Toronto-based hedge and mutual fund Company Sprott Asset Management LP, with over $10 billion in assets under management, including $850 million in equity assets per its most recent SEC 13-F filing for Q1, 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. The Sprott Hedge Fund LP with $433 million in assets under management has delivered 16.5% annualized return since inception in January, 2000, versus less than 2.4% for the S&P 500 during the same period.
The fund holds a moderately diversified equity portfolio of over 130 positions, with over two-thirds of its holdings in gold and silver stocks, and the rest mostly in silver and gold funds in the Market Vectors®, iShares, and SPDR index funds. Also, about 70% of its holdings are in small-cap and micro-cap equities, and the remaining 15% each are in mid-caps and large-cap equities. Their 13-F assets are slightly up from the $825 million we reported in our earlier coverage of their holdings for the prior quarter.
We analyzed Sprott's gold and silver mining company holdings in its Q1 2012 13-F to determine its highest conviction bets, selecting the largest buys and sells in size, where the buy/sell is also a significant proportion of its prior quarter position in that company. Based on that analysis, the following are its high conviction bullish positions, that are also trading undervalued compared to the peers in their group, and that also pay a high dividend relative to the peers in their group (see Table):
Pan American Silver Corp. (PAAS): PAAS is a Canadian mining company focused on silver, with mining operations in Mexico, Peru, Argentina and Bolivia. Sprott added $9 million in Q1 2012 to its $3 million prior quarter position. Other leading institutions with large bullish bets on PAAS in Q4 (the most recent quarter for which most institutional filings are available) included Oppenheimer Funds, with $53.6 billion in 13-F assets, adding 0.6 million shares to its 1.3 million share prior quarter position, and Renaissance Technologies adding a new 0.4 million share position.
PAAS reported a good Q4 in February, beating earnings and increasing its dividend by 50% to $0.0375/share; its shares trade at a current 8.2 P/E and 1.2 P/B compared to averages of 14.0 and 2.4 for its peers in the silver mining group, while earnings are projected to increase modestly from $2.35 in 2011 to $2.41 in 2013. Also, it pays a dividend yield of 0.8% v/s the 0% average for the group.
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 $2 million in Q1 2012 to its $6 million prior quarter position. Other leading institutions with large bullish bets on Hecla in Q4 (the most recent quarter for which most institutional filings are available) included New York-based Bank of New York Mellon Corp., with over $1.2 trillion in assets under management, adding 2.7 million shares to its 1.6 million share prior quarter position, and basic materials focused Van Eck Associates, with $20.6 billion in 13-F assets, adding 2.0 million shares to its 13.2 million share prior quarter position.
Hecla reported an in-line Q4 in February, and it scheduled to report its next Q1 report on May 9th before the market opens. It has a dividend yield of 1.2% versus the 0% average for its peers, and it also trades at a discount current 8.4 P/E and 1.0 P/B compared to averages of 14.3 and 2.5 for its peers in the silver mining group.
The following are additional gold and silver mining companies that Sprott is bullish about, accumulating shares in them in Q1 2012 (see Table):
- Eldorado Gold Corp. (EGO), a Canadian company acquiring, exploring and producing gold and mineral properties in Turkey, China, Brazil and Greece, in which it added a new $14 million position; and
- Aurico Gold Inc. (AUQ), formerly known as Gammon Gold, a Canadian company engaged in the exploration and development of gold and silver mining properties in Mexico, in which it added $4 million to its $1 million prior quarter position.
The following are Sprott's high conviction bearish picks, among gold and mining companies, based on its Q1 2012 selling activity (see Table):
- 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 it cut $10 million from its $37 million prior quarter position;
- 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 it cut $3 million from its $30 million prior quarter position;
- Kinross Gold Corp. (KGC): KGC is engaged in mining and processing gold, silver, and copper in the U.S., Brazil, Ecuador, Chile and Russia, in which it cut out completely its $3 million prior quarter position;
- 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 it cut $2 million from its $7 million prior quarter position; and
- Yamana Gold Inc. (AUY), a Canadian company engaged in the exploration and development of gold properties in South America and Mexico, in which it cut $1 million from its $2 million prior quarter position.
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.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.