element global opportunities equity portfolio - september 2012

7/29/2019 Element Global Opportunities Equity Portfolio - September 2012

1/3

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD

2011 -1,11% 1,61% -2,05% 3,30% -1,25% -1,72% -1,37% -7,23% -7,20% 8,70% -2,83% -1,18% -12,57%

2012 7,06% 5,19% 1,62% -0,86% -6,98% 2,62% 0,62% 2,67% 1,35% 13,37%

Element Global Opportunities Equity Portfolio

The Element Global Opportunities Equity Portfolio has the mandate to goanywhere in pursuit of attractive investment opportunities,

using a bottom-up investment approach. Being equity focused, the portfolio has at least 70% of its assets invested in international

equity markets. Theportfolio uses as benchmarkthe MSCI World(Local) but it does not seek to mimic or track this index in any way.

September 2012

Net Asset Value (NAV) : 99.13

Portfolio Assets: 70000

Launch date: 14-January-2011

Portfolio Manager: Filipe Alves da Silva, CAIA

Portfolio DetailsInvestment Highlights

I was taught at university that markets are efficient, which means that the

market price of a security is its correct price. Fast forward a few years and

here I am, scourging the global equity markets for underpriced securities,

trying to do exactly what I was taught was impossible. In other words, I am

going against modern finance, in disagreeing with the efficient markets

hypothesis. Quite bold of me, don't you think?

There is a joke amongst value investors: two professors who are walking

down the corridors of their finance department, and one of them spots a

a

Monthly Performance

hundred dollar bill lying on the floor. He tries to pick it up but the other professor stops him and says youcant pick it up because its

not there. If it were there, it would have already been picked up. There is a janitor who sees the two professors walk away leaving the

hundred dollar bill on the floor. He picks it up and enjoys the money.

I have been following a company called Yukon-Nevada Gold Corp for a long time. Yukon is a gold miner with properties in the US and

Canada that got itself into serious troubles a couple of years ago: they ran into environmental problems and had to do major

refurbishment work in their ore processing plant (roaster). Throw in a global recession and you have a recipe for disaster. To survive,

the company was forced to raise cash, both by entering into forward gold sales, and by issuing lots of shares and warrants, resulting in

massive dilution for shareholders. Needless to say, the stock price plunged, going from $1.70 to as low as $0.03.

Despite believing that they would pull through, the possibility of the turnaround not being successful was too high, and the risk of

dilution kept me at bay, that is, until now: Yukon recently reported that it achieved steady state production and is now generatingpositive operating cash flow. With the majority of the execution risk behind, I now feel comfortable investing.

To the numbers: if all goes according to plan, the company will produce 200Koz of gold per year, of which it must pay 60Koz/yr to

lenders (until 2015). With a production cost of around $750/oz and $10 million of G&A costs, you get a profit from operations of $140

Mn per year. I am more conservative, and assume annual production of 150Koz and production costs of $870, which returns profits

from operations of $70 million. Because of losses in the past, the company will not pay taxes on profits any time soon. Plus, from 2016

onwards, it will keep all its production, which significantly increases operating profits.

The market capitalization of Yukon is around $300Mn, or 5 times our estimated earnings, and it holds little debt (besides the forward

gold sales, which are already accounted for in the estimate).

This is already enough to get me very interested, but there is more: If you are going to mine gold in Nevada, you will need a roaster.

There are only three roasters in Nevada, and the only with spare capacity is owned by Yukon. It is very difficult to get approval for a new

roaster, and there are no plans to build a new one in the near future. The other two roasters are owned by Barrick and Newmont.

Weekly Performance Chart

82

85

88

91

94

97

100

103

106

Jan-11 Apr-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12

MSCI World Local

Portfolio

The roaster is a very important piece of the puzzle. First, it has spare

capacity, and management wants to do toll agreements where it will process

ore from a 3rd party for a fee, which will be another source of revenue.

Second, its estimated value eclipses the current market value of the

company: management believes it is worth at least $1bn, I would play it safe

and cut that in half. Third, the roaster makes Yukon a very attractive

acquisition target for a bigger player. Even if it is not acquired, Yukon is

trading for at very low valuation, something we expect to correct as the

company proves it has turned the corner and left its problems behind.

In Yukon-Nevada Gold Corp, I think we just picked up a hundred dollar bill

that was lying on the floor.

The portfolio is up by +13.37% this year, outperforming the general equity

market, as measured by the MSCI World Index (local), by +3.07%.


2/3

Allocation by CountryAllocation by Sector

Currency Exposure


For more information please contact Filipe Alves da Silva directly

or send an email to [email protected]

Contacts

Weight

iShares MSCI World ETF Hedged 15,9%

IBM 8,5%

Apple Inc 8,1%

Microsoft Corporation 6,6%

Fidel i ty China Special Situations 5,5%

PepsiCo 5,5%

Berkshire Hathaway 4,2%

Amadeus IT Holdings 4,0%

Teva Pharmaceuticals 3,9%

BMW 3,5%

65,8%

Name

Total

11,8%

32,4%

1,9%

1,7%

17,6%

12,8%

6,1%

4,5%

4,3%

0,6%

1,4%

5,6%

0% 5% 10% 15% 20% 25% 30% 35%

Financials

Information Technology

Industrials

Energy

Consumer Discretionary

Consumer Staples

Health Care

Materials

ecommunication Services

Utilities

Real Estate

Cash

56,3%

1,4%

1,8%

4,9%

2,2%

0,6%

4,1%

0,6%

7,4%

0,2%

0,2%

0,2%

6,5%

1,7%

6,4%

5,6%

0% 10% 20% 30% 40% 50% 60%

United States

Japan

United KingdomCanada

France

Australia

Germany

Switzerland

Spain

Sweden

Italy

Netherlands

China

Brazil

Others

Cash

100,8%

-14,1%

6,1%1,7% 3,7% 0,3% 1,8%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

EUR USD CNY BRL CAD GBP UAH

Max. Long Exposure: 130%

Min. Long Exposure: 70%

Equity Hedging: May use options on single

name equities or equity indices

to hedge downside risk

Currency Hedging: Hedged on a best effort

basis

Investment Guidelines

Past performance is not indicative of future performance.

Reference in this document to specific securities should not be

construed as a recommendation to buy or sell these securities.

Disclaimer

E L E M E N T

Largest Positions
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]


3/3

Complete List of Holdings


Disclaimer: Past performance is not indicative of future performance. Reference in this document to specific securities should not be construed as arecommendation to buy or sell these securities.

Weight

iShares MSCI World ETF Hedged 15,9%

IBM 8,5%

Apple Inc 8,1%

Microsoft Corporation 6,6%

Fideli ty China Special Situations 5,5%

PepsiCo 5,5%

Berkshire Hathaway 4,2%

Amadeus IT Holdings 4,0%

Teva Pharmaceuticals 3,9%

BMW 3,5%

Archer Daniels Midlands 3,3%

Lowe's 2,7%

BlackRock 2,6%

Telefnica 2,3%

Corning Inc 2,0%

Avangard 1,8%

MRV Engenharia 1,7%

Renault 1,6%

Jakks Pacific 1,5%

Energold Drilling 1,4%

Chatham Lodging Trust 1,4%

Monument Mining 1,2%

IMAX Corporation 1,0%

GAP Inc 1,0%

Telefonica 11 PUT 06/2013 0,8%

OPAP 0,7%

Cninsure 0,6%

Premier Exhibitions 0,5%

PAX Global Technology 0,4%

Yukon-Nevada Gold Corp 0,3%

Addvantage Technologies 0,2%

Ted Baker 0,2%

La Seda de Barcelona 0,2%

Cash 4,8%

Total 100,0%

Name

element global opportunities equity portfolio - september 2012

Documents