Presentation on theme: "October 2013 Gold Mines in Purgatory until…. 2 Table of Contents Finance SA in a few words We reiterate our June 2013 call: too late to sell Gold bullion:"— Presentation transcript:
October 2013 Gold Mines in Purgatory until…
2 Table of Contents Finance SA in a few words We reiterate our June 2013 call: too late to sell Gold bullion: let the dust settle Gold mines vs. Gold bullion: spring cleaning is thorough Take Away Contacts
3 Finance SA in a few words Fully independent French Asset Management company – Approved by AMF* in 1990 under N° GP90098 and GP91029 Specialist of thematic equity funds with AUM of 120 million + Added Commodities to its sectors of expertise in July 2013 Gold & Precious Metals Energy & Natural Resources Active management style, with direct allocation to listed stocks globally, which relies on the portfolio managers' industry sector expertise and proprietary quantitative in-house process for the quant funds. Attractive product offer that meets investment needs of institutional investors, private banking/IFAs clientele and third party asset managers acting as allocators for multi- management funds or for individual discretionary mandates. * Autorité des Marchés Financiers / French supervisory body
4 Too late to Sell Maybe another shoe to drop BUT beware the rebound Source: Bloomberg
5 Too late to Sell Source: Bloomberg Maybe another shoe to drop BUT beware the rebound
6 Gold bullion: let the dust settle Fewer Gold Discoveries and a Flat Production Source: Metals Economics Group, Strategies for Gold Reserves Replacement 2012 Represents 189 gold deposits discovered since 1990, each with at least 1M oz. gold in reserves, or combination of reserves, resources and past production of 2 M oz. gold
7 Gold bullion: let the dust settle Significant Gold drill results announced To be exacerbated going forward Source: Metals Economics Group, Strategies for Gold Reserves Replacement 2012
8 Gold bullion: let the dust settle Pipeline activity index falling, validated by companies cutting their exploration budgets Based on slower activity on the fields AND Capex revisions Source: Metals Economics Group, Strategies for Gold Reserves Replacement 2012
9 Longer Time from Discoveries to Production Gold bullion: let the dust settle Source: Metals Economics Group Minesearch Database & Estimates, Company Reports
10 Lower Average Grade and Higher Costs to Reverse? Gold bullion: let the dust settle Source: NRH Research 2012 Ranking Gold Mines & Deposits, GOS Matrix 2012 All in USD 1,285 Average gold grade of undeveloped deposits of over 1M ounces is 0.66 g/t Q All in USD 1,325
11 Gold bullion: let the dust settle While Demand Remains Elevated Source: World Gold Council * H annualized (assumes 1150 tonnes in ETFs outflows or 45% of total holdings
12 Gold bullion: let the dust settle Central Banks are Net Buyers Source: World Gold Council * H annualized (181 tonnes purchased in H1 2013)
13 Gold bullion: let the dust settle Confront massive ETFs investment selloffs Source : World Gold Council, BofA Merril Lynch Global Commodity Research
14 Gold bullion: let the dust settle While unprecedented non commercial short positions (Futures) are covered Source: Bloomberg, US Commodity Futures Trading Commission
15 Gold bullion: let the dust settle Structural macro issues rebalanced The playground consisting of: 1.Competitive devaluations 2.Money supply - accelerating rate of growth as of October Consensus for more inflation remains very supportive of a sustainable growth in the price of gold. But short term headwinds could come from a return to more normalized real interest rates and a stronger US$. Some investment banks call for a gold price of US$1000 while appetite for Non Commercial long contracts is back to the 2008 and 2003 depressed levels of circa 14million ounces. Source : US Federal Reserve
16 Gold mines vs. Physical gold FACTS: Since 2000, gold mining companies outperformed gold bullion 44% of the time (6/13,5). After 2 years of outperformance (2009 – 2010), gold mining companies underperformed gold in 2011, YTD, the historic leverage played admirably well on the downside with gold down 16% and gold mines down 40%. OF IMPORTANCE: they delivered negative absolute returns in 2011 and 2012 while gold progressed at a double digit pace AND they demonstrated an erosion of their excess return in uptrend markets since 2006.
17 Gold mines vs. Physical gold Annual Performance (net, in EUR, as of 08/30/13)
18 Gold mines vs. Physical gold YES, Gold mining companies are undervalued on a relative and absolute basis on many criterias: Gold index / Gold bullion NAV multiples US$ value of an ounce in the ground Mkt K / oz produced They are fairly valued on other criterias Historical profitability levels (operating margins, net margins)
19 Gold Mines are undervalued on a historical basis (20 year horizon) Gold mines vs. Physical gold Source: Bloomberg
20 Gold Mines are undervalued on a historical basis (20 year horizon) Gold mines vs. Physical gold Source: Bloomberg
21 Producers vs. Juniors/Explorers Uptrend vs. downtrend markets Gold mines vs. Physical gold Source: Bloomberg
22 Gold mines vs. Physical gold Gold mining companies were penalized for not being able to deliver the expected historical leverage resulting from a higher gold price since They are today penalized because gold price is down in 2013 for the first time in 13 years. THE REAL QUESTION: will gold mines regain their historical leverage? ANSWER: YES UNEQUIVOCALLY Deep unprecedented industry wide restructurings are implemented: from asset impairments ($23billion for the top 5 global producers) to asset sales or closures, to project postponements, to capex revisions. These decisions have a double objective: rationalize the operations and reduce the dilution that plagued the industry.
23 Gold mines vs. Physical gold Many board of Directors made their top executives redundant: among other names, Kinross Gold, Barrick Gold Corp. Newmont Mining Corp. or dAgnico Eagle Mines Ltd., Centerra Gold Inc. or Great Basin Gold. Same for Allied Nevada Gold Corp. and Newcrest Mining Ltd. and most recently for Alacer Gold Corp. Unprecedented asset impairments are announced: $9,3billion for Barrick Gold Corp., $2,5billion for Kinross Gold Corp., $2,2billion for Newmont Mining, $2,6billion for Goldcorp, $5,5billion for Newcrest Mining Ltd. The focus remains on cost controls despite higher costs in Q2 2013: Agnico Eagle reduces K costs by $50million in 2013 and $200million in Kinross Gold Corp. reduced its headoffice headcount by 7%. Eldorado Gold Corps exploration spending are down 50% for 2013 and K spending are down from $670M to $430M resulting in mine expansion delays and development projects (Skouries, Certej and Olympias) delayed. * 8% cumulative weight in the Global Gold and Precious fund
24 Gold mines vs. Physical gold Marginal operations are sold: Barrick Gold divested 3 Australian mines for $300million to Gold Fields Ltd. Expect more to come. Dividends are postponed or cancelled: this is the case of Anglogold Ashanti Ltd which declared no interim dividend and announced that its dividend policy would be reviewed at year end. This is also the case of Kinross which suspended its dividend. Barrick Gold corp. cut its dividend by 75%. The impact of a lower gold price impacted Q marginal operations. The trend was exacerbated in Q Our panel representative of the gold mining industry showed that in Q2 2013, 5 companies out of 18 reported losses vs. 1 in Q Q average gold price is lower on a sequential basis. In this environment, financing for large and smaller mining companies is scarce. Expect more consolidations to be announced.
25 Take Away Positive gold sector fundamentals in place to achieve superior return despite short term strategic headwinds (interest rates, above average speculative positions, US$) Gold mines in purgatory until the underlying metal finds a respite. Spring cleaning is thorough and unprecedented and will unquestionably be rewarded. We will NOT pick the bottom BUT the risk reward theme for holding gold mines lies strongly on the latter due to structural improvements at the corporate level. The TREND matters most. 23 years of industry experience for the portfolio manager.
26 Contacts Alain Corbani Portfolio Manager Head of Commodities Tel: FINANCE SA 13, rue Auber Paris – France Tel: Internet:
27 Disclaimer This presentation is strictly for information purposes only. This document does not constitute an offer or commitment, a solicitation of an offer or commitment, or any advice or recommendation, to conclude any transaction (whether on the indicative terms shown or otherwise). Before entering into any transaction, you should ensure that you fully understand the potential risks and rewards of that transaction and that you independently determine that the transaction is appropriate for you given your objectives, experience, financial and operational resources and other relevant circumstances. The prospectus of the Fund is available upon request or at Past performance is not necessarily indicative of future results.