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AgAu Global Producer Fund August 2009 Strictly Private and Confidential.

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Presentation on theme: "AgAu Global Producer Fund August 2009 Strictly Private and Confidential."— Presentation transcript:

1 AgAu Global Producer Fund August 2009 Strictly Private and Confidential

2 The information contained in this document is provided to you by Agau Capital Pty Limited (AgAu). This document and the matters discussed with you pursuant to this document are confidential information of AgAu (Confidential Information). By receiving this Confidential Information, you are deemed to have agreed (i) that you will treat the information confidentially; (ii) not to disclose any Confidential Information to any person; and (iii) not to reproduce or distribute this document in whole or in part, without AgAus prior written consent. This document does not constitute an offer or a solicitation of an offer in respect of any securities or assets described in this document. The information in this document is merely a proposal and is provided solely for discussion purposes. The proposal discussed in this document and the information provided is subject to change without notice. The information may contain statements which are either missing information or which assume outcomes expected in the future. Accordingly, this document does not purport to be all-inclusive or to contain all the information that may be required in relation to such discussions or for an evaluation of the proposal. This document shall not form the basis of any contract or commitment. This document does not constitute investment, legal, tax or other advice, and does not take into consideration the investment objectives, financial situation or particular needs of any particular investor. Although all reasonable care has been taken to ensure that the information given in this document is accurate, it has not been independently verified. Accordingly, no representation or warranty, express or implied, is made in relation to the accuracy or completeness of the information and opinions expressed in this document and, to the maximum extent permitted by law, any and all liability in respect of such information and opinions is hereby expressly excluded, including, without limitation, any liability arising from fault or negligence, for any loss arising from the use of this information or otherwise arising in connection with it. No responsibility is accepted by AgAu, or any of its related corporations, directors, representatives, officers, employees, agents, advisors, associates nor any other person, for any of the information or for any action taken by you on the basis of the information or opinions expressed in this document. The following information contains forward-looking statements. These forward-looking statements are based on AgAus current expectations and beliefs, as well as a number of assumptions concerning future events. These statements are subject to risks, uncertainties, assumptions and other important factors, many of which are outside AgAus control that could cause actual results to differ materially from the results discussed in the forward-looking statements. You are cautioned not to put undue reliance on such forward-looking statements because actual results may vary materially from those expressed or implied. All forward-looking statements are based on information available to AgAu on this date and AgAu expressly disclaims any obligation to update or revise any forward looking statements, whether as a result of new information, future events or otherwise. Past performance is not a reliable indication of future performance. Disclaimer AgAu Capital Pty Ltd

3 History Repeating AgAu Capital Pty Ltd 1980 – 1 Ounce buys the Dow 1932 – 1 Ounce Buys the Dow It is our considered opinion that One ounce of Gold will again buy the Dow Index. Precious Metals will continue to outperform all other asset classes.

4 Table of Contents I.Overview of AgAu Capital II.Market Opportunity III.Investment Strategies IV.Team V.Performance Record VI.Fund Terms VII.Appendices AgAu Capital Pty Ltd

5 Overview of AgAu Capital Pty Limited Compelling Market Opportunity Gold/Silver is the only Currency not beholden to a Government. Gold/Silver is traditionally the most effective hedge against loose monetary policy. Gold/Silver equities offer leveraged exposure to gold price rises Gold/Silver equities are massively undervalued relative to gold Low/No correlation to other assets, notably in extreme market conditions. Fundamental Approach Select companies with lowest cost per ounce of reserves Select companies most likely to convert resources into production. Select companies with highest cost of production which provide greatest leverage to increasing gold price Historic Gold Producing landholders Diversify production to minimize Sovereign risk Experienced Team Senior team 20 years experience in Investment Banking, Trading and Commodity Price Risk Management. Pre-eminent market insight/analysis, trading and risk management skills. Producer Financial Risk Management, Central Bank Operations, Project Finance Analysis, Proprietary Trading, International Investment Bank Commodity Exposure and Risk Management, Market leading Macro-Economic analysis Strong Performance Significant outperformance of traditional Equity returns. Reduced volatility versus comparable indexes. Negative Interest Rates for equivalent rated assets. A Uniquely Experienced Team and a Compelling Market Opportunity I.Overview

6 Gold Since the Nixon Default II. Market Opportunity

7 Industry Overview Global Mine Supply in Significant Decline - Peak Global Gold production seen in 2001 - South Africa, Australia, USA suffering increasingly large production declines - No significant discovery of Precious Metals deposits this decade - Significant Reserve depletion via Mine Production - Silver to outperform Gold in coming years. No stockpile. Inelastic supply - Discontinuance of Central Bank Sales and Producer Hedging Massive Increase in Global Demand for Physical Precious Metals -Investment Demand (Traditional and Situational) -Fiat Currency rejection -Safe Haven Currency / Risk Diversification -Capital Preservation versus Capital Appreciation II. Market Opportunity

8 Declining Supply & Rising Demand II. Market Opportunity

9 Equity Market Overview II. Market Opportunity Gold equities form a tiny component of the overall equity market. A minor increase in capital allocation to the Precious Metal sector will have a dramatic effect on associated equity prices. The HUI Index of 15 largest Un-hedged Gold Producers has comparable market capitalisation to technology developer GOOGLE. Every Gold and Silver mine in the World can today be bought for about the same as the market capitalisation of Microsoft. Precious Metals equities are massively undervalued relative to the physical metal. - Gold shares, when valued versus the gold price are cheaper than when gold was $270 per ounce in 2002. Natural Leverage of Producers to the Metal Price. - The inherent call option of unhedged gold in the ground.

10 Compelling Market Opportunity II. Market Opportunity The HUI Gold Index component companies have a combined market capitalization of approximately US$140 Billion – Billions less than Google. HUI Gold Reserves combined total over 550 Million ounces (17,000 tonnes) The largest single Central Bank Gold reserve is USA with 260 Million Ounces (8000 tonnes) Comparatively small capital inflow will see significant upward revaluation of the sector.

11 Equity Market Overview II. Market Opportunity Gold Producers, when valued in gold terms, are cheaper than when gold was $270 per ounce in 2002.

12 Macro Economic Overview II. Market Opportunity Gold – A True Store of Wealth. - Dow Jones 30 Index devalued over 75% in gold terms since 2002. - Gold has appreciated 2000% in US Dollar terms since 1971. - Investment in US Treasuries today guarantees a capital loss via Negative Real Interest Rates. - Financial Asset Insurance Policy – Low correlation with other asset classes. Macro-Economic analysis incredibly bullish for Precious Metals. - Massively inflationary policies from Governments/Central Banks globally via bailouts/stimulus addressing the Financial Crisis. - Current stimulus of over 14 Trillion Dollars. - Competitive Devaluation of ALL currencies. - Inevitable flight from Fiat Currency to tangible assets. China and India. - Paper Metal versus Physical Metal. Refer the 1966 London Gold Pool.

13 Macro Economic Overview - Correlations II. Market Opportunity

14 Compelling Market Opportunity II. Market Opportunity Monetary InflationInflation Adjusted Gold Global Mine Production Decline

15 2007 - ??? Financial Crisis / Stimulus II. Market Opportunity

16 Investment Strategies III. Investment Strategies Buy gold reserves cheaply Concentrate on the companies whose reserves are most attractively valued. Invest in high cost producers High cost producers have the greatest operational leverage to an increase in the gold price. Optionality. Gold is harder to find. More will be found where it was before. Companies who control significant historic production sites mothballed for decades due to price and indifference. Diversify globally. Evaluate country risk and diversify accordingly. Synthesize Silver Production Silver is significantly undervalued relative to Gold. Limited market. Synthetically convert gold production to silver production. Strategies

17 Buy Gold Reserves Cheaply III. Investment Strategies Metal in the ground provides shareholders with a very real call option on the metal itself. - No hedging is a fundamental requirement Market Capitalisation divided by Proven and Probable Reserves. The lower the better. Proven and Probable Reserves – not Resources that are as yet uneconomic. Price of Gold used to calculate Proven and Probable Reserves understated in our view. - Many Producers using $500-600 per ounce to calculate reserve base. - Reserves Increase at higher prices in most cases. - Economic conversion potential of Resources to Reserves. Strip Ratios.

18 Invest In High Cost Producers III. Investment Strategies Unlike many other equity investments, we prefer exposure to Producers with high costs and therefore very tight margins. Natural leverage to higher prices inevitable. -Consider the following example of a gold price of $800 per ounce. Miner A produces at $400 per ounce. Their margin is $400 per ounce. Miner B produces at $700 per ounce. Their margin is $100 per ounce. -The Gold Price subsequently rises to $1000 per ounce. Miner A still produces at $400 per ounce. Their margin is now $600 per ounce. An increased profit margin of 50%. Miner B still produces at $700 per ounce. Their margin is now $300 per ounce. An increased profit margin of 200%. -The share price of miner B should mirror the obvious outperformance.

19 Historic Goldfields…More to Yield. III. Investment Strategies Many historic multi-million ounce gold producing regions have been dormant for more than a Century. Many simply shut after the mid 1800 gold rushes or the end of World War 1 due to costs, lack of a labour force and lack of capital. -Many historic mining regions have not been seriously re-worked or explored with modern methods and technology. -Many suffered due to disjointed and fractured ownership. Some regions are consolidated under one focused owner for the first time in their rich history. Examples such as: -Ballarat/ Bendigo in Victoria, Charters Towers in Queensland, Mt Lyell in Western Tasmania, the Carlin Trend in Nevada, Bathurst/Hargreaves in Western New South Wales. Gold doesnt appear in the crust in single pipes like diamonds. Where there is one gold mine there will be others. Red Lake Ontario, now controlled by Goldcorp Inc. Pure Silver mines are located in Mexico, Peru and Argentina. Historic areas again.

20 Synthesize Silver Production III. Investment Strategies There are very few pure Silver producers available anywhere to invest in. The Silver supply-demand imbalance suggests significant outperformance of Gold as an investment. -Silver is generally a bi-product of lead zinc and copper mines. -Supply is inelastic until pure silver mines from Mexico, Peru and Argentina become viable at much higher prices. Use of simple derivative contracts (with superior rated global banking institutions) allows AgAu Capital to convert Gold production to Silver production. -Buy silver / Sell Gold contracts effectively converts 1 ounce of Gold production to 80 ounces of silver production. -We expect the silver / gold ratio to fall from 80 to 1 at present to around 16- 1 in the next 5 years.

21 Gold/Silver Ratio III. Investment Strategies We expect significant outperformance by silver in coming years. Historic Bi-metallic monetary standard set at 16 to 1. Geologically the ratio is 14 to 1 but currently trading at 80-1 Industrial and Monetary applications ensure strong demand into falling production.

22 Diversify Globally III. Investment Strategies Australian Investors have very few options when looking at attractive Precious Metal investments in the local market. -We see significantly better value outside Australia. International Investors must be cognizant of Sovereign Risk when looking at Precious Metals as an asset class. Diversification is essential for risk management. -Nationalisation of Mines – Crystallex Inc in Venezuela -Exchange Controls – Zimplats in Zimbabwe. AgAu Capital monitors sovereign risk and adjusts portfolio balance accordingly. -Preference for companies incorporated in Commonwealth countries with operations in mature economies. -Manage exposure to African and South American production depending on country risk.

23 Global Production III. Investment Strategies Global Gold Production has changed dramatically over the past 3 decades. A Precious Metals portfolio cannot ignore developing economies and countries of lesser sovereign risk

24 Experienced Licensed Team IV. Team Relevant Experience (years) Previous FirmsExperience Highlights Investment Professionals Laurie McGuirk22Citigroup Transmedia Group Head of Energy Derivatives Asia Pacific. Three times voted No 1 Corporate Risk Manager for Strategic Advice by Australias top 500 companies. Analysis, structuring and implementation of significant Precious Metals hedge books for major Gold Mining Companies and Central Banks. Construct and manage the groups Investment portfolio particularly PMs and Equity portfolio. Mark Long20Merrill Lynch Citigroup Managing Director and Head of Commodities for Asia Pacific. Responsible for trading, structuring, sales and risk management of all commodities in Asia. Head of Commodities – Asia Pacific Kyle Shortland14Suncorp Metway / Westpac / Next Financial Various roles including Senior Portfolio Manager, Prop trader, and Model Development as well as writing financial market commentaries for a number of global sources.

25 Illustrative Investment Terms VI. Fund Terms Citco Fund Services (Australia) Limited Fund Administrator DLA Philips Fox Fund Lawyers Australia WalkersFund Lawyers Caymans Investment Strategy Earn an attractive risk-adjusted return by creating a globally diversified portfolio of gold mining stocks. Absolute Return Strategy employing both Fundamental and Technical analysis with a Long Delta position at all times. Specific sector concentration with commensurate risk diversification. Appropriate strategic futures and derivatives trading to enhance return and ameliorate risk. Target Size US$ 1 billion (Soft close at $600 million with excess capacity allocated to initial investors). Base Currency US$ Fund Structure Master-Feeder Cayman Islands Domiciled Investment Period 3-10 years Management Fee 2% of committed capital paid monthly. Performance Fee 20% of profits paid quarterly with a high water mark. Preferred Return 15% Expenses The Manager will be reimbursed for all financing costs and all direct and indirect operating costs and expenses and all out-of-pocket costs and expenses incurred in connection with the operation of the assets and the provision of administrative services Diversification Requirements Company Exposure: Not more than 10% FUM exposed to any one company, Not more than 5% of a single company. Not more than five days average daily volume. Geographic: Appropriate Diversification of Sovereign risk.

26 Appendix AgAu Global Producer Fund I. Mitigating Risks II. AgAus Portfolio III. Representative Transactions IV. Australian Financial Services License

27 Mitigating Risks Appendix RiskProtection/Mitigant Metal Price Overwhelming physical market demand underpins price. Significantly Reduced Official Sales and Producer Hedging Futures Market for our portfolio hedging and positioning. Derivatives both OTC and ETO. No Gold or Silver Lease exposure permitted. Employ both Fundamental and Technical analysis for strategic positioning/Hedging/re-weighting. Operation/Project Core portfolio production cost at industry standard. Low Cost eg Goldcorp. Analysis includes Geology, Underground vrs Open Pit, Production History, Infrastructure, Costs, Experience of Contract miners. Production diversity. Single mine companies rate lower than multiple production sites. Liquidity Exchange Listed Equities No more than 10% FUM exposed to any entity. No greater than 5% ownership of common shares of an entity. Exposure no greater than WAV (weekly average volume) for last 12 months. OTC derivatives must be a function of either Gold or Silver price. No Exceptions. Management Reputation. Know their pedigree. Experience. Accountants dont make good explorers. Geologists dont make good CEOS. Horses for courses. Skin in the game. Board Experience, involvement and oversight. Sovereign Diversification. Multiple production sites offset some of the risk. eg Newmont. Continual monitoring via respected independent sources. Common Sense.

28 Lowest cost Proven and Probable Reserves in the world. Significant exploration potential – Gold production since 1873. Ghana based production possibly the best sovereign risk in Africa. High cost producer. (+$700). Difficult ore-body now understood and to be profitably exploited. Production Cost declines expected Exchange Traded Options Infrastructure completed Negative market sentiment Reserves Calculated at $560 Massive undervalue on Peer Comparison basis. Portfolio Composition/Stock Selection Appendix Profile Listing:NYSE, TSE Production p.a.2.5 mio Reserves (P+P off US$550)50 Mio + Mine Life15 YEARS+ No of Operations16 Share PriceUS$29.60 Market Cap23 Billion US$ Shares issued731 mio WAV (NY-TOR) 18 million shares Resources25 million + Cost per Oz Reserve.$450 Cornerstone investment of the AgAu Portfolio. Bombproof gold investment. The lowest-cost and fastest growing multi-million ounce gold producer. (-$300) Canada/USA production. Significant Silver exposure Highly liquid Exchange Traded Derivatives and Options markets. Control one of the worlds most lucrative and under-explored Gold zones. Red Lake. Massive exploration upside potential and budget. Dividends. Debt Free Non Hedger. Reserves calculated at $550 Goldcorp Inc Golden Star Resources Limited Profile ListingAMEX, TSE Production p.a 300K Reserves (P+P)5.1 Mio Mine Life12+ years No. of Operations3 Share PriceUS$0.80 Market CapUS$200 mio Shares Issued240mio WAV (NY-TOR)15 million shares Resources2 million ozs Cost per Oz Reserve$80 AgAu Capital selects appropriate Precious Metal equity investments following intensive analysis focussed on maximum leverage to the gold price via proprietary qualitative and quantitative measures. Examples such as :

29 Portfolio Composition/Stock Selection Appendix Silver Standard Resources Inc Profile Listing:NASDAQ, TSE Production p.a. Soon to Commence Reserves (P+P off US$11 ag)200 Mio + Mine Life10 YEARS+ No of Projects15 Share PriceUS$18 Market Cap1.2 Billion US$ Shares issued67 mio WAV (NY-TOR)8 million shares Resources(ag)1 Billion + Cost per Oz Reserve Ag.US$6 Cornerstone Silver investment. Largest in-ground silver resources in the world. Projects in USA, Canada, Australia, Mexico, Peru, Chile and Argentina. Control of historic silver producing areas Pure Silver Call Option High cut-off grades for Reserve and Resource estimates Transition to Silver Producer on budget and timetable. Exchange Traded Derivatives and Options markets. Massive exploration upside potential and budget. Debt Free Non Hedger. Lihir Gold Limited Profile Listing ASX,TSE, Nasdaq Production p.a1mio Reserves (P+P)24 Mio Mine Life15+ years No. of Operations3 Share PriceUS$2.00 Market CapUS$4.5 Billion Shares Issued2.2 Billion WAV (ASX) 100 million shares Resources35 million ozs Cost per Oz ReserveUS$180 Low cost Proven and Probable Reserves. Significant exploration potential Victoria – Gold production since 1850. Total control of historic Ballarat Goldfield Recent close-out of hedge book. Geothermal Power Station on site. PNG Sovereign risk negligible due to Geography. Medium cost producer. (+$450). Exchange Traded Options Infrastructure Reserves Calculated at $600 AgAu Capital selects appropriate Precious Metal equity investments following intensive analysis focussed on maximum leverage to the gold price via proprietary qualitative and quantitative measures. Examples such as :

30 Representative Transactions Appendix Sell Oil – Buy Gold at 7 Barrels per ounce - Strategic Long term trade first published at - August 30, 2005 (and every month or so thereafter).

31 Representative Transactions Appendix Sell Dow Jones 30 Index – Buy Gold at 25 - Strategic Long term trade first published at – June 20, 2005.

32 Australian Financial Services License Appendix AgAu Capital is regulated by the Australian Securities and Investments commission (ASIC) AgAu Capital has held an AFSL (306152) since Nov 06

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