Top undervalued gold/silver buys and sells by Sprott Asset management

Toronto-based hedge and mutual fund company Sprott Asset Management LP, with over $10 billion in assets under management, including $890 million in equity assets per its most recent SEC 13-F filing for the September 2011 quarter, was founded in 2000, and is led by Chairman and Chief Investment Officer Eric Sprott. The company was spun-off the asset management business of Sprott Securities, now called Cormark Securities Inc., which Mr. Sprott founded in 1981. The company is also a wholly-owned subsidiary of Sprott Inc. that is a gold- and resource-focused fund manager that has been offering managed accounts since 1981, the Sprott family of mutual funds since 1997 and a family of long/short funds since 2000. Sprott’s lead hedge fund strategy, with $650 million in net assets, has delivered over 21% annualized return since inception in November, 2007 versus less than 2% for the S&P 500 during the same period.

The fund holds a moderately diversified equity portfolio of just under 100 positions, with over two-thirds of its holdings in gold and silver stocks, and another 18% mostly in silver and gold funds in the Market Vectors, iShares, and SPDR index funds, another 5% in energy stocks, and the remaining 10% in other sectors. Also, over two-thirds of its holdings are in small-cap and micro-cap equities, another 20%-25% are in mid-caps, and large-caps account for the remaining 10%.

Based on a review of the latest Q3 SEC 13-F filing, we determined that Sprott is bullish on the following stocks that are also trading at a discount compared to their peers (see Table):

Coeur d’Alene Mines Corp. (CDE): Coeur d’Alene is engaged in the exploration and development of silver and gold mines in the U.S., Mexico, South America, and Australia. At $33 million, this was Sprott’s largest buy in Q3, adding to its $2 million prior quarter position. Coeur d’Alene is undervalued, trading at a current 9-10 P/E on a TTM basis, and at 1.0 P/B, compared to averages of 18.1 and 2.9 respectively for its peers in the silver mining group, while earnings per share are projected to explode from 44 cents in 2010 to $3.26 in 2012.

Hecla Mining Co. (HL): Hecla is engaged in mining and development of gold, silver, zinc and lead properties in the U.S. and Mexico. Sprott added $8 million in Q3 to its $10 million prior quarter position. Hecla shares have been among the weakest this past year, down 54% in 2011, and the stock trades at a discount 10-11 current P/E and 1.3 P/B compared to averages of 18.1 and 2.9 respectively for its peers in the silver mining group, while earnings per share are projected to grow at a 41.4% annual rate from 29 cents in 2010 to 58 cents in 2012.

Canadian Natural Resources Ltd. (CNQ): Canadian Natural Resources is engaged in oil and gas exploration and production in western Canada, the North Sea and offshore West Africa. It is one of the few major non-precious metals positions in Sprott’s portfolio, as it added a new $7 million position in Q3. Canadian Natural Resources trades at a discount 10-11 forward P/E and 1.9 P/B compared to averages of 15.8 and 1.5 respectively for its peers in the Canadian oil & gas exploration & production group, while earnings are projected to increase strongly at 28.4% annual growth rate from $2.28 in 2010 to $3.76 in 2012.

The following are some additional gold & silver mining companies that Sprott is bullish about, but that are trading at a premium to the average valuation for the group (see Table):

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Posted by Silver Guru on Jan 5 2012. Filed under Silver stocks. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry