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Gold stocks, as represented by the Market Vectors Gold Miners ETF (NYSEARCA:GDX), have been weak in the last six months, with the index over 27% below the highs that it set in September of last year, and many gold stocks trading 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 legendary or guru fund managers, such as Warren Buffet, George Soros, Carl Icahn, Steven Cohen and Mario Gabelli, that are well-known for their savvy in picking winning stocks year after year. Taken together, these guru managers are slightly bearish on gold mining companies in general, cutting a net $13 million in Q4 from their $7.18 billion prior quarter holdings in the group (for more general information on these guru funds, please look at the end of the article).

The following are the small-cap and mid-cap gold mining companies that these guru fund managers are most bullish about, that also trade at a discount to the peers in their group (see Table):

Agnico Eagle Mines Ltd. (AEM): AEM is a Canadian company engaged in the production, development and exploration of gold in Canada, U.S., Finland and Mexico. Guru funds together added a net $55 million in Q4 to their $177 million prior quarter position in the company, and taken together guru funds hold 4.0% of the outstanding shares. The top buyers were Arnhold & S Bleichroeder Advisers ($78 million), also the top holders at $156 million.

AEM shares have been slashed by nearly 50% over the past year, while earnings have continued to rise from 69c in 2009 to $1.97 in 2011, and projected by analysts to rise to $2.42 by 2013 at a respectable annual growth rate of 10.8%. As a result, its shares are undervalued, trading at 14-15 forward P/E and 1.7 P/B compared to averages of 20.5 and 4.7 for its peers in the gold mining group.

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. Guru funds together added a net $5 million in Q4 to their $48 million prior quarter position in the company, and taken together guru funds hold 2.1% of the outstanding shares. The top buyer was Dreman Value Management ($8 million), and the top holders were Dreman ($29 million) and guru Charles Royce's small-cap focused mutual fund company Royce & Associates ($19 million).

AUQ reported a good Q4 at the end of March, beating earnings estimates (31c v/s 14c), with revenues higher year-over-year by 118% to $154.8 million. Also, at the end of March, the company guided production targets, cash costs and capital expenditures for 2012 through 2014. The shares have been flat since the report, and trade at a current 9.0 P/E and 1.1 P/B, compared to averages of 17.3 and 1.9 for its peers in the gold mining group.

Harmony Gold Mining (HMY): HMY is a South African gold mining company. Guru funds together added a net $3 million in Q4 to their $248 million prior quarter position in the company, and taken together guru funds hold 5.7% of the outstanding shares. The top buyer was Arnold & S Bleichroeder ($3 million), also the top holder at $234 million. HMY shares have dropped off over 12% YTD, and are down about 30% in the past year, trading at a current 17.0 P/E and 1.1 P/B compared to averages of 17.3 and 1.9 for its peers in the gold mining group, while earnings are projected to explode from 32c in 2011 to 92c in 2013.

The following are some additional small and mid-cap gold mining stocks that guru funds accumulated in Q4 (see Table):

  • 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 guru funds together added a net $34 million in Q4 to their $229 million prior quarter position in the company;
  • New Gold Inc. (NGD), a Canadian mining company engaged in the exploration of gold, silver and copper in Brazil, Australia, Mexico, Canada and Chile, in which guru funds together added a net $17 million in Q4 to their $287 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 guru funds together added a net $6 million in Q4 to their $43 million prior quarter position in the company;
  • 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 guru funds together added a net $1 million in Q4 to their $149 million prior quarter position in the company; and
  • Royal Gold Inc. (RGLD), that owns and manages royalty interests in precious metal, mainly gold and silver, in 14 countries, in which guru funds together added a net $1 million in Q4 to their $83 million prior quarter position in the company.

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

  • 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 guru funds together cut a net $9 million in Q4 from their $877 million prior quarter position in the company;
  • Randgold Resources ADR (GOLD), that is engaged in the exploration and development of gold properties primarily in Mali and Cote D'Ivorie, in which guru funds together cut a net $5 million in Q4 from their $266 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 guru funds together cut a net $2 million in Q4 from their $37 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 guru funds together cut a net $1 million in Q4 from their $18 million prior quarter position in the company;
  • Jaguar Mining Inc. (JAG): JAG is a Canadian company engaged in the exploration, development and extraction of gold in Minas Gerais, Brazil, in which guru funds together cut out completely in Q4 their $1 million prior quarter position in the company; and
  • Golden Star Resources (GSS), a Canadian International gold mining and exploration company producing gold in Ghana, West Africa, in which guru funds together cut out completely in Q4 their $1 million prior quarter position in the company.

Table


(Click to enlarge)

General Methodology and Background Information: The latest available institutional 13-F filings of over 85+ legendary or guru hedge fund and mutual fund managers, such as Warren Buffet, George Soros, Carl Icahn, Steven Cohen and Mario Gabelli, were analyzed to determine their capital allocation from among different industry groupings, and to determine their favorite picks and pans in each group. The hedge fund and mutual fund managers included in this select group include only high profile names who by virtue of their long-term market-beating returns have earned their standing in the investment community and are worthy of our attention. They include well-known names such as those mentioned above, as well as perhaps relatively lesser-known names that also have a stellar long-term history of beating the markets, such as Seth Klarman, John Griffin, Prem Watsa, Robert Karr and Lee Ainslie. Each guru has been carefully selected based on their long-term performance and standing in the investment community. Furthermore, the credentials of most of the 85-odd guru funds that justify their inclusion in this elite group were detailed in our previous articles that can be accessed from our author page

These legendary or guru fund managers number less than one percent of all funds and yet they control over ten percent of the U.S. equity discretionary fund assets. The argument is that institutional investors have the resources and the access to information, knowledge and expertise to conduct extensive due diligence in informing their investment decisions. When high alpha generating or guru Institutional Investors by virtue of their fund performance, low volatility and elite reputation in the investment community, invest and maybe even converge on a specific investment idea, the idea deserves consideration for further investigation. The savvy investor may then leverage this information either as a starting point to conduct his own due diligence or even go as far as constructing a model diversified portfolio based on the guru funds best picks.

This article is part of a series on institutional holdings in various industry groups and sectors, and other articles in the series for this and prior quarters can be accessed from our author page.

Credit: Fundamental data in this article were based on SEC filings, 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: Top Undervalued Small And Mid-Cap Gold Mining Picks Of Fund Managers