Top Small-Cap And Mid-Cap Gold Mining Picks Of The World's Largest Money Managers

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Includes: AUQ, EGO, EXK, GFI, HL, HMY, IAG, MUX, NG, NGD, PAAS, PZG
by: GuruFundPicks

The Market Vectors Gold Miners ETF ($GDX) is down more than 25% below the highs that it set in September of last year, and the Market Vector Junior Gold Miner ETF ($GDXJ) is down over 35%. Also, last week, UBS AG cut its full-year gold forecast 18% to $1,680 per oz, based on signs that the U.S. economic recovery was taking hold, and a lower likelihood that the Fed will add further stimulus. With this, most gold stocks traded lower last month, with many near 52-week lows.

In this article, via an analysis based on the latest available Q4 institutional 13-F filings, we identify the small-cap and mid-cap gold mining companies that are being accumulated and those being distributed by the world's largest fund managers, managing between $50 billion and over $700 billion in 13-F assets. Taken together these mega fund managers control over 35% of the assets invested in the U.S. equity markets, but number just over 30 out of the tens of thousands of funds that invest in the U.S. equity markets. Also, taken together, they are bearish on the gold mining group, cutting a net $1.49 billion in Q4 from their $56.30 billion prior quarter position (for more general information on these mega funds, please look at the end of the article).

The following are the small-cap and mid-cap gold mining companies that these mega fund managers are most bullish about (see Table):

New Gold Inc. (NGD): NGD is a Canadian mining company engaged in the exploration of gold, silver and copper in Brazil, Australia, Mexico, Canada and Chile. Mega funds together added a net $114 million in Q4 to their $574 million prior quarter position in the company, and taken together mega funds hold 15.5% of the outstanding shares. The top buyers were AllianceBernstein ($94 million) and Fidelity Investments ($35 million), and the top holder was Fidelity Investments ($281 million).

NGD trades at a premium 13-14 forward P/E and 2.6 P/B compared to averages of 13.7 and 2.2 for its peers in the mining miscellaneous group, while earnings are projected to grow strongly from 44c in 2011 to 71c in 2013 at an annual growth rate of 27.0%.

Aurico Gold Inc. (AUQ): AUQ, formerly known as Gammon Gold, is a Canadian company engaged in the exploration and development of gold and silver mining properties in Mexico. Mega funds together added a net $72 million in Q4 to their $151 million prior quarter position in the company, and taken together mega funds hold 14.4% of the outstanding shares. The top buyer was Wellington Management ($26 million), and the top holder was Oppenheimer Funds ($52 million).

AUQ last Tuesday reported a good Q4, beating earnings estimates (31c v/s 14c), with revenues higher year-over-year by 118% to $154.8 million. Also, on Wednesday, the company guided production targets, cash costs and capital expenditures for 2012 through 2014. The shares have been flat since the report, currently trading at a discount 7-8 forward P/E, and at 1.4 P/B, compared to averages of 11.2 and 3.6 respectively for its peers in the gold mining group.

Harmony Gold Mining (HMY): HMY is a South African gold mining company. Mega funds together added a net $20 million in Q4 to their $104 million prior quarter position in the company, and taken together mega funds hold 2.6% of the outstanding shares. The top buyer was Fidelity Investments ($18 million), also the top holder at $78 million. HMY trades at a discount 9.8 forward P/E and 1.1 P/B compared to averages of 9.9 and 3.4 for its peers in the gold mining group, while earnings are projected to explode from 32c in 2011 to $1.11 in 2013.

Mega funds based on their Q4 trading activity indicated that they are bearish on the following small-cap and mid-cap gold mining stocks (see Table):

  • Canadian gold mining company Iamgold Corp. (IAG), engaged in the acquisition, exploration and development of gold mines in Africa, South America and Canada, in which mega funds together cut a net $61 million in Q4 from their $906 million prior quarter position in the company;
  • Gold Fields Ltd. (GFI), a South African mining company engaged in the exploration and extraction of gold in South Africa, Ghana, Australia and Peru, in which mega funds together cut a net $71 million in Q4 from their $397 million prior quarter position in the company;
  • Eldorado Gold Corp. (EGO), a Canadian company acquiring, exploring and producing gold and mineral properties in Turkey, China, Brazil and Greece, in which mega funds together cut a net $59 million in Q4 from their $1.78 billion prior quarter position in the company;
  • Hecla Mining Co. (HL), engaged in mining and development of gold, silver, zinc and lead properties in the U.S. and Mexico, in which mega funds together cut a net $25 million in Q4 from their $261 million prior quarter position in the company;
  • Pan American Silver Corp. (PAAS), a Canadian mining company focused on silver, with mining operations in Mexico, Peru, Argentina and Bolivia, in which mega funds together cut a net $20 million in Q4 from their $231 million prior quarter position in the company;
  • Novagold Resources Inc. (NG), a Canadian company engaged in the exploration and development of gold, silver and copper in Alaska and British Columbia, in which mega funds together cut a net $8 million in Q4 from their $86 million prior quarter position in the company;
  • McEwen Mining Inc. (MUX), engaged in the exploration and development of gold, silver and copper in various properties in Nevada, Mexico and Argentina, in which mega funds together cut a net $19 million in Q4 from their $109 million prior quarter position in the company;
  • Endeavour Silver Corp. (EXK), a Canadian company engaged in the acquisition, exploration and development of silver and gold properties in Mexico, in which mega funds together cut a net $16 million in Q4 from their $35 million prior quarter position in the company; and
  • Paramount Gold and Silver (PZG), a Canadian company engaged in the exploration and development of gold, silver and precious metals, in which mega funds together cut a net $8 million in Q4 from their $32 million prior quarter position in the company.

Table

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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.

Disclosure: I am long AUQ.

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.