investing for resources growth

INVESTING FOR RESOURCES GROWTH - INVESTING IN TODAY'S COMMODITY BASED SHARE MARKET

Presented by Simon McGrath November 2011 M: 0413 566 699 E: [email protected]

DISCLAIMER

The information presented in this seminar is general advice only and is not intended for any particular individual. No consideration has been given to the individual investment objectives, financial situation and particular needs of any person and Investors should independently assess whether the advice is appropriate to their own circumstances. Although the information in this presentation is taken from sources considered to be reliable, Simon McGrath or any related entities and their directors, employees and consultants do not represent, warrant or guarantee, expressly or impliedly, that the information is complete or accurate. Further we do not accept any responsibility to inform you of any matter that subsequently comes to our notice, that may affect the information disseminated in this presentation.

INVESTING FOR RESOURCES GROWTH PRESENTED BY SIMON MCGRATH

ABOUT SIMON MCGRATH

•  Simon has been managing investment assets and advising clients since 1987 in the areas of Securities, ASX Listed shares, Self Managed Super Funds, Self Funded Retirees, and Retirement Planning and now focuses his considerable energy on advising “Astute Conservative Investors” and the “Experienced Investors” particularly for Self Managed Super Funds and High Net worth investors with a focus on direct and listed assets.

•  Simon is a regular presenter on Skynews Business on Foxtel, a presenter on Boardroom Radio (www.brr.com.au) and contributor to the business are of the Sunday Times via their website service www.perthnow.com.au.

•  Simon is also a regular presenter for the Australian Stock Exchange at their education seminars

•  Simon can be contacted on 0413 566 699 or by email [email protected]


AGENDA

1.  Overview of macro themes affecting commodity prices

2.  Overview of main mineral and energy commodities 3.  Effect of Australian/World economy 4.  Australian resource companies 5.  My watch list 6.  Questions and Answers


ASX – All Ords over 30 Years – Where were you? This is what I have witnessed over the past 25 years

81 83 84 851985

86 87 88 89 90 91 92 93 94 951995

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XA O.A SX: 4 :11:01: 4722.9

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1987 Stock Market Crash

Saddam Hussein Invades Kuwait

Global Financial Crisis

Greece Threatens default

9/11 Attack on USA

Tiananmen Square

Crackdown

Second Iraq War

US Banking Crisis

Global Interest rates soar

Float of $A Fall of Berlin Wall

Asia Tsunami

2000 Tech Wreck

US Property Market Collapse


I started my investment

advising career here

Credit Crunch

MACRO EVENT DRIVING WORLD DEMAND

WORLD POPULATION HITS 7BN LAST WEEK!


FORECAST WORLD POPULATION GROWTH 2010-2050 2010 2050

1 China 1,338,100,000 China 1,476,000,0002 India 1,188,800,000 India 1,444,500,0003 European Union 501,000,000 European Union 514,000,0004 United States 309,600,000 United States 351,400,0005 Indonesia 235,500,000 Indonesia 273,200,0006 Brazil 193,300,000 Pakistan 246,300,0007 Pakistan 184,800,000 Nigeria 217,400,0008 Bangladesh 164,400,000 Brazil 212,400,0009 Nigeria 158,300,000 Bangladesh 195,000,00010 Russia 141,900,000 Russia 140,800,00011 Japan 127,400,000 Mexico 123,400,00012 Mexico 110,700,000 Ethiopia 119,800,00013 Philippines 94,000,000 Japan 119,300,00014 Vietnam 88,900,000 Philippines 117,600,00015 Ethiopia 85,000,000 Egypt 103,600,00016 Germany 81,600,000 Vietnam 103,200,000

17Egypt 80,400,000 Congo, Dem.

Rep. of101,400,000

18 Iran 75,100,000 Iran 87,100,00019 Turkey 73,600,000 Turkey 85,000,00020 Thailand 68,100,000 Germany 79,700,00054 Australia 22,400,000 Australia 26,900,000

Source:UNESCO


REGIONAL DISTRIBUTION OF POPULATION IS CHANGING


URBANISATION OF WORLDS POPULATION


AUSTRALIA’S RESOURCE EXPORTS BY MAJOR MARKET

1999 % 2009 %

Japan 22.6% 1 China 26.3%

Korea 10.0% 2 Japan 19.7%

Singapore 6.7% 3 India 10.2%

Taiwan 6.7% 4 Korea 9.3%

China 4.5% 5 U.K. 5.0%

Other (including confidential items) (a)

49.4% 6 Other (including confidential items) (a)

29.4%

(a) A significant proportion of Resources exports are country confidential in ABS trade statistics ($6.9 billion in 1999 and $14.8 billion in 2009). The major items are Natural Gas, Alumina, Mineral sands, and Uranium ores. Nickel alloys unworked are also confidential from 2002 onwards. Please note that these confidential resource commodities would have an impact on these market shares. Source: ABS trade data on the DFAT STARS database


TOP 5 RESOURCE EXPORTS FOR AUSTRALIA from 1999 to 2009

1999 2009

A$b %share A$b %share

Total Resource exports 37.9 Total Resource exports 130.8

Coal 8.4 22.1% 1 Coal 39.4 30.1%

Gold 5.8 15.4% 2 Iron Ore & Concentrates 30.0 22.9%

Iron Ore & Concentrates 3.6 9.4% 3 Gold 15.6 11.9%

Aluminum 3.3 8.8% 4 Natural Gas 7.6 5.8%

Aluminum ores & concentrates

2.8 7.4% 5 Crude Petroleum 7.2 5.5%

Source: ABS trade data on DFAT STARS database, ABS catalogue 5302.0 and DFAT Estimates


AUSTRALIA‘S TOP MINERAL AND FUELS EXPORT 2009

Rank Commodity $millions %share

1 Coal 39,397 38.4%

2 Iron Ore 29,960 29.2%

3 Natural Gas 7,760 7.4%

4 Crude Petroleum 7,180 7.0%

5 Aluminum ores (inc alumina) 4,798 4.7%

6 Copper Ores 3,722 3.6%

7 Other ores 2,942 2.9%

8 Refined Petroleum 2,400 2.3%

9 Confidential mineral ores 1,187 1.2%

10 Liquefied Propane & butane 1,006 1.0%

11 Other (10) 3,448 3.5%

Total mineral & fuel exports 102,556 100% Based on ABS trade data on DFAT STARS database and ABS catalogue 5368.0


WORLD OIL SUPPLY AND DEMAND (MBL/DAY)

Source: International Energy Agency


TOP 20 OIL CONSUMPTION COUNTRIES PER COUNTRY COMPARISON

(BBL/DAY) as at 2009 Country bbl/day

1 United States 18,690,0002 European Union 13,630,0003 China 8,200,0004 Japan 4,363,0005 India 2,980,0006 Russia 2,740,0007 Brazil 2,460,0008 Germany 2,437,0009 Saudi Arabia 2,430,000

10 Korea, South 2,185,00011 Canada 2,151,00012 Mexico 2,078,00013 France 1,875,00014 Iran 1,809,00015 United Kingdom 1,669,00016 Italy 1,537,00017 Spain 1,482,00018 Indonesia 1,115,00019 Australia 946,30020 Singapore 927,000

Australia’s net deficit of oil consumption 450,000 bbl/day

Source: CIA


LNG DAILY CONSUMPTION TOP 30 USERS Rank country (cu m) Rank country (cu m)

1 United States 646,600,000,000 India 51,270,000,000

2 European Union 487,900,000,000 Netherlands 48,600,000,000

3 Russia 439,600,000,000 Indonesia 45,200,000,000

4 Iran 140,000,000,000 France 44,840,000,000

5 Germany 96,260,000,000 Argentina 43,140,000,000

6 Japan 94,670,000,000 Egypt 42,500,000,000

7 Canada 94,620,000,000 Pakistan 37,500,000,000

8 United Kingdom 87,450,000,000 Thailand 37,310,000,000

9 China 87,080,000,000 Turkey 35,070,000,000

10 Italy 78,120,000,000Korea, South 34,090,000,000

11 Saudi Arabia 77,100,000,000 Spain 33,880,000,000

12 Mexico 59,800,000,000 Kazakhstan 33,680,000,000

13 United Arab Emirates 59,420,000,000 Algeria 26,830,000,000

14 Uzbekistan 52,600,000,000 Australia 26,590,000,000

15 Ukraine 52,000,000,000 Malaysia 26,270,000,000

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WORLD DEMAND FOR ENERGY INCREASING


GOLD

Gold is used for Bullion, Coinage Currency Backing, Electronics, Computers, Dentistry, Medicine,

Aerospace, Glass Making, Awards, Gilding and Gold Leaf


WORLD GOLD DEMAND (tonnes)

2009 2010

Q1'11 vs Q1'10 % change

Jewellery 1813.6 2016.7 7Technology 409.8 466.4 0Electronics 274.9 326.8 1Other Industrial 82.2 90.9 0Dentistry 52.7 48.7 -10Investment 1394.8 1487.4 26Total bar and coin demand 777.7 1149.4 52Physical bar demand 490 853.9 62Official coin 228.8 207.1 39Medals/imitation coin 58.9 88.3 3ETF's and similar products 617 338 Gold Demand 3618.1 3970.5 11London PM fix (US$/oz) 972.3 1224.5 25

Source: World Gold Council


CONSUMER DEMAND IN SELECTED COUNTRIES – 2010 (JEWELLERY and TOTAL BAR AND COIN INVESTMENT)

Country Total India 859.2Greater China 541.3China 522Hong Kong 18.5Taiwan 0.9Japan -21.1Indonesia 41.4South Korea 15.9Thailand 33.1Veitnam 77.8Middle East 260.4Saudi Arabia 92.7Egypt 61.5UAE 80.1Other Gulf 26.1Turkey 113.8Russia 62.8USA 245Italy 40.6UK 31.5Europe (ex CIS 210.4France 0.2Germany 93.5Switzland 71.1Other Eurpoe 45.6Total Above 2512Other 338World Total 2850

Source: World Gold Council


GOLD ($USD OZ) OVER 10 YRS

Source: IRESS


COAL

Australia main export and large domestic industry, used in

•  70% Worlds Steel Production •  37% Worlds Electricity

production

•  Alumina refineries in Queensland and Western Australia,

•  Paper maunufacturers, •  Breweries and the

•  Chemical and pharmaceutical industries

•  Coal to liquids (Oil)

•  Coal Seam Gas •  Traded Commodity


LOCATION OF THE WORLDS MAIN FOSSIL FUEL RESERVES (GIGATONS OF COAL EQUIVALENT)

Source: Optima, Vol.1 No.1, Feb. 2005; as published in ECOAL Newsletter July 2005, World Coal Institute


THERMAL COAL PRICE – 5 YEARS


COAL COMPANIES LISTED ON ASX

• Over 50 Coal companies listed on ASX • Exploration and Producers • Coal to Liquids • Coal Seam Gas • Domestic and Overseas Resources


COPPER Copper is used in;

• Building construction, • Power generation and transmission, • Electronic product manufacturing, • The production of industrial machinery and transportation vehicles. •  Wiring and plumbing integral to appliances, •  Heating and cooling systems, • Telecommunications links used every day in homes and businesses. • Essential component in the motors, wiring, • Radiators, connectors, brakes, and bearings used in cars and trucks.


relax, the Super Cycle’s not dead …it’s maturing.

Source: UBS Research, Bloomberg

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Cu 2011 US¢/lb Cu nominal spot- US economic growth- electrification- rail/factory construction

- expansion of Africa's Copper Belt- Flash smelting- expansion in Chile/Peru- SX-EW fires up

- growth in US copper mining- large scale mining (open-pit, mechanization, flotation)

- collapse of USSR- China booms- US economy expands- technological era

- oil shocks- inflation, recessions- producer pricing fails

- post-war boom- Japan's economic renaissance- producer pricing dominates

WWII

Great Depression


IRON ORE

•  Iron (Fe) ranked fourth in abundance in the earth's crust and is the major constituent of Earth's core.

•  Iron accounts for approximately 95% of all metals used by modern industrial society.

•  Metallic iron is most commonly produced from the smelting of iron ore to produce pig iron.

•  Steel is a processed form of pig iron with removed and with a reduction in the carbon content


IRON ORE PRICE CHART – 10 YEARS

Average Estimated Cost of Production


IRON ORE – A.K.A. “THE RED GOLD”

•  Western Australia (WA) dominates the Australian iron ore industry with nearly 97% of the total production.

•  The Pilbara region is particularly significant with 79.5% of Australia's total identified resources and 92.4% of the production.

•  Locally significant iron ore mines also operate in the Northern Territory (NT), South Australia (SA), Tasmania (Tas), Queensland (Qld) and New South Wales (NSW).


CURRENT MAJOR IRON ORE PROJECTS

State WA SA TAS NT QLD

Number of Projects 26 5 2 1 2


LNG Used for Energy Production

Major Australian Customers • China

• Japan

• Korea

• Spot Cargo

• USA

• Europe


THE GOLDEN AGE OF GAS

• Natural Gas to play greater role in global energy mix

• Natural Gas has lower emissions of greenhouse gases than other fossil fuels

• From 2010 Gas use to rise by more than 50% from 21% of worlds energy use to 25% of world energy demand by 2035.

• Production of 1.8 tcm required to meet demand by 2035 (3x current Russian production)

• LNG exports from Australia increase from 25bcm in 2010 to 100bcm in 2035.

• Shale Gas a game changer, US to become the Saudi Arabia of Shale, 4 export terminal being built 2016 to 2020.

Source: Bell Potter Australian Oil Weekly Jun 2011

CHINA GAS PRODUCTION OUTLOOK 2008 - 2035

Chinese Gas Outlook (bcm)

Chinese Gas Outlook 2008 2015 2020 2025 2030 2035Demand 85 247 335 430 535 634Production 80 137 185 222 264 303Gas Imports 5 110 150 208 271 331

Source: Bell Potter Australian Oil Weekly Jun 2011 Note: Source IEA (1bcm = 0.735 M tonne of LNG

The strongest increase is in the first half of the outlook period with 50 bcm coming on line by 2016

China to account for almost 30% world gas demand Only 10% China’s population has access to gas (world average is 40%)


RARE EARTHS

Reduce Greenhouse gas emissions

Enabling Digital Technology

Improving Energy Efficiency


WHAT ARE RARE EARTHS USED FOR


SMARTPHONES – 54% of all mobile phone sales in the USA


WHAT ARE RARE EARTH ELEMENTS

Rare Metals – Rare Earths

• China produces 90% of world downstream zirconium chemicals

• China currently produces 95% of world REE output (13 years known supply)

• China is limiting the export of raw rare earths materials

• Brazil produces 90% of world niobium

Green technology is dependent on rare metals and rare earths

Increased also changes in legislation

impact fluoro light demand driven

China has dominant position

Total market only 150,000 t/pa INVESTING FOR RESOURCES GROWTH PRESENTED BY SIMON MCGRATH

EXCHANGE TRADED FUNDS •  Exchange Traded Funds (ETFs) have been set up for commodities.

•  Buy and own physical commodity

•  Pay storage rental fees

•  Used as a proxy to buy physical commodity

•  Exchange Traded Commodities (ETCs) are not Exchange Traded Funds (ETFs). ETCs can be bought and sold like ETFs. Both instruments are open-ended and have transparency. The difference is (and this is important); ETCs use a secured, undated, zero coupon note structure, whereas ETFs typically use a fund structure.

•  What are ETCs? ETCs are simple and transparent open-ended securities which trade on regulated exchanges. ETCs enable investors to gain exposure to commodities without trading futures or taking physical delivery. These products track the underlying commodity index or individual commodity.


RESOURCES GROWTH “SWOT” ANALYSIS

Strengths

Demand for commodities

High price (over costs)

Australia Politically stable

Weakness

Infrastructure needs upgrading continually

Costs Rising

Higher $AUD

Opportunities

Australia got talent!

Well Positioned- Australia has the resources to exploit

Proximity to markets

Threats

Weather

Carbon Tax & MRRT

Labour Constraints

Funding (Post GFC)

Supply constraint bottlenecks

Political Upheaval in client markets

Demand weakening

Increased supply in some markets


MIDTIER MINING COMPANY TAKEOVERS 2010-2011 Target Buyer PriceEquinox Barrick Gold $7.3bnRiversdale Mining Rio Tinto $3.9bnAndean Resources Goldcorp $3.6bnCentennial Coal Banpu $2.5bnCitedal Resources Equninox Minerals $1.25bnAvoca Resources Alacer $1bnMantra Resources Rosatom $1bnGiralia Resources Atlas Iron $828mBrockman Resources Wah Nam $590mInternational Coal Holdings PTT $450mSpere Minerals Xstrata $500mJabiru Independence Group $500mDominion Mining Kingsgate Consolidated $370mCatalpa Resources Conquest Mining $320mGlobestar Mining Perilya $190mFerrAus Wah Nam $180m*Northern Energy New Hope $238mTerritory Resouces Noble $130m*Rocklands Richfield Jindal Steel $90m** Pending


KEY THEMES FOR GLOBAL COMMODITIES

For RESOURCES GROWTH FOR 2012

Short term

EU Financial crisis – Banks require recapitalizing

China Seasonal Restocking events

End of US stimulus (QE2), No QE3 (yet!)

Thermal Coal, Coking Coal, Gold, Copper, Silver, Shale Gas, Iron Ore

Long Term

Well supported markets for all resources

Buy ‘Long’ in commodities in which China is short (Iron Ore, copper zinc)

Merger & Acquisitions is a key equity investing theme Companies have cash, buying is better than building

Food Security** INVESTING FOR RESOURCES GROWTH PRESENTED BY SIMON MCGRATH

WHY HAVE RESOUCES IN YOUR PORTFOLIO

•  Resources are used by everyone is all aspects of modern living

•  Demand will continue and rise in the long term due to growing population and limited supply

•  Resources provide Diversification to a portfolio

•  Ability to easily trade

•  Have alternative investment choices –  Share –  Option –  Exchange Traded Fund –  Exchange Traded Commodity –  Physical commodity (eg gold) –  Options

•  Easy to participate in all investments


ON MY WATCHLIST!

COPPER

Encounter Resources (ENR)

Discovery Metals (DML)

MOD Resources (MOD)

Metminco (MNC)

Silver Lake Resources (SLR)

Altona Mining (AOH)

Sandfire Resources (SFR)

IRON ORE

Rio Tinto (RIO)

BHP (BHP)

Fortescue (FMG)

Atlas Iron (AGO)

Iron Ore Holdings (IOH)

Hannas Reward (HNR)

Winmar Resources (WFE)

Molly Mines (MOL)

Sundance Resources (SDL)

Gindalbie Resources (GBG)

Magnetic Resources (MAU)

Cazaly Resources (CAZ)


ON MY WATCHLIST!

GOLD

Newcrest (NCM)

Remelius Resources (RMS)

Catalpa Resources (CAH)

Southern Cross Resources (SXG)

Northern Star (NST)

Doray Mines (DRM)

Resolute Resources (RSG)

Regis Resources (RRL)

COAL

Aspire Mining (AKI)

African Energy (AKI)

Auspac Coal (AQC)

Jatenergy (JAT)

Continental Coal (CCC)

ZYL Ltd (ZYL)

Carabella Resources (CLR)

Macarthur Coal (MCC)


ON MY WATCHLIST!

LNG/PETROLEUM

Woodside (WPL)

Origin Energy (ORG)

Santos (STO)

Buru Energy (BRU)

Antares Energy (AZZ)

Emerald Oil & Gas (EMR)

New Standard Energy (NSE)

OTHERS

East Coast Minerals (ECM)

Fortis (FMJ)

Northern Minerals (NTU)

Transit Holdings (TRH)

Iluka (ILU)

Image Resources (IMA)

A11 S & P/ASX 200 RESOURCES ETF (RSR)

A11 S & P/ASX200 Energy (ENY)


ON MY WATCHLIST

MINING SERVICES Monodelphus (MND)

Westrac

A.K.A Seven West Holdings (SVM)

Forge (FGE)

Mineral Resources (MIN)

Fleetwood (FWD)


QUESTIONS?

Contact details:


http://au.linkedin.com/pub/simon-mcgrath/1b/51b/65

SIMON MCGRATH

P.O Box 986, Subiaco, WA 6904Mobile: 0413 566 699Email: [email protected]

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