1 Important Disclosures regarding Price Target Risks, Valuation Methodology, Regulation Analyst Certification, Investment Banking, Ratings Definitions, and potential conflicts of interest begin on Page I of the Appendix Section 2015 Precious Metals Markets Outlook, Equities and Valuation Michael S. Dudas, CFA firstname.lastname@example.org 646-376-5329
Macro Monetary Liquidity Negative Real Interest Rates Currency Fears Micro Central Bank Purchases Emerging Market Liberalization Physical Demand in India and China Technical Investor Sentiment Improving Again Bearish to Bullish Reversal Silver Falls Between Gold and Copper Supply-Demand Favorable Gold Silver Ratio Near 70 How We Look at Gold 2 Positive Drivers Fed Balance Sheet vs. Gold Prices 1995-2015 Gold Price Vs US Dollar Index Sources: Federal Reserve Bank of St. Louis, Bloomberg,, Sterne Agee
Why Underperformance? Cost Escalation Dilutive Acquisitions Capital Cost Blowouts Political Concerns What Had Changed? Over 20 Global Mining CEOs Fired/Retired What Has Been Happening Since 2013? All in Sustaining Cost (AISC) Profile Improving Focus on Quality Over Quantity Higher Cost Projects Shelved; Asset Write downs M&A – More Caution Company Drivers 4 Sources: Factset,, Sterne Agee
5 Global Gold Industry All in Sustaining Cash Costs (US$/ounce) Sources: Bloomberg,, Sterne Agee Global gold industry index includes 19 senior, mid tier and junior gold producers across the world
Energy represents 20-30% of gold miners' operating costs The recent 50% decline in energy costs has helped gold mining companies trim costs across operations Domestic & contractual labor, and local administration costs, all paid in local currency, make up 25-50% of a gold miners’ operating costs Australian, Canadian, Mexican currencies have dropped nearly 10-15% since June 2014 Unhedged currency exposure could have meaningful impact on operating & capital costs 6 Cost Pressures Should Ease Gold Company Cost Breakdown Weaker Currencies Should Help Reduce Costs Sources: Bloomberg, Goldcorp company filings,, Sterne Agee
7 Spread Between Gold Miner Stocks and Gold Prices Sources: Bloomberg, Sterne Agee NYSE Arca Gold Miners Index (GDM)/Gold Prices. GDM is modified market capitalization weighted index comprised of publicly traded companies primarily involved in mining of gold and silver. GDX is an ETF with NYSE Arca Gold Miners Index as underlying security.
8 Gold Producers’ Forward EV/EBITDA vs. Gold Prices Sources: Factset,, Sterne Agee NYSE Arca Gold Miners Index (GDM) is modified market capitalization weighted index comprised of publicly traded companies primarily involved in mining of gold and silver. Forward EV/EBITDA is based on next twelve months EBITDA
9 EV/Gold Equivalent Reserves and Resources Sources: Bloomberg, Sterne Agee Index includes 14 senior gold producers across the world. Reserves include proven & probable reserves and Resources include measured, indicated and inferred resources
18 APPENDIX SECTION IMPORTANT DISCLOSURES: Regulation Analyst Certification: I, Michael S. Dudas and Satyadeep Jain, hereby certify the views expressed in this research report accurately reflect my personal views about the subject security(ies) or issuer(s). I further certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by me in this report. Research Disclosures: Sterne, Agee & Leach, Inc. makes a market in the following subject companies Barrick Gold, Agnico Eagle Mines, Coeur d'Alene Mines, Gold Resource Corporation, Hecla Mining, Newmont Mining and Pan American Silver Sterne, Agee & Leach, Inc.'s research analysts receive compensation that is based upon various factors, including Sterne, Agee & Leach, Inc.'s total revenues, a portion of which is generated by investment banking activities. Sterne Agee & Leach, Inc. expects to receive or intends to seek compensation for investment banking services from the subject company and/or companies in the next three months. Price Target Risks & Related Risk Factors: Investment risks associated with the achievement of the price target include, but are not limited to, a company's failure to achieve Sterne, Agee & Leach, Inc., earnings and revenue estimates; unforeseen macroeconomic and/or industry events that adversely affect demand for a company's products or services; product obsolescence; changes in investor sentiment regarding the specific company or industry; intense and rapidly changing competitive pressures; the continuing development of industry standards; the company's ability to recruit and retain competent personnel; and adverse market conditions. For a complete discussion of the risk factors that could affect the market price of a company's shares, refer to the most recent Form 10-Q or 10-K that a company has filed with the Securities Exchange Commission. Valuation Methodology: Methodology for assigning ratings and target prices includes qualitative and quantitative factors including an assessment of industry size, structure, business trends and overall attractiveness; management effectiveness; competition; visibility; financial condition; and expected total return, among other factors. These factors are subject to change depending on overall economic conditions or industry or company-specific occurrences. Sterne, Agee & Leach, Inc., analysts base valuations on a combination of forward looking earnings multiples, price-to-revenue multiples, and enterprise-value-to-revenue ratios. Sterne, Agee & Leach, Inc., believes this accurately reflects the strong absolute value of earnings, the strong earnings growth rate, the inherent profitability, and adjusted balance sheet factors. Additional company-specific valuation methodology is available through Sterne, Agee & Leach, Inc. Definition of Investment Ratings: BUY: We expect this stock to outperform the industry over the next 12 months. NEUTRAL: We expect this stock to perform in line with the industry over the next 12 months. UNDERPERFORM: We expect this stock to underperform the industry over the next 12 months. RESTRICTED: Restricted list requirements preclude comment. Ratings Distribution IB Serv./ Past 12Mos. Rating Category Count Percent Count Percent Buy 22546.49% 3415.11% Neutral 240 49.59% 15 6.25% Underperform 19 3.93% 1 5.26% ADDITIONAL INFORMATION AVAILABLE UPON REQUEST: Contact Robert Hoehn at 1-212-338-4731. Other Disclosures: Opinions expressed are our present opinions only. This material is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. Sterne, Agee & Leach, Inc., its affiliates, or one or more of its officers, employees, or consultants may, at times, have long or short or options positions in the securities mentioned herein and may act as principal or agent to buy or sell such securities.