06/10/2011. Sanjay Gohil, BlackRock. IFP Annual Conference - How to harness its. diversifying benefits

Transcription

1 Gold How to harness its diversifying benefits Sanjay Gohil, BlackRock IFP Annual Conference - Gold: How to harness its diversifying benefits FOR PROFESSIONAL INVESTORS FOR PROFESSIONAL ONLY FOR PROFESSIONAL CLIENTS / QUALIFIED INTERMEDIARIES INVESTORS ONLY 1

2 Gold market Gold Price US$/oz US$ Gold Price (US$/oz) Power Trendline (Gold Price (US$/oz)) Source: DataStream, as at 27 September 211 Gained 29% in 21 (in US$ terms) Gold has been in a bull market since 21 Financial crisis accelerated an already upward trend Driven by strong supply as well as demand fundamentals A Safe Haven in a Precarious World The end of Risk Free : S&P downgrades US DEBT Greece Teeters on the Brink of Default Reserve Currencies Backed by Mountains of Debt Growth Stalls QE3 on the Horizon? Japan and Switzerland Intervene to Weaken Currencies Source: BlackRock 2

3 Investment Demand Key Drivers Portfolio Diversifier Low correlation to fixed income and equities Inflationary Concerns Impact of quantitative easing risk of inflationary scenario has increased Currency Volatility / Dollar Weakness What will be the next reserve currency? Amount of gold backed by ETFs Million ounces GBS (ASX) GBS (LSE) NewGold (JSE) GLD (NYSE) IAU (Amex) ZKB Gold ETF-SWX ETFS (London) XETRA (DAX) Julius Baer (SWX) ETFS(NYSE) CS-XMTCH(SIX) UBS-IS Gold ETF Sprott Physical Gold Source Gold Price (US$/oz) US$/oz Source: UBS. Data as at 7 September 211 China What s Driving Demand? Key Reasons for Growth Fear of inflation, short and long term Limited alternative investments Positive attitude of People s Bank of China Deregulation of the market Growing consumption of luxury goods by the swelling ranks of the middle class es Tonne China India Source: World Gold Council World Demand Trends Q

4 A real return from a risk free asset Gold a beneficiary of growing US debt Returns of gold and silver in a real interest rate environment. Year-on-year returns since 197 $/oz $trn 17 Gold Bullion US Debt Ceiling Raised US Debt ceiling Aug % Return Real short-term FED funds rate (%) Gold Silver Source: Datastream 22 nd August 211 Source: Deutschebank March 211 Concern over the higher risk associated with a rising US debt burden Gold has benefited as investors have sought out risk free assets with a real return Central bank gold holdings Strategic shift in attitude Central Bank Gold Holdings ( ) Change in official sector gold holdings Tonnes 34 Tonnes * Source: Deutschebank, World Gold Council, December 21 Source: World Gold Council, December 21. *Estimate 4

5 Central bank gold holdings Top 2 Central Bank Gold Holdings as a % of reserves 9, 9% 8, 8% nnes) Gold Holding (To 7, 6, 5, 4, 3, 2, 7% 6% 5% 4% 3% 2% es % of reserve 1, 1% Portugal USA Germany Italy France Austria N etherlands Venezuela Spain ECB Lebanon Switzerland UK India Russia Taiwan Japan audi Arabia Sa China IMF % Source: World Gold Council, end Q1 211 Gold holding (LHS) % of reserves (RHS) Average Central Bank gold holding as a percentage of foreign reserves ~ 1% Emerging markets the growth engines of the global economy - holding significantly lower than average Mexico increases gold reserves to 1t, buying over 9t of gold Bank of Korea buys 25t of gold in June 211 A stagnant industry World Gold Mine Production, , 2,5 Level of peak production Tonnes 2, 1,5 1, Source: GFMS 211 Prior to 1996, Chinese production is included in Rest of the World South Africa North America Aus tralia China RoW Production growth of 3.8% in 21 vs. 29, this compares to 7.5% growth in in 29 Total mine production only now above previous peak in 21, despite a gold price rise of over 35% Number of world s largest gold mines are approaching the end of their lives and grades across the industry are falling We estimate total cost of production (exploration, development and mining) to be in excess of US$95/oz before returns to shareholders 5

6 Mine supply Future supply challenged World Discovery Trends Year Rolling Average Discover Cost 8 7 Million ounces z Discovery Cost (29 US$/oz >1 Moz 1-1 Moz.1-1 Moz Other Est Source: Gold Fields, August 21 Source: Gold Fields, August 21 Why gold: Diversification from core asset classes Correlation of gold and other selected commodities to a selection of financial assets long term view (1 years) (1 year dataset) MSCI World (Equities) S&P 5 Barclays Global Aggregate (Bonds) Trade Weighted US$ % Performance (U$) Gold Bullion % BlackRock Gold and General Fund* % GSCI Commodities Index (Total Return) % LME Copper spot % WTI Oil spot % CBOT Wheat spot % Gold has low correlation with almost all financial assets Superior diversification from equities and US$ compared to other commodities Exposed to spot rather than futures markets, so not impacted by negative roll yields and usually physically backed Source: DataStream, data as at 6 nd September 211 * BlackRock Gold and General Fund shown here as an example of a gold equity fund 6

7 Gold equities vs gold price Performance of the Gold Price versus Gold shares post the Financial Crisis FT Gold Mines Index Two periods in the last three years where gold equities have significantly underperformed the gold price Both relate to periods of significant macro uncertainty On previous occasion this was a temporary dislocation, with gold shares recovering lost ground as sentiment improved Oct-8 3-Nov-8 3-Dec-8 3-Jan-9 28-Feb-9 3-Mar-9 3-Apr-9 3-May-9 3-Jun-9 3-Jul-9 3-Aug Oct-9 3-Nov-9 3-Dec-9 3-Jan-1 28-Feb-1 3-Mar-1 3-Apr-1 3-May-1 3-Jun-1 3-Jul-1 3-Aug Oct-1 3-Nov-1 3-Dec-1 3-Jan Feb-11 3-Mar-11 3-Apr-11 3-May-11 3-Jun-11 3-Jul-11 3-Aug US$/oz Source: DataStream, 23 September 211 FT Gold Mines Index (LHS) Gold Price (RHS) Longer term relationship between gold equities & gold price Gold & Gold Shares 5, 4,5 FTSE Gold Mines Index (US$) 4, 3,5 3, 2,5 2, Current value 1,5 1, , 1,1 1,2 1,3 1,4 1,5 1,6 1,7 1,8 1,9 Gold Price (US$/oz) Source: DataStream. Weekly data Feb 28 to 2 nd September 211 7

8 Gold mining cash generation Operating leverage has returned to the gold sector Mining companies delivering on margin growth in rising gold price environment Margin expansion has returned in the gold mining industry e* Cash Costs ($) Cash Margin ($) Gold Bullion ($/oz) Source: CIBC August e gold price as at 2 nd September Cash and Short Term Investments and Dividends Paid by Gold Producers sh + ST Investments (US$ million) Total Cas /31/24 6/3/27 12/31/29 Total Cash + ST Investments Dividends Paid (4Q Rolling Average) Included Companies: Agnico-Eagle mines Ltd /AngloGold Ashanti Ltd / Barrick / Gold Corp / Eldorado Gold Corp / Gold Fuelds Ltd / Goldcorp inc / IAMGOLD Corp / Kinross Gold Corp / Newcrest mining Ltd / Newmont Mining Corp / Randgold Resources ltd / Yamana Gold Inc Dividends Paid (US$ Million) De-rating of gold equity multiples permanent or temporary? Since H2 21, gold equity multiples have come under pressure North American Gold Shares: Price/NAV multiples This has accelerated in the last four months Possible reasons for this: Reduction of risk appetite similar to post Lehman s collapse in H2 28 Expectation that loose monetary policies may come to an end Consensus price expectations significantly below current spot prices Fears over cost inflation impacting margins Gold forward curve versus consensus forecasts Catalyst for change Improvement in risk appetite Upgrades in consensus price forecasts following end of first half H1 gold company results showing increasing gold margins Potential for increased dividends Source: Bank of America Merrill Lynch, June 211 8

9 Corporate events in the Gold Sector Dividends have resumed or increased and debt markets are reopening Barrick increased dividend Newmont increased dividend Goldcorp doubles dividend Alamos issues maiden dividend in March; increase of 17% in September Newcrest continues to increase dividend Centerra announces special dividend Significant M&A activity in the gold sector as companies start to put the cash on their balance sheets to work by increasing their gold reserves through acquisitions of high quality mid-cap producers Newcrest Mining bid for Lihir Gold; deal closed end of August Kinross bid for Red Back Mining Goldcorp bids for Andean Resources Anatolia bids for Avoca Newmont bid for Fronteer Gold Barrick bid for Equinox BlackRock Gold and General Performance Launched in 1988 AUM of U$ 5.4 bn (GBP 3.4 bn) Open Ended Unit Trust AAA rated OBSR AAA rated S&P Fund Research Elite rated- Morningstar sed to 1 Rebas Jan-1 Jul-1 Jan-2 Jul-2 Jan-3 Jul-3 Jan-4 Jul-4 Jan-5 Jul-5 Jan-6 Jul-6 Jan-7 Jul-7 Jan-8 Jul-8 Jan-9 Jul-9 Jan-1 Jul-1 Jan-11 Jul-11 BLK G&G FT Gold Mines Index Gold Bullion Source: DataStream, data to 5 th September 211 GBP YTD BlackRock Gold and General FTSE Gold Mines Index Gold Bullion Source: Datastream. Net performance on a NAV pricing basis in percent. YTD figure as at end August 211 9

10 BlackRock Gold and General Top Ten Stock % of Fund Geography Commodity Newcrest Mining 9.2 Australia/PNG Gold Fresnillo 7.9 Latin America Silver Kinross Gold North America Gold Goldcorp 6. North America Gold Randgold Resources 4.9 Africa Gold Buenaventura 4.5 Latin America Gold Agnico Eagle Mines 4. Canada Gold Newmont Mining 3.8 Global Gold Penoles 3.7 Latin America Silver Eldorado 3.3 Global Gold Total 53.7% Number of Holdings: 77 Source: Internal as at end August 211 Indicative only and subject to change. ishares Physical Gold ETC: Product facts Source: BlackRock. As at 1 August 211 1

11 ishares S&P Commodity Producers Gold (SPGP) ishares S&P Commodity Producers Gold Index name S&P Commodity Producers Gold Use of Income Accumulating Fund structure Physical, fully replicating TER 55 bps Base currency USD LSE Tickers SPGP (GBP) / IAUP (USD) Index constituents 68 Fund constituents (indic.) 68 Ease of access to commodities via Equities Simplicity transparency of fully replicating, physical based investment Accessing the producers of commodities or supply chain Exposure to stock market movements Source: BlackRock, S&P. As at 29 July 211 S&P is recognised globally as one of the leading index providers in the commodity space Questions? 11

12 Appendix FOR PROFESSIONAL INVESTORS ONLY FOR PROFESSIONAL INTERMEDIARIES ONLY BlackRock s Natural Resources team, London Evy Hambro & Robin Batchelor Joint Chief Investment Officers Mining & Gold Richard Davis Catherine Raw Olivia Ker Tom Holl Agriculture Desmond Cheung Richard Davis Piers Holden Energy & New Energy Poppy Allonby Alastair Bishop Joshua Freedman Portfolio Manager Assistants Simon McClure & Greg Bullock Product Specialists Malcolm Smith Fiona Stubbs & Alex Ball BlackRock Offices worldwide 25+ equity analysts, 3+ fixed income analysts BlackRock Solutions & Risk Management 1,8+ Professionals As at September

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