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This week…

• Aussie mining companies to avoid

• Outlook for Dr Copper• BHP, RIO and WPL analysed

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General Advice & Risk Warning

Please note that any advice given by Invast staff is deemed to be GENERAL advice, as the information or advice given

does not take into account your particular objectives, financial situation or needs.

Therefore at all times you should consider the appropriateness of the advice before you act further.

CFDs and Forex are leveraged products and carry a high level of risk and are not suitable for everyone. You can lose

more than your initial deposit so you should ensure CFD and Forex trading meets your investment objectives. We

recommend you seek independent advice. Strategies and charts used in this presentation are for example only. You are

reminded that past performance is not indicative of future performance.

Invast Financial Services is regulated by ASIC. It's important for you to read and consider the relevant Product

Disclosure Statement and Financial Services Guide which contains details of our fees and charges before you decide

whether or not to acquire any financial products. These documents are available at www.invast.com.au

Invast Financial Services Pty Ltd ABN: 48 162 400 035. Australian Financial Services Licence No.438 283

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This week we look at the following topics:

• Aussie mining companies to avoid

• Outlook for Dr Copper

• BHP, RIO and WPL analysed

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Dear Readers,

We published our 2015 Outlook Guide last month,looking at global markets and touching briefly on ASXlisted shares in the last section. February is aninteresting and eventful month for the Australianshare market. We aim to dedicate the next four weeksto Australian shares and this is made more exciting bythe rollout of Invast’s DMA CFD offering, which meansmany large global shares can now be traded – eitherlong or short.

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February sees many companies who have a 30 June financial year end date reportingtheir interim results. Some companies will be reporting their full year results, so it is avery busy time in the markets. Our analysis will be broken up as follows:

Week commencing 2 February 2015: Outlook for Australian banksWeek commencing 9 February 2015: Mining companies likely to remain losersWeek commencing 16 February 2015: Our six key picks & further analysisWeek commencing 23 February 2015: Result review & upcoming dividends

Week commencing 9 February 2015: Mining companies likely to remain losers

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Last week we wrote about the Australian banks which continued to rally stronglyfollowing the RBA’s decision to cut rates by another 25 bpts to 2.25%. We articulatedour view that Westpac was the most attractive among its peers. Westpac shares haveadded around 7% between the publish date of that report and the current shareprice as of the time of writing. The exact percentage figure will change by the timeyou read this report, our point is that a 7% gain within one week is a fairly goodoutcome and not one which is likely to repeat weekly. You need to take caution andcontext in what drives banking results – something which we touched on extensivelylast week. If that Westpac gain touches 10%, we would be inclined to take profit andsteer away from all four major banks completely.

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Our focus this week is on the other popular part of the Australian stock market whichhas completely fallen away in recent years – mining and energy stocks. There has beensome recovery in stock prices over the past few weeks but in the context of one or twoyears, valuations are still very depressed and for good reason.

Our note this week is simple. We tend to go into deep analysis when need butoccasionally in this publication, we summarise our points concisely. Over analysing canoften lead to losses. The simple reality is that commodity prices are still verydepressed, particularly the large key commodities. In Australia, the real commoditiesthat matter to the direction of the ASX 200 index are iron ore, coal, oil and to a smallextent gold. The later has performed above our expectations in recent weeks but notenough to break the downward trend and sentiment among Australian resourcecompanies.

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Image: Copper futures contract, four hour price chart via Invast MT4 platform

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For mining stocks to break out of their downward long term trend, we need to see aconvincing move on the copper price. Why copper? Readers of this report will knowthat we have a very high regard for the copper price as a lead indicator for all otherindustrial commodities. We wrote about copper extensively in our 2014 and 2015Outlook guides. The problem is that despite the huge money printing from Europeand Japan coupled with the recovering US economy, the copper price remains verydepressed in the context of the past decade.

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Copper at US$2.60/lb as of the time of writing is at an extremely depressed level. It isat a point where many global miners are not making a margin, yet alone an adequatereturn on their investment. This is very important to consider when trading miningshares in the current environment. There will be many mining companies that wouldneed to write down the carrying value of their copper assets. When the value of acertain asset or market falls, companies need to readjust the value of their assets onbalance sheet. This means the balance sheet could potentially come under threat,particularly if there is debt.

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We have a high degree of confidence that copper will turn a corner and eventually riseinto the US$3.30-65/lb price range, but this will take time and requires patience. Ifyou don’t have time, patience and discipline, don’t trade copper. The downside wethink is fairly capped, underpinned by natural demand and the margin cost ofproduction which we think is around US$3/lb on an all in cost basis. We couldpotentially see copper lower than the current level, but probably not for an extendedperiod of time without sending many copper miners out of business.

The long term fundamentals for copper and other industrial metals is positive. Wewrote about India’s economic reforms in our 2015 Outlook Guide, in particular theroom for growth should Mohdi’s economic reform plan fall into place as planned. Wedon’t plan to repeat much of that again, but the direct link to that report is here if youwould like to read our big picture view on copper.

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It’s not just copper either. Over the past few weeks we have been writing about theimpact of lower energy and iron ore prices on the valuation of major miners like BHPBilliton. History has shown that when BHP remains depressed, so too does the rest ofthe listing mining industry. There will be volatility and short term tradingopportunities in certain names, but no reasonable break of the downside trend thatwe have seen now since the end of 2013.

Below is a list of the major resource stocks – the issues that we are looking for and thekey triggers which we think are required before the share price of each starts torecover.

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BHP Billiton - BHP will reports its interim earnings numbers on 24 February. We don’tthink there will be too much surprise in the actual earnings number itself becausemost mining companies disclose their quarterly production numbers to the market andso the large number of analysts in the market can work out the impact of pricing andcosts on these numbers to deduce an earnings estimate.

We think the real surprise will be commentaryaround the value of BHP’s assets on balancesheet.

There will be a need to write down the carrying value of assets, further postpone largecapital expenditure and articulate to the market the overall strategy once non-coreassets are no longer part of the total group.

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Image: BHP weekly price chart via Invast DMA CFD platform

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We can’t see much positivity coming out of the result unless commodity prices – ironore, energy and copper break out of their current downward spiral in a meaningfulway over the next few weeks. We would be steering clear, waiting to review theviability of the balance sheet and looking for management commentary as to whereand when they believe commodity prices will bottom and recover.

Bottom line - We would be looking to short BHP going into their result announcementas the overall market moves towards the 6000 level where we find strong resistance.

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Rio Tinto - Rio’s biggest problem is its huge exposure to iron ore. When the iron oreprice is rising, this is a major benefit. But we are in a falling iron ore environment and itdoesn’t look like the iron ore price is about to turning above its current trading rangeanytime soon.

Even if the iron ore price was to rally, there willbe a line of traders looking at taking profits onRio Tinto for it’s over exposure to this singlecommodity.

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Image: RIO weekly price chart via Invast DMA CFD platform

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The iron ore market moves in long term cycles. The doubt around Chinese demand isperhaps not as large as concerns around the increase in production from key globalproducers. The excess supply will take time to filter through the market. This doesn’thappen overnight, it can be a long and painful affair. For this reason we think Rio Tintowill remain a lose/lose exposure.

When the iron ore price it won’t rally as much as peers and face questions around itsexposure to a single commodity and when prices remains depressed, it will have towork hard to justify the value of its recent investment and growth plans across itsAustralian mines.

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Bottom line - Investments into other asset classes and geographies have beendisastrous for shareholder with a huge amount of value destroyed over the pastdecade. For this reason, we rate Rio Tinto an outright Avoid. Rio Tinto will report itsannual earnings on 12 February.

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Woodside Petroleum - Without a doubt, Woodside is the highest quality energyexposure on the Australian market and probably even across the Asia Pacific region.

For this reason, we think there will always bebuying support at around the $35 per sharerange.

Traders need to keep in mind that the current oil price fall is very large and savage inthe overall historical context. Woodside is managing to ride this downturn out andhave outperformed its listed peers for one very good reason – high quality assets and astrong balance sheet.

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Image: WPL weekly price chart via Invast DMA CFD platform

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These two factors are often the key ingredients in long term successful companies.Unlike BHP and Rio Tinto, Woodside will find many more contrarian buyers and is likelyto have less balance sheet implications during this commodities slump. The key risk is apro-longed period of low energy prices.

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We don’t think this is sustainable for the following reasons:

1) The huge money printing from Europe and Japan is likely to add global inflationarypressure in the decade to come and fuel the economic activity in these energy hungryeconomies.2) The world’s largest consumer of oil – the United States – is undergoing a solideconomic recovery and demand for energy is unlikely to fall during this period.3) Consumption of energy per capita in the developing world is still very low and rising.The fundamentals behind higher energy prices haven’t changed, the current increasein supply will eventually work through the market. The developing world issue ismedium term in nature and doesn’t appease short term supply issues.

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Woodside reports its interim results on 18 February. The market has a fairly good ideaaround production numbers and realised prices. So we don’t expect much surprisearound the earnings number itself. Instead, the market is likely to focus on the strengthof the balance sheet and whether or not Woodside is using the current marketenvironment to make any opportunistic acquisitions.

Bottom line – Woodside is high quality and a solid long term business. It is likely tofind support from contrarian investors at around the $35 per share range. We wouldbe buying after the result at any price below this level. Let’s first see the numbers.

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Gold stocks - We would only consider Newcrest Mining, although our view on goldfrom the 2015 Outlook guide has been that lower energy prices and a rising US dollarcould see the floor price move to around US$900 per ounce. This is highly contrarianand has not eventuated so far this year.

We will continue to monitor the gold priceenvironment, doubting very much the ability toadd further gains. Gold to silver for exampletouched a resistance level in January which wealso reported in the guide.

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Our preference is against gold BUT if traders and investors have an alternative view,which we respect, our only pick among the major gold exposures in Australian wouldbe Newcrest Mining. Newcrest reports on 13 February.

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Which Shares to Buy? ASX Reporting Season Webinar

Invast Insights chief editor and contributing author Peter Esho will summarise hisoutlook on Australian shares during February reporting season. Esho will document hisfindings based on the performance of key stocks and where he believes the bigopportunities lie next year. His presentation will focus on the following 5 themes:

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Performance and outlook of the Australian banksPerformance of mining companies and which to avoidHis 6 key stock picks for 2015Key performance result highlights

Esho is a regular contributor on CNBC, Bloomberg and host of ‘Your Money YourCall’. His webinar will cover both the fundamental and technical outlook on thesekey themes and a basic introduction to Invast’s new DMA CFD product offeringwhich complements MT4 and other services. This webinar is expected to fill fast.Q&A will be open straight after the presentation. Register now by going towww.invast.com.au/webinars.

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Go to www.invast.com.au/insights to get a complimentary 4 week trial and receive the latest insights as they are published to our live clients.

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DisclaimerPlease note that you are receiving this report complimentary from Invast Financial Services Pty Ltd(AFSL 438 283). Invast staff members may from time to time purchase securities which areincluded in this or future reports. The authors of this report may or may not be holding a positionin the securities mentioned. Please note that the information contained in this report and Invast'swebsite is of a general nature only, and does not take into account your personal circumstances,financial situation or needs. You are strongly recommended to seek professional advice beforeopening an account with us.

General Disclaimer: This newsletter contains confidential information and is intended only for theperson who downloaded it. You should not disseminate, distribute or copy this newsletter. Invastdoes not accept liability for any errors or omissions in the contents of this newsletter which ariseas a result of downloading this newsletter. This newsletter is provided for informational purposesand should not be construed as a solicitation or offer to buy or sell any financial product. InvastFinancial Services Pty Ltd is regulated by ASIC (AFSL 438 283 | ABN 48 162 400 035).

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Risk Warning: It's important for you to read and consider the relevant Product DisclosureStatement, and any other relevant Invast Financial Services Pty Ltd documents before you decidewhether or not to acquire any financial products listed in this email. Our Financial Services Guidecontains details of our fees and charges. All these documents are available here on our website, oryou can call us on +612 8036 7555. CFDs and Foreign Exchange are leveraged products and carry ahigh level of risk and you can lose more than your initial deposit so you should ensure CFD andForeign Exchange trading meets your personal circumstances.

General Advice Warning: Being general advice, this newsletter does not take account of yourobjectives, financial situation or needs. Before acting on this general advice you should thereforeconsider the appropriateness of the advice having regard to your situation. We recommend youobtain financial, legal and taxation advice before making any financial investment decision.

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