Most institutional investors have recently filed their Form 13-F's with the SEC that lists their fund's holdings. In this article we will take a quick look at interesting additions, removals, new positions, and closed positions from Sprott Asset Management.
Sprott Asset Management is an investment fund with an investment team that includes Eric Sprott, Rick Rule, and John Embry - who are all investment managers that specialize in precious metals and resource base investing. So for hard asset investors, Sprott's holdings may be particularly interesting.
But before we discuss interesting changes in Sprott's holdings let us briefly introduce investors to what a Form 13-F is and its investment benefits.
Introduction to the Form-13F
Form 13F's are forms that are required by the U.S. Securities and Exchange Commission for all institutional investment managers that exercise investment decisions over assets totaling more than $100 million dollars. These forms must be filed no later than 45 calendar days after the end of each quarter and require the listing of equities, certain equity options and warrants, closed-end investment companies, and some convertible debt securities. You can find more details at the SEC website.
These filings are useful for investors because they give insight into the actions of the large investment management funds that manage billions of dollars worth of assets - the true "whales" of the investment world. Since they are large management firms, they have the capital to employ research teams and do much more due diligence than most individual investors can do. So by following their holdings an investor can get some good ideas on what to buy or sell, after all it is not always necessary for investors to "reinvent the wheel." These forms are a wonderful way for them to piggy back on some of the research done by large firms - though due diligence still must be done because hedge funds do often make mistakes and investors should still understand why they own their investments.
Investors should also note that 13-F's are always a bit dated and are a "moment-in-time" report, which means these positions may be quite different today versus what they were at the end of the previous quarter. Additionally, for large positions, a fund may have already bought their desired shares and thus investors buying those same positions today may be buying a little late in the game.
After knowing the things to watch out for, Form 13-F's can still provide investors with some excellent information on positions to own and what they should consider selling.
Top Holdings, New Positions, and Closed Positions on 9/30/13
Source: Whale Wisdom
Four Interesting Moves by Sprott Asset Management
Here are four interesting positions that we are noting from Sprott's filing.
First Majestic Silver - First Majestic Silver (AG) is one of the lowest cost primary silver producers based in Mexico. We've profiled this company a number of times, but what is interesting about this position is that it is the largest precious metals miner in the Sprott portfolio. Additionally, even though AG's percentage of the portfolio dropped, Sprott chose to increase shares to maintain it as the portfolio's fourth largest position.
This shows that Sprott has quite a bit of confidence in AG despite the new Mexican tax that has ravaged Mexican precious metals miners.
Silver Wheaton - Silver Wheaton (SLW) is the largest silver "streamer" in the industry and their business model is to provide financing to build mines in exchange for a stream of future production at lower than market prices. What interesting about this position is that this was the position that Sprott increased by the largest dollar value, and it vaults up to the seventh largest position in the portfolio.
Platinum Group Metals - Platinum Group Metals (PLG) is a Canadian based company which owns the high-grade, near surface Western Bushveld Joint Venture (WBJV) platinum deposit in South Africa. The company is well financed with over $130 million dollars in cash and a $500 million market capitalization. Sprott increased the position by 58% in the quarter (an increase of 2.8 million shares), which was one of the largest existing position increases for the quarter amongst all of the Sprott positions. This company fits in well with the belief expressed by many of the higher level managers in the fund that platinum has a bright future because increased production costs will either drive supply down or price will rise to make mining production profitable.
This company may be an interesting addition for investors looking for platinum exposure.
Almaden Minerals - We like to look for interesting small cap positions in the 13-F filings because they represent more illiquid positions that are harder for the asset manager to sell. This means that it will be harder for them to close a position between the time of declared ownership and the 13-F filing, which means we can be fairly confident they will still own the position as of the filing date. Additionally, the illiquidity of a smaller cap position means that the asset managers probably did a fairly good amount of due diligence in owning the position, so smaller investors should pay close attention to these positions.
Almaden Minerals (AAU) is a small Canadian company with exploration properties in Mexico. But their business is actually to do initial development in properties and then sell off the properties to other mining companies to finish exploration and completion of the mines. This sale is usually done in exchange for shares in the miners and a Net Smelter Royalty (NSR) in the project. It is a similar company to SLW, but it focuses on NSR's versus fixed streaming revenues like SLW.
For the quarter, Sprott increased ownership in AAU by 986,577 shares to slightly increase the size of the portfolio's position even as the company's share price dropped. Sprott owns approximately 3% of the outstanding shares of AAU, so this is a rather large position in this small cap miner.
Though we are a bit concerned because the vast majority of the company's properties are in Mexico and stand to lose a good chunk of future revenues due to the Mexican government's tax increase, we do find this company intriguing and the fact that management has a fairly large stake makes it even more interesting.