Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
The price of gold has been relatively subdued so far this year. After finishing 2011 at $1,531 an ounce, the precious metal trades modestly higher near $1,600. Over the past three months, gold has been in a tight trading range between $1,540 and $1,640. However, several well-known hedge funds recently made large moves regarding the safe-haven asset.
Late Tuesday, many institutional investment managers filed their mandatory 13-F with the Securities and Exchange Commission. The 13-F is a quarterly report of equity holdings required by managers that oversee more than $100 million in qualifying assets. The form must be filed within 45 days of the end of each quarter. The 13-F provides a peek at what hedge funds did in the previous quarter, but investors should keep in mind that hedging and trading strategies of each fund are still unknown.
Listed below are details on how popular hedge funds invested in gold names in the second quarter of 2012:
Billionaire fund manager John Paulson is known for betting against subprime mortgages during the housing bubble, but is also a vocal advocate for gold. Earlier this year, he said in a letter to investors, “By the time inflation becomes evident, gold will probably have moved, which implies that now is the time to build a position in gold.” Some have speculated that his eventual unwinding of SPDR Gold Trust shares would collapse the ETF’s price, but this has yet to occur. In fact, Paulson continues to add to the position. His firm Paulson & Co. Inc. ramped up its stake in the SPDR Gold Trust 26 percent to 21.8 million shares in the second quarter, compared to 17.3 million shares in the previous quarter.
Paulson also increased his stake in NovaGold Resources 12.6 percent to almost 35 million shares in the second quarter, compared to about 32 million shares in the first quarter. The miner is focused on permitting and developing its flagship property, Donlin Gold, one of the world’s largest known undeveloped gold deposits. Meanwhile, Paulson kept his positions in Agnico Eagle Mines, Barrick Gold and IAMGOLD unchanged. Interestingly, Paulson slashed his position in JPMorgan, America’s largest bank, by 78 percent. Paired with his massive exposure to gold, this speaks volumes about his confidence in the financial system.
Don’t Miss: The Mining Industry Welcomes Central Bank QE
George Soros, the billionaire hedge fund manager known for breaking the Bank of England, once claimed that the “ultimate asset bubble is gold.” Apparently, Soros’ management team is suffering from amnesia. His firm nearly tripled its stake in the SPDR Gold Trust to 884,400 shares in the second quarter. The move comes after the firm almost quadrupled its exposure in the ETF during the first quarter, when it reported an increase from 85,450 shares in the fourth quarter to 319,550 shares during the first three months of the year. Soros Management also opened a new position in Freeport-McMoRan Copper & Gold worth $13.1 million and showed a $6 million position in Newmont Mining.
Greenlight Capital’s David Einhorn wrote a piece criticizing the Federal Reserve’s monetary policy earlier this year, relating the central bank to force-feeding someone too many jelly donuts in hopes of a sugar rush. With the Fed maintaining record low interest rates, Einhorn explains, “As a result, I will keep a substantial long exposure to gold, which serves as a jelly donut antidote for my portfolio.” While it is unknown how large of a physical bullion position Einhorn holds, he did scale back in some miners. The hedge fund manager reduced his stake in the Market Vectors Gold Miners ETF to 6 million shares, compared to 7.2 million shares in the prior quarter. He also sold completely out of his Market Vectors Jr. Gold Miners ETF, but increased his position in Barrick Gold by 94 percent to almost 2 million shares worth $73.9 million.
Although many investment firms increased their overall exposure to gold names in the second quarter, Third Point, the hedge fund founded by Daniel S. Loeb, reduced positions across the board. The firm completely sold out of its $10.6 million Barrick Gold position, and reduced its stake in the SPDR Gold Trust to 145,000 shares, compared to 160,000 shares in the first quarter.
Steve Cohen’s SAC Capital Advisors LP closed its position in the SPDR Gold Trust and slashed its stake in Yamana Gold. However, the fund increased its position in AngloGold Ashanti more than fivefold and Kinross Gold nearly fifteen-fold. SAC Capital Advisors also raised its stake in Barrick Gold to 507,030 shares, compared to 119,206 shares in the first quarter.
