Gold left some investors in the dust


By Gregory Zuckerman and Liam Pleven
The Wall Street Journal
Wednesday, December 28, 2011

Gold has been among the best investments in 2011.

Shares of gold miners? Among the worst.

Gold is up 12% this year but shares of gold miners have fallen almost 16%. Smaller gold miners are down almost 40%, based on the returns of leading exchange-traded funds tracking those stocks.

The surprising gulf has caused pain for some of the biggest names on Wall Street -- including John Paulson, George Soros, David Einhorn, Seth Klarman, and Thomas Kaplan -- many of whom piled into gold shares over the past year, sometimes by shifting away from gold itself.

Bulls figured that gold miners had more upside than gold, partly because mining stocks outperformed during past bull markets for the metal.

But this year, gold miners have been hit by concerns that haven't tarnished gold prices. Investors have worried that mining costs are rising, and that governments around the world are becoming more aggressive in taxing resources companies. They're also concerned that gold miners might squander any windfall with ill-conceived acquisitions or other moves.

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Golden Phoenix Completes Operating Agreement
for Santa Rosa Gold Mine in Panama

Golden Phoenix Minerals Inc. (GPXM) has entered a joint venture operating agreement with Silver Global S.A., a Panamanian corporation, governing the operational and management aspects of their new joint venture company, Golden Phoenix Panama S.A., a Panamanian corporation formed to hold and operate the Santa Rosa gold mine in Canazas, Panama, and explore the mine's adjacent property.

Golden Phoenix will be manager of the joint venture company. Silver Global will handle all social programs, political and community relations, and human resource matters for the joint venture company in Panama. Golden Phoenix and Silver Global also have agreed to work together on all future acquisitions within Panama and to bring such new opportunities to the joint venture company.

Golden Phoenix will be earning in to a 60 percent interest (and potentially an 80 percent interest) in the Santa Rosa mine. Upon signing the joint venture agreement and completing the corresponding acquisition payment, Golden Phoenix will earn an initial 15 percent interest in the joint venture company.

Tom Klein, CEO of Golden Phoenix, says the agreement "creates a solid foundation for the development and planned re-opening of Mina Santa Rosa."

For Golden Phoenix's full statement on the joint venture operating agreement, please visit:

Plus, in a turbulent year, gold shares have suffered along with most other stocks as many investors fled to the safety of U.S. government bonds.

"When you sell your portfolio, you say, well, what's cyclical, and that includes mining stocks," says HSBC analyst Patrick Chidley, who called gold-mining stocks a "buying opportunity" in a June research report and still thinks they will pay off.

Investors who once turned to gold miners to gain exposure to bullion now can purchase exchange-traded funds that are backed by gold.

Mr. Kaplan, a longtime gold investor, runs family funds that held nearly 52 million shares of Novagold Resources Inc., a miner focused on Alaska and British Columbia, whose stock is down about 40% this year. He also owns more than 61 million shares of Gabriel Resources Ltd., which owns a huge gold project in Romania, and is down more than 20% this year.

The declines have cost Mr. Kaplan about $430 million this year, based on the change in value of his holdings, noted in regulatory filings. The figure is about $600 million if Mr. Kaplan's warrants, or rights to buy shares at stipulated prices, are included. Still, Mr. Kaplan bought in at prices much lower than today and is sitting on huge paper profits.

"Our focus is on adding to our holdings, especially mines and equities in safe" jurisdictions, says Mr. Kaplan, who believes gold shares are due for a rebound.

Seth Klarman's Baupost Group, a value-oriented firm, owned nearly 13% of Gabriel at the end of the third quarter. He added to his position through much of this year, according to regulatory filings. Mr. Klarman also bought five million shares of Novagold in the third quarter.

In the third quarter, David Einhorn's Greenlight Capital more than doubled its holdings of the Market Vectors Gold Miners Index ETF, making it the hedge fund's third-largest holding, or more than 7% of his firm's portfolio, according to FactSet Research.

Other well-known hedge funds, including Blue Ridge Capital Holdings, Moore Capital Management and Lansdowne Partners, also were major holders of this ETF, as of the end of the third

Mr. Einhorn is among investors who say they're holding on to gold mining stocks. "It has reached the point where gold mining stocks should do well even in a stable gold market," Mr. Einhorn wrote in his most recent letter to investors. "We expect the price of gold to appreciate further, so gold miners should do even better."

Mr. Paulson's Paulson & Co. was the largest holder of Johannesburg-based miner AngloGold Ashanti Ltd., with 9.6% of the company's outstanding shares at the end of the third quarter.

AngloGold is down about 14% so far this year. Mr. Paulson holds nearly 3.4% of shares outstanding of Gold Fields Ltd., which is down about 14% in 2011, and more than 8% of NovaGold. That helps explain why Mr. Paulson's fund dedicated to gold investments is down nearly 6.6% in 2011, after losing more than 7% in December, through Dec. 13, according to investors.

Billionaire George Soros sold almost all his bullion holdings in the first quarter, according to SEC filings, while upping bets on shares in a number of gold miners this year. Since then, gold has risen about 11%, while one of the investor's stock holdings, Barrick Gold, has fallen about 14%.

Spokesmen for Paulson, Soros, Blue Ridge, and Moore declined to comment. Mr. Einhorn and Mr. Klarman also declined to comment. A representative of Lansdowne didn't respond to requests for comment.

Though all the investors were major holders of gold shares at the end of the third quarter, based on filings, it isn't clear what their holdings are today, or how they traded them throughout the year.

Investors have also been frustrated that gold itself has been falling recently, even though turmoil in Europe continues. That's a possible sign the metal may be losing some of its status as a safe haven.

"It's a little perverse that gold loses value when there's a currency crisis occurring in Europe" that should spark interest in gold, says Darren Pollock., who helps run Cheviot Value Management, LLC in Los Angeles and has been a fan of gold shares.

He notes that Chinese entities have purchased two gold mining companies in recent months, something that should help focus attention on the sector. "But nobody seems to care, yet," Mr. Pollock laments.

Other bulls note that gold-mining companies are seeing improving revenues, and that shares are more attractive relative to gold prices, making them bargains that investors eventually will recognize.

Not everyone is convinced a rally is imminent, however. After gold prices fell, and didn't show signs of a speedy rebound despite a turbulent environment, HSBC's Wealth Opportunities funds, which invest $2.2 billion for wealthy individuals and don't work with Mr. Chidley, the analyst at the bank, first sold silver companies, and then dumped gold mining shares. The funds continue to steer clear of these shares, the firm recently wrote to its clients.

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Sonora Aims to Follow First Majestic's Success
With Silver Mining Exploration in Mexico

Sonora Resources (OTCBB: SURE) is a silver mining exploration company focused on the development of prospective opportunities in Mexico. The company president and CEO is Juan Miguel Rios Gutierrez, who helped build First Majestic Silver Corp., which began trading for pennies and today is at more than $16 per share. Gutierrez was the fourth person to join First Majestic Silver, originally as general manager, then manager for new business initiatives and strategic planning. He left First Majestic Silver to work with Sonora Resources and yet maintains strong contacts with First Majestic. In fact, First Majestic is a large shareholder in Sonora and has a joint venture with the company.

For more information about Sonora Resources, please visit: