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Gold stocks, as represented by the Market Vectors Gold Miners ETF, have been weak this year, with the index down about 14% YTD, and off about 34% below the highs that it set in September of last year, with many gold stocks trading near 52-week lows. In this article, via an analysis based on the latest available Q1 institutional 13-F filings, we identify the small-cap and mid-cap gold and silver mining companies that are being accumulated and those being distributed by the world's largest fund managers.

These mega fund managers, such as Fidelity Investments, Goldman Sachs, BlackRock Inc., Vanguard Group, and 22 others, manage between $100 billion and over $1 trillion each, and together control about 40% of the assets invested in the U.S. equity markets. Together, these mega fund managers are bearish on the gold and silver mining group, cutting a net $300 million in Q1 from their $70.6 billion prior quarter position in the group. Furthermore, overall they are under-weight in the group by a factor of 0.5; that is, taken together, the 25 mega funds have invested 0.9% of their assets in the group, about half of the 1.8% weighting of the gold and silver group in the overall market (for more general information on these mega funds, please look at the end of the article).

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

Royal Gold Inc. (NASDAQ:RGLD): RGLD is engaged in the acquisition and management of precious metal royalties, seeking to acquire existing royalties or to finance projects that are in production or near production in exchange for royalty interests. Mega funds together added a net 2.90 million shares in Q1 to their 14.25 million share prior quarter position in the company, and taken together mega funds held $1.34 billion or 29.2% of the outstanding shares.

The top buyers was mutual fund powerhouse Fidelity Investments, with $555 billion in 13-F assets, that purchased 1.29 million shares. Other large mega fund purchasers included Vanguard Group (0.82 million shares), with $1.7 trillion in assets under management, and Wells Fargo & Co. (0.43 million shares), with $157 billion in 13-F assets. Overall, institutional investors loaded up on RGLD in Q1, adding 1.72 million shares to their 35.29 million share prior quarter position.

In its latest Q3 (March), RGLD reported revenues in-line and missed analyst earnings estimates (44c v/s 46c). Its shares currently trade at 34-35 forward P/E and 2.6 P/B compared to averages of 12.1 and 2.2 for its peers in the gold mining group, while earnings are projected to rise at a strong 31.8% annual rate from $1.29 in 2011 to $2.24 in 2013. Also, revenue is projected to rise at a strong 23.4% annual rate from $216 million in 2011 to $329 million in 2013.

Other small-cap and mid-cap gold and silver companies that mega fund managers are bullish about include:

  • Novagold Resources Inc. (NYSEMKT:NG), that is a Canadian company engaged in the exploration and development of gold, silver and copper in Alaska and British Columbia, in which mega funds together added a net 9.81 million shares to their 13.72 million share prior quarter position in the company;
  • First Majestic Silver (NYSE:AG), that is a Canadian company engaged in the mining and acquisition of silver properties in Mexico, in which mega funds together added a net 1.92 million shares to their 2.95 million share prior quarter position in the company;
  • New Gold Inc. (NYSEMKT:NGD), that is a Canadian mining company engaged in the exploration of gold, silver and copper in Brazil, Australia, Mexico, Canada and Chile, in which mega funds together added a net 2.53 million shares to their 100.54 million share prior quarter position in the company;
  • McEwen Mining Inc. (NYSE:MUX), that is engaged in the exploration and development of gold, silver and copper in various properties in Nevada, Mexico and Argentina, in which mega funds together added a net 7.93 million shares to their 24.58 million share prior quarter position in the company; and
  • Coeur d'Alene Mines Corp. (NYSE:CDE), that is engaged in the exploration and development of silver and gold mines in the U.S., Mexico, South America, and Australia, in which mega funds together added a net 1.00 million shares to their 23.74 million share prior quarter position in the company.

The following are small-cap and mid-cap gold and silver companies that mega funds are bearish about (see Table):

  • Canadian gold mining company IAMGOLD Corp. (NYSE:IAG), that is engaged in the acquisition, exploration and development of gold mines in Africa, South America and Canada, in which mega funds together cut a net 6.27 million shares from their 108.84 million share prior quarter position in the company; and
  • Aurico Gold Inc. (NYSE:AUQ), formerly known as Gammon Gold, that is a Canadian company engaged in the exploration and development of gold and silver mining properties in Mexico, in which mega funds together cut a net 2.20 million shares from their 25.85 million share prior quarter position in the company.

Furthermore, the following are additional small-cap and mid-cap gold and silver companies that are among the top holdings of mega funds in the group (see Table):

  • Harmony Gold Mining (NYSE:HMY), that is a South African gold mining company, in which mega funds together hold 35.08 million or 8.1% of the outstanding shares;
  • Hecla Mining Co. (NYSE:HL), that is engaged in mining and development of gold, silver, zinc and lead properties in the U.S. and Mexico, in which mega funds together hold 56.99 million or 20.0% of the outstanding shares;
  • Nevsun Resources Ltd. (NYSEMKT:NSU), that is a Canadian company engaged in the exploration of gold, copper and zinc in Eritrea in Northeast Africa, in which mega funds together hold 60.64 million or 30.3% of the outstanding shares; and
  • Pan American Silver Corp. (NASDAQ:PAAS), that is a Canadian mining company focused on silver, with mining operations in Mexico, Peru, Argentina and Bolivia, in which mega funds together hold 9.56 million or 6.2% of the outstanding shares.

Table

(click to enlarge)

General Methodology and Background Information: The latest available institutional 13-F filings of the largest 25 mega hedge fund and mutual fund managers were analyzed to determine their capital allocation among different industry groupings, and to determine their favorite picks and pans in each group. These mega fund managers number less than one percent of all funds and yet they control almost half of the U.S. equity discretionary fund assets. The argument is that mega institutional investors have the resources and the access to information, knowledge and expertise to conduct extensive due diligence in informing their investment decisions. When mega Institutional Investors 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.

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.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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: Small And Mid Cap Gold Mining Stocks Being Accumulated By World's Largest Money Managers