Paulson’s judgment on gold has proved accurate until recently — 2011 marked its tenth consecutive annual increase, its longest historical bull-run. Typically it acts as a safe haven, gaining when uncertainty abounds elsewhere, but it did not trade above its record $1,920 per ounce price it reached in the third quarter. Turmoil in Europe and US dollar appreciation against the euro muted its growth in the fourth quarter. Nevertheless, the price went up 11 percent over 2011.
It appeared that Paulson’s view on gold had finally changed in the third quarter of 2011. He had not touched his initial 2009 investment in the SPDR Gold Trust (GLD) since making it until he sold 11,226,460 shares that quarter. At $166 per share, the value of the transaction was $1.9 billion, for a profit of $853 million. Paulson could either have been less confident in gold or taking profits in one of his only funds that was up in his particularly painful year — his Paulson advantage fund was down 32.57 percent at the third quarter’s end, and his gold fund was up slightly more than 1 percent.
The next quarter, he trimmed his gold SPDR holding one more. He sold 2,962,588 shares of the ETF at roughly $164 per share, for a gain of $219 million. He is still the largest investor in the trust.
The fourth quarter proved that Paulson is in fact still enthusiastic about gold. "By the time inflation becomes evident, gold will probably have moved, which implies that now is the time to build a position in gold," Paulson said in a letter to investors obtained by Bloomberg.
He increased his holdings in gold companies in the fourth quarter accordingly. Gold stocks he found attractive in the fourth quarter are: Novagold Resources (NG), Randgold Resources (NASDAQ:GOLD), Iamgold Corp. (NYSE:IAG), Barrick Gold Corp. (NYSE:ABX), Agnico Eagle (NYSE:AEM) and International Tower Hill (THM).
The two stocks he sold are African-based Anglogold Ltd. (NYSE:AU) and Gold Fields (NYSE:GFI).
Anglogold Ashanti Ltd. (NYSE:AU)
Anglogold Ltd. is a mining company formed in 2004 through a merger. In January 2011 it was named the world’s “Most Irresponsible Company” by the Public Eye Awards. The company’s revenue recently jumped from $3.8 billion in 2009 to $5.3 billion in 2010, with a trailing 12-month revenue of $6.7 billion. It has had earnings and EBITDA losses for 2007 to 2009, though both turned positive in 2010. In 2007 and 2009 its cost of goods sold exceeded its revenue. Cash flow has been lean, with a 10-year record loss of $1.9 billion in 2010.
Most recently, in the year ended Dec. 31, 2011, Anglogold Ashanti produced record adjusted earnings of $1.3 billion, up 65 percent from 2010, and increased its dividend 141 percent to 49 cents. Its reserves also grew 6 percent and resources grew 5 percent. It used its strong free cash flows to cut its debt in half, to $610 million. Production for the year declined four percent, in line with November guidance.
Paulson still owns 34,290,702 shares of the company after selling several million over the last three quarters. It is still one of his largest holdings, comprising 10.5 percent of his portfolio.
Gold Fields (NYSE:GFI)
Gold Fields is Africa’s second-largest gold producer. It has grown its revenue per share at a rate of 10.3 percent over the last ten years and EBITDA at 15.5 percent, though free cash flow has been negative for most of the decade, and turned positive at $133 million in 2011.
In January the company announced that it would expect 1.9 percent lower production than expected as a result of power outages in Ghana and slower million in Tarkwa due to due to complications there. In South Africa, production was lowered due to repairs and other issues, and production in Peru was adversely affected by a lower copper price relative to the gold price in the fourth quarter. Actual results were released in February which showed that the company produced a fourth-quarter profit of $336 million. It also produced 883,000 ounces in the quarter, compared to 898,000 ounces the fourth quarter of 2010.
The company is also in discussions with Ghana’s government over a proposed increase in the tax regime for the country’s mining industry.
George Soros and PIMCO also increased their exposure to gold in the fourth quarter of 2011.
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