Toronto-based hedge and mutual fund company Sprott Asset Management LP, with over $10 billion in assets under management, including $890 million in equity assets per its most recent SEC 13-F filing for the September 2011 quarter, 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. that 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 over 21% annualized return since inception in November, 2007 versus less than 2% for the S&P 500 during the same period.
The fund holds a moderately diversified equity portfolio of just under 100 positions, with over two-thirds of its holdings in gold and silver stocks, and another 18% mostly in silver and gold funds in the Market Vectors, iShares, and SPDR index funds, another 5% in energy stocks, and the remaining 10% in other sectors. Also, over two-thirds of its holdings are in small-cap and micro-cap equities, another 20%-25% are in mid-caps, and large-caps account for the remaining 10%.
Based on a review of the latest Q3 SEC 13-F filing, we determined that Sprott is bullish on the following stocks that are also trading at a discount compared to their peers (see Table):
Coeur d'Alene Mines Corp. (CDE): Coeur d'Alene is engaged in the exploration and development of silver and gold mines in the U.S., Mexico, South America, and Australia. At $33 million, this was Sprott's largest buy in Q3, adding to its $2 million prior quarter position. Coeur d'Alene is undervalued, trading at a current 9-10 P/E on a TTM basis, and at 1.0 P/B, compared to averages of 18.1 and 2.9 respectively for its peers in the silver mining group, while earnings per share are projected to explode from 44 cents in 2010 to $3.26 in 2012.
Hecla Mining Co. (HL): Hecla is engaged in mining and development of gold, silver, zinc and lead properties in the U.S. and Mexico. Sprott added $8 million in Q3 to its $10 million prior quarter position. Hecla shares have been among the weakest this past year, down 54% in 2011, and the stock trades at a discount 10-11 current P/E and 1.3 P/B compared to averages of 18.1 and 2.9 respectively for its peers in the silver mining group, while earnings per share are projected to grow at a 41.4% annual rate from 29 cents in 2010 to 58 cents in 2012.
Canadian Natural Resources Ltd. (CNQ): Canadian Natural Resources is engaged in oil and gas exploration and production in western Canada, the North Sea and offshore West Africa. It is one of the few major non-precious metals positions in Sprott's portfolio, as it added a new $7 million position in Q3. Canadian Natural Resources trades at a discount 10-11 forward P/E and 1.9 P/B compared to averages of 15.8 and 1.5 respectively for its peers in the Canadian oil & gas exploration & production group, while earnings are projected to increase strongly at 28.4% annual growth rate from $2.28 in 2010 to $3.76 in 2012.
The following are some additional gold & silver mining companies that Sprott is bullish about, but that are trading at a premium to the average valuation for the group (see Table):
Allied Nevada Gold Corp. (ANV): Allied Nevada Gold is engaged in the exploration, acquisition, development and operation of gold properties in Nevada. At $28 million, this was Sprott's second largest buy in Q3, adding to its $3 million prior quarter position. Allied Nevada Gold trades at a premium 18-19 forward P/E and 5.3 P/B compared to averages of 12.0 and 3.6 respectively for its peers in the gold mining group, while earnings are projected to rocket up from 27 cents in 2010 to 40 cents in 2011 to $1.77 in 2012.
First Majestic Silver (AG): First Majestic is a Canadian company engaged in the mining and acquisition of silver properties in Mexico. At $22 million, this was Sprott's third largest buy in Q3, adding to its $61 million prior quarter position. First Majestic trades at a premium 18.4 current P/E and 5.4 P/B compared to averages of 18.1 and 2.9, respectively, for its peers in the silver mining group. Earnings are projected to explode from 37 cents in 2010 to $1.78 in 2012.
The following are gold and silver mining companies that Sprott is bearish about (see Table):
Barrick Gold Corporation (ABX): Barrick Gold is a Canadian company engaged in the production of gold and copper in Peru, Canada, U.S., Australia, Chile, and five other countries. Sprott cut $4 million in Q3 from its $45 million prior quarter position. Barrick Gold is undervalued, trading at a discount 8 forward P/E and 2.0 P/B compared to the average of 12.0 and 3.6 respectively for its peers in the gold mining group. Earnings are projected to increase from $3.33 in 2010 to $6.01 in 2012, at an annualized growth rate of 34.7%.
Yamana Gold Inc. (AUY): Yamana Gold is a Canadian company engaged in the exploration and development of gold properties in South America and Mexico. At $10 million, this was Sprott's largest sell in Q3, from an $18 million prior quarter position. Yamana trades at a fair 12 forward P/E compared to the 12.0 average for the gold mining group. Earnings are projected to rise strongly from 59 cents in 2010 to $1.28 in 2012 at an annualized growth rate of 47.3%.
Eldorado Gold Corp. (EGO): Eldorado is a Canadian company acquiring, exploring and producing gold and mineral properties in Turkey, China, Brazil and Greece. Sprott cut $6 million in Q3 from its $19 million prior quarter position. Eldorado trades at a premium 13.4 forward P/E and 2.4 P/B compared to averages of 12.0 and 3.6 respectively for its peers in the gold mining companies, while earnings are projected to grow at a strong 65.8% from 40c in 2010 to $1.10 in 2012.
Table (Click to enlarge)
Note to Table: The companies selected to be included in both the Top Buys and Sells and Top Holdings categories in the Table were picked on both an absolute basis, i.e. the highest dollar amounts of buys and/or sells, as well as those amounts relative to their market-cap. That way, the list is not biased towards the largest companies in the group.
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.
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.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.