Arnold Van Den Berg (Trades, Portfolio) of Century Management drew much notice in the third quarter, when he loaded up his portfolio with mining companies — a group that had plunged in recent years. From its historic peak in September 2011 through the end of 2013, the Market Vectors Gold Miners ETF (GDX) slid by about 67%. This coincided with, though approximately doubled, the fall in gold price, which lost roughly 35% over the same period.
- Warning! GuruFocus has detected 4 Warning Signs with AU. Click here to check it out.
- AU 15-Year Financial Data
- The intrinsic value of AU
- Peter Lynch Chart of AU
The gold miners’ loss in market value attracted Van Den Berg, a highly value-conscious investor. In a Feb. 25 research report, “Inflation, Gold, and Gold Mining Companies,” he wrote that he viewed these miners’ prices as having reached a bottom:
“However, we believe that gold mining companies are trading as if the price of gold is currently $800 to $900 per ounce, which is approximately 28% to 36% lower than the closing price of gold on January 31, 2014, and well within our buy zone. Even if the price of gold continues to drop, we do not believe that these mining companies will decline much further given that their prices are already deeply discounted.”
In the fourth quarter of 2014, Van Den Berg bought enough of the companies to represent approximately 10% of the portfolio, and said that if they became further discounted, he would consider increasing the sector to between 15% and 20% of his portfolio. In the first quarter of this year, he did increase his mining holdings to about 15% of the portfolio.
Though over a short period, Van Den Berg has so far proven to be right about the stocks having hit a bottom, and has seen a notable rise in the price of the holdings. Year to date, the Gold Miners ETF has gained almost 22%. June has been a particularly good month for the stocks, which have rallied almost 16% since the start of the month.
Van Den Berg has spread his gold mining investments across about 20 companies, taking smaller positions in each. While some of his larger investments have yet to lift with the others, many of his positions have began to see gains. His largest mining positions are in: Newmont Mining Corp (NYSE:NEM), Agnico Eagle Mines Ltd. (AEM), Comstock Mining Inc. (LODE) and Yamana Gold Corp (NYSE:AUY).
Newmont Mining Corp (NYSE:NEM)
Van Den Berg has placed 3.4% of his portfolio into Newmont Mining, a stock that, unlike most of his other miners, he has held since the first quarter of 2012. He purchased an additional 76,398 shares of the company in fourth quarter 2014, and sold down 3,014 in the first quarter.
Since Van Den Berg bought this stock earlier than the others, it was at a higher price — starting around $59 on average at his first purchase in first quarter 2012. His average price overall was $43, giving him a 43% loss overall at Friday’s price of $24.85 per share. The stock is up almost 8% year to date, and down 16.5% for the past year.
Newmont Mining Corp is a gold producer with operations in the U.S., Australia, Peru, Indonesia, Ghana, New Zealand and Mexico, with headquarters near Denver, Colo.
In the first quarter, Newmont reported revenue of $1.8 billion, down from $2.2 billion in 2013, with an average gold price of $1.293 per ounce, compared to $1,631 per ounce last year. Net income declined to $48 million from $356 million the previous year.
Newmont’s 10-year revenue and earnings history:
Newmont’s price is currently near its 10-year low. Its P/B ratio at 1.15 is also close to a 10-year low. Newmont has a P/S ratio of 1.55.
Comstock Mining Inc.
Van Den Berg holds 9,588,176 shares of Comstock Mining, which represents 1.3% of his portoflio. This is also an older holding, started in second quarter 2012, and one on which he also has a slight approximate overall loss. The stock is currently at $1.69 per share, a 13% decrease from his average purchase price of around $1.95 per share. Van Den Berg upped his stake in Comstock by 1,465,367 shares in the first quarter.
Comstock’s share price has declined about 4.5% year to date, and almost 15% in the past 12 months.
Comstock is a Nevada-based gold and silver mining company with two properties in Nevada.
In the first quarter, the company’s revenue from mining was $5.6 million, a 53% increase from the first quarter 2013. It had a net loss of $3.8 million, compared to $5.8 million the previous year. The 34% decline was related primarily to increased production combined with other costs.
For 2014, the company plans to double the rate of ounces produced, compared to 2013, for both gold and silver, while lowering operating expenses per ounce.
Comstock’s 10-year revenue and earnings history:
Comstock is currently trading near its three-year low stock price. It has a P/S ratio of 4.07, which is near a five-year low. Its P/B ratio is 7.4.
Randgold Resources Ltd. (GOLD)
Van Den Berg bought 211,279 shares of Randgold Resources Ltd. in the first quarter, a 1.3% portfolio weight. Shares cost $74 on average for the quarter, giving him an 11% gain at Friday’s price of $82.12.
Randgold Resources is a mining and exploration company focused on Africa.
In the first quarter, the company reported record gold production due largely to contribution from a new mine, at 283,763 ounces. Total revenue decreased slightly to $284.4 million, from $284.7 million the previous year. The company’s profit increased to $85.1 million from $81.6 million the previous year due to the start of the new mine.
Randgold’s 10-year revenue and earnings history:
The company’s share price is close to both a one-year high and a five-year low. Its P/B ratio at 1.22 is near a 10-year low. Randgold also has a P/E ratio of 13.7 and P/B ratio of 1.2.
Yamana Gold Inc. (NYSE:AUY)
Van Den Berg purchased 1,608,434 shares of Yamana Gold Inc. in the first quarter 2014, when the price averaged $9.67. This stock is also yet to catch the upswing in the mining sector as the share price has declined from the average by 11% to $8.61 on Friday.
Year to date, Yamana’s share price has lost half a percent. It is also down by almost 24% in the past 12 months.
Yamana Gold is based in Canada and has operations in the Americas, Brazil, Chile and Mexico.
In the first quarter, the company’s revenue totaled $353.9 million, down from $534.9 million the previous year. It also reported a net loss of $29.6 million, from a net profit of $102 million the previous year. The declines were primarily due to a 20% decline in the realized price of gold, 31% in the price of silver, 9% in copper, as well as lower volume of sales and higher cost of sales.
Yamana’s 10-year revenue and earnings history:
Yamana has a P/B ratio of 0.9 and P/S ratio of 4.0.
Of Van Den Berg’s other gold mining holdings, some that have gained the most since purchase are: Anglogold Ashanti Ltd. (NYSE:AU) (up 26%), Timmins Gold Corp (TGD) (up 15%), Asanko Gold Inc. (AKG) (up 13), Rio Alto Mining Ltd. (NYSE:RIOM) (up 11.5%) and Turquoise Hill Resources Ltd. (NYSE:TRQ) (up 10.3%). Alcoa Inc. (NYSE:AA), an aluminum miner with a 1.5% portfolio weight, is up 68%.