 25.10 million shares that it reported holding at the end of Q4/2012.
Credit: Fundamental data in this article were based on SEC filings, Zacks Investment Research, 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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