George Soros is one of the greatest investors of all time, there is no doubt about that. His family office, Soros Fund Management, continues to be run like a large hedge fund despite the fact that he returned the capital to outside investors back in 2011. Soros Fund Management’s day-to-day operations are overseen by its current Chief Investment Officer Scott Bessent, but Soros still remains engaged in the fund’s activities. In the following article we will be discussing three mining stocks that were added to Soros’ portfolio during the second quarter. Billionaire George Soros has recently invested in two struggling coal companies: Peabody Energy Corporation (NYSE:BTU) and Arch Coal Inc. (NYSE:ACI). And his decision to go long coal puzzles most of us, as Soros once suggested that coal is the “lethal bullet” for climate change. Even more to that, George Soros has funded the Climate Policy Initiative (CPI) think tank that has been working on limiting the use of coal. Another stock that we’ll be covering is the gold mining company Barrick Gold Corporation (NYSE:ABX).
But why do we track the hedge fund activities? From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect the hedge funds’ activities. There are various reasons behind the low hedge fund returns. Our research indicated that some of hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period hedge funds’ top small cap stocks outperformed the S&P 500 index by double digits annually. The 15 most popular small cap stock picks among hedge funds also bested passive index funds by around 66 percentage points over the 34 month period beginning with September 2012 (read the details here).
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Let’s start with Barrick Gold Corporation (NYSE:ABX), which has seen its stock rise by 7.28% during today’s trading session. George Soros added a position in Barrick during the second quarter and reported owning 1.89 million shares valued at $20.11 million. The stock of Barrick is down by 21% year-to-date, but it seems that it is set for a rebound in the upcoming months. Indeed, higher gold prices have pushed the shares of Barrick higher, but analysts suggest more upside for gold in the future. Specifically, Commerzbank has recently expressed its belief that gold “appears to be in a bottoming-out phase”, but it might take a while until a more persistent recovery occurs. Barrick Gold Corporation has recently posted its financial results for the second quarter, reporting a net loss of $9 million or $0.01 per share, compared to a net loss of $269 million or $0.23 per share reported a year ago. Jean-Marie Eveillard’s First Eagle Investment Management, one of the major shareholders in Barrick Gold Corporation (NYSE:ABX), owns a stake of 40.38 million shares.
Moving on to the coal stocks, George Soros acquired a 1.03 million-share stake in Peabody Energy Corporation (NYSE:BTU) during the second quarter, which is valued at $2.25 million. The company’s stock has lost nearly 76% since the beginning of the year, and it seems that it has already hit the bottom and is heading for a rebound; the stock is up by over 32% today. During the last week, President Obama and EPA announced the Clean Power Plan, which will eventually force the U.S. power plants to dramatically reduce carbon dioxide emissions by 2030. The news put significant downward pressure on the coal industry, forcing the largest coal producers, like Peabody and Arch Coal, to consider filing for bankruptcy. However, researchers have recently concluded that China’s carbon emissions from its coal fired power plants have been significantly overestimated, stating that the types of coal being burned in China produced 40% less carbon than previously-assumed. This might have played an important role in the rebound of the coal industry. During the second quarter, Peabody saw a significant increase of popularity among hedge funds in our database, with 27 funds disclosing positions worth $142.1 million in aggregate, up from 19 funds a quarter earlier. In this way, these investors held around 23.40% of the company’s stock at the end of June. Balyasny Asset Management, founded by Dmitry Balyasny, represents the largest shareholder in Peabody Energy Corporation (NYSE:BTU) within our database, holding roughly 18.40 million shares as of the end of June.
Last but not least, we will take a look at the second-largest coal producer in the U.S., Arch Coal Inc. (NYSE:ACI). Its stock has gained over 49% so far today and is down by 81% year-to-date. George Soros’ fund holds 55,320 shares valued at $188,000, adjusted for the one-for-ten reverse split announced in July. Reportedly, Arch Coal has been recently attempting to find a compromise with its lenders opposing a debt-swap deal, which would help the coal company avoid a bankruptcy filing. Arch Coal might actually offer better terms to the holders of its $1.9 billion loan as an incentive to abandon their opposition to a proposal to swap $2.38 billion of junior-ranking borrowing for new senior obligations, according to Bloomberg. It seems that the market believes that the coal producer will find a compromise, whereas the actual compromise might push the stock even higher. Meanwhile, Douglas Dethy’s DC Capital Partners and Israel Englander’s Millennium Management are amongst the major shareholders of Arch Coal Inc. (NYSE:ACI), owning stakes of 5 million shares and 3.65 million shares, respectively.
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