Metals and Mining chapter. Global Gambits The Right Moves for Right Now. See jpmorgansavant.com for global sector valuation tools

Transcription

1 June 28, 2006 Global Gambits The Right Moves for Right Now Metals and Mining chapter The following is a chapter from, dated June 28, This chapter is presented for convenience, and should be read in conjunction with the full report and its analyst certifications and important disclosures. The full report is available on MorganMarkets.

2 Metals and Mining The Cycle is Not Over: Still Plenty of Legs Global Sector Coordinator Michael F. Gambardella (1-212) J.P. Morgan Securities Inc. Full sector coverage details on page 8 Key Drivers Anxiety over inflation, interest rates and the global economy should remain key drivers of metal prices and investors sentiment towards the sector in the near term. However, in the longer term, we believe precious metals, base metals and steel fundamentals will be underpinned by global economic growth, relatively constrained supply and growing belief in commodities as requisites for investment allocation. US dollar strength will likely continue to play a pivotal role for commodity prices. Generally, a weaker US dollar is positive for commodity pricing and vice versa. Gold has become highly volatile in the short term. The fundamental factors of weakening supply, falling central bank sales, double deficits, inflation fears, geo-political tensions, etc., remain intact with a very positive influence on gold prices. However, it is fund flows that should drive gold in the short term, and this adds volatility. We expect to see continued volatility in gold prices in the short term but remain convinced that in the longer term, the risk is on the upside. Steel-making input costs continue to rise; we believe cost push pressure will drive global steel prices higher. Iron ore producers have concluded their 2006 contracts with most major customers (with one notable exception the Chinese) and iron ore fines are set to rise by 19% Y/Y while pellet prices are set to drop by 3% Y/Y. If Chinese steel-makers are forced to swallow a substantial iron ore price increase, as we expect, they will have to raise their prices, which would be bullish for steel prices and steel-makers earnings globally. Our Non-Consensus Views Everybody was wrong on metal prices including us. While we and a number of other industry participants had laid out the analysis of a super-cycle for commodity metals, it looks like no one can say that their estimates were anywhere near the surge in metal prices over the past 18 months. Virtually all commodity analysts, including our own, were forced to raise their metal price forecasts almost on a regular basis over this time period in an attempt to catch up with surging prices, and they were still significantly below spot prices although the recent correction in metals has brought prices more in line with expectations. Steel prices should continue to move higher on a global basis. Global steel fundamentals remain solid, with supply and demand in balance. In addition, steel-making input costs continue to rise, and this cost push pressure should drive steel prices higher through We like the longer-term fundamentals for coal stocks, but we are bearish in the short term. We believe coal stocks are currently factoring in large premiums for coal-to-liquids (CTL) projects. We do not expect CTL to make a large contribution in most investors time horizons, plus carbon dixode storage issues are likely to complicate permitting. CTL also introduces the interesting dynamic of power utilities feeling that new liquids projects are taking up their coal reserves. Also, in the short term, the current large natural gas inventory overhang could drag coal stocks lower in the absence of an extremely warm summer. 2

3 Metals & Mining: Top Picks Company Key Financials Rationale and Catalysts Alcoa Rating: Overweight Fiscal EPS (Local): Year-end Dec. Ticker: AA US / AA E 2007E Exchange: NYSE P/E (Calendar) Price (Local): US$ E 2007E Mkt Cap (US$): 26.3 bn Analyst: Michael F. Gambardella EV/EBITDA (Calendar) Phone: (1-212) E 2007E michael.gambardella@jpmorgan.com We believe Alcoa has turned the corner and is poised to fully participate in the high metal price environment after its results lagged the results of other metals and mining companies over the last two years. Until posting record 1Q06 results, Alcoa had primarily disappointed investors due to cost headwinds that have since stabilized or abated due to management s restructuring efforts. In our view, the threat of a strike at its US operations has been an overhang on the stock for most of 2Q06. Now that the threat of work stoppage has passed due to the new four-year labor agreement negotiated at the eleventh hour, we expect Alcoa s shares to recover and reflect the strong earnings outlook of the company. Indeed, we expect it to post record results in 2Q06 and the new labor contract should improve Alcoa s competitive position by capping longterm healthcare liabilities and requiring US wage earners to contribute to their healthcare plan for the first time. Besides restructuring to better align costs, Alcoa has invested in several attractive upstream refining and smelting projects that will increase production in lower cost regions (i.e. Iceland, Trinidad and Tobago), which should at a minimum help maintain the company s position along the cost curve. Alcoa is also actively investing downstream and we should begin to see incrementally positive results from its Russian rolling mills and investments in China. We also believe Alcoa s shares represent a compelling value at the current levels given that the stock has historically traded at a forward P/E of 15x and a historical EV/EBITDA multiple of 8.1x, which implies substantial upside to the current share price. BHP Billiton Rating: Overweight Fiscal EPS (Local): Year-end Jun. Ticker: BHP AU / BHP.AX E 2007E Ticker ADR: BHP Exchange: Sydney Stock Exchange P/E (Calendar) Price (Local): A$ E 2007E Mkt Cap (US$): 71.0 bn Analyst: David George EV/EBITDA (Calendar) Phone: (61-3) E 2007E david.b.george@jpmorgan.com Source: Company data, Bloomberg, JPMorgan estimates, JPMorgan SaVanT. Prices as of June 15, With increased volatility in base metal prices, we prefer companies with quality diversified resources and sustainable earnings generated from low cost, long life assets. We maintain our Overweight rating on BHP with a June 2007 price target of A$35, which is 12.5x peak EPS (FY07E) and which corresponds to approximately 15x sustainable EPS. Commodity prices remain the key risk to our price target. BHP s earnings are less sensitive to falling base metal prices because of: (1) its exposure to oil (20% of FY07E EBIT); and (2) its EBIT from non-exchangeable traded commodities increasing to approximately 50% by FY08E. We estimate BHP to generate significant free cash flow over the next three years. Even if our metal price estimates fall below commodity prices, there is still potential for significant investment in new projects and/or capital management. 3

4 Metals & Mining: Top Picks (cont d) Company Key Financials Rationale and Catalysts Glamis Gold Rating: Overweight Fiscal EPS (Local): Year-end Dec. Ticker: GLG US / GLG E 2007E Exchange: NYSE P/E (Calendar) Price (Local): US$ E 2007E Mkt Cap (US$): 5.4 bn Analyst: John Bridges, CFA, ASCM EV/EBITDA (Calendar) Phone: (1-212) E 2007E john.bridges@jpmorgan.com Glamis Gold (GLG) completed the purchase of Western Silver for its Penasquito gold/silver asset on May 2, Based on Western Silver s reserve estimates, the new project adds about 4.9moz or an extra 85% to GLG s 2005 year-end 5.75moz reserve and more importantly an extra 308 million silver ounces on GLG s own reserves of 42 million silver ounces. The actual value of the Penasquito project will be determined by GLG s engineers with the feasibility study, but we are confident that after spending one year investigating the property, management sees value. Penasquito is additive to GLG s exisiting portfolio of growth projects that should see gold production grow from 435moz in 2005 to 962moz by 2009 and silver from 157moz in 2005 to 10,000moz by Though its value has grown with the silver price, we believe the market is not fully reflecting the Penasquito upside that results from the larger planned project and our belief that silver prices will remain at higher levels. Consequently, we believe GLG is relatively undervalued compared with its peer group of North American precious metals producers. Kinross Gold Rating: Overweight Fiscal EPS (Local): Year-end Dec. Ticker: KGC E 2007E (0.10) Exchange: NYSE P/E (Calendar) Price (Local): US$ E 2007E Mkt Cap (US$): 3.4 bn Analyst: John Bridges, CFA, ASCM EV/EBITDA (Calendar) Phone: (1-212) E 2007E john.bridges@jpmorgan.com Kinross has one of the highest sensitivities to gold prices within our coverage list. We believe the accounting dispute with the SEC over how the acquisition costs for TVX Gold and Echo Bay should be reported kept the stock off investors radar screen for some time but did not represent a significant negative to the stock s potential. Kinross, in our opinion, has a much improved portfolio of assets after the Kinross/Echo Bay/TVX merger. It has acquired better quality mines at Paracatu, Round Mountain and Buckhorn and is improving its exisiting mines at Refugio and Fort Knox. These should underpin a growth profile taking the (equivalent) gold production from an estimated 1.4moz in 2006 to 1.9moz in Kinross plans to expand its grinding mill at Paracatu in two stages from the current throughput rate of 17mtpa to 30mtpa and finally to 50mtpa over a 3-4 year period. The company is also planning expansions at Kettle River/Buckhorn and Round Mountain. Higher sensitivity to gold prices, increasing the attractiveness of its orebodies at higher gold prices and planned expansions underpin our Overweight rating on Kinross. Source: Company data, Bloomberg, JPMorgan estimates, JPMorgan SaVanT. Prices as of June 15,

5 Metals & Mining: Top Picks (cont d) Company Key Financials Rationale and Catalysts Ternium Rating: Overweight Fiscal EPS (Local): Year-end Dec. Ticker: TX US / TX E 2007E Exchange: NYSE P/E (Calendar) Price (Local): US$ E 2007E Mkt Cap (US$): 4.5 bn Analyst: Rodolfo R. De Angele, CFA EV/EBITDA (Calendar) Phone: (55-11) E 2007E rodolfo.r.angele@jpmorgan.com We view Ternium as a growth story. We expect its EBITDA to grow 22% and 7% in 2006E and 2007E, respectively, driven mainly by two factors: (1) an improved steel industry pricing scenario; and (2) cost reductions, as the company starts to reap the benefits of the consolidation of its recently joined operations (the company was created by joining Siderar, Sidor and Hylsamex). We also expect Ternium to pursue a second wave of synergies and cost reduction opportunities in the medium term. In our view, management has the track record and credentials to build a leading steel company while delivering returns to investors. Ternium s creator and controlling shareholder is the Techint Group, which has in the recent past constructed a successful, and to some extent, similar story in the steel industry, i.e. Tenaris, a leading player in its business segment. The price of Tenaris shares have multiplied by around 10x since its IPO in December 2003, vs. a 17% rise for the S&P 500. Ternium is the most inexpensive stock within our Latin American steel stock universe, trading at implicit EV/EBITDA multiples of 3.4x for 2006E and 2.6x for 2007E. This compares to average trading multiples in the global steel industry of 9.0x and 7.6x, respectively. In our opinion, Ternium s stock should not remain cheap for long. We anticipate two main catalysts to drive up valuation: (1) building up of reporting history (currently only two truly comparable quarters of historical performance are available, plus yearly historicals since 2003); and (2) increased coverage from sell side analysts Ternium is a recent story (IPO was at the end of January and the company still has still has thin coverage). Source: Company data, Bloomberg, JPMorgan estimates, JPMorgan SaVanT. Prices as of June 15,

6 Metals & Mining: Top Picks (cont d) Company Key Financials Rationale and Catalysts U.S. Steel Corp. Rating: Overweight Fiscal EPS (Local): Year-end Dec. Ticker: X US / X E 2007E Exchange: NYSE P/E (Calendar) Price (Local): US$ E 2007E Mkt Cap (US$): 7.0 bn Analyst: Michael F. Gambardella EV/EBITDA (Calendar) Phone: (1-212) E 2007E michael.gambardella@jpmorgan.com We view U.S. Steel as an attractive investment as we believe the steel market outlook is strong with domestic HRC prices over US$600/ton, rising Asian and European prices, service center inventory levels in balance at three months supply on-hand, and steady imports. We believe the high level of consolidation over the past cycle has created an environment in which supply discipline by steel producers can reduce the cyclicality of steel prices. In addition, high raw material costs are making labor cost differentials less meaningful. As coal, iron ore, natural gas and scrap costs have taken a step-up in prices, they have made labor costs a much smaller percentage of overall steel production costs, allowing domestic producers to narrow the cost gap with overseas producers. We recently increased our 2006 EPS estimate for U.S. Steel to US$11.00 versus consensus estimates of US$8.54 as we believe the company will benefit from the recent restart of its Gary, Indiana blast furnace #14. The restart should help U.S. Steel pick up spot sales, especially due to the recent outage at Mittal Steel s Indiana Harbor facility which we estimate accounts for 4-5% of domestic sheet capacity. We have a May 2007 target price of US$100 for U.S. Steel, based on our sum-of-the-parts valuation analysis representing 56% upside price potential. Key risks to target price earnings and demand for steel are intertwined. If economic growth were to slow, then demand for steel would likely decline, resulting in lower steel selling prices and earnings and cash flow generation. Given such a scenario, it would be unlikely for U.S. Steel to meet our target price. Vedanta Resources Rating: Overweight Fiscal EPS (US$): Year-end Mar. Ticker: VED LN / VED.L E Exchange: London Stock Exchange P/E (Calendar) Price (Local): 1256p 2006E 2007E Mkt Cap (US$): 6.7 bn Analyst: James E Kelly EV/EBITDA (Calendar) Phone: (44-20) E 2007E james.e.kelly@jpmchase.com Vedanta is an ongoing story of organic growth creating low-cost operations that provide unparalled leverage to the Indian growth story. We believe Vedanta continues to have the best volume growth in the industry as the group moves towards its goal of 1mtpa in each of its core metals. With Phase I expansions nearing completion and Phase II beginnning, the company has built a track record of delivering low-cost expansions on time and within budget. Attention is now turning to what happens after Phase II, and management comments at the recent annual results presentation suggest that more growth is on the way. Vedanta has a long-standing MoU to enter the iron ore market in India, and it is currently looking at how to take this forward in the context of the Indian requirement to process this into steel within India a strategic steel partner is a distinct possibility. When combined with the possible entry into the Indian thermal coal market, we believe that this provides attractive growth and diversification options. Currently, the key metals for Vedanta are zinc and copper (49% and 39% of FY06E EBITDA, respectively), metals that we believe have good fundamentals and which provide upside potential to earnings. We believe the potent combination of zinc and copper exposure coupled with a best in class volume growth profile means that Vedanta is set to continue its outperformance. Source: Company data, Bloomberg, JPMorgan estimates, JPMorgan SaVanT. Prices as of June 15,

7 Metals & Mining: Stock to Underweight Company Key Financials Rationale and Catalysts Antofagasta Rating: Underweight Fiscal EPS (US$l): Year-end Dec. Ticker: ANTO LN ANTO.L E 2007E Exchange: London Stock Exchange P/E (Calendar) Price (Local): 1926p 2006E 2007E Mt Cap (US$): 7.0 bn Analyst: James E. Kelly EV/EBITDA (Calendar) Phone: (44-20) E 2007E Antofagasta is a pure play copper producer, which is currently benefitting from useful molybdenum by-product credits. Its share price performance has a strong correlation (R-sq of 94%) with copper price performance. Consequently, an over-arching consideration for viewing Antofagasta s potential share price performance is the future copper price outlook. JPMorgan estimates copper to average 181 US c/lb for 2007, over 40% below the current spot price of 320 US c/lb. The historical relationship suggests that Antofagasta is poised for a period of underperformance. Putting aside the copper price relationship, and despite impressive management and assets, we maintain our Underweight rating on Antofagasta against its European base metals and mining peers of Vedanta and Kazakhmys as we believe it has an inferior growth profile in the short to medium term. We estimate that copper production will fall 5% to 442kt in 2006, and it will hold at this level until the completion of the Esperanza or Reko Diq projects (JPMorgan estimates 2010). It is worth noting that since the death of the modern founder, Andronico Luksic, the company is starting to challenge its conservative label. The acquisition of Tethyan (and the contained Reko Diq prospect in Pakistan) is the group s first venture outside Latin America, and the JV with Barrick Gold (to exploit Reko Diq) signals a change in direction. We believe the JV with Barrick could be the first in a series of tie-ups that spread project risk and leverage the two companies skills sets. Source: Company data, Bloomberg, JPMorgan estimates, JPMorgan SaVanT. Prices as of June 15,

8 JPMorgan Global Metals and Mining Team Research Equity Research Credit Research Americas Americas Michael Gambardella Global Sector Coordinator United States Michael Gambardella Jeffrey Largey Nathan Zibilich, CFA John Bridges, CFA, ACSM. Ankush Agarwal United States Latin America Rodolfo Angele, CFA Debbie Bobovnikova EMEA EMEA Pan-Europe Ross W Gardiner Pan-Europe & CEEMEA Patricia Lopez Del Rio James Kelly CEEMEA Rodolfo Angele, CFA Debbie Bobovnikova South Africa Steve Shepherd Douglas Orsmond Ross W Gardiner Asia Pacific Asia Pacific Australia David George Mark Greenwood Ryan Martyn Matthew Whittall Matthew Mumme Australia, New Zealand China Feng Zhang Japan David Common, CFA (HY-Metals & Mining) Xin Liu Richard Yu (HG- Metals & Mining) Yanru Chen (HG- Metals & Mining) Douglas Krehbiel Tatiana Tchembarova Allison Bellows Tiernan Mana Nakazora Indonesia Ami Tantri Japan Thailand Sukit Chawalitakul 8

9 Analyst Certification: The research analyst who is primarily responsible for this research and whose name is listed first on the front cover certifies (or in a case where multiple research analysts are primarily responsible for this research, the research analyst named first in each group on the front cover or named within the document individually certifies, with respect to each security or issuer that the research analyst covered in this research) that: (1) all of the views expressed in this research accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst s compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst in this research. Important Disclosures Important Disclosures for Equity Research Compendium Reports: Important disclosures, including price charts for all companies under coverage for at least one year, are available through the search function on JP Morgan s website or by calling this U.S. toll-free number ( ) Explanation of Equity Research Ratings and Analyst(s) Coverage Universe: JPMorgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst s (or the analyst s team s) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst s (or the analyst s team s) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst s (or the analyst s team s) coverage universe.] The analyst or analyst s team s coverage universe is the sector and/or country shown on the cover of each publication. See below for the specific stocks in the certifying analyst(s) coverage universe. JPMorgan Equity Research Ratings Distribution, as of April 3, 2006 Overweight (buy) Neutral (hold) Underweight (sell) JPM Coverage 40% 42% 18% IB clients* 45% 47% 39% JPMSI Equity Research Coverage 35% 50% 15% IB clients* 63% 57% 46% *Percentage of investment banking clients in each rating category. For purposes only of NASD/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category. Valuation and Risks: Equity Research company notes and reports include a discussion of valuation methods used, including methods used to determine a price target (if any), and a discussion of risks to the price target. Analysts Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues, which include revenues from, among other business units, Institutional Equities and Investment Banking. 9

10 Other Disclosures Options related research: If the information contained herein regards options related research, such information is available only to persons who have received the proper option risk disclosure documents. For a copy of the Option Clearing Corporation s Characteristics and Risks of Standardized Options, please contact your JPMorgan Representative or visit the OCC s website at Legal Entities Disclosures U.S.: JPMSI is a member of NYSE, NASD and SIPC. J.P. Morgan Futures Inc. is a member of the NFA. J.P. Morgan Chase Bank, N.A. is a member of FDIC and is authorized and regulated in the UK by the Financial Services Authority. U.K.: J.P. Morgan Securities Ltd. (JPMSL) is a member of the London Stock Exchange and is authorised and regulated by the Financial Services Authority. South Africa: J.P. Morgan Equities Limited is a member of the Johannesburg Securities Exchange and is regulated by the FSB. Hong Kong: J.P. Morgan Securities (Asia Pacific) Limited (CE number AAJ321) is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission in Hong Kong. Korea: J.P. Morgan Securities (Far East) Ltd, Seoul branch, is regulated by the Korea Financial Supervisory Service. Australia: J.P. Morgan Australia Limited (ABN /AFS Licence No: , regulated by ASIC) and J.P. Morgan Securities Australia Limited (ABN /AFS Licence No: , a Market Participant with the ASX) (JPMSAL) are licensed securities dealers. New Zealand: J.P. Morgan Securities New Zealand Limited is a New Zealand Exchange Limited Market Participant. Taiwan: J.P.Morgan Securities (Taiwan) Limited is a participant of the Taiwan Stock Exchange (company-type) and regulated by the Taiwan Securities and Futures Commission. India: J.P. Morgan India Private Limited is a member of the National Stock Exchange of India Limited and The Stock Exchange, Mumbai and is regulated by the Securities and Exchange Board of India. Thailand: JPMorgan Securities (Thailand) Limited is a member of the Stock Exchange of Thailand and is regulated by the Ministry of Finance and the Securities and Exchange Commission. Indonesia: PT J.P. Morgan Securities Indonesia is a member of the Jakarta Stock Exchange and Surabaya Stock Exchange and is regulated by the BAPEPAM. Philippines: This report is distributed in the Philippines by J.P. Morgan Securities Philippines, Inc. Brazil: Banco J.P. Morgan S.A. is regulated by the Comissao de Valores Mobiliarios (CVM) and by the Central Bank of Brazil. Japan: This material is distributed in Japan by JPMorgan Securities Japan Co., Ltd., which is regulated by the Japan Financial Services Agency (FSA). Singapore: This material is issued and distributed in Singapore by J.P. Morgan Securities Singapore Private Limited (JPMSS) [mica (p) 235/09/2005 and Co. Reg. No.: R] which is a member of the Singapore Exchange Securities Trading Limited and is regulated by the Monetary Authority of Singapore (MAS) and/or JPMorgan Chase Bank, N.A., Singapore branch (JPMCB Singapore) which is regulated by the MAS. Malaysia: This material is issued and distributed in Malaysia by JPMorgan Securities (Malaysia) Sdn Bhd (18146-x) (formerly known as J.P. Morgan Malaysia Sdn Bhd) which is a Participating Organization of Bursa Malaysia Securities Bhd and is licensed as a dealer by the Securities Commission in Malaysia Country and Region Specific Disclosures U.K. and European Economic Area (EEA): Issued and approved for distribution in the U.K. and the EEA by JPMSL. Investment research issued by JPMSL has been prepared in accordance with JPMSL s Policies for Managing Conflicts of Interest in Connection with Investment Research which can be found at This report has been issued in the U.K. only to persons of a kind described in Article 19 (5), 38, 47 and 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 (all such persons being referred to as "relevant persons"). This document must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is only available to relevant persons and will be engaged in only with relevant persons. In other EEA countries, the report has been issued to persons regarded as professional investors (or equivalent) in their home jurisdiction Germany: This material is distributed in Germany by J.P. Morgan Securities Ltd. Frankfurt Branch and JPMorgan Chase Bank, N.A., Frankfurt Branch who are regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht. Australia: This material is issued and distributed by JPMSAL in Australia to wholesale clients only. JPMSAL does not issue or distribute this material to retail clients. The recipient of this material must not distribute it to any third party or outside Australia without the prior written consent of JPMSAL. For the purposes of this paragraph the terms wholesale client and retail client have the meanings given to them in section 761G of the Corporations Act Hong Kong: The 1% ownership disclosure as of the previous month end satisfies the requirements under Paragraph 16.5(a) of the Hong Kong Code of Conduct for persons licensed by or registered with the Securities and Futures Commission. (For research published within the first ten days of the month, the disclosure may be based on the month end data from two months prior.) J.P. Morgan Broking (Hong Kong) Limited is the liquidity provider for derivative warrants issued by J.P. Morgan International Derivatives Ltd and listed on The Stock Exchange of Hong Kong Limited. An updated list can be found on HKEx website: Korea: This report may have been edited or contributed to from time to time by affiliates of J.P. Morgan Securities (Far East) Ltd, Seoul branch. Singapore: JPMSI and/or its affiliates may have a holding in any of the securities discussed in this report; for securities where the holding is 1% or greater, the specific holding is disclosed in the Legal Disclosures section above. India: For private circulation only not for sale. General: Additional information is available upon request. Information has been obtained from sources believed to be reliable but JPMorgan Chase & Co. or its affiliates and/or subsidiaries (collectively JPMorgan) do not warrant its completeness or accuracy except with respect to any disclosures relative to JPMSI and/or its affiliates and the analyst s involvement with the issuer that is the subject of the research. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipient of this report must make its own independent decisions regarding any securities or financial instruments mentioned herein. JPMSI distributes in the U.S. research published by non-u.s. affiliates and accepts responsibility for its contents. Periodic updates may be provided on companies/industries based on company specific developments or announcements, market conditions or any other publicly available information. Clients should contact analysts and execute transactions through a JPMorgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise. 10

11 Revised April 3, Copyright 2006 JPMorgan Chase & Co. All rights reserved. 11