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Australia’s Boutique

Resource Investment Firm

MPSM A R T I N P L A C E S E C U R I T I E S

MPSM A R T I N P L A C E S E C U R I T I E S

Barry DawesB Sc FAusIMM(CP) MSAA MSEG

Managing Director

Martin Place Securities

Australian Resources Sector Outlook for

2012

Mines and Money

Sydney 10 October 2011

MPSM A R T I N P L A C E S E C U R I T I E S

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. In preparing this research, MPS did not take into account the investment objectives, financial situation and particular needs of the reader.

Before making an investment decision on the basis of this presentation, the reader needs to consider, with or without the assistance of an adviser, whether the advice is appropriate in light of their particular investment needs, objectives and financial circumstances.

This presentation is based on information obtained from sources believed to be reliable but MPS does not make any representation or warranty that it is accurate, complete or up to date. MPS accepts no obligation to correct or update the information or opinions in it. Opinions expressed are subject to change without notice and accurately reflect the views of MPS at the time of writing.

This presentation has originated from MPS (ABN 30 094 927 947), a licensed securities dealer (AFS Licence 247 404). MPS can gain income through brokerage, capital raising commissions and corporate advisory fees.

MPSM A R T I N P L A C E S E C U R I T I E S

Global Outlook Dichotomy• China and other BRIC making >60% global growth

• Commodity volumes and US$ prices increasing

• Rising living standards

• OECD (US, Europe and Japan) locked in debt

• `Quant Easing’ debasing OECD currencies

• Falling living standards

• Flight of funds from cash and bonds

.commodities to be major beneficiaries..

MPSM A R T I N P L A C E S E C U R I T I E S

Commodity Outlook I• Emerging economies emphasise basic industries

• BRIC long term secular growth vs OECD cyclical

• 20 years of underinvestment in commodities

• Low inventory of undeveloped projects

• `Peak Oil’, `Peak Gold’?, tight copper

• Expenditures up but few major discoveries

..commodity prices to rise further...

MPSM A R T I N P L A C E S E C U R I T I E S

Long term commodity prices

MPSM A R T I N P L A C E S E C U R I T I E S

Commodity Outlook II• Steel industry is key driver for:-

- Iron ore, met coal, Ni, Zn, Mo, Co, Va

• Base metals have high mine utilisation rates

• Non-OECD energy demand exceeds OECD

• Oil, gas & uranium have tight supply lines

• Gold and silver boosted by currency turmoil

• Minor metals scarce – Wo, Sb, Cd, Ti

• Rare Earths and Li driven by new technologies

MPSM A R T I N P L A C E S E C U R I T I E S

Australia’s Resources Investment Outlook

• Major beneficiary of global steel boom

• Rising export income >A$210bn

• >A$175bn resources investment planned

• >100 new projects underway

• Resources equity earnings growth attractive

• Exploration and development gains

• Strong currency

MPSM A R T I N P L A C E S E C U R I T I E S

MPS Wave Market Psychology

MPSM A R T I N P L A C E S E C U R I T I E S

Global Consumption Growth

10Source: IEA 2010

MPSM A R T I N P L A C E S E C U R I T I E S

Annual Steel Production

Source: World Steel Association

MPSM A R T I N P L A C E S E C U R I T I E S

Annualised Steel Production

Source: World Steel Association

MPSM A R T I N P L A C E S E C U R I T I E S

Australian Iron Ore Exports (mt)

Source: ABARES / MPS forecasts

I - forecast

MPSM A R T I N P L A C E S E C U R I T I E S

Pilbara Iron Ore Operations

Source: Fortescue Metals Group

MPSM A R T I N P L A C E S E C U R I T I E S

Australian Coal Exports (mt)

Source: ABARES

MPSM A R T I N P L A C E S E C U R I T I E S

Central Queensland Coal

Source: Queensland Government

MPSM A R T I N P L A C E S E C U R I T I E S

China is leader in basic industries

• 8-10%pa growth rates being maintained

• Major internal migration

• Basic industries still growing

• Over 40% of global demand for most metals

• Aggressively acquiring global resources

• Massive foreign reserves to fuel growth

MPSM A R T I N P L A C E S E C U R I T I E S

China’s Share of Metals Consumption

Source: Various

MPSM A R T I N P L A C E S E C U R I T I E SShanghai Stock Exchange (SSE) Composite

(Monthly)

Source: StockCharts.com

MPSM A R T I N P L A C E S E C U R I T I E S

Global Capital Flows and Investing

Three major features in global economy

– BRIIC et al exceeding OECD demand and growth

– Supply-side issues for commodities continuing

– West is debasing currencies through debt problems

........the money flow is into hard

assets...

.... and AUSTRALIA is a big winner..

MPSM A R T I N P L A C E S E C U R I T I E S

Following the Money• Global pessimism means high cash levels

• CB roles mean abnormally low interest rates

• Negative real interest rates applying

So….

• 30yr bull market in bonds and financial assets over

• Flight from cash and bonds to flow into hard assets

• Resources stock to benefit

• Strong commodity currencies attractive

MPSM A R T I N P L A C E S E C U R I T I E S

Following the Money• Global pessimism means high cash levels

• S&P 500 Cash US$1,800bn

• Corporate USA ~US$3,000bn

• Australian GDP A$1,300bn

• All Ords market value A$1,300bn

• Australian Super A$1,350bn

• Australian bank deposits A$1,330bn

• Australian Super cash ~A$350-400bn

MPSM A R T I N P L A C E S E C U R I T I E SASX 300 vs Australian Bank Deposits (A$bn)

Source: RBA IRESS

MPSM A R T I N P L A C E S E C U R I T I E S

The Long View on US T-Bond Yields

Source: IRESS MPS

0

2

4

6

8

10

12

14

16

1940 1944 1949 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

1942 -1981 39 Yrs rising bond yields 1981-2009 28 Yrs falling yields

InflationDisinflation

Deflation

Reflation

0

2

4

6

8

10

12

14

16

1940 1944 1949 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

1942 -1981 39 Yrs rising bond yields 1981-2009 28 Yrs falling yields

InflationDisinflation

Deflation

Reflation

MPSM A R T I N P L A C E S E C U R I T I E S

Outlook for Australian Resources

• Commodity volumes and US$ prices rising

• Resources corporate earnings rising

• Resources equities significantly discounted

• Exploration and development surprises

• Rising A$ attractive to global investors

MPSM A R T I N P L A C E S E C U R I T I E SAustralian Resource Sector Exports (A$bn)

ABARES 2000-11 MPS estimates to 2015

Source: ABARES, MPS

MPSM A R T I N P L A C E S E C U R I T I E S

ASX Metals and Mining Index

Source: IRESS

MPSM A R T I N P L A C E S E C U R I T I E S

Non Ferrous Metals Market Share

Source: Mark J Lundeen

MPSM A R T I N P L A C E S E C U R I T I E S

Gold a Major Driving Force

• Gold in bull market in all currencies

• Supply constrained by inelastic mine output

• Central banks now net buyers

• Demand strong from jewellery and hoarding

• Gold stocks rising after 30 years consolidation

• Gold likely to exceed US$2000 then US$5000

MPSM A R T I N P L A C E S E C U R I T I E S

Long Term Gold Price

Source: Eric de Groot

MPSM A R T I N P L A C E S E C U R I T I E S

10 Year US$ Gold Price

Source: Stockcharts

MPSM A R T I N P L A C E S E C U R I T I E S

Gold Sector Outlook

• Gold price likely to exceed US$2000/oz

• Gold price alltime highs in all currencies

• Strong gold demand from all sectors

• Global mines supply beginning to rise

• Australian gold to rise 50% to >390t by FY15

• Global gold sector equities very cheap

• Earnings and dividends to rise sharply

• Only early stages of major bull market!!

MPSM A R T I N P L A C E S E C U R I T I E S

Long Term A$ Gold Price

Source: Stockcharts

MPSM A R T I N P L A C E S E C U R I T I E S

Australian Gold Exploration (A$m annualised)

MPSM A R T I N P L A C E S E C U R I T I E S

Yilgarn Archean Greenstone Belt

Source: Gold Road Ltd

MPSM A R T I N P L A C E S E C U R I T I E S

Yilgarn New Producers

Source: MPS

Yilgarn FY10 FY11 FY 12 FY13 FY14 FY15

Alacer Gold AQG 229 300 325 350 400 400

Carrick CRK 0 0 0 20 50 75

Focus Minerals FML 0 20 200 220 220 250

Integra Mining IGR 0 55 105 125 140 185

Norton Goldfields NGF 140 140 150 150 175 180

Ramelius Res RMS 61 80 140 180 230 250

Regis Resources RRL 0 81 110 350 310 310

Saracen Minerals SAR 40 111 125 200 250 260

Silver Lake Resources SLR 67 77 125 200 300 300

St Barbara SBM 231 258 320 350 350 360

Total koz 768 1123 1600 2145 2425 2570

Total Tonnes 24 35 50 67 76 80

MPSM A R T I N P L A C E S E C U R I T I E S

Australian Gold Production (t)

Source: ABARES MPS

Year End June

MPSM A R T I N P L A C E S E C U R I T I E S

Australian Gold Mine Production

Source: ABARES MPS ests

MPSM A R T I N P L A C E S E C U R I T I E S

Long Term ASX Gold Index

Source: IRESS

MPSM A R T I N P L A C E S E C U R I T I E S

ASX Gold Index Vs A$ Gold

Source: IRESS

MPSM A R T I N P L A C E S E C U R I T I E S

Long Term Gold Shares

Source: Eric de Groot

MPSM A R T I N P L A C E S E C U R I T I E S

US Gold Stocks vs S&P 500

Source: Stockcharts

MPSM A R T I N P L A C E S E C U R I T I E S

Gold Stocks Market Share in US

Source: Mark Lundeen

MPSM A R T I N P L A C E S E C U R I T I E S

Long Term US Gold Stocks vs Gold

Source: Stockcharts

MPSM A R T I N P L A C E S E C U R I T I E S

Making sense of it all• Commodity volume and price rises to continue

• Australian resource corporate earnings to improve

• Foreign investment in Australia to grow further

• Cash mountain to drive market higher

• Sharemarket to boom as new players enter

• New capital infusion to boost exploration

..Resources stocks boom time!!...

.......it could be very big

MPSM A R T I N P L A C E S E C U R I T I E SAustralian Resource Sector Exports (A$bn)

ABARES 2000-11 MPS estimates to 2015

Source: ABARES, MPS

MPSM A R T I N P L A C E S E C U R I T I E S

A$ vs US$ 1913 - 2011

Source: Thechartstore.com

MPSM A R T I N P L A C E S E C U R I T I E S

A$ vs US Gold Index (XAU)

MPSM A R T I N P L A C E S E C U R I T I E S

Conclusions• Gold price to be very strong

• Commodities to follow

• Capital flows critical to outlook

• Resources sector underowned

• Earnings and dividends to be remarkable

• A$ to be very strong

• Exploration opportunities on the way

• Expect a major Mining Boom

The `Optimism’ leg now underway!

MPSM A R T I N P L A C E S E C U R I T I E S

MPS Wave Market Psychology

MPSM A R T I N P L A C E S E C U R I T I E S

ASX Metals and Mining Index

Source: IRESS

MPSM A R T I N P L A C E S E C U R I T I E S

MPS Wave Market Psychology

MPSM A R T I N P L A C E S E C U R I T I E S

Long Term Dow Jones Ind Index

Source: Thechartstore.com

MPSM A R T I N P L A C E S E C U R I T I E SRecommended Strategy

Optimism Upleg – Higher Risk/Reward

• Large caps – 30% BHP WPL NCM

• Mid caps - 40% IGO FMG PDN SMR AQA LYC

AGO

• Small caps – 20% » 5% Gold 5% Energy 3% Iron ore 2% Copper

2% Base Metals 2% Exotics

• Microcaps - 20%» 5% Gold 5% Energy 3% Iron ore 2% Copper 2%

Base Metals 2% Exotics