John Paulson (Trades, Portfolio) made his first significant bump in wealth during the Financial Crisis, and rapidly lost a large amount after launching a gold fund in 2009. The billionaire founder of Paulson & Co. still believes in gold, however.
To boost his firm's investments in the metal, Paulson last year started a coalition of investors dedicated to pressing for operational improvements at gold miners. His Shareholders' Gold Council works to align miners' management with shareholder interest after years of poor returns. So far this year, it has called for changes at several mining companies, including questioning the pay and incentive structure for Goldcorp CEO David Farofalo and condemning Goldcorp's board of directors for a "gratuitous" payment to its chairman Ian Telfer.
Gold miners have struggled in the vigorous bull market, with the VanEck Vectors Gold Miners ETF (GDX) losing about 36% from 2009 to 2018. The picture began looking brighter in 2019, as the index clocked a 31% rise.
Over the same period, the SPDR Gold Trust (GLD), which tracks the price of gold, fared better, gaining 41% from 2009 to 2018 and 16% year to date.
Gold could have further room to run, as the Federal Reserve weighs the prospect of further rate cuts following its quarter-point decrease announced Wednesday. Their lack of a sign of upcoming cuts weighed on the metal so far, although other factors have been bullish for gold.
"Earlier this week, we thought gold was vulnerable to a significant correction after the Fed but ongoing respect of consolidation low support above $1,492.10 and narrow ranges reduces our downside projections," Zaner analysts wrote Thursday. "In the end, the subject of trade relations, the Middle East situation and lower U.S. interest rates leave a number of bullish forces underpinning gold prices."
Meanwhile, Paulson's Gold Council has forecast that lowering general and administrative costs could unlock $13 billion for shareholders of gold producing companies.
"We do not think it is coincidental that the best performing companies have leaders that own substantial amounts of common stock relative to their level of compensation," the group wrote in a report, titled The $13 Billion G&A Opportunity. "The results in this piece indicated that there is a clear and meaningful relationship between shareholder return and levels of stock ownership between CEOs and Chairpersons."
Some companies with high levels of management ownership produced strong returns despite declines in gold price, the authors wrote.
Paulson cut many of his gold holdings in half during the second quarter, although the investor has been returning money to clients in recent years. The value of his portfolio of equity holdings has dropped to $5.88 billion in the second quarter from $21.69 billion four years ago.
As of second quarter-end, these were Paulson's favorite gold producing stocks: Anglogold Ashanti Ltd. (NYSE:AU), Novagold Resources Inc. (NG), Versum Materials Inc. (NYSE:VSM), Trilogy Metals Inc. (TMQ) and International Tower Hills Mines Ltd. (THM).
Anglogold Ashanti Ltd. (NYSE:AU)
Paulson holds 12,782,400 shares of Anglogold Ashanti, his largest position at 3.87% of the equity portfolio. He reduced it by half in the second quarter after doubling it in the first quarter of the year.
Anglogold Ashanti Ltd. has a market cap of $8.15 billion; its shares were traded around $19.66 Thursday with a price-earnings ratio of 39.57 and price-sales ratio of 2.16. The trailing 12-month dividend yield of Anglogold Ashanti Ltd. is 0.34%. The forward dividend yield of Anglogold Ashanti Ltd. is 0.36%.
Novagold Resources Inc. (NG)
Paulson holds 21,992,896 shares of the company giving it 2.21% portfolio weight. He also reduced the position by half in the second quarter after doubling it in the first quarter.
Novagold Resources Inc. has a market cap of $2.03 billion; its shares were traded around $6.25 Thursday. Novagold Resources Inc. had an annual average earnings growth of 5.50% over the past five years.
Versum Materials Inc. (NYSE:VSM)
Paulson holds 1 million shares of Versum Materials Inc., giving it 0.88% portfolio weight. He reduced the position by 11.5% in the second quarter.
Versum Materials Inc has a market cap of $5.71 billion; its shares were traded around $52.28 with a price-earnings ratio of 72.56 and price-sales ratio of 4.28. The trailing 12-month dividend yield of Versum Materials Inc. is 0.61%. The forward dividend yield of Versum Materials Inc. is 0.61%. Versum Materials Inc. had an annual average earnings growth of 71.90% over the past five years.
Trilogy Metals Inc. (TMQ)
Paulson holds 14,325,996 shares of Trilogy Metals, giving it 0.72% portfolio weight. He reduced the position by 38.06% during the second quarter after doubling it in the first quarter.
Trilogy Metals Inc. has a market cap of $225.310 million; its shares were traded around $1.62 Thursday. Trilogy Metals Inc. had an annual average earnings growth of 8% over the past five years.Top of FormBottom of Form
International Tower Hills Mines Ltd. (THM)
Paulson holds 59,593,214 shares of International Tower Hills Mines Ltd., giving it 0.57% portfolio weight. He reduced the position by half in the second quarter after doubling it in the first quarter.
International Tower Hill Mines Ltd. has a market cap of $98.320 million; its shares were traded around 53 cents Thursday. International Tower Hill Mines Ltd. had an annual average earnings growth of 12.90% over the past 10 years.
See John Paulson (Trades, Portfolio)'s portfolio here.
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