The fund that I managed with Marketocracy, and which consistently kept ranked as one of the best was my, “Barnacle Metals and Mining Fund.” From its inception date in 2003 to 2011 it hummed along pretty good. It was at that point I had to ignore the fund because of my activities in the securities industry. Up until that point, it grew eight fold, and was one of the best.
The method was well researched, but simple. I analyzed valuation ratios, return on equity, balance sheets and liquidity. I then scored each company in the Metals universe, and weighted each one in the fund. Consequently, some were over weighted while others were not.
While I always recognized that the metals sector was pinned to commodities prices, the key here was to avoid companies that were full of debt, overvalued, and had lousy margins. No garbage in was the goal.
In my attempt to revive my funds, and maybe return to the m100, I am resurrecting my Metals and Mining fund. It’s time to prune, so it can thrive. These are the top companies in each sector; consider them to be the “Best of Breed.” I included each companies “points” so one can see how strong these companies are based on the rubric I developed. The highest possible score is 14.
Agricultural Chemicals: Yongye International (14 points) (NASDAQ: YONG). The company develops, manufactures, and distributes fulvic-acid-based nutrient compounds for plant and animal feed in China.
Copper: Southern Copper Corp. (10 points) (NYSE: SCCO), The Company is an integrated producer of copper and other minerals, and operates mining, smelting and refining facilities in Peru and Mexico.
Gold: Gold Fields Ltd. (8 points) (NYSE: GFI). A producer of gold and holder of gold reserves in South Africa, Ghana, Australia, Venezuela and Peru. The Company is involved in underground and surface gold mining and related activities, including exploration, extraction, processing and smelting.
Industrial Metals & Minerals: Compass Minerals International (10 points) (NYSE: CMP) and Hi-Crush Partners LP (10 points) (NYSE: HCLP) Compass Minerals through its subsidiaries is a producer and marketer of inorganic mineral products with manufacturing sites in North America and the United Kingdom. Hi-Crush Partners is a pure play, low-cost, domestic producer and supplier of premium monocrystalline sand, a specialized mineral that is used as a proppant (“frac sand”) to enhance the recovery rates of hydrocarbons from oil and natural gas wells.
Nonmetallic Mineral Mining: Dominion Diamond Corporation (8 points) (NYSE: DDC). The Company operates in two segments of the diamond industry: mining and retail.
Silver: Silver Wheaton Corp (10 points) (NYSE: SLW). A mining company which operates its revenue from the sale of silver. The Corporation is actively pursuing further growth opportunities, primarily by way of entering into long-term silver purchase contract.
Steel & Iron: Gerdau S.A. (7 points) (NYSE: GGB). The Company focuses on the decentralized production of long steel using electric arc furnace mini-mills and integrated mills with blast furnaces and continuous casting technology being used in both processes.
There is no aluminum sector presence at this time given that absolutely no companies met enough basic criteria for consideration.
I should note that investing in the mining sector is fraught with risks. Precious metals such as gold are very speculative, and many operations exist in countries with unstable governments. For a conservative investor, no more than 5% of the portfolio should be invested companies that are in the precious metals sector, so be warned, but happy investing nonetheless.