| |
| |  |  |  | | | |
| | |  | | | | |
| | | 07 January 09 - 02:32 GMT | | | | |
| | | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Investor | CEO Letter 2007 |   | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Recent News
|
Updated: October 2007
It is a pleasure to take this opportunity to welcome you to ALTUS and provide some views on the market which strongly underpin our strategy of investing in the resource sector and in particular in gold. In this letter I shall review strategies for exploration, selecting the right capital market, the so called Super Cycle, the significance of China, the turbulent currency markets and finally the outlook for gold.
Better returns from exploration Whether or not prices are currently 'high' or simply returning to 'fair' value, the cyclical upswing in commodity prices over the last five years has catalysed renewed investment in mineral exploration from its 2002 low of $375m. A new generation of junior companies have and continue to be financed, deploying strategies designed to make returns rapidly and if not with the lowest possible risk profile then with an optimal balance. Few major deposits discovered in last decade with margins on existing projects being squeezed by cost inflation In order to mitigate exploration risks, attention has naturally focused on previously marginal 'reheated' discoveries that now might make the grade and the brownfield potential around established mining camps. With only a few exceptions, despite the renaissance in exploration spending there have been few notable discoveries in any commodity in the last five years. This reflects the inherently low geological odds for success and also cast some doubt on the ability of management teams to raise and commit funds for out-and-out 'grassroots' exploration. AIM market has proven highly successful for financing resource sector London's AIM market has been incredibly successful in terms of its growth since inception in 1995, with over 2,500 UK and international companies listing, raising more than £34bn. London perhaps leads the world in financing and understanding the major mining companies. However, unlike Canada or Australia, there is a relative paucity of market experience in London at valuing the risk / return proposition made by the management teams of early stage exploration companies. In seeking to minimise exposure to such situations, institutional investors have increasingly limited themselves to more advanced 'less risky' opportunities, but not always successfully. Cash flow estimates on plays with costs in the higher quartiles have not always been sufficiently discounted for project risks or earnings squeezed by inflation. Shareholders in junior explorers deserve multiple returns on investment Investors in the resource sector wishing to yield a dividend are well catered for in London, with most existing and new entrant FTSE mining companies making stellar returns on capital. Some investors seeking exposure to the upswing in the resource sector have regrettably lost money by investing in high risk junior companies where management teams have struggled to deliver on promises. Given the many and varied risks, not least the ability to refinance several times, shareholders in junior explorers deserve multiple returns on their investment. To achieve this objective management teams must be strategically and technically astute in pursuing the right opportunity with their limited funds, be visible in the market, emotionally detached from their projects, upfront about the exploration risks and realistic with their shareholders about project lead times. As the cycle matures greed is likely to overtake fear and the appetite for relatively higher risk, but well managed, junior explorers with the potential to create long term value from major new discoveries is likely to increase significantly. Listing costs for micro cap companies can be significant Professional and advisory fees for an IPO on AIM can be very high (rarely less than £300k). For micro cap companies (<£5m) already facing a high degree of exploration risk, it can be a questionable use of funds and in turn can exert pressure on management teams to promote unrealistic valuations. Once listed some micro cap resource companies can be akin to private equity situations, being difficult to invest in and exit from at the quoted price. Those companies with dynamic management teams that are mindful to update the market with the progress they have achieved frequently and transparently typically enjoy better liquidity, which in turn causes them to trade at a premium to their peers. Such a pro-active management style can also translate into higher odds in making an exploration success or spotting a value creating deal. In light of the above it is not surprising that considerable disparities can exist in the market valuation for AIM-listed resource companies that have similar stage assets and risk profiles, but different brokers, IR firms, management teams and shareholders. PLUS markets provides micro caps with a cost efficient public platform The PLUS market in London, with its lower listing costs and an increasing profile (www.plusmarketsgroup.com) represents an ideal platform for fair valued and well managed micro cap explorers to initially list their shares. Formerly called OFEX, a strong management team are aggressively growing PLUS. The market has over 200 companies quoted and a further 1,000 companies trading on the platform, with a combined capitalisation of around £200 billion. PLUS is accessible to private investors, with on-line electronic settlement and an increasing number of market makers. There are presently twelve resource companies quoted on PLUS with an average capitalization of around £5m. Mixed views on a Super Cycle Growth ought to be uniform with prices accurately weighted for all current and future risks and returns. Markets are however, demonstrably not perfect and are better treated as a proxy for the ratio of speculative greed and fear, as illustrated by the creation and bursting of financial bubbles and to a lesser extent supply and demand cycles which are always totally predictable, with hindsight. The low of the previous commodity cycle was perhaps called with the US$4.4bn Bre-X mining scandal which occurred in Canada in 1997 when the world's 'largest gold deposit' in Indonesia failed to live up to its promises [it did not exist]. Investor confidence in exploration stocks hit all time lows just when the spectre of millions of new 'on-line' consumers and equity traders looked like a sure one way bet. The investment herd inflated the value of dotcom and other technology companies with their speculative cash, savings and indeed borrowings. The returns were just about as spectacular as the subsequent losses. At this time of depressed commodity prices investing in the exploration for the next generation of deposits was primarily the domain of the major mining houses, simply in order to feed their mills. Otherwise the only juniors left standing where those with the most robust projects and talented, agile and financially astute management teams. Those companies needed to be 'forward looking' and their shareholders needed a high tolerance for political, commodity and project risks plus confidence in an imminent cyclical upswing. Many of these juniors went on to make significant discoveries. Fewer discoveries and long project lead times impacting on supply Fundamental imbalance between the rates of growth in demand and supply are characteristic of the cyclical nature of the commodities market. Under-investment in exploration and new technologies over the last twenty years has only amplified the current supply side vacuum, while the proliferation of the global internet and mobile communications revolution has acted as an accelerant to the insatiable demand for raw materials from the industrialisation, deregulation and growing affluence of the most populous, commodity hungry and increasingly economically powerful nations. Rampant demand for commodities driven by emerging market growth Emerging markets, including the Middle East, now account for 30% of the global economy (US 25%, Western Europe 24%) and almost 50% of global growth. These strong fundamentals have resulted in a remarkable surge in metal and oil prices in the last five years and increasingly soft commodities and fertilisers. Speculation is increasingly creating significant volatility, as participants in spot and futures markets attempt to quantify the level of future physical imbalances and the potential risks to their positions from external monetary and geopolitical factors, not least pressures on the currencies in which they are trading. Given the spectacular performance of the metals in the period much of the expected future demand may now already be in the price and industry focus may again turn towards consolidation. Despite 'Chindia' the global economy remains highly leveraged to US consumer The US dominate the global economy and the US consumer represents an estimated 70% of this, equivalent to approximately 20% of global GDP. By comparison China's economy currently contributes around 5.5% of global GDP or 75% less than the US consumer alone. Even with China's population advantage assuming the country's present rate of growth is sustained it will be a long time before China catches up with and overtakes the GDP of the US. The significant influence that the US consumer has on the global economy is evident in the debt induced financial bubble currently being enjoyed, but yet to be paid for, around the globe. An inflationary domestic monetary policy over the last five years in the US has successfully staved off a major domestic and global slowdown. Fortunately nominal prices have co-incidentally been kept in check for the US consumer by globalisation, with relatively cheap Asian imports. At the same time the carry trade of cheap money between the Dollar and Yen has fuelled the sale of easy credit at a healthy margin. Over 75% of household debt is now attributable to the home they live in, an all time high, and not such an economic miracle. The significant risk of a collapse in real estate price in the US, UK and to a lesser extent in western Europe may force central banks to cut rates in order to promote borrowing and inflate away debts; the deflation of Japan is an illustration of how unpleasant such a remedy can prove if misjudged.
Demand in the US is now tightening sharply as the currency markets unwind previous interest rate versus inflation risk imbalances. Central Banks are keen to avoid an 'age of turbulence' with financial shocks from a spiral of sub prime consumers in the US unable to repay 'toxic' credit to potentially sub prime lenders, themselves bank rolled and now re-rated by Wall Street. A more appealing mechanism to have consumers pay for their excesses may be achieved by reducing the nominal value of their hard assets by decreasing the real value of the paper in which they were paid and are now priced. A hyper inflationary induced environment, with oil well above $100 per barrel and rising food and other consumer living costs, will require significant use of Central Bank printing presses; effectively in competition with one another to devalue their debts. Interest rates can rise in such a scenario, albeit so long as remaining less than the rate of inflation, in order to cut consumer borrowing. In such a soft currency environment where money supply continues to exceed new gold supply and where real losses are recognised on nominal inflationary gains, gold is likely to shine given its hard properties as a defensive hedge against inflation and an asset class for a new generation of private, corporate and state investors in the emerging markets. Risks to currency and stock markets in our existing environment are stagflation should demand dry up after this period of excess supply, a potential Asian stock market flu brought on by further rampant speculative investment 'buying tomorrows growth today', and even non financial contagions like H5N1. Therefore despite the positive global outlook, simple imbalances continued or unimpeded growth in demand for commodities is far from a one way bet in the medium to long term. Fortunately as discussed there are seemingly few such risks on the supply side with a paucity of new discoveries or technologies. Therefore failing a market calamity, the current cyclical upswing in commodity and energy prices looks set to continue and could indeed prove more 'super' than those before. Gold to benefit from inflation, market instability and wealth creation At ALTUS we firmly believe that amongst all commodities and asset classes, gold as a hedge against market turbulence and as a significant dollar denominated asset for the newly affluent countries has the potential for the highest real returns across a basket of currencies. China: what's the pig deal In February China entered the year of the Golden Pig, the first for sixty years. The year is fabled to bring with it good fortune and is celebrated with the buying of gold. Certainly those who bought gold in February can already celebrate a small increase in their fortunes. China's economy remains small relative to US Statistics should rarely be taken at face value. However, those in respect of the economic growth, material consumption and energy demand of Brazil, Russia, India and China ("BRIC ") are phenomenal if even half accurate. China's economy is now the world's third largest but still remains far smaller than that of the US. The IMF estimate the Chinese economy will expand by almost 12%, six times the rate in the US, and that growth will account for one third of global growth in 2007 (India 12% and the US 9%). China now consumes 50% of the worlds iron ore, used in steel production. Around 75% of China's blistering rate of growth is being driven by rampant supply to their domestic market and is fuelling significant global demand and prices rises for natural resources. Such episodes of growth have been experienced before (Germany, Japan and Taiwan) albeit not on such a scale. Internal supply driving GDP and reserve growth The average income of the almost one billion Chinese who live in the provinces is estimated to be half that of city dwellers; since the 1980s over 120m Chinese are estimated to have moved from the provinces attracted by the higher wages. There are now over 220m people working in manufacturing in China (almost four times the population of the UK) and over 20 million on-line businesses. The wealth effect has already created at least 300,000 US dollar millionaires and 108 billionaires (up from 15 in 2006) in communist China. However, although internal demand is growing rapidly it still has a way to go, with only 36% of GDP attributed to household consumption compared to 70% in the US. The rate of growth in China is reasonable given its starting point. Its per capita GDP for its 1.3bn people is only 4%, and its output only 25% of that of the US. China now has the world's largest financial reserves from its trade empire, standing at 1.43 trillion dollars. These reserves are increasing (before interest) at the phenomenal rate of more than a million dollars a minute, or $42 billion every six weeks (equivalent to the UK's total financial reserves). An innovative state owned vehicle for some of the excess cash being thrown off is the $200 billion China Sovereign Wealth Fund, which will be investing outside China under the banner of the 'China Investment Corporation Ltd'. It will be no surprise if the fund invests in natural resource companies, on which the country is somewhat dependent. This will add a new dimension to the drivers of M&A activity of the big cap mining companies in the years to come. The potential tie up of Rio and BHP is likely to be just the start. That is if China, perhaps the largest client of both (it buys 20% of BHP's output) does not improve the party. By buying interests in both. In the meantime China's corporations, albeit quasi state enterprises, are already taking on the world, and winning; PetroChina (86% state owned) now reigns supreme with a one trillion dollar valuation, roughly four times that of BP. Earnings will, however, need to accelerate to catch its dot-com beating P/E above 55. PetroChina seems a steal in comparison to Alibaba, which at a P/E of 315 is a good old fashioned dotcom. In an environment where the Yuan is almost certainly set to appreciate against the dollar it looks like a serious equity bubble is underway in China. Notwithstanding this when the bubble bursts it should not impact China's long term demand for natural resources which reflects a fundamental shift resulting from the countries reform and technology driven industrialisation. Yuan appreciating to stave off inflationary spiral The relative weakness of the Yuan has been a key driver in maintaining China's growth in exports and job creation. Their trade surplus in 2007 is expected to exceed $240bn (2006 $177.5bn, 2005 $102bn). With internal supply now dominating the Chinese economy the Yuan needs to strengthen if credit growth from excess liquidity and decade-high inflation is to be curbed. Successive rate rises are filtering through into price rise for exports. However, there is little evidence of a slowdown in the rate of inflation, interest rates therefore effectively remain negative. Cash continues to flow into investments from deposits into the market, increasing stock prices. This is effectively removing the 'Asia' risk discount historically applied to price earning ratios. As stocks in China become relatively expensive, from squeezed earnings on the one hand and being over-bought by individuals and domestic corporations on the other, we believe that cash will start to move toward real estate, bonds, collectables and ultimately gold. Demand for gold to rise to hedge against inflation and on wealth creation Other than aggressive pull backs on the way to new highs, perhaps a key downside risk to the short term 'China growth' story is from social unrest due to increasing inequalities from those enjoying the benefits of capitalist style reforms and the workers who perhaps never will. Outside politically motivated economic pressures to cut China's trade surplus, from the US and EU trading blocks, may be a further inhibitor to excessive growth. By way of an illustration the UK exports more to Switzerland than it does to China. Internal pressure for weaker US dollar Foreign exchange buy backs Recent reports by the IMF suggest that the US dollar is at threat to sustained depreciation against other currencies. While purporting a strong dollar policy, a weaker dollar would actually provide the US with higher export earnings, inflate away a portion of the $9 trillion national deficit ($5.7Tr : 2001) and with weaker yields on treasuries stave off a possible consumer led recession. Pressure to allow the dollars slide to continue is therefore very high. As with the asset bubble in Japan in the mid 80s, which forced its currency to double in value in two years and led to a decade long recession, the pressure in China for the Yuan to appreciate further away from its loose, if not dirty, dollar peg in order to fight rampant inflation is unavoidable. The subsequent drawn out stagflation of Japan with interest rates close to zero and nominally negative has been a key driver of the 'carry trade' with the US has been the prime cause in the over extension of the consumer in the US. The revaluation will make Chinese goods more expensive for export although the economy is currently largely driven by internal consumption and it will also increase the relative value of stock holdings which will impact on corrporate profits made in the market than in the factory. This aside China has a very strong hand to play. China significantly exposed to any slide in the dollar After Japan which owns $644bn of US debt, China is the second largest creditor of the US, owning $350bn dollars worth of treasury notes. With potential for the value of these assets to depreciate twice-over through devaluation of the dollar and appreciation of the Yuan there is significant economic incentive with political ramifications for China to reduce its currency exposure into dollar denominated assets such as gold or into other strong currencies with a strong outlook - of which there are not too many. A major disposal of US notes by China would not be in China's immediate trading interest. The ideal economic scenario to mitigate the impact of the US debt bubble is a 'happy handover' where any disposal of dollars is performed in a responsible way and is in line with growth in imports from the US. Potential for a pre-emotive run on currencies The political ground is being prepared for a redistribution of assets in China. However, other holders or potential buyers of bonds may in pre-empting a run on the dollar trigger a self fulfilling revaluation and in turn lead to volatile markets. An exodus has perhaps already begun with the first net reported sell-off since 1998 reported in October 2007 with Japan, China and Taiwan recently disposing off US$23bn, $14.2bn and $5bn respectively. The knock on effects to the profits from US operations of European exporters is potentially significant. On top of this the threat of inflation, driven by oil price rises, represents another volatile ingredient to the mix. Gold is a precious metal as it is relatively scarce Few long term investments seem as good as gold Historic global gold production is estimated to be approximately 158,000t (5.1bn ounces) of which the majority (65%) has been mined since the 1950s. If formed into a cube it would have sides just 20m wide. For further perspective if you were to buy a ton of gold, it would form a cube with 40cm sides and at 32,150 ounces per ton would cost around $24m ($750/oz). The US$ price of gold is currently rallying strongly, trading near its record highs. Upward forces on the price of gold include:
 Click to enlarge Gold: the 'Quiet Metal' now testing all time highs but lagging base metals While trading 135% higher in the five years since 2002, the price of gold in US$ has under-performed relative to other precious and base metals over the same period e.g. Silver ↑ 165%, Platinum ↑ 223%, Zinc ↑ 247%, Nickel ↑ 271%, Tin ↑ 274%, Copper ↑ 393% and Lead ↑ 678%.
The price increases of the base and platinum group metals have been driven largely by demand pressures from the rampant industrialization underway in Asia. There are however, few significant industrial uses for gold. The metals primary qualities are as a store of wealth which cannot be manufactured and that it does not represent an IOU.
No longer a simple dollar value story The all time high for gold of US$850oz reached in 1980 equates to nearer US$2,500 in today's money. As the charts show the recent break out in the price started in 2002 and is now up 143% since then, which is relatively modest when compared to the surge in base metal prices in the same period. However, the Euro has also appreciated significantly against the dollar in this period ($/€ 1.01 to 0.7). The relative performance of gold in euros and sterling is therefore even less spectacular of that in straight dollar terms. Recent break outs in the Euro and Sterling price of gold indicates that a dollar-gold disconnect is potentially underway.
 Click to enlarge Growth through acquisition failing to create ounces There are around 400 operating gold mines worldwide, producing a total of 2,550t (82Moz) a year equating to around 65% of global supply. In 2006 gold supply from new mines was the lowest for a decade and the figures for 2007 look set to continue the downward trend in mine supply. The lead time for exploration to deliver a mine is typically around ten years, therefore increasing demand does not immediately translate into increased mine supply. In fact fewer ounces are being discovered than ever and at ever higher cost. This cycle is fuelling M&A activity as senior management teams prefer to increase their reserves though acquisitions and call the shots than being taken over and potentially moved aside. Major producers such as Newmont, Lihir, Anglogold Ashanti and Barrick are also tending to de-hedge, unwinding previous futures contracts to sell yet to be mined gold designed to lock in a guaranteed return for their creditors. The pressure to de-hedge is largely from shareholders in order to increase exposure to higher gold prices, to reduce sensitivity of margins to cost inflation and to protect themselves against future gold price spikes. Margins suffering from rampant inflation Significantly higher prices are however, not translating into significantly higher margins and returns on equity for gold mining companies. Cost inflation over the last five years in the mining sector is estimated to be around 50%. Newmont Mining's return on equity was less than 2% in the last 12 months (Gold Fields 8%, Randgold 11%). Recently Newmont 'surprised' the market with a profit warning, projecting a 32% increase in costs in 2007 from 2006 figures. Another source of gold supply is the complex and opaque inter bank gold carry trade. This typically exceeds mine supply, with around 30,000t (964Moz) or 10% of global Central Bank reserves on loan at any time cover a portion of demand. The process of lending out at low rates for banks to sell and invest in higher paying bonds for a risk free gain, before repaying the gold from market purchases or lending their own gold back, seems like a pyramid scheme, and probably is. Outside of this leasing market, the balance of physical gold supplied to the market is from the recycling of 'scrap' and Central Bank selling; both sources are in decline as stockpiles reduce.
Source: Using data compiled from World Gold Council (*based on Q1 and Q2 figures) Washington Accord may not need renewing in 2009 In September 2005 Central Banks from around the world (with the Bank of England being a notable exception with no intention to sell) entered into a second five year 'Washington Accord' limiting the signatories sale of gold in the period to 2,500t (first agreement: 2,000t) with a maximum of 500t per annum. Before the first agreement in 1999 the UK announced the sale of 415t by auction at a rate of 20-25t every two months until March 2002. Total sales under the first and renewed second agreement to date and the relative proportion of gold sold to the reserves of Central Bank participants are shown in the following tables. Market observers are predicting that Central Bank gold sales to September 2009 may be as much as 150t short of the 500t quota provided by the accord. With gold prices less under threat from Central Bank sell offs the Washington accord may not need renewing for a third term.
Source: Using data compiled from World Gold Council, as at Sept 07
Source: Using data compiled from World Gold Council, as at Sept 07
Source: Using data compiled from World Gold Council, as at Sept 07 China and India relatively underweight as private demand grows China is the 10th largest holder of gold as a reserve with 600t, representing 0.9% of their reserves by value. This compares to the US with 8,133t, representing 75.8% of their reserves by value. As discussed above, China has significant exposure to a devaluation of the greenback and appreciation of the Yuan. Should China seek to increase its reserve weighting in gold to the same relatively low percentage as India (3.4%), it would need to buy an additional 1,500t of gold or 60% of all production in 2007. With increased deregulation and vast tracks of prospective geology, China looks set to become the world's largest gold producer, taking over from South Africa's 100 year reign. Production in China for the first six months of 2007 of 129t (4.1Moz) equates to 134t (4.3Moz) in South Africa. In terms of domestic consumption China has removed many of the restrictions on private investors buying gold and in 2002 opened the Shanghai Gold Exchange. In 2004 China allowed banks to sell gold bars under license. Certain restrictions remain for the Chinese to buy assets outside China, therefore holding gold may become increasingly appealing as a store and symbol of newly created wealth. India is the 14th largest holder of gold as a reserve with just 358t, representing 3.4% of their total reserves by value. However, India is the world's largest consumer of gold. For cultural reasons gold is the most popular investment there and accounts for around 20% of global physical demand. Indians themselves are holding around 14,000t of gold as jewellery; a hoard of almost 10% of the above ground global reserves and more than the combined reserves of the worlds top three reserve holders (US, Germany and France). Sustained modernization in India has the propensity to decrease gold demand, as Indians deposit their cash into newly established and increasingly trusted banking networks. Conversely the wealth effect, with the number of households in Indian earning more than $80k per year being predicted to treble in the next decade should, as in China, create significant demand from the nouveau riche for gold and consumer resources. For example at present it is estimated that there are just seven cars for every one thousand people in India. However, unlike China, the US, UK and Japan, India has one of the youngest demographics in the world, with almost 50% of its 1.13 billion population having been born after 1982. The countries middle class is expected to grow from 200 million to 500 million by 2015. Such growth is reflected in Sensex the benchmark index of the Bombay stock market which recently passed the 20,000 market for the first time; it started at 100 in 1979 and took twenty years for it to break 10,000 for the first time less than two years ago and is now trading at 50 times forward earnings; a major correction seems inevitable. In the short term the gold market can expect some pull backs as participants lock in significant profits from the metals upward trajectory. However, the pressures on the US currency, potential for an inflationary spiral, the emergence of short term market moving hedge funds, geopolitical instability and increasingly affluent populations buying jewellery and exchange traded funds and the unrelenting depletion of below ground reserves all point to a continued demand / supply imbalance and the potential for further significant real term price rises. Goldmania over Googlemania? A counter weight to a dramatic run on the dollar and an ensuing inflationary spiral are the US reserve figures. As the worlds largest holder of gold with 8,133 tons the US holds the economic aces in any 'real' dollar denominated revaluation of gold. Each ten dollar increase in the price of gold per ounce increases the value of US reserves by around US$2.6b. If the price of gold were to double to say $1,500 then the value of US reserves would in turn increase by approximately $200bn (US current total reserves circa $220bn). Surprisingly however, trading at around fifty times earnings, such an increase only equates to the market capitalization of Google, itself being one fifth of the size of the entire mining sector...comparisons such as these and the likely yield from Facebook (already valued at $15bn) are perhaps best left to another letter, in the meantime we would wager that goldmania will out pace googlemania in the years ahead. Yours faithfully, Steven Poulton Chief Executive | | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
 |
