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The Toronto-based hedge fund company Sprott Asset Management LP, with $4.5 billion in assets under management, including $1 billion in equity assets was founded in 2000, and is led by Chairman and Chief Investment Officer Eric Sprott. The company was spun-off the asset management business of Sprott Securities, now called Cormark Securities Inc., which Mr. Sprott founded in 1981. The company is also a wholly-owned subsidiary of Sprott Inc., which was taken public on the Toronto stock exchange in 2008. Sprott is a gold- and resource-focused fund manager that has been offering managed accounts since 1981, the Sprott family of mutual funds since 1997 and a family of long/short funds since 2000. Sprott’s lead hedge fund strategy with $650 million in net assets has delivered $21.9% annualized return since inception in November, 2007 versus less than 2% for the S&P 500 during the same period.

The fund holds a diversified portfolio of 142 positions, with 10% each of its holdings in large-caps and in mid-caps, and the remaining 80% in small-cap and micro-cap equities. Its portfolio turnover is 80%, implying an average holding period of fifteen months. Based on the most recent SEC 13-F filing for the March 2011 quarter, we determined that 85%-90% of its portfolio is in the gold and silver industry, and the rest is in minor positions in other sectors and industries.

Sprott added $20 million to its $810 million position in the gold and silver industry. Four attractive buy ideas from its portfolio include Barrick Gold Corp. (ABX), Extorre Gold Mines Ltd. (XG), Silver Wheaton Corp. (SLW) and Eldorado Gold Corp. (EGO). Sprott added its largest new $26 million position in Extorre Gold and added $14 million to its $12 million prior quarter position in Eldorado Gold; it cut $18 million from its $67 million position in Barrick Gold, cut $15 million from its $77 million position in Silver Wheaton (SLW), cut $8 million from its $25 million position in IAMGOLD (IAG), cut $6 million from its $81 million position in First Majestic Silver Corp. (AG), and it dropped its $6 million position in Newmont Mining Corp. (NEM).

Barrick is a Canadian company engaged in the production of gold and copper in Peru, Canada, U.S., Australia, Chile and five other countries. Sprott opened the position in the low-$30s in the beginning of 2009, so the selling of a portion of its position in the mid-$50s last quarter was profit-taking. At $43, ABX has pulled back 25% from its recent highs, and it trades at forward 9 price-to-earnings (P/E) ratio, at the bottom of its historic P/E range, while earnings are projected to rise by 37% to $4.36 in fiscal year 2011. Of the 21 analysts covering the stock, 18 rate it at a buy and three at a hold, with no sell ratings. The stock is also a favorite among leading hedge and mutual fund gurus, including Platinum Investment Management Ltd., First Eagle Investment Management LLC, RS Investment Management, Wintergreen Advisors LLC and Eton Park Capital Management LP.

Extorre is a Canadian mining company engaged in the exploration and development of gold and silver properties in Argentina. The company’s principal property includes the Cerro Morro gold-silver project located in Santa Cruz, Argentina. Cerro Morro has a resource base of 27 million ounces of silver and 550,000 ounces of gold. Sprott added a new $26 million position in Extorre last quarter based on its bullishness on the price of silver, which it expects to reach $50 per ounce. That's more than 50% above current prices.

First Majestic and Silver Wheaton are two more Canadian companies with silver interests that will also benefit Sprott based on the projected bullishness in the price of silver reaching $50 per ounce. First Majestic is a Canadian silver mining company engaged in the mining and acquisition of silver properties in Mexico. It is trading at a projected 10-11 forward P/E while earnings are projected to increase from 34 cents in 2010 to $1.27 in 2011 to $1.66 in fiscal year 2012.

Sprott opened the position in First Majestic in the $15 range at the end of 2010, so the fund's selling in the low- to mid-$20s last quarter was profit-taking. The stock is now back down near Sprott's initial buy point. Furthermore, recent analyst ratings have been at market perform with targets in the $18-$20 range, indicating no upside above current levels.

The position in Silver Wheaton was opened in the $4 range in the summer of 2005, so the selling of a portion of that position in the last quarter in the $40s was just profit-taking. At $31, Silver Wheaton has pulled back 35% from its recent highs, and it trades at 13-14 forward P/E that is about mid-range based on its historic P/E range. Earnings are projected to rise from 84 cents in 2010 to $1.98 in 2011 to $2.27 in 2012. Of the 10 analysts covering the stock, nine rate it at a buy/strong buy and one at a hold, and there are no sell ratings.

Eldorado Gold Corp. (EGO) is a Canadian mining company acquiring, exploring and producing gold and mineral properties in Turkey, China, Brazil and Greece. Eldorado is the only major western gold miner in China, and as such is positioned to capitalize on the largest gold market in the world. Sprott opened the position in the $3-$4 range in the summer of 2005, so the doubling of that position by buying in the high-teens last quarter has high conviction. It trades at a forward 16 P/E, at the bottom of its historic P/E range, while earnings are projected to rise from 37 cents in 2010 to 66 cents in 2011 to 87 cents in 2012 fiscal years.

Of the fifteen analysts covering the company, ten rate it a buy/strong buy, five rate it at a hold and there are no sell ratings; and analyst price targets are in the low- to mid-$20s, up to almost doubling above the current $14 price. The stock is also a favorite among prominent hedge and mutual fund gurus, including Royce & Associates LLC and First Eagle Investment Management LLC.

The following table summarizes Sprott's largest new buys and sells in the gold and silver industry in the latest reported 13-F filing for the March 2011 quarter. It is updated based on any 13-G filings since the end of the quarter.

Table

Company

Ticker

Action

Market Value at end of March 2011 Quarter

Change in Value from Prior Quarter

Percent of Portfolio

Percent Shares Owned

New 13G 5% Ownership Filing Since End of March 2011 Quarter

Claude Resources Inc.

CGR

Add

$20 million

$5 million

1.86%

5.11%

Pacific Rim Mining Corp.

OTCQB:PFRMF

New

$4 million

$4 million

0.33%

10.00%

Top Buys and Sells

Extorre Gold Mines Ltd.

XG

New

$ 26 million

$26 million

2.33%

4.89%

Barrick Gold Corp.

ABX

Cut

$ 49 million

($18) million

4.42%

0.09%

Sprott Resource Lending

SILU

Add

$ 16 million

$16 million

1.44%

5.80%

Silver Wheaton Corp.

SLW

Cut

$ 62 million

($15) million

5.59%

0.40%

Eldorado Gold Corp.

EGO

Add

$ 26 million

$14 million

2.39%

0.30%

IAMGOLD Corp.

IAG

Cut

$ 16 million

($8) million

1.48%

0.20%

First Majestic Silver Corp.

AG

Cut

$ 74 million

($6) million

6.75%

3.39%

Finish Line Inc.

FINL

New

$ 6 million

$6 million

0.55%

0.59%

Newmont Mining Corp.

NEM

Drop

$ 0 million

($6) million

0.00%

0.00%

Swisher Hygiene Inc.

SWSH

New

$ 5 million

$5 million

0.44%

0.47%

Top Holdings

Sprott Physical Silver Trust

PSLV

Cut

$ 268 million

($4) million

24.27%

26.48%

Sprott Physical Gold Trust

PHYS

Cut

$ 101 million

($1) million

9.16%

8.24%

Alexco Resource Corp.

AXU

Cut

$ 67 million

($3) million

6.04%

12.59%

Gammon Gold Inc.

GRS

Add

$ 42 million

$1 million

3.77%

2.31%

MAG Silver Corp.

MVG

Cut

$ 31 million

($2) million

2.85%

4.75%

Brigus Gold Corp.

BRD

Add

$ 23 million

$3 million

2.13%

8.11%

Exeter Resources Corp.

XRA

Cut

$ 22 million

($1) million

1.98%

4.73%

Credit: Historical fundamentals including operating metrics and stock ownership information were derived using SEC filings data, I-Metrix® by Edgar Online®, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.

Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our ‘opinions’ and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.

Source: 4 Buy Ideas From Precious Metals-Focused Hedge Fund Sprott Asset Management