Gold stocks, as represented by the Market Vectors Gold Miners ETF ($GDX), have been weak in the last six months, with the index over 25% below the highs that it set in September of last year. Just 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. 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 large-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 large-cap gold mining companies that these mega fund managers are most bullish about (see Table):
Newmont Mining Corp. (NEM): NEM produces gold in the U.S., Australia, Peru, Indonesia, Canada, New Zealand, Ghana and Mexico. Mega funds together added a net $302 million in Q4 to their $8.34 billion prior quarter position in the company, and taken together mega funds hold 34.6% of the outstanding shares. The top buyers were Capital Research Global Investors ($205 million) and Fidelity Investments ($130 million), and the top holders were Capital World Investors ($1.91 billion) and Fidelity Investments ($1.22 billion).
NEM shares have traded weaker ever since the company reported a disappointing Q4 at the end of February, missing analyst earnings estimates ($1.17 v/s $1.27). Its shares currently trade at 9 forward P/E and 2.0 P/B compared to averages of 13.2 and 4.1 for its peers in the gold mining group, while earnings are projected to increase from $4.32 in 2011 to $5.64 in 2013, at an annualized growth rate of 14.3%.
Ivanhoe Mines Ltd. (IVN): IVN is a Canadian company engaged primarily in the exploration of gold and copper mines in central Asia and the Asian Pacific region. Mega funds together added a net $22 million in Q4 to their $1.47 billion prior quarter position in the company, and taken together mega funds hold 12.8% of the outstanding shares. The top buyers was Janus Capital ($18 million), and the top holders were Fidelity Investments ($707 million) and Janus Capital ($337 million).
IVN has historically incurred losses, so P/E is not applicable; however, it trades at a 2.4 P/B ratio compared to the 3.6 average for its peers in the group. U.K.-based mega-cap global mining giant Rio Tinto Plc (RIO) recently acquired additional IVN shares, reaching a 51% stake in the company, a move that IVN's CEO, billionaire Robert Friedland, a well-known name in the sector, sought hard to prevent. Mr. Friedland is currently engaged in a boardroom battle with the mining giant over the future of the IVN's ownership of its Mongolian gold and copper mining resources.
Mega funds based on their Q4 trading activity indicated that they are bearish on the following large-cap gold mining stocks (see Table):
- Freeport McMoran Copper & Gold (FCX), engaged in the exploration and development of copper, gold, silver and molybdenum mines in Indonesia, North and South America, in which mega funds together cut a net $203 million in Q4 from their $10.92 billion prior quarter position in the company;
- Barrick Gold Corporation (ABX), a Canadian company engaged in production of gold and copper in Peru, Canada, U.S., Australia, Chile, and five other countries, in which mega funds together cut a net $199 million in Q4 from their $9.65 billion prior quarter position in the company;
- Goldcorp Inc. (GG), a Canadian company engaged in mining and exploration of silver, copper and gold throughout North and South America, in which mega funds together cut a net $347 million in Q4 from their $6.48 billion prior quarter position in the company;
- Yamana Gold Inc. (AUY), a Canadian company engaged in the exploration and development of gold properties in South America and Mexico, in which mega funds together cut a net $78 million in Q4 from their $2.01 billion prior quarter position in the company;
- Silver Wheaton Corp. (SLW), a Canadian buyer of purchase agreements for silver and gold from mining companies operating in Mexico, Sweden and Peru, in which mega funds together cut a net $142 million in Q4 from their $1.80 billion prior quarter position in the company;
- Kinross Gold Corp. (KGC), engaged in mining and processing gold, silver, and copper in the U.S., Brazil, Ecuador, Chile and Russia, in which mega funds together cut a net $164 million in Q4 from their $1.79 billion prior quarter position in the company; and
- Anglogold Ashanti Ads (AU), a South African gold producer with 20 operations in ten countries on four continents. It also produces silver, uranium oxide, and sulfuric acid, in which mega funds together cut a net $121 million in Q4 from their $1.51 billion prior quarter position in the company.
Of these, mega funds hold an over-weighted 29.7% and 21.7% of the outstanding shares in FCX and ABX, compared to their 19.5% weighting in the group. That combined with the relatively smaller sells in FCX and ABX, compared to their large holdings in the companies at the end of Q4, could also be interpreted that mega funds are more neutral or less bearish on these two companies than the remaining five in the above list where mega funds are also under-weighted in those stocks.
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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.
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