By Rob Carroll
Investment guru Jean-Marie Evillard knows how to pick commodities. Today, we take a look at 10 bullish commodities bets in Evillard’s portfolio and offer up a few reasons why these gold and energy companies might be ready to charge.
IAMGold Corp (NYSE:IAG): Already a mid-tier gold miner — one that produced more than 960,000 ounces of gold in 2010 -- growth-oriented IAMGold is poised to significantly increase its production over the next few years as new development projects come on line; these include the Essakane mine in Burkina Faso, which started production in June 2010, and the Westwood project in Quebec, which expects to do the same in 2013. IAMGold is also the third-largest global producer of niobium, an element used in the production of specialty steel alloys; its Niobec mine in Canada produced enough of the element in 2010 to help fund many of the firm’s development projects. The stock trades at $21.74 a share.
SPDR Gold Shares (NYSEARCA:GLD): As the largest exchange-traded vehicle offering exposure to physical gold bullion, GLD offers investors the price performance of gold, minus administrative costs, as this is a direct investment in the underlying commodity, not in equity or derivative securities. While not the only such vehicle on the market, GLD’s healthy trading volume could lead to lower bid-ask spreads when compared to competing gold ETFs, reducing the uncertainty when investing. And since GLD’s bullion is held in London vaults under the custody of HSBC Bank USA, investors are spared any headaches regarding the transportation and storing of the commodity. Representing one-tenth of an ounce of bullion at current market prices, each share currently trades for $139.20.
Gold Fields Limited ADR (NYSE:GFI): As the fourth-largest gold producer in the world, Gold Fields produced more than 3.8 million ounces in fiscal 2010 and holds a reserve of 78 million ounces (as of June 2010). Trading at $17.54 a share, this prolific production will only increase once the firm’s South Deep mine in South Africa, acquired from Barrick (NYSE:ABX) in 2006, reaches its full production potential of 800,000 ounces per year by 2014. While deep hard-rock mines like South Deep are difficult to mine and have high extraction costs, investors need not be concerned now that Gold Fields has started to diversify its mining base by taking on smaller projects like Peruvian copper and gold mine Cerro Corona, which began operations in early 2009 and marks GFI’s first foray into polymetallic deposits. Also of note: GFI does not hedge its production and is fully exposed to higher gold prices. Good thing the firm has so much gold to mine.
Harmony Gold Mining Co. Ltd. ADR (NYSE:HMY): While the entire South African mining industry watched cash costs in South Africa increase year over year due to the strengthening of the rand versus the dollar in 2010, Harmony Gold Mining experienced a smaller increase (12%) than the industry average due mostly to its shuttering of high-cost shafts in favor of funding production elsewhere, like in Papua, New Guinea, the site of its Morobe joint venture with Newcrest Mining (OTCPK:NCMGY). Morobe has already yielded one producing mine, Hidden Valley, which is projected to generate an average of 250,000 ounces per year for 14 years, and the new Wafi-Golpu project (also part of the Morobe venture) just reported excellent drilling results as well. Wafi-Golpu’s world-class size and high ore grades add significant value for Harmony, which hopes to define 30 million ounces of gold there -- an aggressive target validated by the aforementioned drilling results. Even without the Morobe venture, Harmony boasts large gold reserves and generally long mine lives, ensuring sustained gold production for years to come. The company produced 1.5 million ounces in 2010 and currently trades for $15.22 a share.
Apache Corporation (NYSE:APA): This Houston-based oil and gas provider, currently trading at $129.98 a share, is one of the largest independent exploration and production companies in the world, and is among the leading mid-majors due in large part to its balanced portfolio of onshore and offshore oil and gas properties across the globe, as well as its patient and deliberate approach to growth. Often taking advantage of buyers’ markets, Apache excels at acquire-and-exploit strategies, as can be seen in the recent announcements for $8 billion in combined asset purchases from BP (NYSE:BP) and Devon (NYSE:DVN) and a $4 billion merger with Mariner Energy (ME), a deal that establishes Apache as a major deep-water player in the Gulf of Mexico. Conversely, Encana (NYSE:ECA) just announced the purchase of a 30% stake in Apache’s and EOG Resources’ (NYSE:EOG) liquefied natural gas terminal, Kitimat, in British Columbia, but Apache still holds a 50% share of the facility and, with Encana’s help, the odds of a 2015 production-start increase.
Goldcorp Inc. (NYSE:GG): This fast-growing gold producer produced 2.5 million ounces of gold in 2010, ended the year with more than 38% revenue growth and then set a goal to increase production in 2011 by 7-8%. Starting with a single mine called the Red Lake in Canada, Goldcorp now owns 16 properties in North and South America, which provide the company with ample low-cost projects in politically stable jurisdictions and help add to its 3.42 million ounces in reserves. With Red Lake — in production since the 1940s — continuing to be a high-grade, low-cost asset to the tune of 623,000 ounces a year (at a cash cost of $288/oz.), and newer mines like Penasquito in Mexico, which is expected to produce 500,000 ounces annually, it comes as no surprise that the company has targeted a five-year, 50% increase in its annual production. Fully exposed to higher gold prices, shares currently trade for $49.23.
AngloGold Ashanti Limited ADR (NYSE:AU): If gold prices continue to be bullish, shareholders of AngloGold will be thankful that the company closed its hedge book in October 2010, removing the 8-10% discount to spot gold prices. Now fully exposed, investors only need to make sure the company produces. With gold mines throughout the world and 71.4 million ounces in reserves, AngloGold should have no problem doing so. Shares can be had for $48.85 a piece.
Devon Energy Corporation: Driven by the desire to “rightsize” an unmanageable opportunity set and reduce debt, Devon began strategic repositioning in late 2009 and began offloading certain international and offshore assets. Now able to focus on its highest-return opportunities, production is already picking up. Cana-Woodford, a liquid rich gas field in Oklahoma, expects production to triple by 2012, and the company’s holdings in the Permian Basin expect average daily production to grow 50% over the next two years. Oil sands properties in the Athabasca sands of Alberta -- including the Jackfish complex and a 50/50 joint venture with BP called Pike -- are also set to increase production. Jackfish has been producing since 2007, and Devon expects oil from Jackfish 2 some time this year. First production from Jackfish 3 and Pike are expected by 2015. Bill Gates is also a shareholder. The stock trades for $92.00 a share.
Occidental Petroleum Corporation (NYSE:OXY): Having built its business atop the powerful foundation of enhanced oil-recovery techniques, Occidental Petroleum continues to expand production by identifying fields with modest decline rates, acquiring them, and then recovering the remaining resources with said cost-effective techniques. The ability to take advantage of these distressed assets has helped the company increase production and add to reserves at a time when other energy companies are unable to do so. Now, as new drilling techniques continue to emerge and oil prices climb, Oxy has begun to exploit nontraditional, previously uneconomical plays on company owned land. Adding to its good fortune, Oxy has enjoyed recent exploratory success as well. In Kern County, CA, the company discovered 500 million barrels of oil, and claims to have 50 similar prospects. This discovery will probably lead to future low-cost production in California, which should see accelerated production starting in 2011. Goldman Sachs mutual funds are also shareholders. Shares trade for $104.30.
Eldorado Gold Corp (NYSE:EGO): Already boasting low production costs and healthy growth, this mid-tier gold miner can brag even more now that it is the only major Western gold miner operating in China, the largest gold-producing country in the world. Eldorado Gold, which trades at $15.89 a share, gained entry into China with the construction of the Tanjianshan mine (which came on line in 2007), and took a comfortable seat next to China’s fireplace after purchasing Sino Gold for $1.9 billion. Now the proud owner of three Chinese gold mines, Eldorado is already on track to add a fourth. The company recently resumed construction on the Eastern Dragon project and plans to start gold production there in late 2012. Along with the company’s flagship mine in Turkey, Eldorado should see a significant boost in production over the next several years.