(Bloomberg) — Billionaire George Soros isn't waiting around to see if this year's surge in gold-mining shares will last.
Soros Fund Management, which took a $263.7 million stake in Barrick Gold in the first quarter, cut its holdings in the world's biggest producer of the metal by 94% in the ensuing three months, a U.S. regulatory filing showed Monday. After climbing 169% in the first half, its best-ever performance for the period, Barrick shares have slipped from a three-year high reached last month.
Producers got a boost after spot-gold prices had the best first half in four decades. Investors flocked to bullion and the companies that mine it as central banks around the world increased economic stimulus to support growth and the Federal Reserve kept U.S. borrowing costs low. In the first quarter, funds including Soros bought a combined 58 million shares in Barrick, taking their total holdings to 670 million shares, according to over 4,000 filings compiled by Bloomberg.
Bullion for immediate delivery has jumped 27% this year, including a 25% surge in the first half. That delivered bigger profits for mines that have been cutting costs after prices of precious metal slumped for three straight years in the worst streak since 2000. In the second-quarter, Barrick posted its highest net income since 2013 while its stock surged 56%.
Barrick fell 1.2% to C$27.47 at 12:27 p.m. in Toronto. The shares are still up 168% this year.
Barrick is trading at 26 times estimated earnings, in line with the average among members of the BI Global Senior Gold Valuation Peers. A year ago, Barrick stock fetched 17 times estimated profit, the data show.
Gold prices need to be at $1,450 an ounce to justify Barrick's valuation, Barry Allan, an analyst at Mackie Research Capital, who has a "sell" recommendation on the miner, said in an e-mail. Mackie forecasts a long-term gold price of $1,375 an ounce.
The Toronto-based producer exemplifies the mining industry's push to grow and diversify as commodities surged, before grappling to sell assets and cut costs as a price downturn exposed high leverage. Barrick's debt, which peaked at $15.8 billion after it bought Equinox Minerals, was back at about $9 billion in the second quarter with President Kelvin Dushnisky saying the company could be debt free within a decade.
"Barrick has executed on its promises to improve operations and pay-down debt, and the nice rise in the share price has partly reflected this," Allan said. "Our recommendation has nothing to do with management's execution/strategy or the quality of underlying assets. If we had a forecast gold price higher than $1,375 an ounce longer-term, we'd likely still recommend Barrick as one to own."
Barrick, Soros's biggest holding in the first quarter, was the investor's biggest sale in the second quarter. The holdings in Barrick slumped by 18.35 million shares to 1.07 million shares, according to a filing released Monday.
A spokesman for Barrick, Andy Lloyd, had no immediate comment when reached by phone in Toronto Monday. Michael Vachon, a spokesman at Soros Fund, didn't comment on Monday's filing when contacted by e-mail.
As Soros cut his stake in Barrick, he bought 240,000 shares of SPDR Gold Trust, an ETF that tracks the price of gold. In the first quarter, his firm disclosed owning call options on 1.05 million shares in the ETF.
Billionaire hedge-fund manager John Paulson maintained his holding in SPDR Gold. At the end of June, Paulson & Co. owned 4.8 million shares of the ETF, a U.S. filing showed. Jana Partners sold its remaining 50,000 shares in SPDR Gold in the second quarter, a filing showed.