As Gold Stocks Soar, Here Are The 5 That Hedge Funds Like The Most

Gold has enjoyed a strong and sharp rally since the beginning of 2016, primarily owing to worries and concerns over the state of the global economy and the strong depreciation of some countries’ currencies. The recent volatility and uncertainty across the globe somewhat re-established gold’s status as a safe haven in tumultuous times. The demand for physical gold has been quite high in emerging markets, as numerous currencies such as the Indonesian rupiah and the Malaysian ringgit have depreciated notably against the green buck. What’s more, some analysts believe that the yellow metal is not far removed from a bottoming-out phase, which implies that the odds of seeing significantly lower gold prices is quite limited. Therefore, investors should consider seeking out undervalued and high-potential gold mining stocks. Although the recent rally may turn out to be short-lived, individual investors can hold onto their gold-related holdings for the long-term, with gold prices expected to increase in the coming years due to expected supply/demand factors. Even though the Federal Reserve may raise interest rates by the end of 2016 or early in 2017 (a move that generally puts downward pressure on gold prices given that the yellow metal represents a non interest-yielding asset), gold miners are nonetheless worth examining at this point in time. For that reason, this article discusses the five most-favored gold mining stocks among the pool of hedge funds tracked by Insider Monkey.

At Insider Monkey, we track around 730 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 about our small-cap strategy).

#5 Turquoise Hill Resources Ltd (NYSE:TRQ)

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

– Value of Hedge Funds’ Holdings (as of December 31): $425.21 Million

The hedge fund sentiment towards Turquoise Hill Resources Ltd (NYSE:TRQ) remained unchanged in the fourth quarter of 2015, while the value of hedge funds’ stakes in the company increased ever so slightly quarter-over-quarter. Turquoise Hill Resources is a mining company that relies entirely on its 66% interest in the Oyu Tolgoi copper/gold/silver mine in Mongolia. In December 2015, the company released its 2016 production guidance, which stipulates production of copper in the range of 175,000 to 195,000 tonnes, along with 210,000-to-260,000 ounces of gold in concentrates. Fresh estimates of 2015 production reported that 175,000-to-195,000 tonnes of copper were mined, while 600,000-to-700,000 ounces of gold in concentrates were excavated from the site. The substantial decrease in gold is mainly attributable to mining in lower-grade gold areas and processing lower-grade stockpiled ore. The shares of the mining company are down by 7% over the past 12 months, after having advanced by nearly 10% since the beginning of 2016. Turquoise is set to reveal its fourth quarter and full year 2015 financial results on March 17, which will allow investors to get a better picture of the company’s recent performance. Matthew Halbower’s Pentwater Capital Management owns 116.38 million shares of Turquoise Hill Resources Ltd (NYSE:TRQ) as of December 31.

#4 Kinross Gold Corporation (USA) (NYSE:KGC)

– Hedge Funds with Long Positions (as of December 31): 22

– Value of Hedge Funds’ Holdings (as of December 31): $152.62 Million

The number of hedge funds in our system with stakes in Kinross Gold Corporation (USA) (NYSE:KGC) increased to 22 from 21 during the December quarter, while the value of their holdings in the company grew to $152.62 million from $148.37 million quarter-over-quarter. Kinross Gold is an Ontario-based senior gold mining company that has mines and projects in the United States, Brazil, Chile, Ghana, Mauritania, and Russia. In January 2015, the company announced the completion of its acquisition of 100% of the Bald Mountain gold mine and the remaining 50% of the Round Mountain gold mine in Nevada (Kinross previously owned 50% of this mine) from Barrick Gold Corporation. In early March 2016, Kinross Gold also announced the completion of a bought deal public offering of 83.40 million common shares at a price of $3.00 per unit, which generated roughly $250 million in gross proceeds. The net proceeds from the offering will be used to strengthen the company’s balance sheet and enhance its liquidity position by using $175 million to repay the credit facilities exploited to purchase the aforementioned assets from Barrick Gold. The remaining proceeds are intended to be used for repaying debt maturing in 2016 and covering general corporate expenses. Shares of Kinross Gold are up by 23% over the past 52 weeks, after having skyrocketed by 58% this year. Jim Simons’ Renaissance Technologies upped its stake in Kinross Gold Corporation (USA) (NYSE:KGC) by 13% during the final quarter of 2015, to 33.04 million shares.

#3 Goldcorp Inc. (USA) (NYSE:GG)

– Hedge Funds with Long Positions (as of December 31): 25

– Value of Hedge Funds’ Holdings (as of December 31): $736.53 Million

The smart money sentiment towards Goldcorp Inc. (USA) (NYSE:GG) decreased in the December quarter, as the number of funds with positions in the company dropped to 25 from 29 during the quarter. Similarly, the value of hedge funds’ stakes in Goldcorp declined to $736.53 million from $871.28 million quarter-over-quarter. The gold producer has seen its shares advance by 36% since the beginning of 2016, mainly owing to the recent rally in the price of the yellow metal. The company has undergone serious cost-reduction efforts in the past year or so, which included headcount reductions at corporate and regional offices, workforce reductions at certain mine sites, and capital reductions and productivity improvement at all of its mine sites. Nonetheless, Moody’s Investors Service recently downgraded the gold miner’s unsecured ratings to Baa3 from Baa2 and assigned a negative outlook. This downgrade reflects the deterioration of the company’s profitability and coverage metrics, as well as the rating agency’s expectations of sustained weakness in these metrics through 2016. It should be noted that Goldcorp’s free cash flow for 2015 increased to $335 million from a negative free cash flow of $1.0 billion in 2014, mainly due to lower capital expenditures as major mine construction is now finalized. Israel Englander’s Millennium Management reported owning 7.01 million shares of Goldcorp Inc. (USA) (NYSE:GG) in its 13F for the final quarter of 2015.

#2 Newmont Mining Corp (NYSE:NEM)

– Hedge Funds with Long Positions (as of December 31): 36

– Value of Hedge Funds’ Holdings (as of December 31): $531.85 Million

There were 36 smart money investors with stakes in Newmont Mining Corp (NYSE:NEM) at the end of Decembe, compared with 37 registered at the end of the prior quarter. The value of these investment firms’ holdings dropped to by about 1% from $536.12 million quarter-over-quarter. The gold producer has operations and assets in the United States, Australia, Peru, Indonesia, Ghana, and Suriname. The company also produces copper through the Batu Hijau mine in Indonesia, Boddington in Australia, and Phoenix in the United States. By taking a glimpse at the company’s balance sheet, one can quickly conclude that Newmont Mining has a very healthy financial outlook. The gold producer had cash and cash equivalents amounting to $2.78 billion at the end of December and $6.24 billion in debt, after the company used some of its cash to repay $454 million in debt during 2015. Moreover, the company maintains an unused $3.00 billion corporate revolving credit facility that matures in March 2020. What’s more, Newmont Mining’s net cash provided by continuing operating activities amounted to $2.16 billion in 2015, while capital expenditures reached $1.40 billion. Therefore, the company could keep generating enough cash to further strengthen its balance sheet, make aggressive capital investments, pay dividends, and make new acquisitions. Shares of Newmont have climbed by a whopping 45% since the start of the year. Ken Griffin’s Citadel Advisors LLC trimmed its stake in Newmont Mining Corp (NYSE:NEM) by 42% during the October-to-December period, ending the year with 2.08 million shares.

#1 Barrick Gold Corporation (USA) (NYSE:ABX)

– Hedge Funds with Long Positions (as of December 31): 40

– Value of Hedge Funds’ Holdings (as of December 31): $1.16 Billion

Barrick Gold Corporation (USA) (NYSE:ABX) represents the favorite gold mining stock among the hedge funds tracked by Insider Monkey. Although the hedge fund sentiment towards the stock remained steady in the December quarter, the value of hedge funds’ long positions in Barrick Gold grew to $1.16 billion from $937.59 million quarter-over-quarter. It should also be noted that the 40 funds invested in Barrick at the end of December amassed 13.40% of the company’s outstanding common stock. The world’s largest gold producer recorded positive free cash flow for the first time in four years in 2015 despite facing lower gold prices, generating FCF of $471 million. The company also significantly strengthened its balance sheet in 2015, after reducing its total debt by $3.1 billion or 24%. The company also set a debt reduction target of at least $2 billion for 2016. Barrick Gold Corporation produced 6.12 million ounces of gold in 2015 at all-in sustaining costs of $831 per ounce. The company’s management anticipates producing between 5.0 and 5.5 million ounces of gold in 2016 at all-in sustaining costs in the range of $775 to $825 per ounce. More importantly, Barrick aims to reach all-in sustaining costs of below $700 per ounce by the end of 2019. Let’s not forget to mention that Barrick’s stock has enjoyed an 85% rally since the beginning of 2016. William B. Gray’s Orbis Investment Management owns 19.80 million shares of Barrick Gold Corporation (USA) (NYSE:ABX) as of December 31.

Disclosure: None