As its name implies, Sun Valley Gold—at least on the equity side—is concentrated on the precious metals market, in companies related to mining, producing and refining. Unfortunately for the fund, a 13F portfolio with nearly all its positions tied to metals most likely hasn’t done too well of late, as metals prices have dropped to 2+ year lows. Of course, 13F filings from the SEC only indicate the long side of the equation, so it’s important not to jump to conclusions.
Still, all of the top five positions in Sun Valley Gold’s equity portfolio are from the gold space, which has been hit particularly hard. In one month alone, the price of gold has fallen by 17%. Another strategy, on the other hand, has beaten the market quite handily.
Let’s see Sun Valley Gold’s five largest equity holdings.
Numero Uno
First of the top five with 5.5 million shares is Kinross Gold Corporation (USA) (NYSE:KGC). Kinross operates gold mines in North and South American, Russia and Africa. Kinross Gold Corporation (USA) (NYSE:KGC) recently reported strong Q4 earnings – EPS rose to $0.24 from $0.22 in Q3 – but this was before things got ugly in the gold market. Since the beginning of the year, the price of gold has fallen 21%, hitting its lowest level in two years, taking Kinross Gold Corporation (USA) (NYSE:KGC) down 50%. The bloodbath in the gold market is disastrous for miners already dealing with cost overruns and project cancellations. Since production costs are rising faster than the price of gold, miners are going to see profits for the Q1 and Q2 of this year evaporate like water on hot tar.
At number two is Stillwater Mining Company (NYSE:SWC), which develops, extracts, processes, refines and markets palladium and platinum from a mine in central Montana as well as recycled catalytic converters. Like Kinross Gold Corporation (USA) (NYSE:KGC), Stillwater Mining Company (NYSE:SWC) is also facing challenges due to the fall in both palladium and platinum, which are down 18% and 21%, respectively from their 2013 highs. Stillwater Mining Company (NYSE:SWC) has lost 32% in its stock price during the same time period. Stillwater’s Q1 production report stated that cash cost per mined ounce rose to $523 from $514 for the same period last year. But as a buffer to the rising cost of mining relative to price of the metal, Stillwater Mining produced 154,200 ounces of recycled palladium, platinum and rhodium compared to 127,000 ounces of mined palladium and platinum.
The big kahuna
Third is Barrick Gold Corporation (USA) (NYSE:ABX), and if there was a ground-zero for the free-fall in the gold market, Barrick Gold Corporation (USA) (NYSE:ABX) would be sitting in the middle of it with a bulls-eye.
The company is the world’s largest gold producer, and if its timing couldn’t be any worse, Barrick Gold Corporation (USA) (NYSE:ABX) is currently in production of two “mega-projects” in the Dominican Republic and another on the border between Argentina and Chile (construction is currently suspended at this site).
So it doesn’t come as much of a shock to see the stock price of Barrick Gold Corporation (USA) (NYSE:ABX) tumble 40% since only the beginning of April, hitting a 4-½ year low of $17.51, translating into a 66% drop in the company’s market value. The company recently reported Q1 earnings, and the news hasn’t been good. Not surprisingly, profits fell 18% and revenue was down 6% due to lower gold prices and low sales volumes. Earnings of $0.85 are down from $1.04 a year ago. Adding salt to the wound is the recent wave of downgrades, including one from Deutsche Bank. Deutsche Bank lowered their Buy rating to Hold and dropped the price target almost in half to $22.50. On the plus side, if the price of gold begins to recover, Barrick Gold Corporation (USA) (NYSE:ABX) is going to look very cheap at $17-$19 a share.
The final two
At number four is Vista Gold Corp. (NYSE:VGZ), also in the gold-mining business, and also down double-digits since the beginning of April at a 2-½ year low of $1.54. Fortunately, the company recently got some good news, compliments of the Northern Territory Government of Australia, which designated Vista Gold Corp. (NYSE:VGZ)’s Mt. Todd gold mine Major Project Status signifying the Northern Territory Government’s support for the timely and responsible development of the Mt. Todd gold project. Vista Gold Corp. (NYSE:VGZ) acquired 100% of Mt. Todd in 2006.
Finally, at number five is AngloGold Ashanti Limited (ADR) (NYSE:AU) another gold mining company with interests also in uranium, silver and sulfuric acid. Because of this diversification, the decline in AngloGold Ashanti Limited (ADR) (NYSE:AU) has been slightly more muted than those recorded for Barrick and Vista, but still significant enough to question the ability of this stock to trade back to the $28.31 high from 10 months ago. And because Anglogold mines most of its gold in Africa, the company has very high production costs that could continue to weigh on growth and cash flows. Currently, AngloGold Ashanti Limited (ADR) (NYSE:AU) has a trailing P/E ration of only 7x versus the industry average of 81x. However, the company also carries a very heavy debt burden coupled with rising production costs that have diminished the company’s bottom line by 50%.
Final thoughts
Any investor that’s been long on these types of stocks most likely faces some very serious challenges for the remainder of 2013, owing entirely to the sudden and significant drop in the price of precious metals, led by gold. Still, as we mentioned above, each of these equities is now rather cheap, for those bullish on a rebound in the near-term. It appears that Barrick Gold Corporation (USA) (NYSE:ABX) is one of the cheapest of the bunch, though a basket of these five stocks wouldn’t be a bad idea for anybody looking to go contrarian at the moment. For a longer look at how your peers have been generating solid market outperformance over the past few months, continue reading here.
Disclosure: none
