Eric Sprott is well known in the investment community for his commitment to precious metals investing, and his track record of earning consistently high returns for his precious metals and natural resource-focused hedge funds. His Toronto-based hedge and mutual fund company, Sprott Asset Management LP, has over $10 billion in assets under management, including $848 million in equity assets per its most recent SEC 13-F filing for Q4/2012. 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 fund is heavily concentrated in precious metals stocks, including gold, silver and platinum, that accounted for 74% of its investments in the latest December, 2012, quarter filing. Also, 58% of its holdings are in small-cap and micro-cap equities, 29% are in mid-caps, and the remaining 13% are in large-cap equities.
Sprott's top precious metals pick in Q4/2012 based on position size and change relative to the prior quarter is Primero Mining Corp. (NYSE:PPP), a Canadian gold and silver mining company, with operations in Mexico. Vanguard opened a new 1.58 million share or $10.2 million position in the company, accounting for 1.65% of its portfolio. PPP has been one of the strongest performers lately in the precious metals space, up over 150% from the lows last summer, while the average gold stock as represented by the Market Vectors Gold Miners ETF ($GDX) is down about 5%-10% during that same period.
PPP just announced its 2013 outlook late last month, with Q4/2012 production of 26,300 gold equivalent oz. coming in at the top end of its guidance, and cash costs of $365 per gold oz. v/s its earlier guidance of $384. Furthermore, the company lifted production guidance for 2013, now expected to be up to 17% higher compared to last year, compared to the 9% year-over-year increase in the last quarter. It also projected 200,000 gold equivalent oz. production in 2015, at 80% above the levels recorded in 2012. While PPP stock is up significantly, and is near its all-time highs, it trades at a respectable 12.4x trailing-twelve-month (TTM) earnings, a discount to the industry average of 13.4. Meanwhile, earnings growth has been strong, having doubled in 2012 v/s 2011, and can be expected to continue higher given the projected 80% increase in production in the next three years. We would be buyers on dips, especially if it nears the 200-day moving average near $5.
Besides PPP, Sprott also increased its position in Canadian gold and silver mining company Keegan Resources Inc. (KGN), engaged in exploration in the Republic of Ghana, adding 0.69 million shares to 3.01 million share prior quarter position.
Additional precious metals companies in which Sprott is bullish based on it holding a large position at the end of Q4/2012 included:
- First Majestic Silver (NYSE:AG), a Canadian company engaged in the mining and acquisition of silver properties in Mexico, in which Sprott cut 0.12 million shares from its 4.90 million share prior quarter position.
- Fortuna Silver Mines (NYSE:FSM), a Canadian company engaged in the mining and processing of gold and silver in Peru and Mexico, in which Sprott cut 0.15 million shares from its 8.88 million share 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 Sprott cut 3,033 shares from its 0.78 million share prior quarter position.
- Pretium Resources Inc. (NYSE:PVG), a Canadian company engaged in the exploration and development of gold and silver properties in British Columbia, in which Sprott added 0.14 million shares to its 1.58 million share prior quarter position.
High conviction bearish moves by Sprott in Q4/2012 in the precious metals group included:
- MAG Silver Corp. (MVG), a Canadian company engaged in the acquisition, exploration and development of silver properties in Mexico, in which Sprott sold completely out of its 2.71 million share prior quarter position.
- 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 Sprott cut 0.50 million shares from it 1.68 million share prior quarter position.
- Allied Nevada Gold Corp. (NYSEMKT:ANV), that is engaged in the exploration, acquisition, development and operation of gold properties in NV, in which Sprott cut 0.42 million shares from its 0.95 million share prior quarter position.
- Eldorado Gold Corp. (NYSE:EGO), that is a Canadian company acquiring, exploring and producing gold and mineral properties in Turkey, China, Brazil and Greece, in which Sprott cut 0.45 million shares from its 0.81 million share prior quarter position.
- Barrick Gold Corporation (NYSE:ABX), a Canadian company engaged in production of gold and copper in Peru, Canada, U.S., Australia, Chile, and five other countries, in which Sprott cut 0.09 million shares from its 0.16 million share prior quarter position.
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