Gold mining companies are down-and-out, but John Paulson isn’t worried.
The downfall in gold prices stems from sentiment rather than fundamentals. The artificially low interest rates since the Great Recession have sent the stock market and the bond market to extraordinary highs. Once markets embrace the long-awaited correction, expect gold prices to shoot through the roof.
For that reason, the billionaire investor has been pounding the table on gold over the past few years. He has already placed more than $1.2 billion of his hedge fund’s assets in the metal, noting that only $800 billion of the world’s $200 trillion of investable assets in the world are held in gold. If investors suddenly start to worry about storing their wealth in fiat money, there could be a mad rush to own scarce precious metals like gold.
But Paulson isn’t just buying gold. He has also been buying shares of gold mining stocks. The theory is that because their costs are mostly fixed, mining profits could soar if commodity prices rise. That could translate into impressive gains for shareholders. Let’s look at John Paulson’s top three gold mining stock picks:
AngloGold Ashanti Ltd. (NYSE/AU)
John Paulson’s hedge fund has approximately 26.2 million shares of AngloGold Ashanti Ltd. (NYSE/AU), worth around $244.8 million.
AngloGold Ashanti is a global producer of gold, with 20 operations in four different regions: South Africa, Continental Africa, Australasia, and the Americas.
In the first quarter of 2015, the company produced 969,000 ounces of gold. Total cash costs were down three percent year-over-year to $744.00 per ounce. All-in costs declined eight percent year-over-year to $1,026 per ounce.
Despite the plunge of gold prices, the company reported adjusted EBITDA of $409 million.
NovaGold Resources Inc. (NYSE/NG)
Paulson & Co. owns 35.6 million shares of NovaGold Resources Inc. (NYSE/NG), worth around $104.9 million.
NovaGold Resources is a precious metals company focusing on developing mines in North America.
The company’s main project is the Donlin Gold Project in Alaska. NovaGold and Barrick Gold Corporation (NYSE/ABX) each own 50% of the project. The project has 34 million ounces of gold reserves at a decent grade of 2.09 grams per ton. The joint project with Barrick Gold has a funding of $12.6 million for 2015.
Randgold Resources Limited (NASDAQ/GOLD)
Paulson & Co. has 674,446 shares of Randgold Resources Limited (NASDAQ/GOLD), worth approximately $46.7 million.
Randgold is a gold mining company which mostly operates in Sub-Saharan Africa. The company is headquartered in Jersey, Channel Islands.
In the first quarter of 2015, Randgold Resources produced 279,531 ounces of gold. Profit from mining increased by five percent to $143.9 million. Total cash cost went down to $708.00 per ounce, making the company profitable even under ultra-low gold prices.