INVESTING IN COMMODITY SHARES FOR RESOURCE GROWTH

INVESTING FOR RESOURCES
GROWTH - INVESTING IN TODAY'S
COMMODITY BASED SHARE MARKET
Presented by Simon McGrath
November 2011
M: 0413 566 699
E: simon@simonmcgrath.biz

DISCLAIMER

The information presented in this seminar is general advice only and
is not intended for any particular individual. No consideration has
been given to the individual investment objectives, financial situation
and particular needs of any person and Investors should
independently assess whether the advice is appropriate to their own
circumstances. Although the information in this presentation is taken
from sources considered to be reliable, Simon McGrath or any related
entities and their directors, employees and consultants do not
represent, warrant or guarantee, expressly or impliedly, that the
information is complete or accurate. Further we do not accept any
responsibility to inform you of any matter that subsequently comes to
our notice, that may affect the information disseminated in this
presentation.

INVESTING FOR RESOURCES GROWTH PRESENTED BY SIMON MCGRATH

ABOUT SIMON MCGRATH
•  Simon has been managing investment assets and advising clients since 1987 in
the areas of Securities, ASX Listed shares, Self Managed Super Funds, Self
Funded Retirees, and Retirement Planning and now focuses his considerable
energy on advising “Astute Conservative Investors” and the “Experienced
Investors” particularly for Self Managed Super Funds and High Net worth
investors with a focus on direct and listed assets.
•  Simon is a regular presenter on Skynews Business on Foxtel, a presenter on
Boardroom Radio (www.brr.com.au) and contributor to the business are of the
Sunday Times via their website service www.perthnow.com.au.
•  Simon is also a regular presenter for the Australian Stock Exchange at their
education seminars
•  Simon can be contacted on 0413 566 699 or by email simon@simonmcgrath.biz


AGENDA
1.  Overview of macro themes affecting commodity
prices
2.  Overview of main mineral and energy commodities
3.  Effect of Australian/World economy
4.  Australian resource companies
5.  My watch list
6.  Questions and Answers


ASX – All Ords over 30 Years – Where were you?
This is what I have witnessed over the past 25 years
XA O .A SX: 4 :11:01: 4722.9
Credit Crunch
6500
US Banking Crisis
US Property Market Collapse 6000

5500
Greece
Threatens default
5000

4500

Asia Tsunami
4000
I started my
investment Second Iraq War 3500
advising
2000 Tech Wreck Global Financial
career here Crisis 3000

1987 Stock
Market Crash Tiananmen 2500
Square 9/11 Attack
Crackdown on USA
2000

Global Interest 1500
rates soar
Saddam Hussein 1000

Invades Kuwait
500

Float of $A Fall of Berlin Wall
81 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
1985 1995 2005 2010

INVESTING FOR RESOURCES GROWTH PRESENTED BY SIMON MCGRATH Page 5

MACRO EVENT DRIVING WORLD DEMAND
WORLD POPULATION HITS 7BN LAST WEEK!


FORECAST WORLD POPULATION GROWTH 2010-2050
2010 2050
1 China 1,338,100,000 China 1,476,000,000
2 India 1,188,800,000 India 1,444,500,000
3 European Union 501,000,000 European Union 514,000,000
4 United States 309,600,000 United States 351,400,000
5 Indonesia 235,500,000 Indonesia 273,200,000
6 Brazil 193,300,000 Pakistan 246,300,000
7 Pakistan 184,800,000 Nigeria 217,400,000
8 Bangladesh 164,400,000 Brazil 212,400,000
9 Nigeria 158,300,000 Bangladesh 195,000,000
10 Russia 141,900,000 Russia 140,800,000
11 Japan 127,400,000 Mexico 123,400,000
12 Mexico 110,700,000 Ethiopia 119,800,000
13 Philippines 94,000,000 Japan 119,300,000
14 Vietnam 88,900,000 Philippines 117,600,000
15 Ethiopia 85,000,000 Egypt 103,600,000
16 Germany 81,600,000 Vietnam 103,200,000
Egypt 80,400,000 Congo, Dem. 101,400,000
17 Rep. of
18 Iran 75,100,000 Iran 87,100,000
19 Turkey 73,600,000 Turkey 85,000,000
20 Thailand 68,100,000 Germany 79,700,000
54 Australia 22,400,000 Australia 26,900,000
Source:UNESCO

REGIONAL DISTRIBUTION OF POPULATION IS CHANGING


URBANISATION OF WORLDS POPULATION


AUSTRALIA’S RESOURCE EXPORTS BY MAJOR MARKET

1999 % 2009 %

Japan 22.6% 1 China 26.3%

Korea 10.0% 2 Japan 19.7%
Singapore 6.7% 3 India 10.2%

Taiwan 6.7% 4 Korea 9.3%
China 4.5% 5 U.K. 5.0%
Other (including confidential items) 49.4% 6 Other (including confidential items) 29.4%
(a) (a)

(a) A significant proportion of Resources exports are country confidential in ABS trade statistics ($6.9 billion in 1999 and $14.8 billion in
2009). The major items are Natural Gas, Alumina, Mineral sands, and Uranium ores. Nickel alloys unworked are also confidential from
2002 onwards. Please note that these confidential resource commodities would have an impact on these market shares.
Source: ABS trade data on the DFAT STARS database


TOP 5 RESOURCE EXPORTS FOR AUSTRALIA
from 1999 to 2009

1999 2009
A$b %share A$b %share

Total Resource exports 37.9 Total Resource exports 130.8

Coal 8.4 22.1% 1 Coal 39.4 30.1%

Gold 5.8 15.4% 2 Iron Ore & Concentrates 30.0 22.9%

Iron Ore & Concentrates 3.6 9.4% 3 Gold 15.6 11.9%

Aluminum 3.3 8.8% 4 Natural Gas 7.6 5.8%

Aluminum ores & 2.8 7.4% 5 Crude Petroleum 7.2 5.5%
concentrates

Source: ABS trade data on DFAT STARS database, ABS catalogue 5302.0 and DFAT Estimates


AUSTRALIA‘S TOP MINERAL AND FUELS EXPORT 2009

Rank Commodity $millions %share
1 Coal 39,397 38.4%
2 Iron Ore 29,960 29.2%
3 Natural Gas 7,760 7.4%
4 Crude Petroleum 7,180 7.0%
5 Aluminum ores (inc alumina) 4,798 4.7%
6 Copper Ores 3,722 3.6%
7 Other ores 2,942 2.9%
8 Refined Petroleum 2,400 2.3%
9 Confidential mineral ores 1,187 1.2%
10 Liquefied Propane & butane 1,006 1.0%
11 Other (10) 3,448 3.5%
Total mineral & fuel exports 102,556 100%
Based on ABS trade data on DFAT STARS database and ABS catalogue 5368.0


WORLD OIL SUPPLY AND DEMAND (MBL/DAY)

Source: International Energy Agency


TOP 20 OIL CONSUMPTION COUNTRIES
PER COUNTRY COMPARISON
(BBL/DAY) as at 2009
Country bbl/day
1 United States 18,690,000
2 European Union 13,630,000
3 China 8,200,000
4 Japan 4,363,000
5 India 2,980,000
6 Russia 2,740,000
7 Brazil 2,460,000
8 Germany 2,437,000
9 Saudi Arabia 2,430,000
10 Korea, South 2,185,000
11 Canada 2,151,000
12 Mexico 2,078,000 Australia’s net deficit of oil
13 France 1,875,000 consumption 450,000 bbl/day
14 Iran 1,809,000
15 United Kingdom 1,669,000
16 Italy 1,537,000
17 Spain 1,482,000
18 Indonesia 1,115,000
19 Australia 946,300
20 Singapore 927,000
Source: CIA


LNG DAILY CONSUMPTION TOP 30 USERS
Rank country (cu m) Rank country (cu m)
1 United States 646,600,000,000 16 India 51,270,000,000

2 European Union 487,900,000,000 17 Netherlands 48,600,000,000

3 Russia 439,600,000,000 18 Indonesia 45,200,000,000

4 Iran 140,000,000,000 19 France 44,840,000,000

5 Germany 96,260,000,000 20 Argentina 43,140,000,000

6 Japan 94,670,000,000 21 Egypt 42,500,000,000

7 Canada 94,620,000,000 22 Pakistan 37,500,000,000

8 United Kingdom 87,450,000,000 23 Thailand 37,310,000,000

9 China 87,080,000,000 24 Turkey 35,070,000,000

Korea,
10 Italy 78,120,000,000 25 South 34,090,000,000

11 Saudi Arabia 77,100,000,000 26 Spain 33,880,000,000

12 Mexico 59,800,000,000 27 Kazakhstan 33,680,000,000

13 United Arab Emirates 59,420,000,000 28 Algeria 26,830,000,000

14 Uzbekistan 52,600,000,000 29 Australia 26,590,000,000

15 Ukraine 52,000,000,000 30 Malaysia 26,270,000,000 Source: CIA


WORLD DEMAND FOR ENERGY INCREASING


GOLD

Gold is used for Bullion, Coinage
Currency Backing, Electronics,
Computers, Dentistry, Medicine,
Aerospace, Glass Making, Awards,
Gilding and Gold Leaf


WORLD GOLD DEMAND (tonnes)

Q1'11 vs
Q1'10 %
2009 2010 change
Jewellery 1813.6 2016.7 7
Technology 409.8 466.4 0
Electronics 274.9 326.8 1
Other Industrial 82.2 90.9 0
Dentistry 52.7 48.7 -10
Investment 1394.8 1487.4 26
Total bar and coin demand 777.7 1149.4 52
Physical bar demand 490 853.9 62
Official coin 228.8 207.1 39
Medals/imitation coin 58.9 88.3 3
ETF's and similar products 617 338
Gold Demand 3618.1 3970.5 11
London PM fix (US$/oz) 972.3 1224.5 25
Source: World Gold Council


CONSUMER DEMAND IN SELECTED COUNTRIES – 2010
(JEWELLERY and TOTAL BAR AND COIN INVESTMENT)
Country Total
India 859.2
Greater China 541.3
China 522
Hong Kong 18.5
Taiwan 0.9
Japan -21.1
Indonesia 41.4
South Korea 15.9
Thailand 33.1
Veitnam 77.8
Middle East 260.4
Saudi Arabia 92.7
Egypt 61.5
UAE 80.1
Other Gulf 26.1
Turkey 113.8
Russia 62.8
USA 245
Italy 40.6
UK 31.5
Europe (ex CIS 210.4
France 0.2
Germany 93.5
Switzland 71.1
Other Eurpoe 45.6
Total Above 2512
Other 338
World Total 2850
Source: World Gold Council


GOLD ($USD OZ) OVER 10 YRS

Source: IRESS


COAL
Australia main export and large
domestic industry, used in
•  70% Worlds Steel Production
•  37% Worlds Electricity
production
•  Alumina refineries in Queensland
and Western Australia,
•  Paper maunufacturers,
•  Breweries and the
•  Chemical and pharmaceutical
industries
•  Coal to liquids (Oil)
•  Coal Seam Gas
•  Traded Commodity


LOCATION OF THE WORLDS MAIN FOSSIL FUEL RESERVES
(GIGATONS OF COAL EQUIVALENT)

Source: Optima, Vol.1 No.1, Feb. 2005; as published in ECOAL Newsletter July 2005, World Coal
Institute Page 23

THERMAL COAL PRICE – 5 YEARS


COAL COMPANIES LISTED ON ASX

• Over 50 Coal companies listed on ASX
• Exploration and Producers
• Coal to Liquids
• Coal Seam Gas
• Domestic and Overseas Resources


COPPER
Copper is used in;
• Building construction,
• Power generation and transmission,
• Electronic product manufacturing,
• The production of industrial machinery and
transportation vehicles.
•  Wiring and plumbing integral to appliances,
•  Heating and cooling systems,
• Telecommunications links used every day in
homes and businesses.
• Essential component in the motors, wiring,
• Radiators, connectors, brakes, and bearings
used in cars and trucks.


relax, the Super Cycle’s not dead …it’s maturing.

700
- US economic growth Cu 2011 US¢/lb Cu nominal spot
- electrification
600 - rail/factory construction - oil shocks
- inflation, recessions
- producer pricing fails
500 Great Depression - post-war boom
- Japan's economic renaissance - collapse of USSR
- producer pricing dominates - China booms
400 - US economy expands
US¢/lb

- technological era

300 WWII

200
- expansion of Africa's Copper Belt
- growth in US copper mining - Flash smelting
- large scale mining (open-pit, - expansion in Chile/Peru
100 mechanization, flotation) - SX-EW fires up

0
1885
1890
1895
1900
1905
1910
1915
1920
1925
1930
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
Source: UBS Research, Bloomberg

IRON ORE

•  Iron (Fe) ranked fourth in
abundance in the earth's crust and
is the major constituent of Earth's
core.
•  Iron accounts for approximately
95% of all metals used by modern
industrial society.
•  Metallic iron is most commonly
produced from the smelting of iron
ore to produce pig iron.
•  Steel is a processed form of pig
iron with removed and with a
reduction in the carbon content


IRON ORE PRICE CHART – 10 YEARS

Average Estimated
Cost of Production


IRON ORE – A.K.A. “THE RED GOLD”

•  Western Australia (WA) dominates the Australian iron ore
industry with nearly 97% of the total production.
•  The Pilbara region is particularly significant with 79.5% of
Australia's total identified resources and 92.4% of the production.
•  Locally significant iron ore mines also operate in the Northern
Territory (NT), South Australia (SA), Tasmania (Tas), Queensland
(Qld) and New South Wales (NSW).


CURRENT MAJOR IRON ORE PROJECTS

State WA SA TAS NT QLD

Number of Projects 26 5 2 1 2


LNG
Used for Energy Production
Major Australian Customers
• China
• Japan
• Korea
• Spot Cargo
• USA
• Europe


THE GOLDEN AGE OF GAS

• Natural Gas to play greater role in global energy mix
• Natural Gas has lower emissions of greenhouse gases than other fossil fuels
• From 2010 Gas use to rise by more than 50% from 21% of worlds energy
use to 25% of world energy demand by 2035.
• Production of 1.8 tcm required to meet demand by 2035 (3x current Russian
production)
• LNG exports from Australia increase from 25bcm in 2010 to 100bcm in 2035.
• Shale Gas a game changer, US to become the Saudi Arabia of Shale, 4
export terminal being built 2016 to 2020.

Source: Bell Potter Australian Oil Weekly Jun 2011

Page 33

CHINA GAS PRODUCTION OUTLOOK 2008 - 2035

Chinese Gas Outlook (bcm)

Chinese Gas Outlook 2008 2015 2020 2025 2030 2035
Demand 85 247 335 430 535 634
Production 80 137 185 222 264 303
Gas Imports 5 110 150 208 271 331

The strongest increase is in the first half of the
outlook period with 50 bcm coming on line by 2016

China to account for almost 30% world gas demand
Only 10% China’s population has access to gas (world average is 40%)

Note: Source IEA (1bcm = 0.735 M tonne of LNG Source: Bell Potter Australian Oil Weekly Jun 2011


RARE EARTHS

Reduce Greenhouse gas emissions

Enabling Digital Technology

Improving Energy Efficiency


WHAT ARE RARE EARTHS USED FOR


SMARTPHONES – 54% of all mobile phone sales in the USA


WHAT ARE RARE EARTH ELEMENTS

Rare Metals – Rare Earths
• China produces 90% of world
downstream zirconium chemicals
• China currently produces 95% of world
REE output (13 years known supply)
• China is limiting the export of raw rare
earths materials
• Brazil produces 90% of world niobium
Green technology is dependent on
rare metals and rare earths
Increased also changes in legislation
impact fluoro light demand driven
China has dominant position
Total market only 150,000 t/pa

EXCHANGE TRADED
FUNDS
•  Exchange Traded Funds (ETFs) have been set up for commodities.
•  Buy and own physical commodity
•  Pay storage rental fees
•  Used as a proxy to buy physical commodity
•  Exchange Traded Commodities (ETCs) are not Exchange Traded Funds
(ETFs). ETCs can be bought and sold like ETFs. Both instruments are
open-ended and have transparency. The difference is (and this is
important); ETCs use a secured, undated, zero coupon note structure,
whereas ETFs typically use a fund structure.
•  What are ETCs?
ETCs are simple and transparent open-ended securities which trade on
regulated exchanges. ETCs enable investors to gain exposure to
commodities without trading futures or taking physical delivery. These
products track the underlying commodity index or individual commodity.


RESOURCES GROWTH “SWOT” ANALYSIS

Strengths Weakness
Demand for commodities Infrastructure needs upgrading
continually
High price (over costs)
Costs Rising
Australia Politically stable
Higher $AUD

Opportunities Threats
Australia got talent! Weather
Well Positioned- Australia has the Carbon Tax & MRRT
resources to exploit
Labour Constraints
Proximity to markets
Funding (Post GFC)
Supply constraint bottlenecks
Political Upheaval in client markets
Demand weakening
Increased supply in some markets


MIDTIER MINING COMPANY TAKEOVERS 2010-2011
Target Buyer Price
Equinox Barrick Gold $7.3bn
Riversdale Mining Rio Tinto $3.9bn
Andean Resources Goldcorp $3.6bn
Centennial Coal Banpu $2.5bn
Citedal Resources Equninox Minerals $1.25bn
Avoca Resources Alacer $1bn
Mantra Resources Rosatom $1bn
Giralia Resources Atlas Iron $828m
Brockman Resources Wah Nam $590m
International Coal Holdings PTT $450m
Spere Minerals Xstrata $500m
Jabiru Independence Group $500m
Dominion Mining Kingsgate Consolidated $370m
Catalpa Resources Conquest Mining $320m
Globestar Mining Perilya $190m
FerrAus Wah Nam $180m*
Northern Energy New Hope $238m
Territory Resouces Noble $130m*
Rocklands Richfield Jindal Steel $90m*
* Pending


KEY THEMES FOR GLOBAL COMMODITIES
For RESOURCES GROWTH FOR 2012

Short term
EU Financial crisis – Banks require recapitalizing
China Seasonal Restocking events
End of US stimulus (QE2), No QE3 (yet!)
Thermal Coal, Coking Coal, Gold, Copper, Silver, Shale Gas, Iron Ore

Long Term
Well supported markets for all resources
Buy ‘Long’ in commodities in which China is short (Iron Ore, copper zinc)
Merger & Acquisitions is a key equity investing theme Companies have cash,
buying is better than building
Food Security**

WHY HAVE RESOUCES IN YOUR PORTFOLIO

•  Resources are used by everyone is all aspects of modern living
•  Demand will continue and rise in the long term due to growing population
and limited supply
•  Resources provide Diversification to a portfolio
•  Ability to easily trade
•  Have alternative investment choices
–  Share
–  Option
–  Exchange Traded Fund
–  Exchange Traded Commodity
–  Physical commodity (eg gold)
–  Options
•  Easy to participate in all investments


ON MY WATCHLIST!

COPPER IRON ORE
Encounter Resources (ENR) Rio Tinto (RIO)
Discovery Metals (DML) BHP (BHP)
MOD Resources (MOD) Fortescue (FMG)
Metminco (MNC) Atlas Iron (AGO)
Silver Lake Resources (SLR) Iron Ore Holdings (IOH)
Altona Mining (AOH) Hannas Reward (HNR)
Sandfire Resources (SFR) Winmar Resources (WFE)
Molly Mines (MOL)
Sundance Resources (SDL)
Gindalbie Resources (GBG)
Magnetic Resources (MAU)
Cazaly Resources (CAZ)


ON MY WATCHLIST!

GOLD COAL
Newcrest (NCM) Aspire Mining (AKI)
Remelius Resources (RMS) African Energy (AKI)
Catalpa Resources (CAH) Auspac Coal (AQC)
Southern Cross Resources (SXG) Jatenergy (JAT)
Northern Star (NST) Continental Coal (CCC)
Doray Mines (DRM) ZYL Ltd (ZYL)
Resolute Resources (RSG) Carabella Resources (CLR)
Regis Resources (RRL) Macarthur Coal (MCC)


ON MY WATCHLIST!

LNG/PETROLEUM OTHERS
Woodside (WPL) East Coast Minerals (ECM)
Origin Energy (ORG) Fortis (FMJ)
Santos (STO) Northern Minerals (NTU)
Buru Energy (BRU) Transit Holdings (TRH)
Antares Energy (AZZ) Iluka (ILU)
Emerald Oil & Gas (EMR) Image Resources (IMA)
New Standard Energy (NSE) A11 S & P/ASX 200 RESOURCES ETF
(RSR)
A11 S & P/ASX200 Energy (ENY)


ON MY WATCHLIST

MINING SERVICES
Monodelphus (MND)
Westrac
A.K.A Seven West Holdings
(SVM)
Forge (FGE)
Mineral Resources (MIN)
Fleetwood (FWD)


QUESTIONS?
Contact details:

SIMON MCGRATH
P.O Box 986, Subiaco, WA 6904
Mobile: 0413 566 699
Email: simon@simonmcgrath.biz

Linked in http://au.linkedin.com/pub/simon-mcgrath/1b/51b/65


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