Anglogold, Novagold, Randgold: Why Billionaire John Paulson Loves Gold

Anglogold has one of the more robust ROEs and pays a solid dividend. The other great equalizer is Anglogold’s diverse operations. Anglogold has twenty separate operations that span ten countries and four continents. Randgold’s gold operations are only in the volatile continent of Africa. Other gold miners also have much more concentrated operations when compared to Anglogold. Iamgold only runs five operations that span Africa and South America, and Novagold is focused in the United States. Gold Fields is a bit more diversified with operations in South Africa and Australia, and an almost 20% interest in its fellow gold miner Iamgold.

For the past five-year and three-year periods, miners have generally underperformed gold as a commodity. Below are the returns of Paulson’s five gold stocks compared to the SPDR Gold Trust.

Randgold appears to track gold – as measured by the SPDR Gold Trust – the closest and is the only miner up over both a three and five-year horizon. Year to date, GLD is up 8% and Randgold is relatively flat, but Anglogold is down over 20%. The question is: when will investors see a turning point where miners begin to better reflect the commodity’s performance? When owning the miners, investors are still dependent on gold’s spot price, but are also investing in management’s ability to hedge, and the company’s ability to operate efficiently.

We believe that the bull market over the last 10+ years has been exacerbated by the fact that miners have maintained a low level of production. We see increasing demand leading to a higher-level of production, which should help drive the miners to what might result in an outperformance of the commodity. Although Randgold has tracked the commodity the best over the interim, we remain cautious given its concentrated and limited operations – Randgold’s 2011 gold production came in around 700,000 ounces, while Anglogold produced over 4 million ounces – and believe that to better tap the growth potential provided by owning mining stocks, investors should consider Anglogold.