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Transcript of 1 J. Mazumdar, MS Geo, MS Min Econ Alexandra Bukacheva, MS, CFA Haywood Securities, Canada Golden...
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J. Mazumdar, MS Geo, MS Min EconJ. Mazumdar, MS Geo, MS Min EconAlexandra Bukacheva, MS, CFAAlexandra Bukacheva, MS, CFA
Haywood Securities, CanadaHaywood Securities, Canada
Golden OpportunitiesGolden Opportunities
Investor Conference:Investor Conference:Calgary, 27 April 201Calgary, 27 April 201
22
DisclaimersDisclaimersThis report is neither a solicitation for the purchase of securities nor an offer of securities. Our ratings are intended only for clients of Haywood Securities Inc., Haywood Securities (USA) Inc., and those of Haywood Securities (UK) Limited and such clients are cautioned to consult the respective firm prior to purchasing or selling any security recommended or views contained in this report. Haywood Securities (UK) Limited (“HSUK”) is a wholly owned subsidiary of Haywood Securities Inc. authorized and regulated in the UK by the Financial Services Authority as a stock broker and investment adviser and is a member of the London Stock Exchange. Estimates and projections contained herein, whether or not our own, are based on assumptions that we believe to be reasonable. The information presented, while obtained from sources we believe reliable, is checked but not guaranteed against errors or omissions. Changes in the rates of exchange between currencies may cause the value of your investment to fluctuate. Past performance should not be seen as an indication of future performance. The investments to which this report relates can fluctuate in value and accordingly you are not certain to make a profit on any investment: you could make a loss.Haywood Securities, or certain of its affiliated companies, may from time to time receive a portion of commissions or other fees derived from the trading or financings conducted by other affiliated companies in the covered security. Haywood analysts are salaried employees who may receive a performance bonus that may be derived, in part, from corporate finance income.Haywood Securities, Inc., and Haywood Securities (USA) Inc. and Haywood Securities (UK) Limited do have officers in common however, none of those common officers affect or control the ratings given a specific issuer or which issuer will be the subject of Research coverage. In addition, the firm does maintain and enforce written policies and procedures reasonably designed to prevent influence on the activities of affiliated analysts. Dissemination of ResearchDissemination of ResearchThis report is prepared by Haywood Securities Inc. for use by Haywood Securities Inc., Haywood Securities (USA) Inc. and Haywood Securities (UK) Limited and their clients. Research reports are disseminated either through electronic medium or in printed copy. Clients may access reports on our website, or receive publications directly via email. Haywood strives to ensure all clients receive research in a timely manner and at the same time. It is against our policy for analysts to discuss or circulate their recommendations internally prior to public distribution. This policy applies equally to recommendation changes, target changes and/or forecast revisions.For Canadian residents: Haywood Securities Inc. is a Canadian registered broker-dealer and a member of the Investment Industry Regulatory Organization of Canada, the Toronto Stock Exchange, the Toronto Venture Exchange and the Canadian Investor Protection
33
Fund and accepts responsibility for the dissemination of this report. Any Canadian client that wishes further information on any securities discussed in this report should contact a qualified salesperson of Haywood Securities Inc.For U.S. residents: Haywood Securities (USA) Inc. is a wholly owned subsidiary of Haywood Securities Inc., registered with the U.S. Securities and Exchange Commission, and is a member of FINRA and the Securities Investor Protection Corporation (SIPC). Haywood Securities (USA) Inc. as a U.S. registered broker-dealer accepts responsibility for this Research Report and its dissemination in the United States. Any U.S. client that wishes further information on any securities discussed in this report should contact a qualified salesperson of Haywood Securities (USA) Inc. Haywood Securities Inc. Research Analysts are considered Foreign Research Analysts to the USA and are not registered/qualified as Research Analysts with the NYSE and/or the NASD. As these analysts are considered Foreign Research Analysts they may not be specifically subject to NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a Subject Company, Public Appearances and trading securities held by a Research Analyst Account.This report is intended for institutional investors and may be distributed to all non-institutional US clients.For U.K. residents: Haywood Securities (UK) Limited (“HSUK”) is a wholly owned subsidiary of Haywood Securities Inc. authorized and regulated in the UK by the Financial Services Authority as a stock broker and investment adviser and is a member of the London Stock Exchange. This report has been approved by HSUK for the purposes of section 21 of the UK’s Financial Services and Markets Act 2000.If you wish to contact HSUK please email Michael Sweeney at [email protected]. If you are a UK resident retail customer and you propose to do business with Haywood Securities Inc., please take note of the following:Haywood Securities Inc. or its subsidiaries or respective officers, directors or employees have or may have a material interest in the securities to which this report relates. Any investment services undertaken on your behalf by Haywood Securities Inc are not covered by the rules and regulations made for the protection of retail investors in the UK. This means that you will not have the benefit of rights designed to protect investors under the Financial Services and Markets Act 2000 and under the rules of the Financial Services Authority (“FSA”).In particular, you will not benefit from the following UK protections:(a) the right to claim through the UK’s Financial Services Compensation Scheme for losses resulting in the unlikely event of our default; (b) in the event of a dispute, access to the UK’s Financial Ombudsman Service; (c) protection of money held on your behalf under the FSA’s Client Money Rules.
I, Joe Mazumdar, hereby certify that the views expressed in this report (which includes the rating assigned to the issuer’s shares as well as the analytical substance and tone of the report) accurately reflect my/our personal views about the subject securities and the issuer. No part of my/our compensation was, is, or will be directly or indirectly related to the specific recommendations.
Analyst CertificationAnalyst Certification
SynopsisSynopsis
• Gold MarketGold Market– Last decade, Supply/Demand, What to Last decade, Supply/Demand, What to
Watch for in 2011Watch for in 2011
• Investments ProposalInvestments Proposal– Small Cap Gold, Stages of Development, Small Cap Gold, Stages of Development,
Risk/RewardRisk/Reward
44
55
Long May You RunLong May You Run10 year bull trend…10 year bull trend…
Source: Capital IQ
$273 $277 $343
$417 $438 $513
$636
$837 $865
$1,104
$1,410
$0
$250
$500
$750
$1,000
$1,250
$1,500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
USD
per
oun
ce
+20%+20%
+15%+20%
+30%
+25%
+25%
Long May You RunLong May You Run10 year bull trend…10 year bull trend…
• Inflation hedge -> Store of valueInflation hedge -> Store of value
• Safe Haven -> DiversificationSafe Haven -> Diversification
• Debasement of fiat currencies -> Debasement of fiat currencies -> Store of valueStore of value
66
DiversificationDiversificationCorrelationsCorrelations
77Source: World Gold Council – Over 3 years ending 2010 based on weekly returns
-1.00
-0.75
-0.50
-0.25
0.00
0.25
0.50
0.75
1.00
USD Oil CRB/UBS Comm Index
S&P 500 US Treasury Index
MSCI World ex-US
DiversificationDiversificationRisk versus ReturnRisk versus Return
88Source: World Gold Council , Bloomberg, Barclays Capital
DiversificationDiversificationEmerging Markets Emerging Markets
99
0%
10%
20%
30%
40%
50%
Advanced Economies
Developing Asian Economies
Central/ Eastern Europe
Middle East/ North Africa
Sub-Saharan Africa
Other Western Hemisphere
Source: World Gold Council
Small Increases in Holdings would have significant impacts on gold market
DemandDemandInvestment/JewelleryInvestment/Jewellery
1010Source: World Gold Council
57 Moz
12 Moz
44 Moz
17 Moz
66 Moz
14 Moz
43 Moz
10 Moz
0
500
1,000
1,500
2,000
2,500
3,000
Jewellery Technology Investment Other
Gol
d (t
onne
s)
2009 2010
Shift in Demand to Physical Holdings
SupplySupplyChange in Official SectorChange in Official Sector
1111Source: World Gold Council
75 Moz
54 Moz
1 Moz
82 Moz
53 Moz
(3 Moz)
-500
0
500
1,000
1,500
2,000
2,500
3,000
Mine Supply Scrap Official Sector
Gol
d (t
onne
s)
2009 2010
SupplySupplyScrap – Swing SupplyScrap – Swing Supply
1212Source: World Gold Council and GFMS
Speculators & ETFsSpeculators & ETFs
1313Source: COMEX, ETFs and Standard Bank
• Net Speculative Position (Longs Net Speculative Position (Longs minus Shorts) is falling leaving minus Shorts) is falling leaving room for positive jumps in gold room for positive jumps in gold priceprice
• ETFs are representative of a buy & ETFs are representative of a buy & hold mentality are slowly hold mentality are slowly increasing after liquidations in increasing after liquidations in February 2011 after Japan CrisisFebruary 2011 after Japan Crisis
Gold Q1/11Gold Q1/11Every Which Way But LooseEvery Which Way But Loose
1414Source: World Gold Council
Current Levels US$1,500/oz – “…there is at least a 1 in 3 likelihood that it could lower its long-term rating on the US within 2 years” S&P Ratings Agency
Gold MarketGold MarketWhat to Watch ForWhat to Watch For
1515
Inflation in the emerging markets – Impact of commodity prices, specifically oil, on essentials driving up CPI globally
US Recovery – Monitor US job (less) recovery, stagflation, Federal Reserve reactions, misery index = unemployment rate + inflation
Geopolitical – MENA crisis, impact on oil prices and global inflation
China growth – Impacts of raising interest rates to slow economy and on commodities, inflation rates
Japan crisis – Knock on impacts on supply chain and demand of raw materials in the short term
Euro Zone Debt – Impacts on Euro/USD exchange rate
Other- ??
80
90
100
110
120
130
140
150
Inde
x 10
0 =
Jan
2010
Gold Price, USD Gold ETF HUI USD (DXY) S&P/TSX Gold
Investment ProposalInvestment ProposalSmall Cap - High BetaSmall Cap - High Beta
1616Source: Capital IQ and Haywood
Junior Gold Miners Have High Betas to Gold
0
20
40
60
80
100
120
Investment ProposalInvestment ProposalSmall Cap - RewardSmall Cap - Reward
1717Source: Haywood Securities
Grassroots Exploration -> Advanced Exploration Development ->Production
Production -> Growth
Southern Arc – TSXV:SARevolution Res. – TSX:RV
Midway Gold – TSXV:MDW, MDW-USAndean American Gold – TSXV:AAGAndina Minerals – TSXV:ADMCarpathian Gold – TSX:CPN
Orvana Minerals – TSX:ORV
Risk LoverGeology, Potential Upside, Prior Success, Mgmt,Analogues
Risk AverseDev. Eng., Timeline, Permitting, Prior Success, Mgmt, Underpromise and over deliver
Risk AverseOperators, Quarterly, Mgmt,, Guidance
Investment ProposalInvestment ProposalSmall Cap - RiskSmall Cap - Risk
1818Source: Haywood Securities
Orvana Minerals – TSX:ORV
Risk AverseOperators, Quarterly, Mgmt,, Guidance
Investment ProposalInvestment ProposalSmall Cap - ExplorationSmall Cap - Exploration
1919Source: Haywood Securities
$9.5M $17.6M
1.44Moz$10M
$24M
1.98Moz
2.93Moz
6.62Moz
New CEO
New CFO and VPD
$15.5M
9.8Moz
$25M
Timeline/recovery revised
0
2
4
6
8
10
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
Volum
e, Millions
AD
M S
hare
Pri
ce, C
$
Volume
Price
Credit Shock
Financing Project Related
Management Changes
Investment ProposalInvestment ProposalSmall Cap - DevelopmentSmall Cap - Development
2020Source: Haywood Securities
Investment ProposalInvestment ProposalSmall Cap - DevelopmentSmall Cap - Development
2121Source: Haywood Securities
Investment ProposalInvestment ProposalSmall Cap - ProducerSmall Cap - Producer
2222Source: Orvana Minerals
Haywood – Non Target Flash Reports Began