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Eric sprott australia gold symposium november 2011
 

Eric sprott australia gold symposium november 2011

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The Gold Symposium Keynote Presentation

The Gold Symposium Keynote Presentation

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    Eric sprott australia gold symposium november 2011 Eric sprott australia gold symposium november 2011 Presentation Transcript

    • Mania. Manipulation. Meltdown. Eric Sprott, FCA Chief Executive Officer Chief Investment Officer Senior Portfolio Manager Sprott Asset Management LP November 2011 0
    • DisclaimerSprott Asset Management LP is the investment manager to the Sprott Funds, (collectively, the“Funds”). Important information about these Funds, including their investment objectives andstrategies, purchase options, and applicable management fees, performance fees (if any), andexpenses, is contained in their prospectus or offering memorandum. Please read these documentscarefully before investing. Commissions, trailing commissions, management fees, performancefees, other charges and expenses all may be associated with investing in the Funds. Investmentfunds are not guaranteed, their values change frequently and past performance may not berepeated. This communication does not constitute an offer to sell or solicitation to purchasesecurities of the Funds.The information contained herein does not constitute an offer or solicitation by anyone in the UnitedStates or in any other jurisdiction in which such an offer or solicitation is not authorized or to anyperson to whom it is unlawful to make such an offer or solicitation. Prospective investors who arenot resident in Canada should contact their financial advisor to determine whether securities of theFunds may be lawfully sold in their jurisdiction. 1
    • DisclaimerForward-Looking StatementsThis presentation contains forward-looking statements which reflect the current expectations of management regarding futuregrowth, results of operations, performance and business prospects and opportunities. Wherever possible, words such as “may”,“would”, “could”, “will”, “anticipate”, “believe”, “plan”, “expect”, “intend”, “estimate”, and similar expressions have been used toidentify these forward-looking statements. These statements reflect management’s current beliefs with respect to future eventsand are based on information currently available to management. Forward-looking statements involve significant known andunknown risks, uncertainties and assumptions. Many factors could cause actual results, performance or achievements to bematerially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements. Should one or more of these risks or uncertainties materialize, or should assumptions underlying theforward-looking statements prove incorrect, actual results, performance or achievements could vary materially from thoseexpressed or implied by the forward-looking statements contained in this document. These factors should be consideredcarefully and undue reliance should not be placed on these forward-looking statements. Although the forward-lookingstatements contained in this document are based upon what management currently believes to be reasonable assumptions,there is no assurance that actual results, performance or achievements will be consistent with these forward-looking statements.These forward-looking statements are made as of the date of this presentation and Sprott does not assume any obligation toupdate or revise.Views expressed regarding a particular company, security, industry or market sector should not be considered an indication oftrading intent of any investment funds managed by Sprott Asset Management LP. Any reference to a particular company is forillustrative purposes only and should not to be considered as investment advice or a recommendation to buy or sell nor should itbe considered as an indication of how the portfolio of any investment fund managed by Sprott Asset Management LP is or willbe invested.The information contained herein does not constitute an offer or solicitation by anyone in the United States or in any otherjurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offeror solicitation. Prospective investors who are not resident in Canada should contact their financial advisor to determine whethersecurities of the Funds may be lawfully sold in their jurisdiction. 2
    • Leverage in the Banking SystemSubPrimeALT-AHELOCCDSCDOMBSSTUDENTAUTOCORPORATEREAL ESTATECONSTRUCTIONSTOCKSPREFERREDSETC, ETC, ETC … 3
    • Government BailoutsTransfer of Risk…from Private Sector to Public Sector QE1, QE2, TARP, TALF, Term AuctionFacility, UK bank bailouts, Term Security LendingFacility, American Recovery & Reinvestment Act, European Financial Stability Facility, Chinese bank loans, Home buyer tax credits, Ireland bank bail-outs, Money Market Investor Funding Facility, Unemployment benefit extensions,FDIC bank takeovers, Fannie Mae & Freddie Mac, EU & IMF bail-out of Portugal, Canadian government mortgage purchases through CMHC, Student loan guarantees …*** Recent EU Bailout 4
    • The Underperformance of European Banks Blue: Deutsche Bank Red: BNP Paribas Green: Credit Agricole Orange: Societe GeneraleSource: Yahoo Finance 5
    • Bank CDS RatesSource: Bloomberg 6
    • Sovereign CDSSource: Bloomberg 7
    • US ExamplesSelect October 2011 Bank FailuresBank of Commonwealth,Norfolk, Virginia - $985.1 million in total assets  140 banks failed - Cost to the FDIC: $268.3 million - Implied Write-Down: 27% in 2009First National Bank of Florida - $296.8 million in total assets  157 banks failed - Cost to the FDIC: $46.9 million in 2010 - Implied Write-Down: 16%First Southern National Bank,  So far 73 banksStatesboro, Georgia have failed in - $164.6 million in total assets - Cost to the FDIC: $39.6 million 2011... - Implied Write-Down: 24%Source: FDIC 8
    • Precious Metals Review A Decade of Change 9
    • Physical Supply: Gold Source: CPM Group, Sprott Asset Management LP 10
    • Gold’s Changing Fundamentals Annualized Change 2000 2010 in Demand Annual Mine Production ~ 2,620 Annual Mine Production ~ 2,689 (79) metric tonnes according to GFMS metric tonnes according to GFMS Central Banks; Sellers of 400 Central Banks; Net Buyers of 400 800 tonnes tonnes** (Washington Agreement, Sept. 1999) US & Canadian Mint Coin Sales: US & Canadian Mint Coin Sales: 64 290,100 oz* 2,355,500 oz* Limited Exchange-traded Physical gold ETFs hold 2300 400 investment options tonnes of gold (Bloomberg) China consumes 207.5 tonnes (WGC) China consumes 700 tonnes (WGC) 500 Indian gold imports: 535 tonnes Indian gold imports: 918 tonnes 383 (Reuters) (Economic Times) ~2000 tonnes* Source: http://www.usmint.gov/ and Royal Canadian Mint** Sprott estimate 11
    • China’s September Gold Imports Jump SixfoldChinese gold imports from Hong Kong, a proxy for the country’s overalloverseas buying, leapt to a record high in September, when monthlypurchases of 57 tonnes matched almost half that for the whole of 2010.Monthly gold imports for most of 2010 and this year run at about 10tonnes, but buying jumped in July, August and September. In the three-month period, China imported from Hong Kong about 140 tonnes, morethan the roughly 120 tonnes for the whole 2010.Source: Financial Times 12
    • Physical Demand Increasing Rapidly (Bars and coins, excluding jewelry demand) Source: World Gold Council 13
    • Silver: Investment of the Next Decade 14
    • Physical Supply: Silver Source: CPM Group, Sprott Asset Management LP 15
    • Silver’s Changing Fundamentals Annualized 2005 2010 Change in DemandAnnual Mine Production ~ 630 Annual Mine Production ~ 720 million (90)million oz according to US ounces according to GFMSGeological SurveyCanadian Mint Silver Coin Sales: Canadian Mint Silver Coin Sales: 421,062,000 oz (RCM) 17,900,000 oz (RCM)US Mint Coin Sales: 8,405,000 oz* US Mint Coin Sales: 34,662,500 oz* 26Limited Exchange-traded Physical silver ETF holdings: 510 mm oz 100investment options (Bloomberg)China net exporters of 2.7 million China net importers 112 million oz 200oz (GFMS) (Commodity Online)US Sales 100 million oz No US Sales 100(Silver Institute) 380 mm oz.* Source: http://www.usmint.gov/ and Royal Canadian Mint 16
    • The Price Ratio ArgumentHistorical Silver-to-Gold Ratio: 16:1Geological In Situ Silver-to-Gold Ratio: 17.5:1Current Silver-to-Gold Ratio: 50:1Implied silver price if silver revertedback to 16:1 ratio at $1,600 gold: $100/oz 17
    • Investable Ratio AnalysisComparison of Key Gold-to-Silver Ratios Key Takeaways(Ratios in Dollar Terms)Gold bars and coins in existence (1) ~2.2Bn ounces  The value of all gold bars and coins in existence is ~$3.5Tn at current pricesSilver bars and coins in existence (1) ~1.2Bn ounces  The value of all silver bars and coins in existence is ~$40Bn at current pricesValue of gold bars and coins in existenceto silver bars and coins in existence (1) 88:1  Supply / Inventory of investable gold is significantly higher than the supply of investable silver…Investments in the SPDR Gold Trust to 6:1iShares Silver Trust (2)  …but investors are choosing to put disproportionately more money to work2011 YTD U.S. Mint gold coin sales to in silver than in gold… 1:1silver coin sales (3)  …and the disparity is even greater in physical coin salesPHYS to PSLV IPO’s 0.75:1 (1) Gold and silver data according to the CPM Group 2010 Gold Yearbook and CPM Group 2009 Silver Yearbook, respectively.Gold Money 1:1 (2) Ratio is of net dollar purchases of the GLD to the dollar purchases of the SLV since inception of SLV in April, 2006.Royal Canadian Mint 1.5:1 (3) 2011 YTD US Mint Coin Sales sourced from http://www.usmint.gov/ 18
    • The Great Wealth Redistribution 19
    • HUI Gold Index OutperformanceSource: Bloomberg 20
    • HUI vs. European FinancialsSource: Bloomberg 21
    • Gold: The Ultimate CurrencySource: Bloomberg 22
    • Concluding Remarks 23
    • Contact InformationSprott Asset Management LPRoyal Bank Plaza, South Tower200 Bay StreetSuite 2700Toronto, ON M5J 2J1T: +1 416 943 6707Toll Free: +1 866 299 9906F: +1 416 362 4928Email: info@sprott.comWeb: www.sprott.com 24