Shanghai December, 2013 11/20/2013
Gold Moves in Long Cycles 1800 1600 1400 1200 1000 800 600 400 200 0 1800 1812 1824 1836 1848 1860 1872 1884 1896 1908 1920 1932 1944 1956 1968 1980 1992 2004 Source: Global Financial Data, US Bureau of Labor Statistics
Gold Price Declines 34% 2000 1800 1600 29% 1400 22% 15% 1200 1000 800 600 400 200 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: Bloomberg
The 1970 Bull Market Price Corrections Source: Dundee Wealth
Gold: Corrections Normal Last Price 619.75 High on 09/30/80 666.75 Average 173.72 Low on 01/30/70 34.94 Down 44% in 18 months March 78! 4 years 500 400 300 200 100 Nov 73 Dec 75 Dec 76 Dec 77 Dec 78 Dec 79 Source: Bloomberg
Move Above Trend 1800 1600 1400 1200 1000 800 Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep 2008 2009 2010 2011 Source: Bloomberg
Broke Long-term Trend Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep 1900 1800 1700 1600 1500 1400 1300 1200 1100 2010 2011 2012 2013 Source: Bloomberg
Europe Tightens 3200 3000 2800 2600 2400 2200 2000 1800 1600 1400 1200 Jan-08 Jun-08 Dec-08 Jun-09 Dec-09 May-10 Nov-10 May-11 Nov-11 Apr-12 Oct-12 Apr-13 Oct-13 Source: Dundee Wealth
Source: Mining.com Outflows from ETFs
Gold Shares Decline 200 150 100 50 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: Bloomberg
Costs of Mining an Ounce of Gold Source: Brent Cooks: Exploration Insights
Many Lose Money 70% 2012 Q1 13 Q2 13 60% 50% 40% 30% 20% 10% 0% >$1,300 >$1,200 >$1,100 >$1,000 >$ 900 >$ 800 Proportion of selected mining operations with production costs greater then $/Au oz. Source: Intierra, Haywood Securities
Source: Intierra, Barrick Declining Discoveries
Lots of Money Raised 4,500 4,000 44.0 26.1 Annotated with avg transaction size 3,500 3,000 2,500 2,000 1,500 1,000 500 20.6 16.6 6 20.0 11.2 11.4 7.8 4.9 5.6 19.1 30.0 24.6 8.2 1 10.4 12.1 4.6 7.3 3.3 12.7 2.8 Total Value (C$M) Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Source: MEG, Capital IQ, Haywood Securities
Gold Stocks Lag Gold X n GOLDS Comdty XAU Index 600 500 400 300 200 100 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Source: Bloomberg
Growth of Central Bank Balance Sheets 2001 = 100 Source: IMF, International Financial Statistics; CEIC; Datastream; national data
Country Global Interest Rates Central Bank Rate CPI Rate Australia 3.50% 1.20% Belgium 0.75% 2.32% Canada 1.00% 1.30% China 6.00% 1.80% Germany 0.75% 1.70% France 0.75% 1.90% United Kingdom 0.50% 2.60% Italy 0.75% 3.10% Japan 0.10% -0.20% Netherlands 0.75% 2.30% Sweden 1.50% 0.70% Singapore 0.03% 5.30% United States 0.25% 1.70%
Dollar in Foreign Exchange Reserves 80% 70% 60% 50% 40% 30% 20% 10% 0% World Advanced Emerging 1999 2011-2Q2Q Source: IMF COFER Database
$350 $300 $250 $200 $150 $100 $50 $0 $ Billions Foreigners Buy Fewer --Three-month total net foreign acquisition of long-term securities Foreigners sold in credit crisis 2009 -$50 -$100 Foreigners sold record amount through May 78 79 80 81 82 83 84 85 86 87 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Source: US Treasury TIC Data July 16, 2013
China: Growth Stabilized GDPNTTLY latest 7.8% 16.00 14.00 12.00 10.00 8.00 6.00 4.00 1985-1989 1990-1994 1995-1999 2000-2004 2005-2009 2010-2014 Source: Bloomberg 09/02/2013
Production Flat Gold Production (million of ounces) 90 80 70 60 50 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Goldsheetlinks.com
Source: World Gold Council Central Banks Net Purchases
Gold Reserves Country Percent US U.S. 76% Germany 63% France 57% Spain 38% India 6% Japan 2% China 2% * World Average 14% *Last reported
Annual Chinese Gold Net Imports from Hong Kong Source: Sharelynx
Gold Stocks Undervalued Pi Price to Book kvl Value 4.00 3.50 3.00 2.50 200 2.00 1.50 1.00 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: Bloomberg
Gold Stocks Undervalued (2) Source: Thomson Reuters, Credit Suisse research
Gold Stocks Undervalued (3) Source: Thomson Reuters, Credit Suisse research
Gold Stocks Yield More XAU Yield vs. S&P 3.50 n SPX n XAU 3.00 2.50 2.00 150 1.50 1.00 0.50 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: Bloomberg *Aug 11, 2013
Gold Stocks Can Outperform Gold and Index Golds Gold Spot $/oz 298.95 800 XAU Phila Gold & Silver 318.43 GG US 582.15 RGLD US 588.05 700 600 500 400 300 200 2002 2003 2004 2005 2006 2007 100 Source: Bloomberg
Strong Stocks Outperform Stocks with Warts NEM US 193.09 ABX US 210.12 GG US 539.93 GFI US 193.00 700 600 500 400 300 200 100 2002 2003 2004 2005 2006 2007 2008 2009 Source: Bloomberg
Companies with Growth XAU PHILA GOLD & SILVER 193.09 AU US 111.55 NBM US 116.96 GG US 291.93 93 350 300 250 200 150 100 2005 2006 2007 2008 2009 2010 Goldcorp, with a strong balance sheet, high-margin mines in politically safe jurisdictions, and a strong pipeline, outperforms the index, while companies with residual hedging g obligations o or that made of high-cost acquisitions s underperformed. ed. 50 Source: Bloomberg
Royalty Business Model ** * Revenue royalties & streams ** Cost?
Advantages Prospect Generators More certain exposure Multiple opportunities Preserve bl balance sheet Disadvantages Time Low leverage Partners Still exploration risks
Barrick Gold, #1 No More $7.3 billion copper purchase; <2 years later, $3 billion write down Hedged gold at bottom, and finally bought back in 2011 at top Ri Raised ddiid dividend din mid-2012; id2012 slashed 75% in mid-2013 Early 2013 raised $3 billion equity with stock down Late 2013 raised $3 billion debt Net worth cut 50% Loss of $9.3 billion $17 million bonus to co-chairman Directors and management pay increases, $2.5m to $4.5m No longer #1 Stock 12-year lows 11/13
Pascua-Lama 2009: $2.5 b 2009: <$3 b July 2011: $4.7-$5 $5 b July 2012: $7.5 b February 2013: $8-$8.5 b April 2013: $8.5 b September 2013: $10 b Mid-2014 Late 2014 2016 2017 October 2013: suspended 11/13
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