This Hedge Fund is Betting Big on Mining Stocks and Here Are Its Top Picks

David Iben‘s Kopernik Global Investors is a Tampa, Florida-based equity management firm founded by Iben in July 2013. Prior to founding Kopernik, Iben served as a director and head of the Global Value team at Vinik Asset Management. Before joining Vinik Asset Management in July 2012, Iben co-founded and served as the lead portfolio manager and CIO of the firm Tradewinds Global Investors, LLC, which boasted assets under management of $38 billion until the time Iben left. Given that Kopernik Global Investors recently filed its 13F for the reporting period of September 30 (the fund has an equity portfolio value of around $478 million), let’s take a look at the firm’s top mining picks, which include Kinross Gold Corporation (USA) (NYSE:KGC), Barrick Gold Corporation (USA) (NYSE:ABX), Cameco Corporation (USA) (NYSE:CCJ), Turquoise Hill Resources Ltd (NYSE:TRQ), and Goldcorp Inc. (USA) (NYSE:GG). 

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We pay attention to hedge funds’ moves because our research has shown that hedge funds are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received. We have been tracking the performance of hedge funds’ 15 most popular small-cap stock picks in real time since the end of August 2012. These stocks have returned 102% since then and outperformed the S&P 500 Index by around 53 percentage points (see more details here). That’s why we believe it is important to pay attention to hedge fund sentiment; we also don’t like paying huge fees.

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

Shares held (as of September 30): 1.9 million
Total Value (as of September 30): $23.79 million
Percent of Portfolio (as of September 30): 4.98%

Kopernik Global Investors increased its position in Goldcorp Inc. (USA) (NYSE:GG) by 219% in the third quarter to 1.9 million shares. Despite the Federal Reserve beginning to normalize interest rates potentially beginning in December, there are still plenty of reasons to own gold, as there are many geopolitical hot spots around the world. Analysts are optimistic on the company’s prospects, as 13 analysts have ‘Buy’ ratings and three have ‘Hold’ ratings. Together, the analysts have an average price target of $21.52. First Eagle Investment Management owned 38.11 million shares at the end of June.

#4 Turquoise Hill Resources Ltd (NYSE:TRQ)

Shares held (as of September 30): 9.33 million
Total Value (as of September 30): $23.8 million
Percent of Portfolio (as of September 30): 4.98%

Gold and copper producer Turquoise Hill Resources Ltd (NYSE:TRQ) has had an up-and-down year as sentiment has changed from optimistic to controlled. The company is very sensitive to commodity prices, which have weakened due to a slowing Chinese economy. Investors are optimistic, however, as CIBC World Markets analyst Tom Meyer thinks Rio Tinto plc (ADR) (NYSE:RIO) will “almost certainly” acquire 100% of Turquoise one day. Rio Tinto currently owns more than half of the company. In the long run, low commodity prices will cure low commodity prices and gold and copper prices will rebound.

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

Shares held (as of September 30): 8.09 million
Total Value (as of September 30): $51.47 million
Percent of Portfolio (as of September 30): 10.77%

Kopernik Global Investors raised its stake in Barrick Gold Corporation (USA) (NYSE:ABX) by 30% in the third quarter to over 8 million shares. While gold producers have not done well this year, Barrick Gold Corporation is trading at an attractive forward P/E of 15.43 versus the S&P 500’s forward PE of 18.75. If inflation picks up or conflict in the Middle East breaks out, look for gold spot prices and Barrick Gold Corporation to do a lot better. Jim Simons‘ Renaissance Technologies owned 14.03 million shares of Barrick Gold Corporation at the end of June.

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

Shares held (as of September 30): 30.98 million
Total Value (as of September 30): $53.28 million
Percent of Portfolio (as of September 30): 11.15%

Analysts are divided on Kinross Gold Corporation (USA) (NYSE:KGC), as four analysts have ‘Sell’ ratings and three have ‘Buy’ ratings. Seven others have ‘Hold’ ratings. Although the company’s shares are down 37% year-to-date on the back of weaker gold prices, Kinross still has some fans in the hedge fund community, as 23 funds (of the around 730 funds we track) were long $227.77 million of Kinross Gold Corporation (USA) (NYSE:KGC) shares at the end of June, which was equal to 8.60% of the float.

#1 Cameco Corporation (USA) (NYSE:CCJ)

Shares held (as of September 30): 6.3 million
Total Value (as of September 30): $76.63 million
Percent of Portfolio (as of September 30): 16.03%

Cameco Corporation (USA) (NYSE:CCJ) is Kopernik Global Investors top mining pick, as the fund has a 6.3 million share holding worth over $76 million as of the end of September. Cameco has recently reported mixed third quarter earnings, with EPS of $0.20 on revenues of $649 million, missing profit estimates by $0.11 but beating revenue expectations. Given the forward P/E of 11.9 and dividend yield of 2.35%, shares look attractive. Look for shares to rebound strongly if crude or uranium ore prices rise. Among the long holders in the second quarter was George Soros‘ Soros Fund Management.

Disclosure: none