how to benefit from australia’s gold mining renaissance by barry dawes, paradigmn securities

www.paradigmsecurities.com.au

Barry DawesB Sc FAusIMM(CP) MSAA MSEG

Head of Resources

Paradigm Securities

Australia’s Gold Sector Renaissance

How to play it

Mines and Money

Sydney 16 -17 October 2012


DisclaimerNothing in this presentation shall be construed as a solicitation to buy or sell any

security or product, or to engage in or refrain from engaging in any transaction. Inpreparing this research, Paradigm did not take into account the investmentobjectives, financial situation and particular needs of the reader.

Before making an investment decision on the basis of this presentation, the readerneeds to consider, with or without the assistance of an adviser, whether the adviceis appropriate in light of their particular investment needs, objectives and financialcircumstances.

This presentation is based on information obtained from sources believed to be reliablebut Paradigm does not make any representation or warranty that it is accurate,complete or up to date. Paradigm accepts no obligation to correct or update theinformation or opinions in it. Opinions expressed are subject to change withoutnotice and accurately reflect the views of Paradigm at the time of writing.

This presentation has originated from Paradigm (ABN 159 611 060), an AuthorisedRepresentative of licensed securities dealer Aureus Capital Pty Ltd (AFS Licence 307706). Paradigm can gain income through brokerage, capital raising commissions andcorporate advisory fees.


Australia’s Gold Renaissance

• High gold prices have boosted gold output• Exploration expenditures recovering• Entrepreneurial sector active again • Substantial earnings and dividend boosts • Operational gains not reflected in market• Sector underowned and undervalued• Expect major upward rerating



• High gold prices have boosted gold output


Australian Gold Mine Production (tonnes)

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50

100

150

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400

450

1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Source: ABARE Paradigm


Contribution by State (tonnes)

Source:ABARE Paradigm



• High gold prices have boosted gold output• Exploration expenditures recovering• Entrepreneurial sector active again


Australian Gold Exploration (A$m annualised)

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900

1000

1988 1992 1996 2000 2004 2008 2012


Australia’s Gold Regions


Australian Gold’s Many Regions

• WA Yilgarn Achaean Greenstone biggest• NSW Lachlan Fold Belt next ranked• Queensland epithermals and porphyries D• Rise of Tanamai & revival of Tennant Ck• WA’s Ashburton, Gascoyne and Pilbara


Significance of Yilgarn Craton

• Produces ~7% world gold • Some of world’s great mines• Major infrastructure and services centre• Focus of technical innovation• Continual appraisal of resources• Brownfields developments• Deeper drilling brings extensions


Yilgarn Archean Greenstone Belt


Exploration Deepened


Gascoyne Belt


Central Tanami

Source: Tanami Gold


Gold Sector Outlook• Gold price to exceed US$2000/oz, then $5000• Global mines supply beginning to rise slowly• But Australian gold to rise 50% to >390t by FY16• Development and exploration upside • Global gold sector equities very cheap• Sector is globally underowned• Earnings and dividends to rise sharply• Only early stages of major bull market!!


US$ Gold Sector Outlook

• North America biggest markets


US$ Gold Price 1800- 2012


Long Term Gold Price

Source: Eric de Groot


30 year US$ Gold Price

Source: Stockcharts


Very Long Term US Gold Stocks


Long Term US Gold Shares

Source: Stcokcharts


Gold Stocks vs Gold -1985-2012


XAU vs S&P 500


Australian Gold Sector

• Severely undervalued


A$ Gold Price


Long Term ASX 300 Gold Index

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1000

2000

3000

4000

5000

6000

7000

8000

9000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012


ASX Gold IndexCorrections from Most Recent Index High

April 20118499

-70.0%

-60.0%

-50.0%

-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

July 20124547


ASX 300 Gold Index Vs A$ Gold

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1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012


A$ vs US$ 1913 - 2012

Source: Thechartstore.com


Monthly A$ vs US Gold Index (XAU)

Source: MPS IRESS data

70

90

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130

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170

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1993 1996 1999 2002 2005 2008 2011

A$/US$ XAUR2 = 0.84


Market Sentiment• Excessive global fear shuns equities• Market ignores value• Herd mentality prevails• Safe havens of bonds and cash overdone• Fear has been > greed; but FOMO lurking• Extraordinary value abounds


Sentiment ignores value

• Sentiment driving markets• Two decades of indifference to make up• Institutional investors ignorant of sector• Retail investors lose speculative juices• Cash mountain to pour into market


Household Assets

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Jun-1988 Jun-1992 Jun-1996 Jun-2000 Jun-2004 Jun-2008 Jun-2012

Bank Deposits

Equities

Household Financial Asset Deployment

RBA data


ASX 300 (mthly close) vs Australian Bank Deposits (A$bn)

Source: RBA IRESS

600

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1,000

1,200

1,400

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1,800

ASX300 Market Cap A$bn Bank Deposits A$bn


Pessimism before OptimismEveryone knows about :-• Europe debacle• China Slowdown• US Great Recession…but..

Massive discounts and cash mountains only occur at early

stages of bull markets!!


Gold Sector Market Psychology


US Equities Testing Resistance


Australian Gold Mining Industry• Current renaissance only in its infancy• Major companies provide bulk of output• Junior sector gold production surging• Industry still fragmented• Capital management restrained• Carried forward tax losses limit franking• Emphasis on adding oz rather than $$


Challenges for Gold Industry• Capital management maturity • Focus on NPV and IRR• Containment of costs• Increase dividend payments• Consolidation and growth• Encourage new entrants• Step up greenfield exploration


NPV Mining – Focus on IRR

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Period

Gold Mine 28% NPV increase

Base Case Optimised Case

Source: Whittle Consulting


How to play gold equities

• First, 100s stocks to choose from• Second, diversified multistock portfolio• Core position in leaders• Spread of second liners• Broad basket of numerous smaller stocks• Invest for the cycle not a 10% trade• See Paradigm Securities!!


Conclusions• Gold to regain currency role• Gold prices to rise and be strong for years • Gold equities to again provide generational returns • Capital flows between sectors critical to outlook • Vast capital requirement in new large and small projects • Earnings and dividends to be remarkable• A$ to be very strong• Expect a major Australian Mining Boom

The `Optimism’ leg now underway!


Wave Market Psychology


Wave Market Psychology

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1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022

Disbelief

Optimism

Pessimism

Opportunity

Euphoria

Sir John Templeton: “Bull markets are born on pessimism, grow on scepticism, mature on optimism and die on euphoria. The time of maximum pessimism is the best time to buy and the time of maximum optimism is the best time to sell”

how to benefit from australia’s gold mining renaissance by barry dawes, paradigmn securities

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