deep value israel partnership
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Deep Value Israel Partnership
Newmont Mining (NEM)
Going for the gold
Guy ShahamDVIP Capital, LP
4 Steimatsky St. Tel AvivTel: +972-3-6037484
guy@deepvaluefund.com
This presentation is not an offering for any investment. It represents only the opinions of Guy Shaham of DVIP, LP. Any views expressed are provided for information
purposes only and should not be construed in any way as an offer, an endorsement, or inducement to invest. This presentations does not constitute an offer for or advice
about any investment product. Past performance is not indicative of future performance. Nothing contained herein constitutes a representation, nor a
solicitation for the purchase or sale of commodities or securities and therefore no information, nor opinions expressed, shall be construed as a solicitation to buy or sell any commodities or securities mentioned herein. Investors are advised to obtain the
advice of a qualified financial, legal and investment advisor before entering any financial transaction.
The Fundamentals• The value of Newmont Mining is based on the
difference between the cost of Production and the market price for gold
• The demand for gold is twice the mine supply
• Historically mining stocks have returned 1.5-3 the rise in the price of gold itself
• This means that if the gold price doubles then the mining shares will return 3X-6X
Supply and Demand in 2013
• Demand – at least 4350 of net imports to the East (=countries outside US/Europe, mainly Asia)
• Mine supply of 2188 tons available to meet net imports = 2866 global output – 431 tons from China – 247 tons from Russia that are not exported
• Other supply – 930 tons – from the ETFs – only 1800 tons left in ETFs
Supply and Demand in 2013
Demand Mine Supply ETF Supply Other Supply0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
Supply and Demand in 2013, in tons
Chinese Gold Demand
Source: Koos Jansen - In Gold We Trust - http://www.ingoldwetrust.ch/chinese-gold-demand-418-mt-ytd-west-in-deny
Demand in 2013 • Greater China (China +Hong Kong) is taking
the entire mine supply. The rest of the East net imports another 2000 tons.
• Greater China went from buying 25% of the global mine supply in 2010 to buying 100% in 2013
• In the East buying gold is part of the culture – they see gold as a better form of money and savings than national currencies
Supply in 2013• The available supply from inventories in the West
(US/Europe) is very tight and rapidly dwindling
• Germany asked the US Federal Reserve for 300 tons back of the 1500 tons stored with the Fed in NY, were told will take 8 years and even then got only 5 tons of recast bars back.
• ABN Amro and Rabobank in Holland defaulted on gold savings accounts and halted withdrawal in physical, allowing only cash (Euro) withdrawals
Supply in 2013• Every known supply that we have data on in
the West has been decreasing rapidly• The GLD ETF decreased from 1330 tons at the
beginning of 2013 to 790 at the end• COMEX Registered stocks decreased from 100
tons to 15 tons during the year• The United Kingdom net exported 1425 tons• Some mines have shut down due to their costs
being higher than the market price
What is the Fair Price of gold?
The formula above was used to determine the price of gold in the 1944 Bretton Woods that set up the Post World War II Monetary System
According to the above formula the price of gold should be above $12,000
Source: James Turk, www.goldmoney.com
Gold Money Index1960 - 2013 (yearly)
60 65 70 75 80 85 90 95 00 05 10 15$10
$30
$100
$300
$1,000
$3,000
$10,000
Actual Price
Fair Price
Log Scale
Source: James Turk, www.goldmoney.com
Why is the Fair Price rising?
• True Money Supply (=Bank Checking and Savings Accounts) has risen in the USA from $2.5 to $10.5 Trillion in last 13 years
• The growth in money supply is greater than 10% a year and is accelerating
• The amount of above-ground gold is growing at 1.8% annualy
• To keep the same ratio between money supply and gold, the price of gold has to rise 8% a year
US True Money Supply Until 2013
Source: Alisdair MacLeod, www.financeandeconomics.com
Bottom Line on the Price of Gold
• In the space of 3-5 years, the price of gold must rise rapidly due to:– The vacuuming of inventories in the West by the
East, leading to rivers of gold flowing from New York and London to China and the East. At some point the inventories will be depleted.
– The increasing money supply of national currencies ($, EUR, etc.) is 10% a year which raises the Fair Price of gold.
Who is investing in gold and miners?
• George Soros• Ray Dalio• Seth Klarman • Kyle Bass• Bill Gross • Tom Kaplan• David Einhorn • John Paulson• JP Morgan – went from being short 25% of COMEX to long 25%
of COMEX • Goldman Sachs – buying lots of GLD• Central Banks of many Creditor Nations – China, Russia, Korea, …
Why Newmont Mining? • Newmont has annual output of 5 Million oz.• All-in costs of $1300/oz.• At $2300/oz., gross profit is $1000• Net Profit after 30% taxes - $700/oz. - $3.5B • With P/E of 10 we get Market Cap of $35B• Current Market Cap of $12B• Profit of 200% in 3 years
Why Newmont Mining ?
Geographical diversification mainly in safe political jurisdictions
• 35% USA• 19% Peru• 31% Australia• 13% Ghana
• 88 Million ounces of reserves
Why Newmont Mining ?
• Debt/Equity Ratio 0.66• Price/Net Tangible Book Value Ratio 1.2• Share price was $72 in 2011 when price of gold
was $1920, now $25 with price of gold at $1300. Returning to that price will lead to 200% profit.
• 4% dividend yield
5 Year Revenue + IncomeYEAR SALES TOTAL NET INCOME
2013 8.32 Bil -2.46 Bil
2012 9.87 Bil 1.81 Bil
2011 10.36 Bil 0.36 Bil
2010 9.54 Bil 2.28 Bil
2009 7.71 Bil 1.30 Bil
YearCash Flow from Operations ($B)
2011 3.5
2012 2.4
2013 1.5
Bottom Line
• The price of gold must rise due to East insatiable thirst for gold and dwindling supplies in West. When Inventories are depleted, a much higher price will balance supply and demand
• Newmont is a large company with good leverage to price of gold
• The downside is limited – the mines are producing, safe jurisdictions, can weather a downward spike in gold price.
Thank you
Guy ShahamDVIP Capital, LP
4 Steimatsky St. Tel AvivTel: +972-3-6037484
guy@deepvaluefund.com
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