mining for profits

8/7/2019 Mining for Profits

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Mining for Profits:

Investing in Metals

Shohana Jannat


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Current & Future Trends

Weakening U.S. Dollar

Rising Inflation Expectations

Global Economic Growth & IncreasingDemand

Supply Shortages & TradeWars

Portfolio Diversification


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Metals in Focus

Gold

Silve

rCopper

Rare Earth


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Rushing to Gold

Gold is money. Thats it. - J. P. Morgan

You could hold dollar, you could hold yen, you could hold euro, youcould hold pound or you could hold gold.

- David Einhorn

Bull-Run after 2008 Global Financial Crisis

Continued Uncertainty ofWorld Economy

U.S. Deficit & Low Interest Rates Weak

Dollar

Global Demand Continuing to Rise


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Does Gold Produce Value?

You could take all the gold thats ever been mined, and itwould fill a cube 67 feet in each direction.

For what thats worth at current gold prices, you could buy all

not some all of the farmland in the United States. Plus,you could buy 10 Exxon Mobils, plus have $1 trillion ofwalking-around money.

Or you could have a big cube of metal.

Which would you take? Which is going to produce morevalue?

-Warren Buffett, Oct 19 2010, Fortune


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Is Gold Reallya Glittering Investment?

Few practical uses

Price moves on

o Sentiment on world eventso Inflation & currencies

No interest or dividend

payout

3


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Gold in 2011

Low short-term interest rates

Global gold mining production stagnant

2010 Global Mine Output = 2,652 tons (+1.2%from 2000)

Lack of large deposit discoveries

Greater volatility in world currencies

Weak Dollar

2010 Performance: +30% ($1,421/oz)

2011 Estimates: +13% $1,600/oz

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How to Invest in Gold

SPDR Gold Shares (GLD) $133.13 Equivalent of Gold @ $1,330.13

Highly Liquid Avg. Volume = 15.5M shares

Closest to Investing in Bullion

N

o Manage

me

nt Fee

s

Midas Fund (MIDSX) Invests in mining & processing companies

2010 Performance: +47%

Solid Management & Consistent Performance

TopHoldings: Newcrest Mining Ltd. (8.4%) | Barrick Gold Corp.(5.77%)

Expense Ratio: 2.29%

T Rowe Price & Fidelity Mutual Funds


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Store of Value

Global Manufacturing & Production

Increasing Greater Industrial Demand

Limited Supply Not Recycled

Poor Mans Gold

More Volatile than Gold

2010 Performance: +80%


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SI ($/oz) 1YR Performance


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iShares Silver Trust (SLV)

Last Trade: $29.85

Volume:

$5.36M share

s Closest to investing in real silver

2011 Estimate: $50/oz

2011 Outlook


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Copper Inventories in London Metal Exchange 30%

435,000 metric ton Deficitin 2011 (International Copper

Study Group) Supply Shortage!!

New Copper ETF Dec. 2010 More Pressure on Supply

Global Growth & Recovery = Greater Demand!!


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Downside Risks (1yr +)

More Chinese Tightening/HardLanding 8-10% Decrease inConsumption

More Diversified Supply Base (Chile,Peru, U.S.)

En Masse Sell-Off

Robust Demand Priced-In LimitedUpside


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Current Price: $4.62/lb

Bullish Outlook!

63%14%

13%10%

Usage

Building Construction

& Electronics

Transportation

Equipment

Consumer & General

Products

Industrial Machinery

& Equipment


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How to Invest in Copper

Global Copper Miners ETF (NYSE: COPX)

$20.229

iPath Dow Jones Copper Index (NYSE: JJC) $61.56

iShares MSCI Chile Index (NYSE: ECH)

$72.51

2011 EOY Estimates: $5.00/lb


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The future of rare earth is greatit is pure simplisticcapitalistic economics now Jim Rogers

China controls more than 97%

Uses of Rare Earth: Green energy Flat-screen monitors

High-Tech components Cell Phones

Examples: Dysprosium, Molybdenum, Neodymium

Dysprosium 2003: $6.50/lb | 2010: $132/lb(U.S. States Energy Department)

Average 2010 Performance: +250%


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Highest Magnetic Strength of All Elements

Dysprosium

2003:

$6.50/lb | 2010:

$132/lb(U.S. States Energy Department)

Uses

Clean-Energy Products Nuclear Reactors

Enhance thermal, magnetic & optical properties intechnology applications


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Rare Earth in 2011

Diminishing Supply = Higher Prices

China to Tighten Rare Earth Production(Reuters, Feb. 14, 2011)

Deposits subject to stricter gov. scrutiny

1/3 of world reserves

2010 export quotas cut by 40%

2011 Performance Outlook:Bullish!


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How to Invest in Rare Earth

Difficult to invest in rareearth

Most ETFs/Funds are traded on foreign exchanges

Avalon Rare Metals Inc. (NYSE: AVL)Canadian mineral exploration & development company

Focus on rare metals

100%-owned Nechalacho Deposit one of few sourcesoutside of China

Well Funded, No Debt, Strong Growth Perspectives Current Price: $7.96

Market Cap: $743.00M

Negative Earnings


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Direct Ownership

Mutual Funds

Exchange-Traded Funds (ETFs)

Futures Contracts

Stock


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Buying minted coins/bars

Ultimate Pure Value

Jewelry

Safe


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Diversification of index fund

Ability to Short Sell

Lower/No Expense Ratios


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Diversification across variety of investment

products for different metals

Profe

ssional manage

me

nt of fund Fees

Different Objectives:

Long-

te

rmcapital appr

eciation

Hedge against inflation

Aggressive short-term capital gains


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Why Invest in Metals Futures Contract Hedge against inflation

Speculative play

Alternative investment class

Advantages

Centralized exchange

Financial l

eve

rage

Flexibility

No counterparty risk

Higher risk/Higher return

Disadvantages

Substantial Risk

Potential to losemore money then

originally invested


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