market folly

Seth Klarman's hedge fund Baupost Group has disclosed an 11.37% ownership stake in Gabriel Resources (TSE:GBU) with 39,625,822 shares. This makes them the fourth largest shareholder.

This is an older disclosure as it was revealed on April 8th in a Canadian regulatory filing. Given how investors love to track Klarman, we figured we'd share since we hadn't seen it discussed before.

This position is interesting mainly because it's has exposure to gold mining. This is the second equity investment in a gold miner we've seen from Klarman's fund. As noted in the latest issue of our Hedge Fund Wisdom newsletter, Baupost started a new position in Allied Nevada Gold (ANV) back in the first quarter.

Gold Miners A Play on Inflation?

We'll have to see if building equity stakes in miners becomes a trend for Baupost. The firm could potentially be using these miners as a hedge. After all, we covered how Klarman is worried about inflation.

It's been well documented that John Paulson's gold fund invests in gold miners as a bet against the US dollar (inflation) as well. Paulson & Co also owns 17.62% of Gabriel Resources with 61,420,000 shares. They disclosed this position size in May 2008 and it was later amended to reflect their purchase of securities in a private placement in June 2009. So, two legendary investors own sizable chunks of GBU.

Gold Vs. Gold Miners

In the past, hedge fund managers have pondered whether gold or gold miners is a better way to play the precious metal, inflation, and uncertainty. So while many invest in gold miners for protection, we assume that Baupost is pursuing the same thesis (but again that's merely speculation on our part).

In other recent activity from the prominent hedge fund, Baupost trimmed its position in Audiovox (VOXX).

Per Google Finance, Gabriel Resources is " is engaged in the exploration and development of mineral properties in Romania. It is developing its 80.46% owned Rosia Montana gold project (the Project). Minvest S.A. (Minvest), a Romanian state-owned mining company, and one other private Romanian company, hold a 19.54% interest in Rosia Montana Gold Corporation (RMGC)."

For more from Klarman, see an excerpt from Baupost's 2010 letter.