5 Hot South African Mining Stocks That Hedge Funds Love

One of the major beneficiaries of the rally in commodity prices this year has been mining stocks, especially stocks of those companies that mine precious metal. At the start of 2016, equity markets around the world suffered a ripple effect following a meltdown in Chinese equities, which was caused by a deterioration of economic conditions in the country. Then a few weeks ago, the U.K’s decision to leave the European Union created more havoc on markets around the world.

All of these macro developments and their after-effects have led investors to make a beeline for the yellow metal in the past few months and pushed gold prices to their 3-year high. Since South Africa has been one of the dominant gold producers for a long time, many large publicly-listed gold mining companies are based in that country. In this post, we will take a look at the five most popular South African mining stocks among hedge funds that we track as of the end of the first quarter and discuss  how these stocks have performed of late.

At Insider Monkey, we track around 765 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details).

#5. DRDGOLD Ltd. (ADR) (NYSE:DRD)

 – Hedge Funds with Long Positions (as of March 31): 5

 – Aggregate Value of Hedge Funds’ Holdings (as of March 31): $6.17 million

Let’s start with DRDGOLD Ltd. (ADR) (NYSE:DRD), which was held by five hedge funds in our system on March 31, inching up by one quarter-over-quarter. Of much more significance is the fact that the aggregate value of their holdings in the stock swelled by over 200% during the first quarter. Shares of DRDGOLD Ltd. (ADR) (NYSE:DRD) ended the second quarter up by 47.87% and the first-half of the year up by a sterling 268.75%. That was only the start, as shares have now pushed their year-to-date gains to 340% thanks to continued rally in July. The company recently hiked its dividend by 200% to $0.24 per share, which currently translates into an annual dividend yield of 4.54%. On June 12, analysts at JPMorgan Chase & Co. downgraded the stock to ‘Underweight’ from ‘Neutral’, which does not appear to have been the right call at this point in time. Billionaire Jim Simons‘ Renaissance Technologies upped its stake in DRDGOLD by 31% to 1.2 million shares during the first quarter.

#4. Harmony Gold Mining Co. (ADR) (NYSE:HMY)

 – Hedge Funds with Long Positions (as of March 31): 8

 – Aggregate Value of Hedge Funds’ Holdings (as of March 31): $29.04 million

The number of hedge funds in our system long Harmony Gold Mining Co. (ADR) (NYSE:HMY) increased by one quarter-over-quarter to eight as of March 31, while the aggregate value of their holdings in the stock jumped by almost 100%. Harmony Gold Mining Co. (ADR) (NYSE:HMY)’s stock ended the second quarter with a meager loss of 0.83%. However, thanks to the rally it saw during the first quarter and the gains it has made so far this month, it is currently trading up by 382.26% year-to-date. Earlier this year the company revealed that it is planning to pay off all of its outstanding debt by the end of 2016 and may reinstate its dividend going forward. Several leading analysts and research firms on Wall Street have upgraded Harmony Gold’s stock this month, including analysts at Deutsche Bank, who upgraded it to ‘Buy’ from ‘Hold’ on July 6. Funds that initiated a stake in Harmony Gold during the first quarter included Eric Sprott‘s Sprott Asset Management, which purchased 1.12 million shares.

We’ll check out three more popular South African mining stocks on the next page.

#3. Sibanye Gold Ltd (ADR) (NYSE:SBGL)

 – Hedge Funds with Long Positions (as of March 31): 9

 – Aggregate Value of Hedge Funds’ Holdings (as of March 31): $723.04 million

Moving on, Sibanye Gold Ltd (ADR) (NYSE:SBGL) saw an increase in its popularity among the hedge funds in our database during the first quarter, with the number of shareholders of the stock rising by four to nine, while the aggregate value of their holdings in it increased by a whopping 4,031%. Founded in November 2012, Sibanye Gold Ltd (ADR) (NYSE:SBGL) is currently the largest individual producer of gold in South Africa and one of the ten largest gold producers in the world. In May, The Financial Times reported that the company’s management was thinking about increasing its exposure to platinum by purchasing platinum assets from debt-ridden mining companies. Though shares of Sibanye Gold ended the second quarter down by over 10%, they are currently trading up by over 176% year-to-date. The company currently pays a quarterly dividend of $0.23 per share, which translates into an annual dividend yield of 2.79%.

#2. Gold Fields Limited (ADR) (NYSE:GFI)

 – Hedge Funds with Long Positions (as of March 31): 21

 – Aggregate Value of Hedge Funds’ Holdings (as of March 31): $418.25 million

Amid a 42.24% rise in its stock during the first quarter, the number of hedge funds that we track long Gold Fields Limited (ADR) (NYSE:GFI) increased by five and the aggregate value of their holdings in the company jumped by $347.78 million. While the 77% gain that shares of Gold Fields Limited (ADR) (NYSE:GFI) registered during the first-half of 2016 were extremely good on a standalone basis, they pale in comparison to the gains made by other stocks in this list. On July 8, analysts at Goldman Sachs released a note in which they upgraded Gold Fields’ stock to ‘Buy’ from ‘Neutral’, citing the company’s ability to consistently generate high free cash flows. They also added that despite the rally the stock has seen so far this year, it could continue to rally going forward and the company can also hike its quarterly dividend in the coming months. Funds that boosted their stake in the company significantly during the first quarter included billionaire Cliff Asness‘ AQR Capital Management, which hiked its holding by 3,730% to almost 4.2 million shares.

#1. AngloGold Ashanti Limited (ADR) (NYSE:AU)

 – Hedge Funds with Long Positions (as of March 31): 24

 – Aggregate Value of Hedge Funds’ Holdings (as of March 31): $590 million

The largest South African gold mining company in terms of market capitalization also turned out to be the most popular South African mining stock among the hedge funds in our system as of March 31. During the March quarter, ownership of AngloGold Ashanti Limited (ADR) (NYSE:AU) among those funds increased by five and the combined value of their AngloGold holdings jumped by $261.5 million. However, there were also a few funds that reduced their stake in the company during that time, including John Burbank‘s Passport Capital, which cut its holding by half to 6.34 million shares. AngloGold Ashanti Limited (ADR) (NYSE:AU)’s stock ended the second quarter with a gain of 32% and is currently trading up by 200% year-to-date. Despite this two-fold increase in the stock’s price and the fact that the company is among the most leveraged gold miners, with a debt-to-asset ratio of 38%, a few analysts feel that the stock is still relatively undervalued compared to its peers, as it currently trades at a forward P/E of 19 and price-to-sales ratio of 2.14. On July 6, analysts at Deutsche Bank downgraded the stock to ‘Hold’ from ‘Buy’.

Disclosure: None