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Miraj International Investment Limited The Benefits of Gold Equities for Portfolio Diversification MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary.

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Presentation on theme: "Miraj International Investment Limited The Benefits of Gold Equities for Portfolio Diversification MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary."— Presentation transcript:

1 Miraj International Investment Limited The Benefits of Gold Equities for Portfolio Diversification MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary Account Management Tel: Fax:

2 MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary Account Management 2 Making the Case for Gold & Precious Metals

3 MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary Account Management 3 A strategic position in gold should prove rewarding over the long haul. Gold stocks - trading at their lowest level in 25 years when compared with the underlying price of bullion. - the least economically sensitive among commodities An environment of rising volatility favours large cap stocks over small caps. From a fundamental perspective, we continue to favor gold companies with improving production and cost profiles, gold reserve upside, active exploration programs and strong management teams. Gold equities that we believe offer investors a combination of these characteristics

4 MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary Account Management 4 Introduction: Todays investor must contend with - Low bond returns and negative real interest rates - Unpredictable equities - A sliding US$ and rising US deficits. The weak US economic growth is exacerbating trade deficits - Geopolitical tensions, with deteriorating conditions in the Middle East, and North Korea nuclear stalemate - The emergence of inflation / deflation

5 MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary Account Management 5 Introduction: Making the Case for Mining Equities Mining equities offer investors - 3x the performance of underlying commodity prices - Mining shares have similar diversification benefits to commodities - Returns through dividends. Typically around % for gold equities - Value creation above the cost of capital through exploration and project development, merger & acquisition, cost cutting, technological innovations - Downside protection via low production costs, by- product revenues, natural currency hedges

6 MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary Account Management 6 Putting Todays Gold Price in Perspective? In the early 1970s, the US was stuck in the Vietnam war and started to print money - Today banking and financial crises and the Fed has been printing money like crazy over the past seven years and now much more money is printed in trillions Melt down of the global market

7 MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary Account Management 7 Putting Todays Gold Price in Perspective? The US baby-boomers appetite for commodities is now being replaced by the insatiable Chinese - The US ran its first current account deficit in the early 1970s at US $4bn a year it is now US $80 billion a month In 1971, Charles de Gaule gave the Americans back their dollars and asked for the gold equivalent (at the time the US$ was convertible into gold) … effectively triggering a massive depreciation in the US$ which lasted from 1971 to What will happen when the Asians start selling their US $2 trillion in US $ reserves and investing in gold.

8 MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary Account Management 8 Opportunity vs. Risk Opportunities Consolidation Low Real Interest Rates Japanese Buyers Cash Flow Multiples Remain Low Gold Stocks Offer 3 to 1 Leverage Over Bullion Price China Powerful Domestic Policy Risks Large Central Bank Sales other than what agreed Very strong U.S. Dollar U.S. Government Stops Deficit Spending High Real Interest Rates

9 MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary Account Management 9 Life Cycle of a Mining Share

10 MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary Account Management 10 The "Five M's" For Picking Gold Stocks By using the Five Ms, Miraj investor can build a simple but powerful model to initially sort through the many hundreds of upstart gold companies to find better opportunities.

11 MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary Account Management Market Cap We measure a companys market cap against its production level, reserve assets, geographic location and other metrics to establish relative valuation.

12 MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary Account Management Management Some of the most successful company builders in the gold-mining industry are financial engineers – people who have the relationships and understand the capital markets and who know how to hire the best geological and engineering teams. We seek out solid management with a good track record.

13 MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary Account Management Money The gold-equities market is efficient at judging reserves per share.

14 MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary Account Management Minerals Gold companies have the highest industry valuations based on price to earnings, price to cash flow, price to enterprise value and price to reserves per share. Companies operating mines that produce gold and a significant amount of another metal (typically copper) tend to have lower valuations than pure gold companies. But at the top of a gold price cycle, copper/gold deposits end up rising to the same multiples as pure gold companies.

15 MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary Account Management Mine Lifecycle We analyse the mines lifecycle broadly.

16 MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary Account Management 16 What MIIL Miraj Searches for: Companies with the best portfolio of projects in the developmental pipeline and who are aggressively trying to grow their reserves through organic growth and M&A activities. How much production and at what cost are they projecting to add next year, the year after. Are they aggressively seeking to grow the company? These gold mining companies are planning on raising production levels through organic growth and increasing their reserves by acquisition of other gold producing companies and post discovery resource definition juniors.

17 MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary Account Management 17 We look for undervalued situations no matter what the gold price as the Miraj formula for investing in mining stocks. The common-sense rules of investing are as written in stone for mining investments as they are for investment in any other industry. We check out the balance sheet: - cash in the companies treasury - cash flow from operations - working capital - free cash flows What MIIL Miraj Searches for:

18 MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary Account Management 18 Mirajs Two Metrics At Miraj we define an undervalued stock is based on two metrics. 1. Market cap per ounce. - The market capitalization of a company is the number of shares times its price. You divide that by its ounces of production and its ounces of proven and probable reserves, and you see how the companys data compares to the industrys weighted averages.

19 MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary Account Management 19 Mirajs Two Metrics 2. Operating cash flow multiples. - Take the difference between the gold price and the cash cost to produce an ounce, multiply that by the companys production per year, and you get operating cash flow. Divide that into its market capitalization and you get its operating cash flow multiple. We look at that this much the same as one looks at earnings per share multiples in other industries.

20 MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary Account Management 20 How does MIIL select which companies meet its gold investing objective? Successful gold investing depends on many factors. Chief factors considered by MIILs investment manager in gold investing: - the ore quality of metals mined by a company - a companys mining, processing and fabricating costs and techniques - the quantity of a companys unmined reserves - quality of management - marketability of a companys equity or debt securities

21 MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary Account Management 21 Miraj Investment Approach The industry averages on December 29, 2008 for the 50+ gold miners we follow (which is everyone of significance) : the average market cap for an ounce of production was $3,634, an ounce of proven and probable reserves was $194, and the average operating cash flow multiple on forecast 2009 production, assuming $900/oz gold, was 7.4X.

22 MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary Account Management 22 Miraj Investment Approach Gold mining will be one of the few industries doing well in Key cost is oil, which is about 25% of the cost of running a mine. Oils price, as we know, is down about 75% in the $147/barrel high last July. At the average $400 cash cost per ounce mine, thats a cut of about $75/oz off their costs. That result alone is going to give them an uptick in future earnings versus what they showed for third quarter 2008.

23 MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary Account Management 23 Miraj Investment Approach To recognize that currencies are also falling; many are down 20% to 40% versus the U.S. dollar. All the commodity nation currenciesthe Canadian dollar, the Australian dollar, the South African Rand, the Brazilian Real, the Mexican Pesotheyre all down 20% to 40%. When your mining costs in those countries are translated back into U.S. dollars, theyll be 20% to 40% lower. When you put falling costs of production together with a rising gold price, youve got a winning combination for the stocks in 2009.

24 MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary Account Management 24 A Mine Life Cycle Approach to Picking & Investing in Gold Stocks Value Mineral Market Cap Mining Cycle Increasing reserves Increasing production Increasing cash flow

25 MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary Account Management 25 Miraj Portfolio Objectives To enable investors to participate in the gold and to a lesser extent precious metals sector through direct investment in these metals The primary objective of the Miraj Gold & Precious Metals Private Portfolio is to provide competitive long-term total returns that exceed returns on the appropriate benchmark, and at a lower risk

26 MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary Account Management 26 Miraj Portfolio Objectives Superior performance is to be achieved through investing in a global universe of stocks that have been thoroughly assessed for asset quality, long term growth potential, and financial and strategic soundness This strategy emphasizes investment in major producers with a broad asset base, medium capitalizations, and with primary listings on mature stock exchanges with high liquidity

27 MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary Account Management 27 Investment Strategy: Best in Class Companies Clear and sustainable competitive advantage. Proven management ability - a track record of achievement against specific objectives & management accountability. Market leadership, or the distinct ability and opportunity to emerge as a market leader.

28 MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary Account Management 28 Miraj Gold Favorites The performance of mining company shares can be adversely affected by a host of factors such as stock market volatility, geopolitics, environmental issues, management capability, financial strength, mine life, productivity, increases in operating costs, energy supplies and hedging policies.

29 MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary Account Management 29 Miraj Gold Favorites From a fundamental perspective, we continue to favor gold companies with improving production and cost profiles, gold reserve upside, active exploration programs and strong management teams. Selectively buying gold mining companies, very selectively, and we make sure those companies are not big base metal producers.

30 MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary Account Management 30 Miraj Gold Favorites Agnico-Eagle Alamos Gold Anatolia Minerals AngloGold Ashanti Aurizon Mines Avoca Resources Barrick Gold Centerra Gold Central African Gold Coeur d'Alene Eldorado Gold Gold Corp. Gold Fields

31 MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary Account Management 31 Miraj Gold Favorites Golden Star Harmony Gold Iamgold Jaguar Mining Kinross Gold Lihir Gold Linux Gold Newcrest Newmount Mining Randgold Red Back Mining Royal Gold Sangold Yamana Gold

32 MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary Account Management 32 One analytical method Take the total resource (indicated and inferred) and determine how many ounces you as an investor are receiving per share or per dollar invested Capital expenditure A mine has great capital expenditure involved in the roads, buildings, machinery, housing, power and water systems. Additionally, in most cases the exploration costs were higher because the project had to be taken to feasibility and the mine put into production. Other Considerations:

33 MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary Account Management 33 Open Pit can be easier to put into production and far less capital intensive than an underground mine. Underground Mine To be economic, it must have much higher grades for the project to be worthwhile Open Pit vs Underground Mine In any given situation: What type of deposit are we looking at?

34 MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary Account Management 34 Thus Discovery Development

35 MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary Account Management Year Gold Production

36 MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary Account Management 36 Value of M&A Activity

37 MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary Account Management 37 Gold Market Strong demand - Investment demand ETFs= new investment vehicle - Fabrication demand Supply constraints - Lower production - Depletion rates - Lower central bank supply Financial market vulnerability - Economic imbalances (rising debt levels, deficit levels) - U.S. dollar weakness - Inflation/deflation Geopolitical risks

38 MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary Account Management 38 Equities for the Gold Investor Equities may provide investment opportunities arising from: Leverage - Mining companies profits are proportionately more sensitive to gold price variability (profits are net of the costs of mining) - Gold shares tend to outperform bullion in gold bull markets/under perform in gold bear markets Security valuations - Equities may be cheap relative to historical prices - Equities may offer value vs. relative to underlying commodity prices Corporate activity (value added through corporate management) - M&A activity - Technical expertise Vertical diversification - Exploration - Development - Production Flexibility Global exposure

39 MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary Account Management 39 Investment Process Seeks long-term capital appreciation Invests primarily in common stocks of gold-mining companies - Stock selection emphasized with top-down overlay - Identify low-cost mining companies who can build reserves and raise production levels - Focus on unhedged producers (for gold price leverage) - Tailor to commodity outlook - Adjust leverage to bullion when needed - Monitor exposure to political risk

40 MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary Account Management 40 Investment Approach

41 MIRAJ GOLD & PRECIOUS METALS Private Portfolio Discretionary Account Management 41 Evaluating Gold Stocks Revenue Earnings Ounces Produced Ounces Sold Gold Producers Stock Index Time Saving Layout Research already done 100% Independent and Unbiased At-a-Glance Reports Detailed Business Summaries Performance Ranking Numbers Production and Reserve Reports Production and Reserves for each mine

42 For more information: Miraj Gold & Precious Metals Private Portfolio Discretionary Account Management Please visit our website: René Levesque Blvd West, suite 2500 Montreal (Quebec) Canada H3B 2K4 Tel: Fax:


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