Yet again this quarter, Bruce Berkowitz (Trades, Portfolio) acquired an array of types of embattled Fannie Mae (FNMA, Financial) and Freddie Mac (FMCC, Financial) stock, as congress works out the fates of the two mortgage entities, and decides what investors will receive. Being so deep into this bet, Berkowitz has shown little interest in U.S. corporate stocks, where he formerly concentrated. He did, however, buy shares of one new company in the fourth quarter: Imperial Metals Corp. (TSX:III, Financial).
Berkowitz’s new position is sized at 2,705,300 shares, making up 0.44% of the Fairholme Fund portfolio, and valued around $36.3 million. The company’s shares cost around $14 on average during the quarter.
Imperial Metals Corp. is a British Columbia mining company whose largest shareholder since 1994 has been prominent Canadian businessman Murray Edwards, currently with a 36% stake. The company primarily mines in British Columbia and focuses on base and precious metals.
Recently, the company saw a major uptick in operating results due to the recommencing production of a mine beginning in July 2012 and reaching commercial production in March 2013. For third quarter 2013 revenue jumped to $51.7 million, compared to $29.7 million in third quarter 2012. For full-year 2013, the Sterling mine shipped 7,431 ounces of gold, and is forecast to increase that amount to 8,000 for 2014, making it the company’s third largest gold mine.
Located in northwest Las Vegas, the Sterling gold mine operated from 1980 to 2000, until its main ore deposit became exhausted. Its current mine life after gold operations recommenced in 2012 is expected to be through mid-2014.
For the third quarter, the company also recorded $14.7 million in net income, up from $4.3 million in the 2012 quarter, and $28.6 million in cash flow, up from $11.5 million in the 2012 quarter, primarily due to higher concentrate shipments.
Valuation
Imperial Metals does not appear very inexpensive compared to other base metal stocks. Its price has increased 1,377% in the past five years to a 10-year peak around C$18.31 on Monday. It also has a P/E ratio of 30.7, which is near a one-year high, and a P/S ratio of 5.29, which is near a five-year high. The company trades for more than 3x book value per share of $5.47 at third quarter 2013.
The Global Industrial Metals & Minerals industry is collectively trading on average around 1.18x book value, and 15x earnings.
In addition, the GuruFocus DCF calculator assigns the stock a fair value of $6.34, and the Peter Lynch chart agrees it appears overvalued:
The low predictability of the business, however, may obscure results. Here is the company’s long-term revenue and earnings history:
Miners in general though have enjoyed some degree of rebound this year. The S&P/TSX Global Mining Index (TXGM, Financial), after a fairly steady three-year decline with three-year annual returns of -12.83%, has picked up almost 13% year to date, against the S&P 500’s 0.12% rise.
No other gurus besides the Fairholme Fund (Trades, Portfolio) have purchased the stock.
To see more Bruce Berkowitz (Trades, Portfolio) investing, go to his Fairholme Fund portfolio here. Not a Premium Member of GuruFocus? Try it free for 7 days here!
