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AHA.Investor

AU$8.95 | Volume 1, IssUE #6 DEC/Jan 2011

R e a l G o l d • R e a l S i lv e r • R e a l A s s e t s • R e a l W e a l t h

Gold Investment: Secrets Revealed Inside Sydney’s Gold Symposium

Hidden Treasures: Legacy planning with Linnet Good

Australian Banknotes:

13% annualised return over the past 5 years – what’s next?

Art Investment:

On the floor at Christies with Al Bailey

Below Snowman:

White Christmas: AHA Investor Holiday Buyers Guide


Gold and Silver

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contents 6 Welcome 8 News 15 Gold & The Art of War Cover Story: The rise of China & the impact of the yellow metal. With Greg Canavan.

15

18 Interview: Knowledge To Action Linnet Good on the ins & outs of Forex Trading

28 Blingvesting – from the Gold Company 30 Dan Denning: Harry Potter & The Communists Examining the risks involved in locking into the fortunes of the Chinese Dragon

34 Greek Update: What Happens When a Nation Goes Bankrupt?

36 Boots on the Ground: Egypt Update by Simon Black 38 The Gold Symposium 38 40 42 46

Introduction from Kerry Stephenson The Gold Story: from Hinde Gold Fund Bursting The Bubble Myth with Eric Sprott Too Late to Jump on the Goldwagon? by Egon von Greyerz 50 Gold Symposium: Full Schedule

57 AHA Focus Gold Nugget Promotion

30 56 Measure & Money by Louis Boulanger 59 Art Investment with Al Bailey 65 Classics & Collectables: Objet d’Art

18

69 Breathing Fire: Dragons Revealed 71 Numismatics: Perth Mint Update, with Ron Currie 72 Perth Mint Dragons: A buyer’s Perspective, from the Bullion Baron

75 Mining News: Industry Updates 86 Contact Directory 88 Final Word

65 2 | AHA.Investor

Dec/Jan 2011


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AHA.Investor | 3


PUBLISHER’S LETTER

Welcome to AHA Investor

I

t’s my favourite time of year. One year ends and another begins. It’s an ‘edge’, a balance between two possibilities, past and future, and serves well as a metaphor. Europe stands balanced. Over a dozen ‘crisis’ meetings in 18 months should have been warning enough. Moodys’ outlook confirms it: “the probability of multiple defaults (in addition to Greece’s private sector involvement programme) by euro area countries is no longer negligible.” The U.S. ‘super-congress’ committee failed to reach their goals – perhaps even failing to decide on what they were. Against this backdrop, Bloomberg finally finished wading through almost 30,000 documents of Fed documentation surrounding the biggest ever bailout in history (remember 2008?). They uncovered that beyond just being bailed out, over $13 billion profit was ‘appropriated’ by major banks in the depths of the ‘crisis’. Some might call that obscene. But the real crime? 2 years later it seems like there might be need for more bailout money to the US banking sector in the wake of the MF Global scandal. But I did say I liked this time of year. Spent early November at the Gold Symposium in Sydney. Met some great folks from the mining and investment communities. You’ll see our coverage on page 13. I had some ‘spare’ time as well, got to catch up with some friends in the Numismatic industry. We’ve got some coverage on that as well; plus a great story from Linnet Good on bullion & legacy management; and the usual wraps of world hard asset & Australian mining news. Finally we bring you our White Christmas buyers’ guide – some of the finest things from Sydney jeweller Raphael (their Snowman features on the cover); and some cool classics from the ‘White Mountain’ (that’s Mont Blanc to you and I.) So why do I love this time of year? The time with family. And the possibilities the new future holds. The more things seem uncertain in markets, the more certain I am of the value of tangible assets, of things you can touch, of things that hold their value. But above all else, the value of family. I hope you spend some time with yours this holiday season; wishing you all the best – and good investing. Mike Woodcock Editor AHA Investor

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Dec/Jan 2011

AHA.Investor PUBLISHER: FREERMEDIA EDITORIAL: Mike Woodcock, Lee-Ann Jones LAYOUT: Andrew Folos, DAI Rubicon Design FEATURE WRITER: Linnet Good CONTRIBUTORS: – Alistair Bailey, Executive Director, Art Equity – Tim Staermose, Chief Investment Strategist, Sovereign Man – Jay Richards of Aliom – Michael J Moore of Author Services – Robert Jackman, Managing Director, The Rare Coin Company – Haydn Palliser, Associate, Corality Financial Group The Publisher would also like to thank Kerry Stevenson of Symposium, the Bullion Baron; Zahrina Robertson for her brilliant photography, Andrew Folos and his team (Hi Frank), Tristan Bunn at Port Phillip Publishing and the tireless administrators of SilverStackers.com.au. Tim Staermose appears courtesy of Sovereign Man. We find Simon Black’s daily musing from various known and unknown corners around the world extremely informative and entertaining. ABOUT US, DISCLAIMER: Australian Hard Asset Investor is 100% Australian owned and independent. We don’t sell gold, silver, hard assets or financial advice to anyone. All commentary and advice in this publication is of a general nature only, and doesn’t consider your individual circumstances or financial objectives. You should always consult a licensed financial advisor for your investment advice.

CONTACT US FOR ADVERTISING Enquires to the Publisher: publisher@ahainvestor.com Advertising Enquires: sales@ahainvestor.com

SUBSCRIPTIONS www.ahainvestor.com


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w o rl d n e w s | Hard Asset Updates

WORLD NEWS UPDATES

New gold acquisition program For those of you who have been contemplating physical gold investment but aren’t sure where to start , Sydney’s Gold Company are bringing something fascinating to the market in the new year. By setting aide a fixed amount to invest in gold each month (based on a market average), anyone can get involved in physical gold ownership without having to find $55,000 for that kilo bar. For more information contact the Gold Company on 1300 506 707. We’ll be catching up with this in the next issue as well.

GERMANY SELLS GOLD

GOLDEN GROWTH

Germany has sold 150,000 ounces of gold from it’s official holdings, reports Dow Jones Newswires. A spokesman for Bundesbank confirmed 150,000 ounces of gold had been sold to the Ministry of Finance to mint commemorative coins for resale to the collecting and investing public. The Bundesbank spokesman told Dow Jones that all gold sold by the Bundesbank since 2004 had been only for the minting of commemorative coins. “There is no reason to start speculating about the future of German gold reserves,” he said. “The German gold reserves are there for the impartial Bundesbank?There is no reason to change that.” (Another big move announced late November was the Russian purchase of 628,000 ounces of gold, bringing the total Russian gold reserve to over 28 million ounces. Germany still holds trumps though; with 109 million ounces of gold still held as reserves.)

The explosive growth in gold and silver across the last 18 months is set to continue, and some retailers have been sprucing up their offices and processes. AHA Investor has even seen queues outside some retailers at peak times, such is the demand. Earlier thisnyear Perth Mint brought their new online purchasing system to market; ABC Gold in Sydney are completing a refurbishment, due early 2012; while Queensland’s Ainslie Bullion have gone one step further, moving into new digs at level 6, 12 Creek Street Brisbane. We’ll update you on the Southern Cross developments in Parramatta; rumour has it there’s a bank vault involved. . . nore on this one in the next issue folks!

...to germans

6 | AHA.Investor

Dec/Jan 2011

CONTINUES


Hard Asset Updates | W o rl d Ne w s

GOLD SYMPOSIUM

A SMASH

The Gold Symposium was held in Sydney across November 14th & 15th at Luna Park. Hosted by Kerry Stevenson of Symposium, the event attracted well over their target number of attendees, leading to some busy investor activity on the floor across the day (and in some of the bars by night). Notable speakers were Eric Sprott, David Evans, Louis Boulanger, Dan Denning – the list goes on. Full coverage elsewhere in the magazine, but as editor I’d like to say thank you to everyone that dropped by the AHA Investor stand across the 2 days; and an especial thank you to Kerry for putting the event together. (For those of you who missed out, see our coverage on pXXX.) A fantastic initiative, very well received and sure to be a solid feature in next year’s calendar.

CENTRAL BANKS

buying up big on bullion The Financial Times, the Wall Street Journal and the SMH have all reported this month on the records gold purchases made by central banks this quarter. According to the World Gold Council, China has just 1.7% of its total foreign reserves in gold, compared to the U.S.’ 76% and Germany’s 73%. France is widely believed to have been in acquisition, however most are tipping China to be behind some solid activity in London and elsewhere. Bullish for Gold? One thing is certain. With conservative central banks stepping up as net buyers – outstripping market expectations by around 100t for the quarter – gold is now firmly centre stage as a security play.

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w o rl d n e w s | Hard Asset Updates

WORLD NEWS UPDATES

Oppenheimers

sell De Beers diamonds stake JOHANNESBURG Nov 4 AFP - South Africa’s Oppenheimer dynasty has ended a century in the diamond business which shaped the region, selling its 40 per cent of De Beers to global miner Anglo American for $US5.1 billion ($A4.91 billion) on Friday. The historic deal will end the involvement of the Oppenheimer family in De Beers, and will take Anglo American’s stake to up to 85 per cent. The government of Botswana owns the remaining 15 per cent of De Beers and has an option to lift this to 25 per cent. “This transaction is a unique opportunity for Anglo American to consolidate control of the world’s leading diamond company -- De Beers,” chief executive Cynthia Carroll said. “Today’s announcement marks our commitment to an industry with highly attractive long term supply and demand fundamentals.” Nicky Oppenheimer, representing the Oppenheimer interests, said that the agreement had been “difficult” for the family to reach. “This has been a momentous and difficult decision as my family has been in the diamond industry for more than 100 years and part of De Beers for over 80 years,” Nicky Oppenheimer said in the statement. “After careful and deliberate consideration of the offer, and what is in the best interests of the family, we unanimously agreed to accept Anglo American’s offer. Nicky Oppenheimer heads South Africa’s richest family, whose $7-billion fortune makes him the 136th richest person in the world, according to Forbes magazine. De Beers is a global leader in the exploration, mining and marketing of diamonds. Cecil Rhodes, the colonial-era politician and mining tycoon, founded De Beers in 1888. His fortune financed his imperial adventures for Britain, founding the state of Rhodesia which later became modern Zambia and Zimbabwe.

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In the early 1900s, Ernest Oppenheimer began buying up mining interests in neighbouring Namibia (then still South West Africa), with American backing. In 1917 he formed the Anglo American Corporation and by 1920 his Consolidated Diamond Mines had become a force in the mining industry. By the end of that decade, he had taken control of De Beers Consolidated Mines, and his control of the diamond industry had begun. His shrewdest move was to establish a central selling organisation that would stabilise sales and keep prices at a premium -- a system which exists to this day and which has allowed De Beers to maintain its tight grip on the precious gem business. Ernest’s successor Harry Oppenheimer became a prominent opponent of South African apartheid, before handing the reins to Nicky. Carroll said: “Anglo American is the natural home for our stake as they have been major shareholders in De Beers since 1926 and have a deep knowledge of the diamond business. She noted that De Beers’ management had steered the group through the global financial crisis, adding it was in a “stable position” and was “well placed” for future growth. Officially headquartered in Luxembourg, the firm, the world’s biggest diamond company, is run from London and Johannesburg. The company still has a major mining operation at Kimberley, South Africa, where the first discoveries were made more than a century ago. Last year the company had profits of $546 million on sales of $5.9 billion dollars in 2010. In September, De Beers signed a 10-year deal with Botswana -- the world’s biggest diamond producer -- that will move the company’s rough stone sorting and trading division from London to Gaborone. The agreement is the longest sales contract ever agreed between the two partners, giving a security of supply that Carroll cited as a key element behind the deal. Greek Finance Minister Evangelos Venizelos hailed the merger as a “positive development which attests to the dynamism and perspectives of the Greek banking system. “It is also important that Qatar participates and invests in Greece, sending a message abroad of confidence” in the troubled eurozone member’s economy, the minister said in a statement. The merger and investment follows Eurobank failing the latest EU-wide bank stress tests last month and a pledge by the bank to boost its capital.


Hard Asset Updates | W o rl d Ne w s

WORLD NEWS UPDATES The deteriorating state of Greek public finances has cast a pall on the country’s banking sector, which has significant exposure to state debt. Eurobank CEO Nicholas Nanopoulos noted more than 50 billion euros in deposits has left Greece in the past year. Greek banks have seen their market valuation nearly halve since the start of 2011, helping send the Athens stock exchange to a 15-year low. Lenders have suffered as a result of debt-hit Greece’s pariah status among creditors and have had to rely on the European Central Bank for fresh loans to keep them afloat. Greek banks reportedly stand to lose some five billion euros as a result of a government debt rollover that is part of Greece’s second, 159-billion-euro EU-International Monetary Fund bailout. A top flight capital ratio of 14 per cent would be double the seven per cent that banks are required to achieve under the new Basel III international banking regulations.

The Bank of Greece currently demands a minimum 10 per cent capital ratio. The move also comes ahead of an audit of Greek bank holdings by BlackRock, the world’s largest money manager, at the request of the central bank, that is to begin next week. The merger “will offer great confidence and security to the deposit holders of these banks, in addition to greater liquidity which our economy needs”, analyst Haris Zamanis told Mega television. Costopoulos, long a proponent of consolidation, called the merger a “big step to rationalise the Greek banking system”. Analysts said the deal could spark others. “This is a first move towards a slightly stronger sector,” said Alex Koagne, a Natixis banking expert on Greece. “It will enable the launch of a banking consolidation in Greece,” he told AFP. Eurobank, which recently sold a Polish subsidiary, posted a net profit of 74 million euros in the first quarter of 2011, up from 16 million euros a year earlier. Alpha Bank, which saw its first quarter net profit plunge 80 per cent to 10.5 million euros, in February rejected a friendly merger offer from National Bank, the country’s leading lender.

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Dec/Jan 2011

AHA.Investor | 9


w o rl d n e w s | Hard Asset Updates

WORLD NEWS UPDATES PERTH MINT UNVEILS THE LARGEST

COIN EVER

(And pocket change just got a whole lot heavier.)

The biggest, heaviest, inherently the most valuable gold bullion coin in the world has been unveiled by The Perth Mint. Weighing a massive one tonne of 99.99% pure gold, the monumental coin measures nearly 80cms wide and more than 12cms deep. Chief Executive Officer, Ed Harbuz, reveals that the Mint’s dedicated team of talented artists and technical staff worked tirelessly for months to create a coin of this magnitude. “To cast and handcraft a coin of this size and weight was an incredible challenge, one which few other mints would not even consider,” he said. As the showpiece of the Australian Kangaroo Gold Bullion Coin Program, its classic design by Dr Stuart Devlin AO CMG, goldsmith and jeweller to Her Majesty Queen Elizabeth II, has featured on each annual 1 kilo release in the series for more than 20 years. The one tonne masterpiece features a bounding red kangaroo surrounded by stylised rays of sunlight and bordered by the inscription AUSTRALIAN KANGAROO 1 TONNE 9999 GOLD and the year-date 2012. Issued as Australian legal tender, the obverse of the coin features the Ian Rank-Broadley effigy of Her Majesty Queen Elizabeth II, accompanied by the inscriptions ELIZABETH II, AUSTRALIA and the monetary denomination of 1 MILLION DOLLARS.

The popular Australian Kangaroo Gold Bullion Coin Program offers a stunning choice of gold bullion coins in a range of sizes, with various mintage limits and annual design changes. While the design of the 2012 1 kilo release will mirror its supersized companion, the 1/10oz, 1/4oz, 1/2oz and 1oz coins will feature a standing kangaroo set against an outback scene. The weight and purity of each issue is guaranteed by the Government of Western Australia making Australian Kangaroo coins a secure way to diversify any investment portfolio. This one might have to wait a bit though. . . lemme see, 1000kg @ $56,000-ish a kilo . . . maybe after Christmas.

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Gold Symposium | S pe c ial f eature

Eric Sprott speaking before a packed room at the Gold Symposium, November 14th

Sydney Symposium

strikes I Gold

’m writing this on the flight back to Adelaide having spent the last few days in Sydney for the second annual ‘Gold Symposium’. Unfortunately I’ve not even had the opportunity to let the presentations sink in before writing this follow up to the event. No doubt the abundance of information, ideas and views presented at this event will form the basis for a few blog posts which you are able to read for free at my website: www.bullionbaron.com. For now I would like to leave you with some highlights from the event.

Photographs by Zahhir Photography

Dec/Jan 2011

AHA.Investor | 13


S pe c ial f eature | Gold Symposium

“I’ve been to a few short investment seminars, talks and so forth, but never something of this magnitude” Hosted on the beautiful Sydney Harbour in Luna Park, the event bought together some fantastic (world class) speakers as well as a swagger of gold mining companies for the benefit of investors. I’ve been to a few short investment seminars, talks and so forth, but never something of this magnitude, so I was looking forward to seeing how it would be bought together. Funnily enough on my way through the entrance on the first morning I found I was having my photo taken by none other than the ‘AHA Investor’ Editor Mike Woodcock (neither of us knew it at the time having not met face to face until this event and not formally meeting each other until later that morning (and you thought I was a myth – Ed.)) who was simply taking some photos of delegates checking into the event. I wandered around downstairs for a while with plenty of booths to check out before everyone was called to the conference room for the start of the presentations. Kerry Stevenson (Managing Director, Symposium) kicked off proceedings with a video introduction, backed by a very suitable track “Gold” by Spandau Ballet. David Evans (from Gold Nerds) kicked off the event speakers, making light of some minor technical (and eventually overcome) technical issues; proving his value as a speaker as well as an industry heavyweight. Presenting a fascinating look at our monetary and debt situation, David suggested we will see a return to the mean GDP/debt ratio of 150% from the 375% we sit at now (US/global basis). He predicts this will come from a more intense version of a 1970s scenario where we see high inflation (12% over 14 years, 2014 to 2028). While I don’t agree with the scenario and suggest a more destructive short term path is likely I commend him for being one of the few speakers to put some specific dates and figures to the audience. Short term David Evans sees Gold at $3800 in 2015 and much higher targets long term (although the high inflation will mean these higher nominal prices won’t necessarily be as spectacular as they sounded

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Gold Symposium | S pe c ial f eature

Bird’s eye view: With just under 1,000 paying visitors across 2 days, exhibitors were kept busy.

on paper today). David shared some insight on the global warming debate and then related it back to the precious metals market in that they are both a battle of the establishment versus the sceptics. He highlighted the importance of the internet in this battle, a tool which will be invaluable in the fight for sound money, bringing a theme (importance of technology in this precious metals bull market) which was continued by several other speakers during the event. David Evan’s talk was my favourite highlight from the event. Second off the ranks on the first morning was Eric Sprott (founder of Sprott Asset Management and rock star of the precious metals industry). He bought some interesting quotes from historical newsletters highlighting just how accurate his predictions have been and how this has benefited the firm. He used the cost of FDIC bailouts on failed US banks to show just how insolvent the whole US banking system is. Sprott suggested that central banks are leasing their Gold to meet the extra demand being seen in the Gold market today. Anyone who has followed Sprott will know that

he is even more bullish on Silver and is expecting a return to a 10:1 ratio with Gold (currently sitting around 50:1). He provided some compelling historical and current reasons this ratio will come back into play. A classic comment from Sprott on fiat currencies during the speech, “The dollar versus the euro, the yen versus the dollar… they’re all crap. It’s like, who’s the prettiest horse in the glue factory!”. Louis Boulanger (LB Now Limited) followed a short break, with a grim look at the US Dollar situation, pointing out that it no longer has an absolute measure as it did when it was tied to Gold. We can’t solve a debt crisis with more debt and Boulanger suggested the situation might result in a global scenario where countries settle their trade deficits in Gold. Some interesting charts were presented showing just how orderly the current devaluation of the dollar to Gold is compared with times past where the price of Gold (relative to other countries such as the USD) was changed overnight (when the price was fixed). Also pointed out was that Australia is the lucky country being one of the few who are allowed to invest in Gold via their retirement accounts. The day continued with presentations from many gold mining companies. First up was Les Davis from Silver Lake Resources (ASX:SLR) who advised the company was in fact celebrating its 4th birthday (from listing on the ASX). SLR’s plans for growth and expansion look impressive and if they can meet future targets then they will be one of the midcaps to

Dec/Jan 2011

AHA.Investor | 15


S pe c ial f eature | Gold Symposium

keep an eye on. Other companies presenting over the course of the event ranged in size and scope, from the microcaps (such as Invictus Gold with a market cap of $3.6m and holding $2.1m cash) to some of the largest on the ASX such as Kingsgate Consolidated (ASX: KCN) who have a market cap over $1b and Alacer Gold (ASX: AQG) who have a market cap of around $3.3b: Several of the companies who presented at the event were those which I have covered in AHA Investor in the past. Cobar Consolidated Resources (ASX: CCU) and Argent Minerals (ASX: ARD) both provided updates on their respective Silver projects. CCU is expecting to commission their plant at the Wonawinta Silver Project early next year (2012). It was disappointing to see Castlemaine Goldfields (ASX: CGT), another company I’ve previously covered in these pages, pull out from the event. Somewhat understandable given the trouble (grades not up to expectations) they’ve experienced with recent mining at the Ballarat Gold Project, however the opportunity could have been used as a platform to update shareholders with news on the situation. Egon von Greyerz (Matterhorn Asset Management) bought a dire view of global economies (although in fairness similar underlying themes ran through most talks), showing how countries that can print their own currency (such as the US) can create an illusion that they are ok, when in reality they are in as poor a position as those countries currently falling off a cliff (Greece, Italy, Spain, etc). Egon suggested that the

16 | AHA.Investor

Dec/Jan 2011

“Soup of Debt” can is getting too big to be kicked down the road and this will lead to the failure of all currencies. Dan Denning (Daily Reckoning) presented an interesting view on how he believes social media (such as Twitter) accelerates instability by breaking news in a way that involves and immerses the reader in a much more personalised way than news reports of the same event. Gavin Thomas (CEO of KCN) was last of the keynote speakers on the first day and presented a compelling case for investing in Gold miners or explorers who are in the ‘Rim of Fire’, a prospective geological structure in the earth’s crust where many of the world’s largest Gold deposits have been found. The second day was just as packed and consisted of several more keynote speakers the first of which was Richard Karn (of The Emerging Trends Report) who suggested that to grow your wealth you would need to speculate. He looked

at the opportunities available in specialty metals, those whose use is discovery driven (of new technologies using the metals) rather than GDP driven. Alf Field came out of retirement for a once only speech to update his view on the Gold market and provide some price targets based on his Elliott Wave chart theory. A target of $4500oz for Gold in the next wave sounds very enticing.


Gold Symposium | S pe c ial f eature

Although I don’t personally subscribe to such charting methods (EW), his previous predictions have proven relatively accurate and he provided some interesting background to his reasoning for using this charting method to predict how high Gold could go. A high level speech from Ben Davies in the afternoon provided some insight into how Gold might be integrated with advanced payment systems, merging Gold and technology to once again return to a sound monetary system. John Embry (a colleague of Eric Sprott) provided some interesting background on where he’s come from. He provided a riveting talk on manipulation of the metals. Not a topic we see eye to eye on, but interesting nonetheless and certainly a crowd pleaser. The event was great overall, but there was certainly room for improvement next year. At a minimum I would like to see a better AV setup (some technical issues such as PowerPoint remote not working, no red showing on presentations and crackly microphones did detract somewhat), an increase in the amount of Australian based content and economic keynote speakers would provide a better local perspective and perhaps even a precious metals bear thrown into the mix of speakers would provide some much needed balance to the ‘buy buy buy’ view that was presented. I enjoyed the event and will certainly consider another visit to Sydney for the event next year which is expected to be held during September (2012).

TM

Dec/Jan 2011

AHA.Investor | 17


S pe c ial f eature | Coverage of Symposium

The Insider Gold and finance have at times made for uneasy bedfellows, so it was refreshing to see the banking & finance end of town so engaged with some of the ideas at the conference. One fairly well-positioned individual in the finance industry (who prefers to remain anonymous) was kind enough to share some of his views on the event. We share his thoughts on the conference with you here, raw & unedited. “As an employee of one of Australia’s largest superannuation providers (who have zero exposure to Gold for their clients – despite my personal protestations), I found myself distinctively short of colleagues from the ‘professional’ wealth management industry at the recently held Gold Symposium in Sydney. Despite the absence of ‘Big Money’, the Symposium was well attended, with some 4 to 500 attendees not including key note speakers and company representatives. (Ed’s note –actual figures 816 attendees across the 2 days – apologies ‘C’!) The format of the symposium was excellent, with a key note

18 | AHA.Investor Dec/Jan Oct/Nov 2011 2011

speaker delivering a 30-40 minute presentation, followed by four or five short company presentations from the 30 plus gold and silver mining companies who attended and whose sponsorship of the event helped keep the costs for the 2 day long event to a very reasonable $199 per person. The data presented was top shelf. Particular highlights included Richard Karns introduction of the concept of ‘urban mining’, where he pointed that if computer boards were a gold mine, they’d be a 200 grams per tonne deposit. Not bad at all when the average grade of a gold mine these days has fallen to below 2 grams per tonne. Eric Sprotts comparison of the state of the physical markets for Gold and Silver between the year 2000 and 2010 were hugely insightful in terms of illustrating the increase in demand for actual metal that’s taken place over the decade, as were Louis Boulanger’s facts around the debacle that is the United States Debt Situation. However, of all the facts and figures highlighted, special note must be given to Alf Field, whose ‘Moses Principle’ brilliantly captured the concept of today’s central bankers, politicians and the global economy as a whole, wandering lost in the desert that is FIAT Money. In order to improve upon the symposium for next year, I’d make a few suggestions – the first being that all speakers should have at least a 10 minute Q & A session after their presentations, and that ideally, there would be at least one panel discussion per day which brings together a few of the key note speakers (or other participants). Whilst loathe to criticise the visionaries of this industry who I admire deeply, I must say the other suggestion I’d make is that some of the key note speakers could consider refining their message and remove the references to bullion bank price suppression, and central bank dishonesty in terms of tonnage held. Whilst there is overwhelming evidence that this kind of activity does occur, it does not help ‘sell’ the already compelling rationale as to why it is essential that people with a focus on wealth protection allocate a large portion of their net wealth to Gold at this time. Furthermore, based on my 15 years in the wealth management industry, I can say with some degree of certainty that this kind of talk will immediately turn off those unconvinced and skeptical (and sadly that’s still the majority of the ‘professional’ wealth management industry) of the necessity of Gold ownership in this environment. With the outlook for traditional assets so poor, precious metals as an investment this decade are a slam dunk case. Nevertheless, there remains much work to do, providing both a challenge and an exciting opportunity, to convince the general public about the perilous outlook for the global economy and the focal point that precious metals will continue to play as the ultimate store of value.”


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Aug/Sep 2011

AHA.Investor | 19


S pe c ial f eature | Gold Symposium

GOLDNERDS:

Gold Stock Analysis

One of our favourite presenters from the Symposium was David Evans from GoldNerds. As a presenter David is clear, concise and authoritative; one to one we found him engaging and exceptionally well-informed. David represents GoldNerds, probably the best gold mining analysis resource you’ll find anywhere, period. But don’t take our word for it. Here Goldnerds founding member Troy Schwenson shares how they weave their magic. By Troy Schwensen

W

hen investing in stocks, it pays to have a simple yet effective benchmark to help determine value for money. In saying that, there is no such thing as the perfect indicator. There will always be deficiencies. The key is to minimize these deficiencies whilst maintaining an important degree of simplicity. At GoldNerds we developed the Total Cost per ounce (TCO) indicator to assist investors compare advanced stage gold and silver mining companies. You may have read or seen gold mining company presentations with charts comparing the Enterprise Value (EV) per ounce for different companies’ reserves and resources. If you are not familiar with this indicator, it takes the market capitalization of the company and strips away financial related items (subtracts cash and adds debt) to arrive at the Enterprise Value (EV). This represents the value the market is attributing to the company’s non-financial assets (namely its projects). Graphically, it resembles the following:

The EV is then divided by the company’s gold reserve or resource ounces to calculate EV per ounce. Theoretically, the lower this number, the

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Dec/Jan 2011

more attractively priced the stock is. The presenting company will usually promote a low EV per ounce as a compelling attribute and if half reasonable, its analysis will compare companies at similar development stages (many do not). This simplistic approach, however, is deeply flawed based on the premise that all gold ounces are not created equally. There is very little value in comparing an advanced stage exploration company with an established gold producer. For a start, the Enterprise Value per ounce for the producing company will almost certainly be higher due to the significant sunk costs associated with building a mine. Our Total Cost per Oz (TCO) indicator importantly accounts for this as well as the operational costs of extracting gold.

In summary, TCO estimates the Total Cost per mineable ounce an investor pays when buying shares in a specific gold mining company. It calculates an EV per mineable ounce and adds an estimate of the Future Cash Cost per ounce along with any budgeted outstanding Development Costs per mineable ounce. Theoretically, the lower this number, the more attractively priced the company is. I will briefly run through each component before finishing off with a practical example.


Gold Symposium | S pe c ial f eature

EV per Mineable ounce: The Enterprise value is divided by Mineable ounces, which is a customizable number allocating different weightings to a company’s reserve, resource and potential in ground inventory. I personally like to concentrate primarily on reserves, counting 100%. I then count an arbitrary 20% of the resource over and above the reserve to recognize reserve upgrade potential (in reality this number varies depending on the deposit). I also count just 10% of any potential to remain ultra conservative. Potential ounces are defined as demonstrable conceptual targets (non JORC compliant resource). This proves handy for underground miners where it may not be feasible to drill up the entire life of mine resource. Future Cash Cost per ounce: This is an estimate of what it will cost the company to mine their gold. If a company has no key development stage projects, this is typically a rolling 4 quarter average of their existing producing project(s) or alternatively a company forecast. If a company has key development projects, the forecast cash cost for these assets is incorporated into an average with the existing producing projects. Development Costs per Mineable oz: This represents any outstanding budgeted development costs on new projects or expansion plans on existing production projects divided by Mineable ounces. Producing companies, which have key development stage projects, often tend to trade at a discounted EV per Mineable ounce and TCO. This reflects the risks and uncertainty associated with bringing new projects online. Each quarter, we classify Australia’s 60+ advanced stage gold and silver mining companies and generate the Australian Gold Stock Summary report. We compare TCOs along with other important indicators across 5 development stage categories. The following chart represents just one TCO extract from our March Quarter 2011 report. The chart above provides a snap shot of Australia’s intermediate gold producers (Market capitalization $500 million to $3 billion). They are sorted from lowest to highest TCO. The three columns to the right represent the three components of the TCO. The green bars represent better than average and the blue below average. Note the relationship between the future cash cost and the EV per mineable ounce. Companies with higher cash costs typically have a lower EV per mineable ounce (Allied Gold and St Barbara). Alternatively, companies with lower cash costs generally enjoy a higher EV per mineable ounce

TOTAL COST PER OZ (TCO) (INTERMEDIATE PRODUCERS)

Source: Gold Stock Summary Report (Mar Qtr 2011 Issue)

(Medusa Mining). This makes sense. Better profitability theoretically implies higher valued mineable ounces. This should highlight the gross deficiencies of the EV per Reserve and Resource oz charts many gold mining companies use. By their logic, companies like Allied Gold and St Barbara would be considered significantly undervalued. The simple introduction of a future cash cost, within the context of the TCO, reveals the flaw in reasoning. It is the EV per mineable ounce which is largely tied to the market capitalization and hence the share price of the company. The higher the proportion of the TCO made up by EV per mineable oz, the better the company’s share price performance (all else being equal). Over the last 3 years, Medusa Mining has been a wonderful proponent of this with its Co-O project becoming one of the lowest cost gold projects in the world. In summary, we prefer to focus on companies with a TCO significantly lower than the average and a better than average Future Cash Cost (A$569/oz or less). This implies the market may be undervaluing the company’s ounces, based on relative operational performance. In other words, the EV per Mineable oz is theoretically understated. It then becomes a game of patience to see whether the market will re-rate the company accordingly. There are of course other variables (such as development risk) which might explain a company’s discounted TCO. We cover many of these variables using other simple indicators. They can include factors such as stubbornly high ongoing capital expenditure (not included in the cash cost), balance sheet weakness, not to mention poor share capital management. If you think the TCO concept along with the Gold Stock Summary report may be useful and you would like to find out more, I encourage you to visit www.goldnerds.com.au. This publication has been prepared from a wide variety of sources which the editor, to the best of his knowledge and belief, considers accurate. The editor does not warrant the accuracy of the information and forecasts contained in this publication. This information is provided for educational purposes and nothing written should be construed as a solicitation to buy and sell securities. Troy Schwensen has invested in the precious metals sector for a living since 2002. He is one of the founding members of www.goldnerds.com.au and also writes a free financial newsletter at www.globalspeculator.com.au

Dec/Jan 2011

AHA.Investor | 21


S sset A E C T I ON Inv Nestme A M E | Story n t | Name Bullion Legacy

Hidden

Treasures

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Story Name | S E ICnTvI estme ON N A M nE t Bullion Legacy | A sset

I like to listen to people. You learn all kinds of things that way. I was listening to a friend in the bullion industry the other day while he shared a fascinating story. Hidden gold, an escape from Nazi Germany – all too fantastic to be true of course; but that’s why we have writers – to go rummaging around, to separate out the nuggets of truth and get to the bottom of those stories we want to be true. Linnet Good reports on hidden gold, found diamonds, & some pearls of wisdom.

A

s profound formative experiences go, escaping the Holocaust has to be one of the more definitive examples. Born Jewish in Austria in the early 1920s, ‘Elsa’* truly understood the value and convenience of gold: it had quite literally saved her life. Surviving the Nazis had involved her family using whatever gold they could find to bribe officials to let herself and her sister leave the country. The sisters travelled via an established refugee route to China (more than 18,000 Jews were to find refuge in Japanese-occupied Shanghai), and eventually to Australia, where they both settled. Her lawyer, Harry Freedman (of Milne Berry Berger Freedman), was able to visit Elsa in hospital before she died in her early 90s. He reports that she was a very sweet, kind and gentle soul, the sort of person who always looked for the good in everyone. She told him confidentially that he would need to “get the gold out of the house”. He asked her what she meant. Over the years, Elsa had accumulated many small ingots of gold, and hidden them all over her tiny house. They were located in linen closets, mattresses, drawers … in the end, a metal detector had to be hired to find it all. Ultimately, Freedman recovered around one and a half kilos of gold from the house. Elsa and her sister had both married in Australia, but neither had produced any children. Widowed, and with no family left, Elsa had been living in relative isolation in an undeveloped part of Lane Cove. True to her kind nature, she left all her money to charities. The first lesson for legacy recipients is contained in what happened when Freedman first had the gold valued. The valuer told him that it was a perfect time to sell, as gold was $800 an ounce, and the price wasn’t likely to be going up from there. While nobody knows for sure what prices will do, most reputable dealers and commentators at that time were predicting a spectacular price rise. What with one thing and another, Freedman didn’t end up selling the gold until a year later – when it had doubled in price. Which means that, in the end, Elsa had left over $80,000 hidden in her house.

If Freedman had sold the gold to the original valuer, that dealer would have made a very tidy profit, and Elsa’s beneficiaries would have received a much less valuable bequest. *Name changed to protect privacy.

A rocky foundation For beneficiaries and executors, it’s not just gold to be considered, either. Jewellery, artwork, antiques and collectibles may all need appraising. The precious stones in Aunty Mabel’s old jewellery may be worth more than you think. Take them to the wrong dealer, and you may be offered a fraction of what they are worth. Many people wouldn’t know the difference, which is just what unscrupulous traders are counting on. Roy Cohen of The Gold Company and the Diamond Certification Laboratory of Australia (DCLA) tells of a client, an elderly man, who owns several very valuable pieces of jewellery. One piece he saw was a bracelet set with natural blue diamonds. Naturally occurring blue diamonds are incredibly rare. Each stone could be worth up to $2000 a carat; the piece as a whole was estimated to be worth about $150,000. For a more accurate valuation, the stones would have to be removed and properly graded. (The gems would be reset afterwards.) The man knew that his

Dec/Jan 2011

AHA.Investor | 23


A sset I n v estme n t | Bullion Legacy

“If you decide to hide valuables at home, think about what might happen to them after you’re gone” BERLIN, 2008: A flower stands on one of the passenger cars that housed the travelling Holocaust exhibition ‘Train of Commemoration’ at Ostbahnhof train station. The exhibit documented the role of the World War II-era German Reichsbahn state railways during the Holocaust. (Photo by Sean Gallup)

The Gold Company Tips for jewellery valuations • Firstly make sure you are dealing with a reputable company, where you get the right value and advice • The value of your gold is determined by its weight and purity (carat value) • To determine approximate value: • Separate the gold into carat values • Weigh each batch separately • Multiply the weight by the percentage of gold in the batch (see table). Multiply that by the gold price of the day. This figure, less refining costs and the buyer’s profit, is what you should be offered. Carat value

Percentage of gold

Multiply weight by

24ct

100%

1

22ct

91.6%

0.916

18ct

75%

0.75

14ct

58.5%

0.585

9ct

37.5%

0.375

• Significant diamonds should be certified by a reputable diamond grading laboratory. Small differences in quality can make a huge difference to the value.

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Dec/Jan 2011

daughter and other heirs wouldn’t know anything about the bracelet’s worth, or that of his other pieces. He wanted to know what he should do. Cohen explained that he had two options. He could sell all the jewellery now, in order to leave everything neat and tidy. Or he could make sure his heirs understood that when the time came, they would have to determine the value of what they had, and try to find an honest, reputable and knowledgeable dealer.

Where there’s a Will … Unless you have no assets at all, you should be planning what will happen to your estate when you die. (Without a Will, your State intestacy laws determine the disposal of your property. If you have no next of kin, it goes to the government.) It’s also worth considering flagging any important tangible assets, so your executors will know to have them properly valued. Google “hide valuables at home”, and you’ll find thousands of articles giving advice on clever places and methods (although one assumes that burglars can read these too). If you decide to hide valuables at home, think about what might happen to them after you’re gone, especially if nobody else knows they are there. It would be a shame to have your stash of gold coins tossed into the trash because nobody knew they were hidden between two fish fillets in the freezer. Locking assets in a safe, depositing them in a bank, or at least making a list of valuable items and where they are stored may be better options.


Bullion Legacy | A sset I n v estme n t

Wherever you keep your assets, you should also ensure they are in a fireproof container. Because it can be difficult, if not impossible, to divide personal property ‘equally’, when planning your estate you should make a list of valuable items, and decide who will get what. You can even be guided by recipients’ wishes, by showing people the list and asking them what they want. (If two people want the same thing, you make the final decision.) Doing

all this may seem morbid to some, but it can avoid causing unpleasant family conflicts at a time when they are grieving your loss. Consult a lawyer so that all important matters are taken care of, and unintended consequences do not occur. Executors have often had no experience becoming legally responsible for dealing with the disposal of a person’s estate, and information about it is not always easy to come by. The lesson here for executors and beneficiaries is to have all tangible assets valued and documented before distribution.

“While nobody knows for sure what prices will do, most reputable dealers and commentators at that time were predicting a spectacular price rise.”

Harry Freedman’s Tips for Estate Planning • Don’t appoint a public trustee as executor; they are bureaucratic, slow and expensive • Consult a lawyer to structure your Will carefully • Consider the right age for release of bequests to children • Consider people who are left out of the Will, which could be contested. Nowadays, particularly with the prevalence of blended and stepfamilies, there is a lot of litigation from people who have been left out of a Will but feel entitled to something.

Add gold and silver to your portfolio. Add value for life.

BULLION MONEY

www.bullionmoney.com.au p: 02 8677 4289

the trusted name in bullion

Suite 102, 25 George Street. Parramatta, NSW 2150, Australia

Dec/Jan 2011

AHA.Investor | 25


A sset I n v estme n t | Where are they now?

A review of Trade Opportunities in Gold/Silver and Copper (calendar) spreads

Where Are They Now? In the June/July issue of AHA we provided a detailed look at an investment or trading strategy called spread trading. Here we challenged the traditional strategy of “buy and hold” with a more sophisticated approach whereby no cash purchase of either metal is actually made nor did we need to have an outright view of whether either metal was going up or down in value. Review of the long Gold / short Silver trade for May 2011: In all cases, spread trading attempts to capture the price difference between two contracts whereby one will outpace the other. As a spread trader we might have the view or speculate that when gold and silver reach a ratio of around 32:1 the spread price is too narrow (historically) and that we anticipate it should widen out to say 38:1. We look to sell silver the “expensive” commodity (as it relates to gold) and buy gold the “cheap” commodity (as it relates to silver). To benefit financially a trader can buy gold and sell silver in equal dollar amounts, so long as the price/ratio widens out. Let’s take a close look at the spread history of long gold and short silver during early May through to the end of June. This spread has been profitable 87% of the time over the last 15 years, when you enter on May 8th and exit the trade on June 30th. At the time of this report (early April) gold was $1500/ oz and silver was $45/oz (33:1). If you are interested in a rare trading opportunity that features capital preservation, low costs, and prudent risk management using spreads, then consider these approaches. Two strategies for the Gold/Silver spread: Scenario #1 - OTC trade using spot metals - 33:1 ratio Our example is based on Gold at $1500/Silver at $45 ounce. - Customized to your risk appetite - Margin account let’s you choose the dollar amount - E.G. $30,000 to each leg (long gold/short silver) - 20 ounces of gold/660 ounces of silver -H  olding cost is around $5.00/day (not including commissions) - Requires less than $5,000 - 5 weeks later spread moves out to 37:1 - Gold is now $1400/oz; Silver is $38/oz - We lose $2,000 on the Gold and profit $4700 in Silver Approximate profit is $2700 USD Scenario #2 – Futures contracts at COMEX (Commodity Metals Exchange in New York) Our example is based on Gold at $1500/Silver at $45 ounce. - Long 3 100/oz AUG Gold/short 2 5,000/oz SEP Silver - Spread margin is excess of $17,000 - No holding charges - 5 weeks later spread moves out to 37:1 - Gold is now $1400/oz; Silver is $38/oz - We lose $30,000 on the Gold and profit $70,000 in Silver Approximate profit is $40,000 USD

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We look to sell silver the “expensive” commodity (as it relates to gold) and buy gold the “cheap” commodity (as it relates to silver). Timing Your Trade Seasonality suggests that a change in direction (gold/silver) to the upside (widens) occurs in late April or early May. The chart below represents the last 15 years for the gold/silver spread. The monthly spread charts below tells us that the price of silver has outpaced the price of gold regardless of the outright direction of either metal during this time frame. We have seen that history itself offers an edge (with seasonal statistics) and can by itself be the sole basis for your trading decision as long as you determine your risk before you take on the trade. You will need to establish your plan of action before undertaking this spread. You’ll need to have your profit and your loss levels determined before you apply either (spot or futures) trading approach. You will need to determine your risk to reward so that you remain within your comfort zone. The monthly chart below ranges from 1995 till April 2011. Close examination will show the seasonal tendencies for this spread to widen during the suggested time frame of early May through the end of June. The seasonal strategy calendar indicates that silver drops in value during mid-May through to mid-June around 64% of time over the last 15 years. Perhaps this is further indication that silver might outpace gold. The example here (4 point variation 33:1 to 37:1) shows that even a small change in the ratio can produce significant profits or losses, so it is advisable to proceed with a plan that is well within your comfort zone based on affordable risk and emotional fortitude.


Where are they now? | A sset I n v estme n t

Where Are They Now? This spread has moved out to 56:1 since this spread trade opportunity was first presented in the June/July issue of AHA. Even with a minimum of $30,000 applied to each leg (long/short) as is the example for scenario #2, the profits would be over $16,000 for a $5,000 margined account. I’ll let your imagination and math skills calculate what the profits might be for using the minimum contracts of 2 silver / 3 gold contracts for a futures position – astronomical! Again there was no view taken on being bullish or bearish either metal.

Jasper Knight, A great big beautiful tomorrow, 2010, (Detail) Enamel, Perspex, masonite on board, 150 x 150cm

Review of calendar spread trade for Copper 2011: Similar to but not as complicated as the Gold/Silver strategy is a calendar spread in Copper. This is where we seek a (spread) trading opportunity to profit from the price discrepancy or variation between the different expiry/ delivery months in the same metal (copper). And just like our Gold/Silver we look to history and copper’s own seasonality for a trading edge, so we can develop a trading plan. We are neither bullish nor bearish copper, rather we take the view that the spread price relationship will either widen or narrow between the two months. To benefit financially a trader can sell one month (September) in copper futures and buy a different month (December) and create an entirely new trading entity called an intra-commodity or calendar spread. Since they are identical contracts (same contract value) but have different expiry dates we have a simplified the trade and allowed for advantages unique to calendar spreads, namely reduced volatility and margins.

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Dec/Jan 2011

AHA.Investor | 27


A sset I n v estme n t | Where are they now?

Tony Makowiak (02) 8246 8521

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28 | AHA.Investor

FINANCIAL MARKETS

Dec/Jan 2011

Simple Strategy in Review Over the last 15 years around late May or very early June is when the (spread) price of September copper begins to move higher or widen relative to the price of December copper regardless of the outright direction of copper. The time to exit this trade is in the third week of August. This has been profitable 100% of the time in the last 15 years simply by entering at a specific date and exiting by a specific date. The period for the entire trade was less than 10 weeks. So, the strategy was to be short September and long December copper futures at the COMEX (Commodity Metals Exchange in New York). This trade was characterized by low margin which was $304 USD with low volatility as illustrated by the weekly chart below:


Where are they now? | A sset I n v estme n t

Where Are They Now? This spread proceeded lower and widened out to lower levels i.e. -235 before closing out the position in early August. A small 6 lot position which required $1900 USD for margin, delivered a tidy profit of $675 USD. Since then, the follow-on calendar spread in copper has emerged (you guessed it) for being short December 11 and long March 12 copper using a seasonal entry and exit date. It has the same margin and has gone on to produce a similar return as illustrated by the chart below. Again there was no view taken on being bullish or bearish either metal. Summary It is not the intention of this article to ‘fly our flag’ over the successes of these spreads but rather to raise awareness as to the various investment opportunities beyond the same old ‘buy and hold’ strategy which has left many investors holding nonperforming investments and tying-up much needed capital. As well, it is still wise to diversify within any investment portfolio. Jay Richards is a licensed Trading Adviser specializing in spread trading. Aliom Financial Markets and Just Spreads offer an investment product called a Managed Discretionary Account (MDA) for spread trade opportunities. Visit www.justspreads.com.au or www.aliom.com.au to learn more.

Dec/Jan 2011

AHA.Investor | 29


A sset I n v estme n t | Why China is headed for a fall

Why China is

headed for a fall There’s a key concept in economics called the law of diminishing returns. It sounds complex, but it’s actually very easy to understand. by Tim Staermose

I

magine for a moment that there are two towns cut off from each other by a vast river. Communications and trade are infrequent at best. But if you build a bridge, you’ll get a tremendous boost to the possibilities for trade and commerce. Economic activity rises dramatically. Build another bridge a half-mile from the first one and you’ll ease congestion, speed up travel times, and create some further improvement in the region’s economy. But the additional returns on investment for the second bridge pale in comparison with the first. So on and so forth for the third, fourth, fifth bridge that you build. Each successive bridge provides less and less of a boost to the regional economy. What China has been doing for years now, is the equivalent of having built thousands of bridges, each one providing diminishing returns to its economy. Even more concerning, China has been building these economic bridges, so to speak, even though when they weren’t necessary. Consider that the share of fixed asset investment in China, at more than 65%, is the highest for any major economy in modern history. What’s more, China’s own electricity authority recently reported that there are 64.5 million dwellings in China where absolutely no electricity is being used. The investments they’re making are producing little return. When I was back in Wuhan this summer, I saw

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exactly this phenomenon. You may never have heard of it, but Wuhan is an important commercial city of more than 10 million. Barreling along one side of an 8-lane highway towards the airport with hardly another vehicle in sight, we passed apartment block after apartment block, sitting empty like a construction graveyard. Eventually we crossed a gigantic new bridge over the Yangtze River. Barely half a mile downstream, another equally vast and expansive bridge was nearing completion… and others further down the river. I was astounded. There was no traffic. No commercial activity. No people. No tolls. Just empty space, and a lot of ridiculously expensive bridges. It was something out of a bizarre zombie flick. There are thousands of similar projects all over China, many funded by debt. And, with no direct cash flows earned back and the ongoing maintenance required, these infrastructure projects have become huge liabilities on the Chinese government’s balance sheet. The conventional wisdom is that China’s economy will continue to grow 8% or 9% per year indefinitely. And a lot of people


Why China is headed for a fall | A sset I n v estme n t

are drinking this Kool-Aid. It sounds a lot to me like the other old songs that we’ve heard over the past few years, like “real estate always goes up in value.” Famous last words. I live by another rule: “All booms bust. The only question is when.” And China has had one of the biggest economic booms in history over the past decades. In fact, per capita consumption of cement in China is at the same levels as Taiwan and Japan right before those infrastructureboom economies hit a brick wall. One of my favorite speculations right now is to short the stocks of companies whose business model is based on eternal Chinese growth. To give you an idea, I’m researching an Australian company for SMC premium

members. It ONLY sells iron ore, and it ONLY sells to China. They’re in the process of tripling capacity at a time when demand in China is slowing markedly and iron ore prices have fallen by nearly 25% in the last few months. Granted, shorting companies is always a risky endeavor (though you can limit your exposure by buying put options instead of shorting the stock). Bottom line, though, I’d urge you to have some healthy skepticism the next time you’re thinking about investing in a company based on the “China growth story.”

I’d urge you to have some healthy skepticism the next time you’re thinking about investing in a company based on the “China growth story.”

Dec/Jan 2011

AHA.Investor | 31


A sset I n v estme n t | Platinum

Platinum Platinum – the Forgotten Investment

With all the intense interest in gold and silver, platinum has largely been forgotten as an investment. The price of gold has overshadowed that of platinum and platinum can no longer be called the wealthy mans gold. Nowadays it is available for just about anyone; despite platinum being so rare that all the platinum that has even been mined would fit into a good sized bedroom.

D

ue to its hardness platinum is also more difficult to melt than gold needing double the temperature. It also takes around eight weeks and about ten tonnes of ore to refine enough platinum to make a simple platinum ring. According to Peter Major, a Cadiz mining analyst, the price of platinum is undervalued compared to the gold price. When you consider the scarcity of platinum as compared to gold and its historical price this is quite extraordinary and it is likely that platinum is poised for a massive upswing sometime soon. Such a low ratio is an anomaly as the supply

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fundamentals of platinum differ from gold, according to Majowr. “Firstly, it is easier to get one’s hands on gold; it is easier to refine it and to melt it down. I think that’s why, when people panic and buy precious metals, they buy gold. Platinum is generally not so easy to get a hold of as gold …” With the price of gold now higher than platinum, it does look like a viable asset to supplement gold or at least help to diversify assets into more than one precious metal. The use of platinum in industry during this century has skyrocketed to include neurosurgical and dental apparatus, drugs for cancer treatment, computer and automotive equipment. In fact out of every

five goods manufactured, at least one contains or is made using platinum. Auto catalytic converters are a main use, especially with the attention on climate change and greenhouse emissions. Within auto catalysts, platinum converts


Platinum | A sset I n v estme n t

harmful emissions into carbon dioxide and water. Almost a third of newly mined platinum is used in this way. If one wants to invest in platinum the first question is what type of platinum should one invest in? First there are many forms of

platinum from bullion bars to small pressed bars, called biscuits, to wire, to coins and even jewellery. The most expensive platinum is the jewellery of course and, as delightful as it may be, it is certainly not the best investment option. There is a very high mark up or

The most expensive platinum is the jewellery of course and, as delightful as it may be, it is certainly not the best investment option. Dec/Jan 2011

AHA.Investor | 33


A sset I n v estme n t | Platinum

Platinum is a very much overlooked investment and with the price as low as it is could be an excellent investment for the future. premium due to the fabrication process, of say platinum rings for example, as well as the fact that the jeweler will want his cut along with the wholesaler and manufacturer. Platinum coins are a good investment although the mark up or premium is higher than on bars. There is a lot more work done on the fabrication and production of platinum coins and, of course, they have to come in

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nice presentation boxes which the buyer pays for. Fortunately the sale value of platinum coins is fairly good and you can still sell for the platinum value plus a bit more in such places as eBay. You can sometimes negotiate a better price if you buy enough coins at a time. The more you can reduce the mark up or premium the better so it is always a good idea to go to an authorized seller or dealer in precious metals, or the manufacturer if possible, and negotiate with them If you don’t ask you don’t get. Check their credentials, ease of contact and returns policy. All these should be clearly available. If you buy platinum bars from an auction, such as eBay, then

try to pick a power seller with excellent feedback. Check over their feed back to see what it is. There are various ways of bidding but one of the favoured methods is to not make any bids until the last minute. It is a matter if skill and some luck involved of course. But with some study and persistence you can buy investment platinum at a reasonable cost this way. Platinum is a very much overlooked investment and with the price as low as it is could be an excellent investment for the future. Michael is a prolific writer on gold, precious metals and Gemstones. He has written several books including, ‘All About Gold’, and writes for many websites, magazines and journals on the subject. His website is authorservices.org.


from Australian Gual Metals & AHA Investor To help you celebrate the holiday season we’re giving every reader the chance to win their own kilo of silver. Australian Gual Metals have kindly donated a full kilo of investment grade silver for one of our readers to take home in the new year. Silver has seen strong growth across an active 2011, and 2012 looks set to be another boom year for hard asset investors. Whether if you’re looking to kick start your metals investment portfolio or buildon an existing stack, go to www.AHAInvestor.com, leave your details (answering the ‘elementary’ question) and you’ll go in the draw to win a full kilo of 999 Silver.

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Fine Art | A rt I n v estme n t

Evening Blaze

Art Investment with Art Columnist Alistair Bailey

A

head of Christies’ Contemporary sale in London during October, Gerhard Richter was asked to comment on the estimates placed on his work Kerze. “it’s totally absurd….” was his opening gambit of the £6 – 9M estimates in place. “It’s absurd to think that within a financial crisis we can see these figures”. The fact that the day following the Christies auction, a major retrospective of Richter’s work opened at the Tate Modern (in collaboration with Christies, I might add) I am sure had no small part in contributing to the final sale price of £10.49M – a record price for Richter’s work at auction. I do wonder what his thought s are on the US$37M estimated to be spent on his work across 7 lots at Sothebys in New York this week, including AbstrachkeBild (lot 33) which is tipped to topple this record price. But, when

Art Equity all is said done, is really all that absurd? It would be borderline stupidity to state that the Fine Art market has been left unscathed by the turmoil of the last few years and it would most certainly cross that border to proclaim that it somehow defies the laws of gravity and is totally uncorrelated. Indeed having monitored the results from Hong Kong, London, our own market and the US just last week, the art market has been experiencing fluctuation and mixed fortunes in the auction rooms. Now the second largest art market globally, estimated to turnover around US$20Bn per annum, China has been a major player in recent years. In fact, along with those from the UAE, buyers from the BRICs (Brazil, Russia, India and China) are largely responsible for driving prices in the auction rooms, particularly in Contemporary art, over the past 24 months. As the world watches closely how China manages, responds to and acts upon broader economic issues, so too does the art market watches with interest the results from the major auctions in China. The anticipation has been palatable and increasingly

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A rt I n v estme n t | Fine Art

Alistair Bailey with Roy Lichenstein and Gerhard Richter Christies

there are those that believe that the results from China / Hong Kong are the symbolic canary down the mine. The uneven results from Sothebys’ Hong Kong sale were characteristic of the inconsistency that has plagued more traditional assets in recent years. While Sothebys successfully sold a 15th Century Meiping vase from the Ming Dynasty for a record price of US$21.7M, the other results for porcelain were “soft”. The Hang Seng had tumbled down 4.4% in the days leading up to the Autumn sales (late September / early Oct) so to suggest that market confidence is not vulnerable even in Hong Kong & China, is naïve. No market can defy gravity. The sale of the second half of the Ullens Collection and the Meiyintang Collection ensured that the overall numbers out of the week were strong but the general sales outside of these collections were comparatively weak. This is possibly down to the hot money sitting on the sidelines as the nerves got the better of them, leaving the genuine collectors and investors to pick over the key lots. Interestingly though, 50.00% of the under-bidders on the key lots were Westerners and 38.00% of the winning bids came from the West. While the London contemporary sales were buoyant, which included the sale of the aforementioned Richter,

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New York opened proceedings last week in less spectacular fashion. I attended a preview of the Christies New York catalogues in London in October. Despite literally walking into a Russian oligarch’s security guard, there was a very positive mood in the room and a degree of optimism which filtered into the Contemporary sale that evening. The staff felt confident that La Petite danseuse de quatorzeansby Degas was sure to sell and that the US$25 – 35M estimates were probably a touch on the low side. This seemed a little odd to me, given that it had sold through Sothebys in 2009 for US$16.87M. Despite the auctioneer’s best efforts, the Degas passed in at US$18M being bid. The Degas was not the only major work to suffer on the opening night of the season, with the two Picasso’s failing to illicit a single bid, other from the chandelier, and it took Max Ernst’s Stolen Mirror to restore any semblance of normality to the Christies evening when it sold for US$16.3M against estimates of US$4 – 6M. Given the relatively lackluster affair at Christies, Sothebysused the extra 18 hours at their disposal to good effect. A catalogue which featured Klimt’s Litzlberg Am Attersee, which was stolen by the Gestapo in 1938 as well as L’Aubade (1967) by Picasso was charged with trying to establish some confidence. Zurich-based dealer David Lachenmann finally won the battle for the Klimt after slugging it out labouriously with a phone bidder. The Klimt sold for US$40.41M (inclusive of Buyer’s Premium). Dealer David Nahmad was the under-bidder on the Picasso which sold for US$23.04M (including BP). Nahmad appealed to the auctioneer to give him some respite as the bidding progressed. The auctioneer responded “Davi…… one more…. tell me 21 million……….I’m only doing my job David”. Nahmad declined and the work sold to another phone bidder. The Sothebys’ sale realised US$200M for the evening with 5 lots selling for over US$5M and a further 37 works selling for more than US$1M. The bidding in the room while not electric, it was consistent compared to the sporadic and syncopated tempo of the Christies sale which struggled to get momentum. Art, like all assets, carries risk, even at the very top end of the market, just ask the vendor of the Degas. However, we can’t escape the fact that millions of dollars have been put into works over the course of the last 10 months. Indeed, 512 works globally have sold for more than US$1M. Passion investments have increasingly formed a percentage of (U)HNW investor portfolios for the primary reason that Fine Art carries a similar DNA to Gold and Silver. The physicality and longevity of the asset are immediately attractive, particularly in a highly volatile market. Its performance is relatively uncorrelated to equity markets providing further insulation against volatility. There is no incumbent debt associated with the asset and it is generally an asset which is relatively easy to transport and store (I am assuming here that you haven’t purchased Jeff Koon’s Balloon Dog for example). A finite supply creates scarcity which in turn helps drive prices. Most importantly, a sovereign default would have no impact on these underlying traits. In Australia, we have seen AU$77.81M turnover at auction YTD which is up 8.23% on this time last year. There has not been a work


Fine Art | A rt I n v estme n t

trade for as much as the Richter in the Australian auction market – Picasso’s Sylvetteis the highest priced work to trade at auction in Australia for AU$7.15M in 2009. It is unlikely, looking at the catalogues to date, that we will see a work sell for anywhere near the estimates of Kerzelet alone the final sale price in the near future. So how do these multi-million dollar works and auctions relate to the Australian market? The auction market has really suffered in the last couple of years in Australia in part due to a lack of fresh works akin to the Christies sale last week. As I mentioned last issue, the secondary market is clearly going through a transition currently (something that is long overdue in my view) so recovery in this market is likely to remain sporadic. As a consequence the increased trade of secondary market works via private treaty is most certainly on the rise and will continue to provide challenges for the auction houses. To this effect, we have started to see auction houses in Australia follow the lead of the big two overseas. In 2007, Christies acquired Haunch of Venison – one of the leading contemporary art galleries in London while Sotheby’s launched their gallery S2 in 2010. Both auction houses have reported sales in excess of US$500M via private treaty in 2011 YTD. In Australia, Mossgreen have been running their gallery for a handful of years now while Deutscher and

Art, like all assets, carries risk, even at the very top end of the market, just ask the vendor of the Degas. Hackett opened their new gallery, New Albion Gallery, just last month. This move by domestic auction houses to the gallery world is interesting and it will be fascinating to see how they manage the two in tandem. The Australian market is both a young market and a comparatively small art market representing approximately 1.00% of the Global Art market of US$60Bn. Our market, due to a perceived tyranny of distance and more recently a high AUD, also lacks the volume of international buyers of other emerging art markets. In fact during 2005 – 2006, Greece was identified as one of the emerging art markets to focus on alongside Brazil and India (China had already started its run by then). The total turnover at auction in Greece during 2006 was US$45M compared to Australia’s turnover of US$82.4M for

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www.PortPhillipPublishing.com.au/aha Sound Money Sound Investments is published by Port Phillip Publishing Pty Ltd. Registered Office: Port Phillip Publishing Ltd Pty, Level 1, 10 Fritzroy Street, St. Kilda, VIC 3182 Port Phillip Publishing Pty Ltd (ACN: 117 765 009) (AFS License: 323 988).

Dec/Jan 2011

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A rt I n v estme n t | Fine Art

The absence of genuine international buyers I believe is a trend that will eradicated over the course of the next decade. the same year! The absence of genuine international buyers I believe is a trend that will eradicated over the course of the next decade. The high flying results of Ron Mueck in the US and Europe (Man Under Cardigan sold through Christies in London last month for AU$1.01M inclusive of buyers) will in many respects be a catalyst. Primarily though the seasoned collectors, particularly in Contemporary Art, will look to the primary market first. To allocate AU$15M into a single work in the Australian market is to purchase an Australian masterpiece – it would something along the lines of Tom Roberts’ Bailed Up (in the permanent collection of the AGNSW). The masterpiece is not necessarily the best investment. The thing about the Richter is that while it is an enormous amount of money, it is still a long way below the prices realised for many of his contemporaries. We have started to see a similar move in the prices for Leon Kossoff as well. Richter and Kossoff represent the last of the old guard since the passing of Lucian Freud and CyTwombly earlier this year. I’ll be keeping a close eye on the movement in these two artist’s prices very closely moving forward as in the very top end of the market, I feel they are going to provide better investment than a mediocre Warhol or a scratchy Jasper Johns. In the Australian market, it is the likes of Rick Amor, Tim Storrier and Peter Booth that hold a similar level of interest for me where we have seen a trend establishing itself in the secondary market. Primary market wise

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though is where the best buying from an investment perspective is likely to manifest itself and specifically in works ranging from the AU$50,000 – 150,000.00 bracket. In this bracket, while there is undoubtedly a level of risk, the strategies for managing these risks are more evident. For the more speculative investor then AU$15,000 – 50,000.00 range is still good ground to harvest, however the associated risk is increased. The Private Equity model of 1 in 10 will make it is not a bad philosophy to take in this end of the market even when you are looking to identify similar fundamentals within each artist you are considering. Most importantly for this sector of the market – remember it is FINE ART so buy what you like. Worst case scenario is you end up loving the work even if the artist’s prices don’t sky-rocket. Global Equity markets are continually being undermined by continued concerns over sovereign-debt in the Eurozone. With France teetering on the brink of joining the US and losing its Triple A rating, Berlusconi having realised that he isn’t going to charm his way out of this predicament and the thread for the Sword of Damocles hanging over Papandreou finally snapping coupled with anaemic growth reported out of the US, is it any wonder that investors are migrating en masse to safer havens? Intervention by the Swiss and Japanese authorities to curb the appetite for their respective currencies is a clear indication of this move and in conventional terms Gold has undoubtedly been over bought such is the volatility of the index. Of course these are hardly conventional times. Even so, if Gold has gone parabolic, as some reports suggest, it will test the constitution of investors for months to come. Fine Art purchased wisely continues to demonstrate its capacity as a strong long term alternative and store of wealth. £10.49M into a classic Richter all of sudden doesn’t appear to be quite so bewildering or absurd. Of course the trick is buying wisely – the investment will always lie in the quality.


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C l a s s i C s & C o l l e C t i b l e s | Raphael Jewellers

Raphael Jewellers | C l a s s i C s & C o l l e C t i b l e s

Making it Raphael Jewellers

Hard Assets. All too often, it’s easy to focus on the bottom line - the purity of the bullion, the carat, clarity & cut of a fine diamond. But sometimes - sometimes - a hard asset can be just this, and also so much more. In the rarified world of high-end, hand made investment jewellery, value becomes the sum of many parts, magnfied by the skill of the artisan. AHA Investor goes behind the scenes into this world where beauty intermingles with lasting value. Linnet Good reports.

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H a r d a s s e t I n v e s t m e n t | Taking Stock

Taking Stock | H a r d a s s e t I n v e s t m e n t

A new dawn? Gold miners balance increased profitably & increased costs

here are – initially – two fundamental things you need to know about investing in diamonds. They can be a terrific investment: just like gold, diamond prices have been heading up and up, with no ceiling in sight as yet. Walking into the Strand Arcade, built in 1891 in Sydney’s George Street, the overall impression is of soaring glass and wrought iron, sunlight, tiles and timber. Up in the second tier of shops above the ground floor lies the polished gem within the arcade’s extravagant setting: Raphael Jewellers. Occupying two shop fronts, the store is decorated with an eclectic collection of stunning antiques that act as a context for the precious jewellery and objets d’art produced on site by jeweller brothers, Raphael and Joseph Akelian. Although my interview is with Joseph, he is occupied with clients when I arrive, and I am greeted by his older brother Raphael, who founded the business in 1988. Originally intending to follow his father into medicine, Raphael had only just begun his studies as a young man, when he was asked to assist a neighbour, a diamond merchant, in his back yard studio. There, his passion for crafting precious jewellery bloomed, and he never looked back. Sixteen years younger, Joseph grew up in the business, coming in after school to sit by his brother at the workbench and be inspired. He says he loved the glamour and the charm of it all. One day when he was 16, Raphael told him he would be serving everyone who came in to the store that afternoon. After each customer, Raphael critiqued his service and gave him pointers for improvement. He was evidently a natural, however. His favourite aspect of the business is interacting with the clients; getting to know them and their tastes; creating a warm and gracious atmosphere. As we talk, Joseph

frequently waves to people passing by the window. He has clearly built strong, friendly relationships with the arcade’s traders and clientele. Inspired by European and English traditions, the business harks back to the old idea of developing the relationship between a client and his or her jeweller. Clients don’t just purchase one piece; they build up an investment collection over time. Joseph and Raphael get to know the buyers and their families, to understand their tastes and style, and they develop a feel for what will appeal to each of them. One client wanted to give his partner some “fun, diamond drop earrings”. Joseph says that by “fun”, the gentleman meant long and sparkly. They knew that the lady in question was elegant and quite conservative, and they went through a careful process to develop something that would interpret and satisfy the inspiration but also be something that she would actually wear. The end result was lovely: long drop earrings with an antique feel to the central piece, with more modern, kite shapes at either end; all covered in diamonds. The earrings have a lot of natural movement, constituting part of their beauty. Joseph says, “We’re sure she’ll love them.” He describes the design style at Raphael Jewellers as “classic with an edge”. Classic, because anyone spending thousands of dollars on a piece of jewellery will want it to be timeless – and wearable – rather than faddish, but the Raphael customer also appreciates that nothing here is ordinary. Everything is distinctive, and most pieces are unique. With jewellery at this level, Joseph explains, there’s no point to having the best gem in the world if the setting does it no justice, or the best setting in the world for an inferior stone. The quality of the craftsmanship, the stone/s, the setting and the design concept must all be excellent. Every element comes together to produce a piece with a value that goes beyond the intrinsic price of materials plus labour.

Wall St to Main St: gold exchange traded funds (ETF’s) are becoming far more mainstream

t

By Greg Canavan, sound money. sound Investments

“Clients don’t just purchase one piece; they build up an investment collection over time.”

Taking STock

hroughout 2011, one of the great frustrations of precious metals investors has been the prolonged underperformance of the gold stocks relative to the gold price. The general sales spiel from the investment community is that gold stocks give you leverage to the gold price. So if bullion rises by, say, five per cent, you should expect your gold stocks to do even better. The script hasn’t gone according to plan this year. As you can see on the accompanying chart, since the start of the year the gold price (as measured by the gold ETF, ASX code: GOLD) has increased by around five per cent. But the gold stock index has declined nearly 10 per cent. This is reverse leverage and not the way things are meant to work!

With the Eurozone in crisis and the U.S. economy continuing to limp along, it’s getting harder to spot the easy winners. With Gold starting to rise again, Sound Money Sound Investments editor Greg Canavan takes a closer look at the stocks that underpin the companies that produce our favourite heavy metal.

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warm and gracious atmosphere. As we talk, Joseph getting to know them and their tastes; creating a aspect of the business is interacting with the clients; He was evidently a natural, however. His favourite and gave him pointers for improvement. After each customer, Raphael critiqued his service everyone who came in to the store that afternoon. he was 16, Raphael told him he would be serving the glamour and the charm of it all. One day when at the workbench and be inspired. He says he loved business, coming in after school to sit by his brother Sixteen years younger, Joseph grew up in the jewellery bloomed, and he never looked back. yard studio. There, his passion for crafting precious merchant, in his back a neighbour, a diamond he was asked to assist as a young man, when only just begun his studies medicine, Raphael had follow his father into Originally intending to the business in 1988. Raphael, who founded by his older brother occupied with clients when I arrive, and I am greeted Although my interview is with Joseph, he is and Joseph Akelian. d’art produced on site by jeweller brothers, Raphael act as a context for the precious jewellery and objets with an eclectic collection of stunning antiques that Occupying two shop fronts, the store is decorated extravagant setting: Raphael Jewellers. ground floor lies the polished gem within the arcade’s timber. Up in the second tier of shops above the soaring glass and wrought iron, sunlight, tiles and Sydney’s George Street, the overall impression is of Walking into the Strand Arcade, built in 1891 in no ceiling in sight as yet. diamond prices have been heading up and up, with investment: just like gold, They can be a terrific investing in diamonds. need to know about fundamental things you here are – initially – two

beyond the intrinsic price of materials plus labour. together to produce a piece with a value that goes concept must all be excellent. Every element comes craftsmanship, the stone/s, the setting and the design in the world for an inferior stone. The quality of the if the setting does it no justice, or the best setting there’s no point to having the best gem in the world With jewellery at this level, Joseph explains, distinctive, and most pieces are unique. appreciates that nothing here is ordinary. Everything is rather than faddish, but the Raphael customer also jewellery will want it to be timeless – and wearable – anyone spending thousands of dollars on a piece of Jewellers as “classic with an edge”. Classic, because design style at Raphael He describes the them.” “We’re sure she’ll love beauty. Joseph says, constituting part of their natural movement, earrings have a lot of in diamonds. The either end; all covered modern, kite shapes at with an antique feel to the central piece, with more The end result was lovely: long drop earrings actually wear. the inspiration but also be something that she would to develop something that would interpret and satisfy conservative, and they went through a careful process that the lady in question was elegant and quite the gentleman meant long and sparkly. They knew diamond drop earrings”. Joseph says that by “fun”, One client wanted to give his partner some “fun, feel for what will appeal to each of them. understand their tastes and style, and they develop a Raphael get to know the buyers and their families, to up an investment collection over time. Joseph and Clients don’t just purchase one piece; they build relationship between a client and his or her jeweller. business harks back to the old idea of developing the Inspired by European and English traditions, the the arcade’s traders and clientele. He has clearly built strong, friendly relationships with frequently waves to people passing by the window.

our favourite heavy metal. a closer look at the stocks that underpin the companies that produce rise again, Sound Money Sound Investments editor Greg Canavan takes along, it’s getting harder to spot the easy winners. With Gold starting to With the Eurozone in crisis and the U.S. economy continuing to limp

Taking STock

t

This is reverse leverage and not the way things are meant to work! gold stock index has declined nearly 10 per cent. the gold ETF, ASX code: GOLD) has increased by around five per cent. But the accompanying chart, since the start of the year the gold price (as measured by The script hasn’t gone according to plan this year. As you can see on the should expect your gold stocks to do even better. to the gold price. So if bullion rises by, say, five per cent, you the investment community is that gold stocks give you leverage stocks relative to the gold price. The general sales spiel from investors has been the prolonged underperformance of the gold hroughout 2011, one of the great frustrations of precious metals

over time.” investment collection they build up an purchase one piece; “Clients don’t just

Linnet Good reports. scenes into this world where beauty intermingles with lasting value. parts, magnfied by the skill of the artisan. AHA Investor goes behind the high-end, hand made investment jewellery, value becomes the sum of many - a hard asset can be just this, and also so much more. In the rarified world ofWIn BULLIon GIVeAWAY: bullion, the carat, clarity & cut of a fine diamond. But sometimes - sometimes Hard Assets. All too often, it’s easy to focus on the bottom line - the purity of the

By Greg Canavan, sound money. sound Investments

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Rare Coins & Banknotes | Numismati c s

Rare Coins & Banknotes THE LAST INVESTMENT SECRET by Robert Jackman, Managing Director, The Rare Coin Company www.rarecoin.com.au

I

am not a financial planner. Don’t ask me about active versus passive fund management strategies. Nor do I pretend to know much about bonds, derivatives or other financial instruments. But I do know something about rare Australian coins and banknotes, having worked in the industry for the past 30 years. And I never cease to be astonished by Australian investors’ willingness to accept poor returns and wild volatility when they have such a great performing alternative in their own backyard. I am referring, of course, to rare Australian numismatics, which have both an established as well as an outstanding track record. To the uninitiated, the idea of buying old coins and banknotes may seem

obscure or even nerdy, even though the reality is that they comprise part of a rapidly growing and highly sophisticated global market. While it used to be the case that only avid collectors were interested in numismatics, investors have long since become major players in the market. Some investors have a personal interest in historical rarities. Many have so little interest that they never bother to inspect the items they buy, which are kept safely locked away in security vaults or bank safety deposit boxes. The reason for investor interest can be summed up in just one word – ‘performance.’ Most of the professionally selected items sold to investors increase in value by 12% - 15% every year. That includes the past four years during which typical share portfolios have been so badly hammered that you’d be lucky if your portfolio was worth anywhere near its 2007 value. Property has, similarly, been through troubled times. But not rare Australian coins and banknotes, which just keep on going up in value. Significantly, this performance

Dec/Jan 2011

AHA.Investor | 45


Numismati c s | Rare Coins & Banknotes

1876M St George Sovereign - $450 Weighing just under a ¼ oz of pure gold, the value of this bullion sovereign follows the main gold price.

1913 George V Twenty Pound Type A Specimen Note - $650,000 Type A Specimen notes are trial notes without signatures or serial numbers cancelled by two small perforated words ‘SPECIMEN’ in the signature regions. Given its scarcity, quality, history, this example, unique in private hands, has achieved an outstanding past performance in the 13-15% pa range.

So, why isn’t everyone buying Australian numismatics? Quite simply, because most people don’t know anything about them. If there is really such a thing as an investment secret, they are it. is not restricted to Australia. Collectable markets worldwide have also bucked the trend during the global turmoil, showing outstanding performance. This performance is nothing new. Some years ago Access Economics ranked Australian banknotes the best performing asset class, not only ahead of shares and property, but other collectibles too, over the 10 year period from 1991 – 2001. Taking an even longer term view, a representative portfolio of 10 Australian coin and banknote rarities shows an average annual increase since 1966 of 15.6%. The lowest performer still recorded a solid 11.6% over this

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period. The highest a stellar 21.0%. What this says to me is that the kinds of return we’ve seen over the past four years since the GFC conforms pretty well to the previous forty. Which is another argument in favour of this asset class. While some year’s growth is stronger than others, to date we have never seen wild fluctuations in value. A well diversified portfolio has never gone backwards. You don’t see the roller coaster ride of share markets that is played out endlessly in the media. Over the past five years while shares and property valuations have ebbed and swelled, the solid 13% annualised return of rare numismatic investors has seen their investments grow by 85%. Such is the wonder of solid performance and compound interest. So, why isn’t everyone buying Australian numismatics? Quite simply, because most people don’t know anything about them. If there is really such a thing as an investment secret, they are it. Financial advisers won’t generally recommend them as they are not educated or paid to do so. This is no reflection on advisers personally or the industry in general. It is just that advisers are generally paid to sell certain asset classes and not others. As for numismatic dealers, we don’t advertise in the mass media because the market, while discreet, is very small. Just to give you some idea, $5 billion is traded in Australia’s top 20 shares every day. Each


Story Name | S E C T I ON N A M E

month, at least $12 billion of residential property changes hands. No more than $15 million worth of rare Australian coins and banknotes change hands in a typical month. All the same, numismatic items are bought and sold every day by investors and collectors, in addition to the dozen major auctions in Australia every year, and many more auctions elsewhere in the world. Transaction records of every item sold are recorded and readily available in catalogues. An advantage of our asset class is that very few of the items are oneoffs. Unlike a Renoir painting, comparable, if not identical, numismatic items come to the market, providing the basis for updated valuations which any qualified specialist will be happy to provide. Many dealers, ourselves included, routinely provide investors with free updated portfolio valuations every year. So if you’re interested in an asset class that delivers portability, discretion, tangibility and proven past performance, year in year out, with a time horizon of about 5 – 10 years, take a closer look at Australian rare coins and banknotes. You may be pleasantly surprised.

An advantage of our asset class is that very few of the items are one-offs. Unlike a Renoir painting, comparable, if not identical, numismatic items come to the market, providing the basis for updated valuations which any qualified specialist will be happy to provide.

Dec/Jan 2011

AHA.Investor | 47


Numismati c s | Münzbarren

Münzbarren

I

ts hard not to feel a bit sorry for the Germans at the moment. When the German taxpayer isn’t backing the bailout of yet another of their European partners they’re living up to that appellation and paying up to 19% in Value Added Tax on physical silver bullion. While the EU agreed to removed sales taxes on gold bullion in 1999, silver bullion was left as fair game for European tax collectors, although some loopholes do exist: bullion products with the status of legal tender (in any country) only attract a 7% VAT rate in Germany for example. To put things into perspective for Australian readers, with spot silver currently hovering around AUD$1000/kg, a 1kg bullion coin with a mint premium of $50 would cost AUD$1123.50 including VAT but a 1kg bullion bar with a lower premium of $30 would cost AUD$1225.70 including VAT - over a hundred dollars more for bullion with an arguably lower standard of manufacture. Some enterprising bullion

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dealers therefore decided to address this taxing issue with stereotypical German efficiency and logic by simply having the official stamp of an obliging nation pressed into their bars to give them the status of legal tender. The resulting Münzbarren (yes, that does translate into English as “money bar”) fulfils the requirement for legal tender status and gives a greater number of producers the flexibility of easier and cheaper manufacturing processes to create investment quality bullion for a market desperately seeking the best value in troubled times. One of the first Münzbarren products produced was in 2007 by the Perth Mint as legal tender of the Cook Islands, however the commissioning dealer moved the manufacturing centre closer to home with German metallurgists Heimmerle + Meule taking over production in 2008. Just last month, global materials group Umicore released a new range of Münzbarren as legal tender of the small European principality of Andorra. The new Andorran bullion is clearly a result of these products gaining in popularity across Europe as silver buyers discover they can legally void paying the higher rate of tax on their investments. European bullion investors can no doubt expect to see a greater of Münzbarren products come on to the market in the future, with legal tender bars from Rwanda scheduled for release in 2012 and several more in various stages of planning and development. Bar sizes range from 100g up to a whopping 15 kilos with nominal currency values increasing proportional to size. We think it’s nice to see some creative solutions being used to allow concerned investors to protect their wealth. It’s certainly a pleasant change from seeing more taxpayer money thrown at yet another bailout.


2011/2012 Events Calendar  2011 September Resources Roadshow

Sydney

Tuesday 20th

5.30pm – 8.30pm

Establishment

Resources Roadshow

Melbourne

Wednesday 21st

12.30pm – 2.30pm

CQ Functions

Resources Roadshow

Melbourne

Monday 17th

12.30pm – 2.30pm

CQ Functions

Resources Roadshow

Sydney

Tuesday 18th

5.30pm – 8.30pm

Establishment

The Gold Symposium

Sydney

Mon 14th – Tues 15th

9.00am – 5.00pm

Luna Park

Resources Roadshow

Sydney

Tuesday 22nd

5.30pm – 8.30pm

Establishment

Resources Roadshow

Melbourne

Wednesday 23rd

12.30pm – 2.30pm

CQ Functions

Resources Roadshow

Sydney

Tuesday 14th

5.30pm – 8.30pm

Establishment

Resources Roadshow

Melbourne

Wednesday 15th

12.30pm– 2.30pm

CQ Functions

Resources Roadshow

Sydney

Tuesday 27th

5.30pm – 8.30pm

Establishment

Resources Roadshow

Melbourne

Wednesday 28th

12.30pm – 2.30pm

CQ Functions

Resources Roadshow

Melbourne

Monday 23rd

12.30pm – 2.30pm

CQ Functions

Resources Roadshow

Sydney

Tuesday 24th

5.30pm – 8.30pm

Establishment

The Great Australian Outback Golf Challenge

Broken Hill

Sunday 20th

10.00am – 7.00pm

Golf and Country Club

Resources and Energy Symposium

Broken Hill

Mon 21st – Wed 23rd

9.00am – 5.00pm

Entertainment Centre

Resources Roadshow

Sydney

Tuesday 19th

5.30pm – 8.30pm

Establishment

Resources Roadshow

Melbourne

Wednesday 20th

12.30pm– 2.30pm

CQ Functions

Resources Roadshow

Sydney

Tuesday 24th

5.30pm – 8.30pm

Establishment

Resources Roadshow

Melbourne

Wednesday 25th

12.30pm – 2.30pm

CQ Functions

Resources Roadshow

Sydney

Tuesday 21st

5.30pm – 8.30pm

Establishment

Resources Roadshow

Melbourne

Wednesday 22nd

12.30pm – 2.30pm

CQ Functions

Resources Roadshow

Sydney

Tuesday 18th

5.30pm – 8.30pm

Establishment

Resources Roadshow

Melbourne

Wednesday 19th

12.30pm– 2.30pm

CQ Functions

MinExpo

USA

Mon 24th – Wed 26th

9.00am – 5.00pm

Las Vegas Convention Centre

Resources Roadshow

Sydney

Tuesday 23rd

5.30pm – 8.30pm

Establishment

Resources Roadshow

Melbourne

Wednesday 24th

12.30pm– 2.30pm

CQ Functions

The Gold Symposium

Sydney

Mon 12th – Tues 13th

9.00am – 5.00pm

Luna Park

Resources Roadshow

Sydney

Tuesday 27th

5.30pm – 8.30pm

Establishment

Resources Roadshow

Melbourne

Wednesday 28th

12.30pm– 2.30pm

CQ Functions

October

November

 2012 February

March

May

June

July

August

September

October

November

www.symposium.net.au • info@symposium.net.au • +61 2 9299 4350

Oct/Nov 2011

2011/2012 Calendar

April

AHA.Investor | 49


M I N I N G & M I N E R A L S | Mining News

Tribune Resources, a hidden gem?

T

ribune Resources (ASX:TBR) is a hidden gem. A gem can sparkle on the surface, but put it under a microscope and it can have some flaws. Over the past 12 months as I’ve followed Tribune they have not released any investor presentations. Their market announcements contain no flashy graphics and little more than the minimum facts. As far as I’m aware they have not been on any resource road shows with a company presentation or otherwise made a public attempt to promote themselves to attract new investors. I have seen no broker reports or recommendations. For these reasons Tribune Resources seems to be overlooked by many. The buy/sell depth on any given day can be extremely thin (illiquid, with often only a few buyers and sellers on each side with a wide gap between orders). The top 20 shareholders own over 85% of the company, leaving only a small number of shares to be traded (especially so given the low number of shares on issue, 50,312,005). I don’t recall any changes to the top 20 over the time I’ve been following them. The shares on issue and current share price (today as I write the article a small number have gone through at $2.06) result in a market cap of around $104m. Their share price was $1.48 when I first covered Tribune on my blog back in October 2010 (you can find this and other gold stock coverage at www.bullionbaron.com), since then it has traded as high as $3.30 before falling back to current prices. Without the flashy presentations it takes a little math and reading the annual report to calculate Tribune’s current assets. For example as of June 30th they had $83.5m worth of bullion in their holding account (spot price at the time was $1400 so around 59,700 ounces), they have since added more Gold in recent processing campaigns. They were credited with 10,003 ounces in campaign 19 and 6,433 ounces in campaign 20 with campaign 21 expected to be completed prior to the end of January 2012. This totals 76,000 ounces of Gold or at current spot rate (AUD$1730) they hold around $131.5m worth of Gold bullion. Even if we were to take away $30m for expenditure over 3rd and 4th quarters we are still looking at a company that is holding around their market cap in physical bullion (taxes will be outstanding on it’s sale). They also had $12m in cash at the end of the 3rd quarter.

50 | AHA.Investor

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Tribune has part ownership in several Western Australian Gold tenements as well as a 100% interest in a Ghana exploration project. Tribune also holds 43% of Rand Mining (ASX: RND) who are a company with the same directors and part owners of some of the same projects. So in an indirect manner Tribune has a higher interest in some of the projects than is first apparent. Their Kundana (East) project is located 25km North West of Kalgoorlie. This project is the location of Tribune’s Gold resource and source of their revenue. The project ownership is split between Tribune (36.75%), Rand Mining (12.25%) and GiltEdge Mining (wholly owned by Barrick). There are multiple deposits located within the boundaries of this project. Grades from the Raleigh Underground Mine have been consistently high with last years average at 13.4 g/t. Tribune’s share of the gold bullion deposited to the joint (TBR/RND) bullion account over the last financial year was 48,537.042 ounces of Gold compared with 58,218.123 ounces the previous year. The ore is processed at the Greenfields plant located near Coolgardie. Their annual profits do not reflect that of a producer this size due to their hoarding of the Gold rather than sale as you would see from most other Gold producers. The Ghana project area covers 27.5 sq/km and lies immediately along strike from the Perseus (ASX: PRU) Ayanfuri project (which hosts a large resource). Although Tribune’s project doesn’t have a defined resource, there are several

promising prospects within the project area. As part of a 10,000m drilling program they have delivered some impressive results including 17m @ 5.19g/t Au from 114m (at the Dadieso prospect) and 12m @ 15.37g/t Au from 126m (at the Japa prospect). Dadieso’s northern extension continues over the boundary where Perseus Mining (ASX: PRU) has a JORC compliant resource of 153,400oz Gold (1.8g/t). Japa lies south of Dadieso. The company is investigating the exciting possibility that strike continues along the 1.4km stretch between these two prospects which (if so) would result in a strike length of more than 6km. The company is targeting the top 120m for open pittable mineralisation. The tight registry and large controlling interest by management means the company is run almost as if it were privately owned. Their general meetings are held out in Kalgoorlie, providing little opportunity for most shareholders to attend. Their plans are not hand fed to the buyer like they often are by a company that markets itself, but being self funded and largely controlled by few means that they would not receive much benefit from doing so anyway. Something else worth noting is that Anton Billis (one of the directors) has a colourful history. He has had some legal scrapes over the years, including one that resulted in ASIC Investigators raiding the Rand/Tribune office over dealings associated with Rand (associated charges were cleared). Billis was listed on Australia’s National Personal


Mining News | M I N I N G & M I N E R A L S

Insolvency Index between 1991 and 1994, but was found not guilty on charges of falsifying company books. The company looks undervalued at current market prices; I hold some shares, but my concerns over some of the risks described in this article (illiquid, no effort spent on promotion to keep share price healthier, small shareholders have little recourse given small % of company they hold, sketchy history of management) means that the position is kept to only a small percentage of my portfolio. Bullion Baron www.bullionbaron.com Disclosure: At the time of writing the article Bullion Baron held shares in TBR.

Nigerian Co-operation CANBERRA, Oct 28 AAP - Nigeria and Australia will explore greater business opportunities in the mining, energy, agriculture and financial services sectors. The work will be led by a newly created Australia-Nigeria Trade and Investment Council. “With private sector backing, the council will establish small secretariats in Perth and Lagos,” Prime Minister Julia Gillard said in a statement. Nigeria is a growing emerging market and Australia’s second largest trading partner in Africa. Six Australian mining companies are already active in Nigeria, as is Macquarie Bank. The co-chairs of the new Council are Hugh Morgan, CEO of First Charnock Australia, and Pascal Dozie, chairman of the Diamond Group Advisory Board. Its patrons will be Nigeria’s Minister for Trade and Investment Olusegun Aganga and Australian Trade Minister Craig Emerson.

Dec/Jan 2011

AHA.Investor | 51


M I N I N G & M I N E R A L S | Mining News

Do you think you’re investing in gold?

Why You Could be Wrong Introduction Investing in gold exploration companies means investing in project development risk – not the gold itself. The smart equity investor understands how banks analyse these projects and ensures due diligence is meted out with the vigour that would be afforded investments in more static industries. Haydn Palliser, Associate, Corality Financial Group on the importance of understanding the risk and reward profile associated with project development and how it differs from investing in a physical commodity. As a key player in the mining and finance industry Corality Financial Group attended The Gold Symposium at Luna Park in Sydney alongside many of our key clients being investors, miners and bankers alike. A central and consistent theme at The Gold Symposium was the strong expectation that gold and silver prices will rise “beyond belief” in the near future. Clearly, recent trends suggest that this positive forecasting for the gold and silver industries is not without reason. It was the way many, if not most, high-net worth individuals attending the conference viewed investment in gold that surprised me. This brings me to my point – as an investor in gold explorers you are not investing in gold itself, you are investing in project development risk.

Investing in explorers is not investing in the underlying commodity I have spent 10 years advising, analysing and managing project development and rarely have I considered early stage exploration projects as an investment in the underlying commodity. However, I have had a number of investors from Australia, Asia and Europe asking me for advice on gold investment and insights into early stage explorers to maximise their returns. This is not investing in gold. Consider if a close family member had an idea to invest in a brand new and untested technology that if brought successfully to operation could produce paper. Would you invest in this solely because you believed the paper markets to be on the up? I am sure your answer would be no as the main risk sits with the technology.

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Investing in gold explorers is investing in project development risk The true investment is in project development risk, not gold. This becomes obvious if you look at the share price of these explorers. There is a limited, if indeed any, positive relationship with the gold price. Project development is complex and has a completely different risk / reward profile to a physical commodity. Even more so with mining or new technologies when there are so many unknowns. You could count on one hand how many times new technology or mine development projects are actually on budget and on time. In addition, I would argue that we currently see a greater number of risky projects seeking funding due to the high gold price. These projects are fundamentally extremely difficult to fund and develop - investors be warned! This doesn’t mean they are all poor opportunities, but it is important to keep perspective during this new gold rush and to ensure due diligence is meted out with the vigour that would be afforded investments in more static industries.

Technical wonder, slick public relations and gut feel don’t make a project The investment opportunity in project development depends on the stage of investment as the risk profile changes over time. Let us investigate the process using a gold mine as an example. The first step is acquiring exploration rights, followed by discovery of gold, and then a number of feasibility studies with varying level of complexity and detail. Most of the publicly announced information regarding the project during these stages relates to the quantity of reserves and capital and operating cash costs. There is obviously “great potential of future discoveries”, but all the technical wonder, slick talking public relations and intuition in the world doesn’t mean a project is in the offing. What you really need is a project capable of extracting and selling the gold at competitive costs and price.

No funding, no project, no gold So how do you get this project off the ground? It depends on the stage of the project but for those nearing the latter part of what are principally, mostly technical feasibility studies, the success of the project will rely heavily on the ability to fund the development. This practical necessity will no doubt have many engineers and geologists arming themselves with rocks aimed at me, but the truth remains - without funding you don’t have a project. Of course, as an ex-engineer I understand funding doesn’t make a project alone, but technical studies and design which are arguably much more complex than the financing represent the first pieces of a complex puzzle.

“Bankability” – investors be aware! Bankability? It may seem like a catch-phrase (and it is!) but it is a common term in the industry for ‘if and when’ a project can truly be


Mining News | M I N I N G & M I N E R A L S

financed by a bank. Investors need to be aware that any project can be wrapped up to look like an intriguing and profitable investment. But it is the place of financial advisors and ultimately the banks to assess the reality of the risk being presented between the lines of sales pitches. They will also determine which elements may be too volatile for the lending mandate of the prospective bank and which may be mitigated through a number of financial tools such as hedging or even rationalisation of the operational mining plan. Regarding the financing on offer, project finance is by far the most common form given the magnitudes generally associated with mining projects. This type of finance is a class of structured debt finance which is principally defined by the loan repayments coming solely from future cashflows generated from the project. Why bankability? Yes, there are other ways to fund projects, but many explorers will seek project finance to get leverage and also to ensure they limit the dilution of their shareholdings. True, some control is conceded when plans go awry, but that is an accepted part of life for many of these explorers. In my role as advisor for a multitude of exploration companies during feasibility studies, I place focus on addressing the bankability of projects. Projects which have addressed these issues early in the development are always better placed to acquire funding and succeed in producing gold.

Bankers know better than the geologists, engineers and investors In order to understand project bankability you need to view the project from a bank’s viewpoint. The banks view differs for the sponsor and the majority of investors but it is valid all the same. Having acted for both sides of the equation I know that this can be a confrontational process but it strengthens the project as it involves interrogation of key project economics. So why do bankers know better than the geologists, engineers and investors? The simple answer is: of course they don’t, but their perspective remains distinctly detached and different due to their risk profile. Firstly, mining projects will always carry a large amount of risk, at least until scoping technology advances significantly. Despite testing, there are no guarantees that what is deemed to be under ground is in fact there in the predicted volumes or economically viable for extraction. With this in mind, banks don’t typically gain much if the project has better reserves than expected and prices keep increasing. However, if the project goes poorly

they lose their money. Compared to shareholders who gain from improvements and tend to focus on how much they can make, banks focus on what they can potentially lose rather then getting excited about possible upsides. Banks therefore focus heavily, not only on the output from the sponsor, but on their own experts more conservative opinions of the underlying assumptions. Their risk structuring and “what-if” analysis adds integrity to the project and results in a conservative estimate of cashflows and subsequently the level of funding that can be issued to the project. Understanding the banks viewpoint and their risk structuring is essential for equity investors and should form part of the investment decision making process. Remember; no funding, no project, no gold.

• There are gains to be had investing in gold mining • Remember to balance these potential gains with clearly understood risk factors • Consider the bankers’ viewpoint when investing • Do your homework.

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M I N I N G & M I N E R A L S | Mining News

QLD BOOM: $8b royalties for Qld, but planning needed BRISBANE, Nov 22 AAP - Queensland can only reach its mining potential and reap an annual $8 billion royalties bonanza by 2020 with a huge commitment to labour, water and electricity supplies, an industry report says. The Queensland Resources Council on Tuesday released a Deloitte Access Economics report on projects that are under study, committed or under construction. It highlights 66 mining projects with total capital expenditure of $142 billion to 2020 if all proceed. This would see the state government get a royalties windfall of almost $8 billion a year by 2020 - almost three times the $2.8 billion banked in 2010/11. Deloitte Access Economics spokesman Chris Richardson said if the mining industry and the federal and state governments did not react quickly enough, the opportunities would be lost forever. “It’s the equivalent of smoking $100 notes,” Mr Richardson told the forum. “Those who move first will capture the most value.” Resources council chief Michael Roche said labour, water and electricity supply were the biggest hurdles to the state reaching its resources potential. The report says the projects would require an additional 40,000 workers, another 5000 megawatts of electricity and almost 200,000 megalitres of water. Xstrata Copper’s north Queensland boss Steve de Kruijff said the employment figures were purely for the mining industry and did not take into account the needs of local communities. The loss of service and retail industry workers to the mining sector is a common complaint across the resources states. Mr de Kruijff says even a fast food restaurant in Mount Isa has a fly-in fly-out workforce. He believes the report vastly underestimates

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the number of workers Queensland needs - believing it’s more like 120,000. “The knock-on impact of one mine worker in a small community is quite high,” Mr de Kruijff told AAP. “In Mount Isa, Kentucky Fried Chicken has to fly in and fly out workers on weekends because there are not enough people to fill the jobs.” Queensland should follow the lead of South American countries and fast-track certain trades through two-year apprenticeships for occupations such as diesel fitters and boiler makers, Mr de Kruijff says. The report says the Queensland resources sector is poised to enter a very significant expansion phase with about $165 billion in large projects either under study, committed or in construction. At an earlier event for Galilee Basin miners, Mining Minister Stirling Hinchliffe warned the mining sector of uncertainty ahead if the Liberal National Party (LNP) wins the next election, expected early next year. “Within days of releasing their resources strategy, it’s still not a policy,” he said. Opposition mining spokesman Jack Dempsey said the report highlighted the long-term neglect of the sector by Labor. “(Premier) Anna Bligh and (Treasurer) Andrew Fraser have failed to explain to Queenslanders where the money from the last mining boom has gone,” he said.

BHP approves new

Bowen

Basin mine

SYDNEY, Nov 1 AAP - BHP Billiton has approved the development of the $US4.2 billion ($A4.00 billion) Caval Ridge Mine coal project in the northern Bowen Basin in central Queensland. BHP said its share of the investment in the initial project is $US2.1 billion ($A2.00 billion). It is to be run in a 50/50 joint venture with Mitsubishi Development Pty Ltd. Also included is an expansion of the Peak Downs Mine in the northern Bowen Basin. The projects would add eight million tonnes per year in export metallurgical coal, with the expectation of a rapid, low-cost expansion to 10 million tonnes per year, BHP said. That expansion has not yet been permitted. First coal is expected in calendar year 2014, with the resource life of the initial project expected to be greater than 60 years. The new Caval Ridge Mine will have the capacity to produce 5.5 million tonnes of coal per year. It will be an open-cut dragline and truck and shovel operation, with coal railed to the BHP Billiton Mitsubishi Alliance Hay Point coal terminal. The project has received all necessary regulatory approvals. The Peak Downs Mine will expand production by 2.5 million tonnes per year.


M I N I N G & M I N E R A L S | Mining News

Miners forced

to disclose

BRISBANE, Nov 18 AAP - Miners will be forced to disclose compensation payments to landowners if Queensland’s Liberal National Party gets its way. LNP leader Campbell Newman says the move could take some of the heat out of the conflict between the state’s mining and agricultural sectors. “In relation to compensation, one of the biggest problems is the lack of knowledge about what people are being paid,” he told a Queensland Resources Council (QRC) breakfast in Brisbane. Disclosing compensation payments meant “smoke and mirrors innuendos” about people being ripped off would go away, Mr Newman said. “I’ve talked to a number of companies which seemed quite happy to make these compensation payments public,” he said. “By publishing them, it will strip a whole lot of anxiety (away). What we’re trying to do is target issues that are irritants, that are causing furore.” But QRC deputy chief executive Greg Lane said the proposal needed greater scrutiny and could have legal implications. “It’s something we’d like to hold further discussions on with the LNP and we’d like to talk to other bodies,” he said. “I can’t say what the legal implications might be around that. We will be calling ... for further consultation.” The compensation disclosure plan is part of a glossy 56-page resources and energy sector strategy paper released by Mr Newman at the Friday breakfast. The document is heavy on broad commitments to building a strong, environmentally sustainable sector, but light on detail about how to go about it. It says an LNP government would address the skills shortage plaguing the sector and ensure infrastructure keeps pace with the demands of the booming industry. It promises to cut red tape and improve application and approval systems for resource projects, and pursue clean, alternative and renewable energy technologies while ensuring coal-fired electricity remains viable. The LNP also intends to pursue region-specific plans to manage mining activities, taking into account feedback from landowners and residents. Mr Lane said there was some merit to that approach, which was more palatable than a “one-size-fits-all” strategy. “But again we need to have some discussions on how that would work in a policy sense,” he said. The LNP has invited comment on the strategy paper until December 16.

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delays at Lynas’ Malaysian plant SYDNEY, Oct 31 AAP - Rare earths supplier Lynas Corporation says slight delays mean a planned Malaysian plant will now come on line during the first half of 2012. Construction of the Lynas Advanced Materials Plant was 78 per cent complete at the end of September, Lynas said in a statement on Monday. Slight delays in final procurement packages and associated delays in construction and contractor resourcing meant the first feed to kiln at the plant would not occur until early in the first quarter of 2012, it said. “Subject to the receipt of the pre-operational licence, Lynas confirms its expectation to be in commercial supply during H1 2012,” Lynas said. Completion of the first phase of the advanced materials plant was previously expected by the end of this year. Lynas also said its concentration plant in Western Australia was performing ahead of expectations as it continued with a ramp-up schedule.

Sandfire signs 1st copper, gold sales deal PERTH, Nov 4 AAP - Copper and gold explorer Sandfire Resources has signed a sales deal with a private Swiss commodity trading company for product from its DeGrussa project in Western Australia. The one-year contract with MRI Trading AG is for half of the direct shipping ore (DSO) to be produced at the project, up to a maximum of 75,000 dry metric tonnes. The company has also started marketing discussions in relation to sales agreements for copper concentrate, which is a processed product. The offtake deal with MRI starts in March and is the first to be sealed by Sandfire for the DeGrussa project, which is slated to begin production early next year. Sandfire said talks to sell the remaining 50 per cent of DSO production were underway and it expected to announce further deals in the near future. Shares in Sandfire were up 25 cents, or 3.91 per cent, at $6.65 at 1531 AEDT.


Mining News | M I N I N G & M I N E R A L S

BHP to issue $US3 billion in bonds

SUNDANCE Rail Line

SYDNEY, Nov 17 AAP - BHP Billiton has priced a $US3 billion ($A2.96 billion) global bond from which proceeds will be used for general corporate purposes. BHP said it would issue $US1.25 billion ($A1.23 billion) in 10-year senior notes, $US750 million ($A738.95 million) in fiveyear senior notes, and $US1 billion ($A985.27 million) in three year senior notes. “The proceeds will be used for general corporate purposes, including the retirement of commercial paper,” the company said in a statement.

PERTH, Nov 23 AAP - A planned rail line linking Sundance Resources’ Mbalam iron ore project in West Africa to port is a step closer. The Perth-based company on Monday said the Republic of Cameroon government had “declared” the rail corridor between the project and the Lolabe Port as land for public utility. “The decision paves the way for the government to secure necessary land required for building the Mbalam rail line,” Sundance said in a statement on Wednesday. “This decision also freezes all further property transactions and construction permits along the proposed rail corridor.” Chief executive Giulio Casello said the proposed railway was a critical component of bringing iron ore from Mbalam to market.

“This decision will also give Hanlong Mining further confidence concerning the willingness of the Government of Cameroon to endorse the development of Mbalam,” Mr Casello said in a statement. Sundance in October backed a $1.65 billion takeover bid by Chinese private firm Hanlong Mining, which has invested in other Australian mineral exploration companies and plans more. The declaration of public utility for the Kribi port area, which includes Lolabe, was announced last year and environmental approval for the rail, port and mine was granted in 2010.

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M I N I N G & M I N E R A L S | Mining News

Freeport declares force majeure in Papua TIMIKA, Indonesia, Oct 26 AFP - US miner Freeport-McMoRan has declared force majeure on shipments from its strike-hit Indonesian gold and copper mine so it can avoid liability on existing customer orders. Around 8,000 of Freeport Indonesia’s 23,000 workers have been on strike for more than a month in restive Papua province, demanding drastic wage increases and better working conditions. Freeport said the labour action and resulting drop in production at its Grasberg mine has taken a toll on its ability to make good on some promised shipments to customers. “The (lower) production has impacted our ability to fully perform our sales commitments, and as a result we were required to declare force majeure on the affected ... sales agreements,” Freeport Indonesia spokesman Ramdani Sirait told AFP. “Throughout the period, we have worked cooperatively with our customers on the revised concentrate production and shipping schedule,” Sirait added. The declaration means Freeport can avoid the usual liabilities for failing to meet its contractual obligations. Since the strike began last month, eight people have been killed in the vicinity of the mine, north of Timika town, in ambushes and police clashes. Freeport Indonesia workers originally demanded drastic wage increases, from a minimum hourly rate of $1.50 to $30, and are now calling for $7.50 an hour. Freeport reported last week that its third-quarter profits fell 10.6 per cent, with net income tumbling to $US1.05 billion ($A1.01 billion), or $1.10 per share, during the quarter ending September 30. That was down from $US1.18 billion ($A1.13 billion), or $1.24 per share, during the same period last year.

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TAKEOVERS ADELAIDE ENERGY LTD (ADE): Macquarie Equities Ltd will stand in the market on behalf of Beach Energy Ltd (BPT) and is offering for all the company shares. Consideration is $0.20 cash per share held. Directors of ADE have decided not to accept the offer in regard to their own shareholdings and recommend shareholders take no action until the Target Statement is released. BPT is entitled to 60.93% of voting power in ADE. The offer opens 22 November 2011 and closes on 22 December 2011. ANVIL MINING LTD (AVM): Minmetals Resources Ltd (Minmetals) is offering for all the shares in the company. Consideration is C$8.00 per share. Conditional on Minmetals and affiliates owning at least 66.666% of AVM on a fully diluted basis, Minmetals shareholder approval, FIRB approval, 90% share acceptance and ACCC approval. Minmetals has entered into a lockup agreement with AVM Directors and AVM’s largest shareholder who hold 40.1% of AVM on a fully diluted basis excluding money options. AVM Directors conclude the offer is in the best interest of shareholders and unanimously recommend shareholders accept the offer. The offer remains open until 24 November 2011. GEOTHERMAL RESOURCES LTD (GHT): Geothermal Resources Ltd (GHT) and Havilah Resources NL (HAV) have entered into a Binding Bid Implementation Agreement (TBIA) under which HAV will make an offmarket offer for all the shares in the company not yet owned by HAV. The offer is now unconditional. Consideration is 1 share per each 4 GHT shares held. Independent Director recommends shareholders accept the offer in the absence of a better offer. Independent advice concludes the offer is fair and reasonable. HAV is now entitled to 85.46% of the voting power in GHT. The offer is extended to remain open until 28 November 2011. GOLD ONE INTERNATIONAL LTD (GDO): BCX Gold Investment Holdings Ltd (BCX) represents a consortium of chinese investors who have entered into a transaction implementation agreement to become partner of GDO and its major shareholder for all of the company shares and a minimum $150 million capital injection into GDO. The consortium consists of Baiyin Non Ferrous Group Co Ltd (Baiyin) (60%), the China Africa Development Fund (CADF)(30%) and Long March Capital Group (LMCG) (10%). Consideration is $0.55 cash per share. Conditional on Australian Ministry of Commerce, State Administration for Foreign Exchange regulatory approvals; GDO not withdraw recommendations before the end of the offer period; and BCX obtaining 60% of GDO on a fully diluted basis. Approval from FIRB and National Development & Reform Commission has been Shareholders have voted in favour of resolutions regarding the Jintsu Transaction. GDO’s current listing on the ASX will be maintained. Directors recommend the offer and share issues in the absence of a better offer. Independent advice concludes


Mining News | M I N I N G & M I N E R A L S

in the absence of a better offer, the offer is fair and reasonable to shareholders who accept the offer, not fair but reasonable to shareholders who reject the offer. The Competition Commission of South Africa has unconditionally approved the offer. BCX is entitled to 20.89% of voting power in GDO. The offer remains open till 15 December 2011. LAGUNA RESOURCES NL (LRC): Kingsgate Consolidated Ltd (KCN) is offering for all the shares in the company. Consideration is $3.75 cash per share. LRC Directors recommend shareholders accept the offer in the absence of a better offer and subject to an independent expert concluding the offer is fair and reasonable. KCN is now entitled to 92.5% of voting power in LRC and are proceeding with compulsory acquisition of all outstanding shares. The offer is unconditional and remains open till 13 January 2012. SIGNATURE METALS LTD (SBL): Signature Metals Ltd (SBL) and LionGold Corp Ltd (LIGO) have entered into a Bid Implementation Agreement under which LIGO will make an off-market offer for all the shares in the company. Consideration is one LIGO share for every 34 SBL shares held, fractions will be rounded up. The offer is not be subject to minimum acceptance condition. SBL Directors unanimously recommend shareholders accept the offer in the absence of a better offer and intend to do likewise in regard to their own shareholdings. LIGO is now entitled to 5.053% of the voting power in SBL.

Australia’s largest range of gold and silver bullion coins at very competitive prices

Premier distributor of the stunning Southern Cross silver bars

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Dec/Jan 2011

AHA.Investor | 59


A H A B u y ers G ui d e | White Christmas

“Papillon� - 18ct white and rose gold designer cocktail ring set with fancy cut white diamonds and a feature pink diamond.

18ct white gold designer solitaire dress ring offset with a feature cushion cut diamond in a triple claw setting.

60 | AHA.Investor

Dec/Jan 2011


White Christmas | A H A B u y ers G ui d e

“Shooting Star� - 18ct rose and yellow gold designer cocktail ring set with tone on tone light pink and yellow fancy coloured diamonds.

18ct white gold designer solitaire dress ring set with a baguette cut diamond on a forty five degree angle between the two planes of the ring.

18ct white gold designer South Sea pearl drop earrings set with white and pink diamonds.

Dec/Jan 2011

AHA.Investor | 61


A H A B u y ers G ui d e | White Christmas

Cufflinks and studs set in sterling silver and onyx, in a black alligator printed box. $890

Profile belt reversible calf skin leather ref: 106618. $390

62 | AHA.Investor

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White Christmas | A H A B u y ers G ui d e

Star collection 4810 chronograph watch on a leather band with black face. $6000

Tribute to Montblanc cufflinks in Onyx and Montblanc diamond ref: 106910. $1550

Dec/Jan 2011

AHA.Investor | 63


D I R E C T O R Y | Contacts

Contact Directory ABC Bullion

The Blender Gallery

Australian Bullion Company (NSW Pty Ltd) Suite 30 Level 6, 88 Pitt Street Sydney NSW 2000 Call (02) 9231 4511 www.abcbullion.com.au

16 Elizabeth Street Paddington 2021 Call (02) 9380 7080 www.blender.com.au

Brisbane Vintage Watches

289 Queen St, Brisbane, QLD 4000ia Call 1800 819 474 / +61 7 3221 0500 www.ainsliebullion.com.au

Shop 23 Ground Level Brisbane Arcade 160 Queen Street Brisbane Qld 4000 Call +61 7 3210 6722 www.brisbanevintagewatches.com

Aliom Financial Markets

BullionDeals

Level 4, 131 York St Sydney 2000 Call 02 8246 8500

PO Box 36, Point Lookout, North Stradbroke Island QLD, 4183 Call 0458 912 570 www.bulliondeals.com.au

Ainslie Bullion Company

Argyle Pink Diamonds 2 Kings Park Road West Perth, WA, 6005 Call +61 8 9482 1052

Art Equity 16-20 Barrack Street Sydney 2000 Call (02) 9262 6660 www.artequity.com.au

Autore Pearls Sydney Head Office Level 5, 125 York Street, Sydney NSW 2000 AUSTRALIA T: +61 2 9285 2222 F: +61 2 9285 2255 www.pearlautore.com.au

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Dec/Jan 2011

Calleija Jewellers Brisbane Shop 102 Seaworld Drive Main Beach QLD Call +617 5528366

Sydney The Westin Sydney Number 1 Martin Place Sydney Call +612 9233 6661 London Shop 14 The Royal Arcade 28 Old Bond Street Mayfair London Call +44(0)20 7499 8490 www.calleija.com.au

Coinworks PO Box 1060 Hawksburn Victoria Australia 3142 Ph +61 3 9642 3133 www.coinworks.com.au

Fat Prophets Level 3 22 Market Street Sydney NSW 2000 Call 1 300 88 11 77 www.fatprophets.com.au


Contacts | D I R E C T O R Y

Gold Company, The

Generation One GenerationOne is a movement for all Australians - Indigenous and nonIndigenous. It is a non-partisan movement and will listen to any and all contributions that can help break the poverty traps, in our generation. Ph 02 9310 2600 www.generationone.org.au

Gold Bullion Australia Brisbane Office (Secure office - contact for appointment) Level 23 127 Creek Street Brisbane Qld 4000 Call 1300 754 602 Melbourne Office (Secure office - contact for appointment) HWT Tower Level 23, 40 City Road Southgate, Vic 3006 Call 1300 754 602 Sydney Office (Secure office - contact for appointment) Level 32, 1 Market Street Sydney NSW 2000 Call 1300 754 602

Suite 1, Level 1, Piccadilly Tower, 133 Castlereagh Street Sydney NSW 2000 Call 02 9020 5150 / National: 1300 506 707 www.goldcompany.com.au

Gold De Royale Suite 103 192 Ann Street Brisbane, Queensland 4000 Call 07 38305319 www.goldderoyale.com.au

J Farren Price Jewellers Shop 2, St James Centre 80 Castlereagh Street Sydney NSW 2000 Call (02) 9231 3299 www.jfarrenprice.com.au

L.G.Humphries & Sons. 149 Castlereagh St, Sydney Australia Ph (02) 9267 7691 www.lgh.net.au

Mont Blanc Boutiques Sydney 75, Castlereagh Street Sydney, NSW 2000 Ph: +61 2 9233 3927 115-117, King Street Sydney NSW 2000 Ph: +61 2 9231 5671 Melbourne 175-177, Collins Street, Melbourne, Vic, 3000. Ph: +61 3 9663 5077 Brisbane Shop 12, Queens Plaza, Edward St, Brisbane, Queensland 4000 Ph: +61 7 3012 9150 www.montblanc.com

Head Office Shop 2 / 2713 Main Place Broadbeach Gold Coast QLD 4218 Call 1300 754 602 www.goldbullionaustralia.com.au

Dec/Jan 2011

AHA.Investor | 65


D I R E C T O R Y | Contacts

Noble Numismatics Sydney Ground Floor 169 Macquarie Street Sydney NSW 2000 Call +61 2 9223 4578 Melbourne Level 7 350 Collins Street Melbourne VIC 3000 Call +61 3 9600 0244 www.noble.com.au

Perth Mint 310 Hay Street East Perth WA 6004 Bullion Bars & Coins Sales Inquiries Call 1300 201 112 / +61 8 9421 7428 www.perthmint.com.au

Port Phillip Publishing Level 1, 10 Fitzroy Street, St. Kilda, VIC 3182, Australia Call 1300 78 29 11 www.portphillippublishing.com.au

Raphael Jewellers Shop 118, Gallery Level 2 The Strand Arcade 412 – 414 George Street Sydney 2000 Ph: 02 9233 4843

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Symposium SilverStackers www.SilverStackers.com.au

SPOTMEX

Level 9, 66 King Street Sydney, NSW 2000 Call +61 2 9299 4350 www.symposium.net.au

Unit 11, Level 3 K1 Building 16 Innovation Parkway Birtinya QLD 4575 Ph : 07 3375 7578

Utopia

State Street Global Advisors Australia, Limited

Varoujan Jewellers

Level 17 420 George Street Sydney NSW 2000 Tel: +61 2 9240 7600

Southern Cross Bullion www.southerncrossbullion.com.au

2 Danks Street Waterloo 2017 Call (02) 9699 2900 www.utopiaartsydney.com.au

70 Castlereagh Street Sydney 2000 Ph: 02 9232 2328

Victoria & Albert Antiques Shop 17, The Strand Arcade 412 - 414 George St, Sydney NSW 2000 Call (02) 9221 7198

Watch Trader Level 8, 350 Collins Street, Melbourne, VIC, 3000 Call 1800 60 20 71 www.watchtrader.com.au


TIME IS PRECIOUS.

Nicolas Cage values every moment of his life and every moment with his Montblanc watch. Nicolas Rieussec Timewriter. Monopusher chronograph, selfwinding manufacture movement. 30 min. and 60 sec. rotating disc counters fixed on the counter bridge. 72h power reserve. Crafted in the Montblanc Manufacture in Le Locle, Switzerland.

sydney 75 castlereagh street - 115 king street | melbourne 175 collins street | brisbane queens paz a Dec/Jan 2011 AHA.Investor | 67 1300 36 4810 | www.montbl anc.com


F I N A L WO R D

T

his is not a magazine about gold. This is a magazine about why gold is becoming more expensive. It also happens to draw together some of the most beautiful, reliable, trusted stores of wealth. Silver, Mining, Art, Coins. A diverse mix, but with a common thread of value. Speaking of a diverse mix, in the past year I’ve been fortunate enough to have spent time with a wonderful variety of people – bullion buyers and bullion sellers, art dealers and artists, numismatists, jewellers, antique dealers, miners and above all else, buyers and investors. The common theme I’ve seen across the past year is this. People are becoming more aware. More aware of the underlying issues in Europe; and the ties back through China, the U.S. and here. Becoming more aware that maybe some of the drivers of 2008’s financial crisis never were really resolved. And becoming more aware of the value of tangible assets. Now Gold is the rock star – it’s prices are quoted daily on financial market wraps on TV and radio. Most people associate it with wealth

and success; so it’s on most people’s radar. And, as a nation, we’re blessed with a fair amount of it. But there’s other sources of wealth as well. In the coming year, we’ll be taking a closer look at the mining community, and talking to real investors and real miners. We’ll be speaking with numismatic experts to get deeper knowledge of the field. We’ll be speaking with traders to get their perspective on how to derive value from tangible assets, outside traditional buy & hold strategies. Mostly though we’ll be conservative. That’s the funny thing. . . the idea of preserving wealth in tangible forms – gold, wine (tracks well with gold over the past decade!); art, numismatics & antiques – is a

conservative idea. But don’t take my word for it. Take a look at some of the numbers over the past decade. Ask a few questions. You might find that being conservative isn’t that radical a risk. Good Investing! Mike W Editor & Publisher AHA Investor

AGM / AHA Kilo of Silver Promotion: GENERAL COMPETITION – Terms and Conditions of entry These General Competition Terms and Conditions apply to all competitions run by the Promoter. They may be amended or varied from time to time by the Promoter. Special Terms and Conditions may apply to particular contests in which case, the Special Terms and Conditions will be highlighted on the competition/promotion page. 1. Promoter: The Promoter is Freer Media (ABN 33 731 020 551) of 7/176 Victoria Rd West Pennant Hills, NSW (“the Promoter”). 2. Who May Enter: The only persons who may enter and be awarded prizes are Australian residents who are not employees of the Promoter or its related bodies corporate, or the immediate family of such employees. “Immediate family” means spouse, parent, child or sibling, whether or not they live in the same household as the employee. 3. Conditions of Entry: By entering the competition, participants agree to be bound by these General Terms and Conditions and any Special Terms and Conditions appearing on the website specific to the particular competition. 4. Limitations on Entry: Participants may only enter the competition once, unless the Special Terms and Conditions specify otherwise. Only the first received entry will be valid if more than one entry is received from a participant. 5. How to Enter and Selection of Winners: For competitions that are a game of skill: entrants are required to submit a creative answer to a question. Winners will be elected by a panel of representatives of the Promoter who, at their discretion, will select the best answer/s based upon originality, creativity, and adherence to the word limit. Chance plays no part in determining the winners. For competitions that are a game of chance: entrants must submit an answer to a question. Entries will be drawn at random. The first entry (or entries) drawn where the question has been correctly answered, will win. The Promoter’s decision in relation to any aspect of the competition is final and binding on every entrant. No correspondence will be entered into.

6. Prizes: All prizes must be taken as offered and are not exchangeable, transferable, redeemable for cash or for resale. In the event that a prize is unavailable, the Promoter reserves the right to substitute a prize of equal or greater value. Prizes unclaimed after a period of one month from the date of notification of the winner may be forfeited and used by the Promoter at the discretion of the Promoter. Prizes will be posted to the address nominated by the winner/s. No responsibility will be accepted by the Promoter for any lost or misdirected mail. In special situations, and subject to the absolute discretion of the Promoter, a winner may nominate a designated representative to collect a prize. The representative will be required to present written authorisation from the winner and photographic identification of both the winner and their representative 7. Notification: Winners will be notified by email and/or mail to the nominated address. 8. Entries: All entries become the property of the Promoter. Entries not completed in accordance with the conditions of entry or received after the closing date will not be considered. Indecipherable or incomplete entries will be disregarded. No responsibility is taken for late or misdirected email. 9. Privacy: The details contained in your entry are protected by security safeguards as detailed in the Promoter’s Privacy Policy, which is available at the www.ahainvestor.com website. The personal information collected as part of the entry is collected to enable identification of the winner and for future marketing and promotional purposes. Your personal information will only be disclosed to the Promoter and its related bodies corporate for these purposes. You can contact our Privacy Officer if you would like details of the personal information that the Promoter may hold about you or if you would like it to be corrected. Depending on the nature of your request, we may ask you to complete a personal information request form. Our Privacy Officer’s contact details are: The Privacy Officer, 7/167 Victoria Road, West

Pennant Hills NSW 2125, Fax: 02 8088 7269, Email: publisher@ ahainvestor.com 10. Internet: If for any reason a competition does not run for its duration due to a computer virus, tampering, unauthorised intervention, fraud, technical failures or any other cause beyond the control of the Promoter that corrupts or affects the administration, security, fairness, integrity or proper conduct of the competition, the Promoter reserves the right in its sole discretion to cancel, terminate, modify or suspend the competition or disqualify any individual who tampers with the entry process. The Promoter is not responsible for any: (a) malfunction, delay or traffic congestion on any telephone network or line, computer on-line system, servers or providers, computer equipment, software, or website; (b) failure of any email or entry to be received by the Promoter; nor (c) any injury or damage to entrants or any other person related to or resulting from participation in the competition or down loading any materials in a competition. 11. Limitation of Liability: The Promoter makes no representations or warranties as to the quality, suitability or merchantability of any goods or services offered as prizes. To the extent permitted by law, the Promoter is not liable for any loss suffered to person or property by reason of any act or omission, deliberate or negligent, by the Promoter or its employees or agents, in connection with the arrangement for the supply, or the supply, of goods and services by any person to the prize winner and, where applicable, to any persons accompanying the prize winner. This clause does not affect any rights a consumer may have which are unable to be excluded under Australian law. To the fullest extent permitted by law, any liability of the Promoter or its employees or agents for breach of any such rights is limited to the payment of the costs of having the prize supplied again.

AH A I N V ES T OR • R e a l G o l d • Real Si lver • Real Assets • Real W e alt h 68 | AHA.Investor

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Don’t let my voice be the only one. To find out what you can do to help, go to www.generationone.org.au



– Madeleine Madden

Dec/Jan 2011

AHA.Investor | 69


“Royalty and Eminence Comes with Gold”

www.goldderoyale.com.au Suite 103, 192 Ann Street, Brisbane, Queensland 4000, Australia Tel: 07 38305319 • Fax: 07 30365787

AHA Investor Issue 6  

Issue 6: Christmas, Banknotes & inside the Gold Symposium

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