Gold Miners & Gold!  Where Next? Scott V. Nystrom, Ph.D. February 9, 2008 2008 ValueForum InvestFest
Outline of Presentation Topics <ul><li>What is Gold? </li></ul><ul><li>How Can I Invest in Gold? </li></ul><ul><li>How Sho...
What is Gold? <ul><ul><ul><li>Rare and precious metal </li></ul></ul></ul><ul><ul><ul><li>The only yellow metal  </li></ul...
How Can I Invest in Gold? <ul><li>Physical  </li></ul><ul><ul><li>Coins </li></ul></ul><ul><ul><li>Bars/Ingots </li></ul><...
Gold Related Mutual Funds/ETFs <ul><li>Mutual Funds </li></ul><ul><ul><li>There are 21 families of gold related mutual fun...
What are the Stages of  Mining Companies? <ul><li>Discovery </li></ul><ul><li>Feasibility </li></ul><ul><li>Construction <...
Gold Mining Company Tiers <ul><li>Top Tier (1 mil oz. + production) </li></ul><ul><ul><li>Newmont, Barrick, Anglogold, Gol...
Top 10 Gold Companies by Market Cap ($ in billions) 1.1 m 1.2 m 1.6 m 4.0 m 5.7 m 1.0 m 1.6 m 5.3 m 2.3 m 8.1 m 2007 Prod ...
Jr. Mining Company S-curve Sell Sell Buy Buy
Share Price along S-Curve
Junior Miners are Risky Source: Company reports and CIBC World Markets Inc. Average Share Price Impact: By Event Type Prop...
Mining Stock Due Diligence <ul><ul><li>Experienced management, honest, & passionate </li></ul></ul><ul><ul><li>Increasing ...
Investment Strategy for Jr. Miners <ul><li>Don’t concentrate your capital in a single gold mining stock.  Buy several  wel...
Valuing Jr. Gold Miners $350 $634 oz $350 oz $280 oz $325 oz $450 oz < $9 oz 2008 Prod Costs $280m $290m $50m $91m $72m $6...
Major Gold Discoveries over 3 Million Ounces Source: Newmont Gold
World Gold Mining Production 1970-2010 est Source: USGS
Annual Gold Production vs. Au Ever Mined 1970-2010 est Source: USGS & WGC
Physical Gold Stocks Source: World Gold Council
Central Banks—Official Gold Holdings Source: World Gold Council
Supply and Demand Flows Source: World Gold Council
Gold—Consumer Demand India
What is Driving Price of Gold? Higher Gold Price Weaker US$ Growing National Debt Higher Budget Deficits as Baby Boomers R...
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Gold Miners And Gold Where Next Final

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Gold Miners And Gold Where Next Final

  1. 1. Gold Miners & Gold! Where Next? Scott V. Nystrom, Ph.D. February 9, 2008 2008 ValueForum InvestFest
  2. 2. Outline of Presentation Topics <ul><li>What is Gold? </li></ul><ul><li>How Can I Invest in Gold? </li></ul><ul><li>How Should I Pick Gold Mining Stocks? </li></ul><ul><li>Gold Stocks, Supply & Demand </li></ul><ul><li>What Drives the Price of Gold? </li></ul>
  3. 3. What is Gold? <ul><ul><ul><li>Rare and precious metal </li></ul></ul></ul><ul><ul><ul><li>The only yellow metal </li></ul></ul></ul><ul><ul><ul><li>Will never rust or tarnish (only metal that forms no oxide film on it's surface in air at normal temperatures) </li></ul></ul></ul><ul><ul><ul><li>Non-toxic to humans </li></ul></ul></ul><ul><ul><ul><li>Durable, portable, low weight to value, divisible </li></ul></ul></ul><ul><ul><ul><li>Melting point: 1,064.43°C (1,337.58°K, 1,947.97°F) </li></ul></ul></ul><ul><ul><ul><li>Boiling point: 2,807.0°C (3,80.15°K, 5,084.6°F) </li></ul></ul></ul><ul><ul><ul><li>Gold may be alloyed with various other metals—silver (Ag), copper (Cu), zinc (Zn), nickel (Ni), platinum (Pt), palladium (Pd), tellurium (Te), and iron (Fe). </li></ul></ul></ul>Source: USGS, Mineral Commodity Profiles—Gold , 2002.
  4. 4. How Can I Invest in Gold? <ul><li>Physical </li></ul><ul><ul><li>Coins </li></ul></ul><ul><ul><li>Bars/Ingots </li></ul></ul><ul><ul><li>Shot </li></ul></ul><ul><li>Mutual Funds/ETFs </li></ul>Mining Stocks
  5. 5. Gold Related Mutual Funds/ETFs <ul><li>Mutual Funds </li></ul><ul><ul><li>There are 21 families of gold related mutual funds with about 50 separate gold mutual funds </li></ul></ul><ul><li>See: http://www.eaglewing.com/fundlist.html </li></ul><ul><li>Physical Gold ETF </li></ul><ul><ul><li>State Street's streetTRACKS Gold Shares (NYSE: GLD ) </li></ul></ul><ul><ul><li>iShares Comex Gold Trust (AMEX: IAU ) </li></ul></ul><ul><li>Gold Miners ETF </li></ul><ul><ul><li>Van Eck's Market Vectors Gold Miners ETF (AMEX: GDX ) </li></ul></ul><ul><li>Gold Futures ETF </li></ul><ul><ul><li>PowerShares DB Gold Fund (AMEX: DGL ) </li></ul></ul>
  6. 6. What are the Stages of Mining Companies? <ul><li>Discovery </li></ul><ul><li>Feasibility </li></ul><ul><li>Construction </li></ul><ul><li>Preproduction </li></ul><ul><li>Production </li></ul><ul><li>Mature </li></ul>
  7. 7. Gold Mining Company Tiers <ul><li>Top Tier (1 mil oz. + production) </li></ul><ul><ul><li>Newmont, Barrick, Anglogold, Gold Fields, Goldcorp, Harmony, Freeport-McMoran, Newcrest, Kinross, IAMGOLD, Polyus, Yamana </li></ul></ul><ul><li>Mid Tier (> 100k < 1 mil oz. production) </li></ul><ul><ul><li>Northgate, Western, Centerra, DRDGold, Golden Star, Randgold, Minefinders. </li></ul></ul><ul><li>Jr. Tier (6 months to production or < 100k oz.) </li></ul><ul><ul><li>Claude, Crystallex, European Minerals, Gold-Ore, Jinshan, Metanor, MDN, Nevsun, </li></ul></ul><ul><li>Discovery Tier (identifying reserves) </li></ul>
  8. 8. Top 10 Gold Companies by Market Cap ($ in billions) 1.1 m 1.2 m 1.6 m 4.0 m 5.7 m 1.0 m 1.6 m 5.3 m 2.3 m 8.1 m 2007 Prod 14 m 64 m 46 m 88 m 66 m 17 m 33 m 94 m 42 m 135 m P+P Reserves $300 oz $320 oz $360 oz $415 oz $330 oz -$150 oz $108 oz $415 oz $150 oz $350 oz 2007 Prod Costs $8.4 Buenaventura BVN 10 $160 TOTAL …………………………………………………. OPYGY KGC GFI AU AUY NCMGY NEM GG ABX Symbol 9 8 7 6 5 4 3 2 1 $8.9 Polyus $11.8 Kinross Gold $12.6 Gold Fields $13.1 AngloGold $14.1 Yamana $14.6 Newcrest $23.5 Newmont $25.6 Goldcorp $40.0 Barrick Market Cap Company
  9. 9. Jr. Mining Company S-curve Sell Sell Buy Buy
  10. 10. Share Price along S-Curve
  11. 11. Junior Miners are Risky Source: Company reports and CIBC World Markets Inc. Average Share Price Impact: By Event Type Property Ownership Dispute Major Exploration Disappointment Exchange Issues Social/Env. Concerns/Delay Operating Disappointment Feasibility Disappointment Major Project Delay
  12. 12. Mining Stock Due Diligence <ul><ul><li>Experienced management, honest, & passionate </li></ul></ul><ul><ul><li>Increasing reserves </li></ul></ul><ul><ul><li>Increasing production/cash flow </li></ul></ul><ul><ul><li>Low production costs </li></ul></ul><ul><ul><li>Unhedged in era of rising gold price </li></ul></ul><ul><ul><li>Politically safe region </li></ul></ul><ul><ul><li>Possible buy out candidate </li></ul></ul><ul><ul><li>Price of gold forecast </li></ul></ul>
  13. 13. Investment Strategy for Jr. Miners <ul><li>Don’t concentrate your capital in a single gold mining stock. Buy several well-researched plays. </li></ul><ul><li>Set a target price & stick to a disciplined sell strategy. </li></ul><ul><li>Scale-in on the way up & scale-out on the way down if price declines for no reason. </li></ul><ul><li>If a resource doesn’t prove up or management fails to execute — sell or avoid the stock. </li></ul><ul><li>Be prepared for extreme volatility. </li></ul><ul><li>Be patient, markets are slow to recognize value. </li></ul>
  14. 14. Valuing Jr. Gold Miners $350 $634 oz $350 oz $280 oz $325 oz $450 oz < $9 oz 2008 Prod Costs $280m $290m $50m $91m $72m $65m $440m ~Market Cap 55k/100k For sale 40/80 k 50k? 170/275 k 60/75 k 149/149 k 2008/2009 Prod in ounces 12k 55 k 0 35k+ 69 k 20 k 0 2007 Prod in ounces Canada 1.6m SGRCF San Gold Resources Eritrea 1.4 m NSU Nevsun Canada 0.6 m (M&I) MEAOF Metanor Resources Tanzania ?-Barrick MDNNF MDN Inc. Brazil 2.9 m (M+I) JAG Jaguar Mining Sweden 2.1 m (M+I) GREXF Gold-Ore Resources Kazahkstan/ 11% 2.2 m EPMCF European Minerals Mine Site/ Hedge % P+P Reserves Symbol Company Name
  15. 15. Major Gold Discoveries over 3 Million Ounces Source: Newmont Gold
  16. 16. World Gold Mining Production 1970-2010 est Source: USGS
  17. 17. Annual Gold Production vs. Au Ever Mined 1970-2010 est Source: USGS & WGC
  18. 18. Physical Gold Stocks Source: World Gold Council
  19. 19. Central Banks—Official Gold Holdings Source: World Gold Council
  20. 20. Supply and Demand Flows Source: World Gold Council
  21. 21. Gold—Consumer Demand India
  22. 22. What is Driving Price of Gold? Higher Gold Price Weaker US$ Growing National Debt Higher Budget Deficits as Baby Boomers Retire Higher Gold Price Gold as hedge against inflation Gold as money, not commodity Higher Inflation Expectations Higher Gold Price More hoarding & lower supply Reduce sales of gold Central banks Effect Cause Higher Gold Price Weaker US$ Extraordinary global liquidity Low interest rates in Japan; PBOC; ECB; US Repos+Euro$ Higher Gold Price Falling gold production No new exploration Low POG in 90s Higher Gold Price High exports/ US$ Surplus Yuan peg to the US$ China Higher Gold Price High exports/ US$ Surplus High Oil Prices Oil Exporters Higher Gold Price Weaker US$ Negative Real Interest Rates Slowing GDP/ impending Rate cuts

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