This year has already been a productive one for John Paulson, the president and portfolio manager of Paulson & Co. This hedge fund manages approximately $29 billion, making it the third largest on the planet according to Absolute Return Magazine.
The notable contemporary investor increased one of his major holdings, NovaGold Resources, just two months into this year. Investors keep their eyes on high-profile counterparts like Mr. Paulson, letting them serve as beacons to the literal pot of gold.
There is no doubt that the investor is a fan of the precious metal. SPDR Gold Trust and Anglogold are his top two portfolio holdings and Gold Fields Limited is in the top ten. During first quarter 2010, Mr. Paulson paid an average of $6 per share to purchase more than 20.1 million shares of NovaGold Resources.
In the third quarter of that year, he added 26,200 shares, paying an average of $9 per share. His latest acquisition of NovaGold stock occurred in February, when he increased his holding by 30.49 percent, reports GuruFocus Real Time Picks.
Mr. Paulson now owns 10.8 percent of the company, the equivalent of nearly 30 million shares. NovaGold is a copper and gold company focusing on Western Canadian and Alaskan mineral property exploration and development. Its market cap is $2.26 billion and over the past decade, the company has experienced a 31.1 percent average annual earnings growth. Its price-to-sales ratio is 5622 and share price is currently $7.80.
The fact that Mr. Paulson increased his precious metal holdings should not come as a surprise to anyone. In his 2011 letter to investors, he reported that his gold fund would “top all others [according to Forbes].” By “his,” he meant Paulson Gold Funds. Mr. Paulson’s company expects the rift between physical metal and metal-backed equities to narrow. He points to loss of faith in paper currencies, unprecedented quantitative easing from central banks, and the European sovereign debt crisis as contributors.
In this type of environment, Paulson & Co. believes that the golden metal represents the most reliable and stable alternative to paper money. His analysts think that the potential upside for the metal is greater than its potential downside. Golden equities are currently attractively priced in light of their strong performance. The Paulson Gold Funds, he stated, intend to outperform the metal in an environment of rising prices, offering investors an inflation hedge.
NovaGold does not possess the same robust earnings. However, for year-end November 30,2011, it narrowed its loss from $172 to $153 million. During the same period, revenues dropped from $172 to $111 million. At its most recent year-end, NovaGold had $66.8 million in cash. February brought good news, as the company revealed significant results regarding drilling at the Canadian Galore Creek site, of which it is 50 percent owner. The grades of the precious metal and copper were much higher than described in the pre-feasibility study. If NovaGold begins developing this project, it would create the largest Canadian copper mine.
The flagship project of the company is Donlin Gold, one of the largest undeveloped deposits of gold in the world. It is equally owned by wholly-owned subsidiaries of Barrick Gold and NovaGold and is expected to produce in excess of a million ounces of the precious metal annually. NovaGold would like to become a pure play on this project and sell some or all of the Galore Creek Project.
Eventually, it hopes to create a new subsidiary, NovaCopper, and distribute its shares entirely to NovaGold shareholders. If Mr. Paulson adds copper to his holdings, other investors are likely to follow suit, as they have with gold.
Of course, you know how I feel about gold stocks. Still, this is important for the stock investors out there and those looking for bullish/bearish signals.
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