PRUDENT GLOBAL GOLD FUND : PRUDENT GLOBAL GOLD FUND Hedging your wealth against a declining U.S. dollar David W. Tice & Associates, LLC
DISCLAIMER : This document is not an offer to buy or sell securities. It is confidential and is intended solely for the person to whom it has been delivered, and is not to be reproduced or transmitted. Investors should consider the Prudent Global Gold Fund as a supplement to an overall investment program and should only invest if they are willing to undertake the risks involved. Investors may lose some or all of their investment. Past performance is no guarantee of future results. The information in this document has been obtained from sources believed to be reliable but is not warranted as to accuracy or completeness. Unless otherwise indicated, the information in this document was compiled as of December 31, 2005, and there is no obligation to update it. This presentation is not an offer to buy or sell securities or interests in the Prudent Global Gold Fund. Such an offer can only be made via the Fund’s offering memorandum, which should precede or accompany this presentation. DISCLAIMER RISK DISCLOSURE This investment vehicle carries the risk of permanent loss of capital. Investors may lose some or all of their investment. Past performance is no guarantee of future results.
The Prudent Global Gold Fund is subject to special risks including:
Fluctuations in the price of gold bullion
The relatively small size of the market for gold and gold stocks
The potential for foreign currencies to appreciate or depreciate versus the Fund’s reporting currency (the U.S. dollar)
The potential for political, social, and economic instability in regions where some gold companies operate.
David W. Tice & Associates LLC – Firm Background : David W. Tice & Associates LLC – Firm Background
1988- started publishing Behind the Numbers (BTN), a quality of earnings report serving about 200 institutions that collectively manage roughly $1 trillion.
Manager of 2 mutual funds :
The Prudent Bear Fund (BEARX) formed in 1996 (a registered investment company) in an attempt to hedge investors against a declining U.S. stock market via short sales. Historically 15-25% gold stock allocation
The Prudent Global Income Fund (PSAFX), started in 2000 (a registered investment company) in an attempt to hedge investors against a falling U.S. dollar. Historically 10-15% gold bullion and gold stocks
Manager of 2 specialist resource funds:
The Prudent Global Gold Fund, a private investment vehicle, started in August 2003 focused on the global gold sector to take advantage of weakening US$ and positive industry dynamics. Asset under management at the end of 2005 of US$16.0m
The Prudent Global Natural Resource Fund, launched in January 2005 to participate in the favourable structural dynamics across the broad industrial commodity suite. FUM as at Dec2005 US$8.0m
The firm of David W. Tice & Associates LLC is DEFINED by its resource-based strategies, at the intent of its founder David W. Tice
Combined AUM at December 31, 2005, of US $760 million Past performance is no guarantee of future results and the performance of other investment vehicles are not in any way indicative of expected returns from the Prudent Global Gold Fund and should not be taken as such.
Investment Team : Investment Team
Characteristics of the Prudent Global Gold Fund : Characteristics of the Prudent Global Gold Fund An un-geared long/short gold biased equity hedge fund.
Aim to generate attractive returns even at US$375-US$425/oz gold.
A long-biased fund, on average 70% net long.
Subject to circumstances can be up to 40% short.
A fundamentally driven valuation and asset focused process.
A strong investment team, extensive sector experience and knowledge.
The Investment Thesis : The Investment Thesis Gold is in a bull market.
Supportive gold bullion and industry fundamentals and drivers
Bottom-up stock opportunities: continuation of the asset creation cycle
The Prudent Global Gold Fund seeks to deliver positive returns to unit-holders in a
conservative gold price environment.
Global Macro Drivers –Supportive for Gold Prices : Global Macro Drivers –Supportive for Gold Prices
Gold Industry Drivers- Part 1 : Gold Industry Drivers- Part 1
Gold Industry Drivers- Part 2 : Gold Industry Drivers- Part 2
Gold price vs. USD/EUR : Gold price vs. USD/EUR
Gold in a multi-currency breakout! : Gold in a multi-currency breakout!
Gold continues to outperform? : Gold continues to outperform?
Why Gold Shares Could Outperform Bullion : Why Gold Shares Could Outperform Bullion Investment in Shares may provide an investor with the following:
(This is a hypothetical example; gross profit is not necessarily correlated to stock price nor it is indicative of investor return)
Operating Leverage
Gold Price $375/oz – Production Cost $350/oz = $25/oz profit
Gold Price $500/oz – Production Cost $350/oz = $150/oz profit
33% rise in gold price…500% rise in gross profit of the gold company
Exposure to the value creation cycle a gold company can provide beyond just the gold price
Exploration / discovery: for a $20m outlay, a 1Moz discovery can be worth US$150m in production
Project development and Production growth: valuation growth and multiple expansion even at a flat gold price – the re-rating factor.
Corporate activity (M&A): historically the major industry players buy their growth. Consolidation and acquisition are constants.
We think this asset creation cycle is just beginning
PGGF Investment Strategy – Invest in Quality Assets : PGGF Investment Strategy – Invest in Quality Assets
PGGF Investment Strategy – The Universe : PGGF Investment Strategy – The Universe Global universe of + 500 companies
Key listings in Canada, US, AIM and Australia, with assets located across the globe
Sector capitalisation: US$170 billion, small in a global sense
A very skewed sector, 60% of market cap represented by 11 companies
About 75% are gold companies, 15% platinum and the remainder silver and diamonds
PGGF Investment Strategy – Focus on Value : PGGF Investment Strategy – Focus on Value Source: Sprott Securities, Jan 2005
Investment Strategy – Create Value through the Cycle : Investment Strategy – Create Value through the Cycle
Risk Declines Value
Portfolio Construction : Portfolio Construction Hold less than 40 stocks
Limit to 10% of issued capital
Max individual holding at 10% (at cost).
Long biased, equity focused (typically net 70% long).
Gross Short exposure up to 40% of NAV, max individual short limited at 5%
Restricted holdings (REG D, 144A, 4-month holds + warrants) – up to 30% for flexibility but historically not exceeded 15%. All holdings in listed securities
Turnover estimated at ~100% per annum.
Predominantly gold shares (also hold silver, diamonds, PGM’s). The Fund is governed by its prospectus and not by comments made in this document.
Valuation Process : Valuation Process
Risk Management : Risk Management Diversified both geographically and within the industry
Invest along the entire life cycle: exploration, appraisal, feasibility, development, production
Active due diligence through site visits, company meetings
Short positions identified by valuation and stock specific factors, pair trades and events such as corporate activity
Max individual short position at 5%, typically 3-4%, SOFT stop loss review at -10%
Long positions reviewed at 20% decline, all valuation drivers re-assessed
… there will be drawdown months due to volatility inherent in the sector. The Fund is governed by its prospectus and not by comments made in this document.
2005 – A Transition Year : 2005 – A Transition Year 2005 was a transition year where gold equities underperfomed in 1H05 but outperfomed in 2H05 as gold bullion began its break out to US$500/oz.
Strong producer currencies and rising production costs (fuel, labor, raw materials) crimped industry margins. Industry has adjusted, but continued tightness in raw materials and skills.
Higher capital costs (+30%), a feature to stay as competition for skills and services continues.
Demand fundamentals remained very buoyant, helped by investors ( ETF’s, speculators). Jewelry demand continue to be robust.
Signals emerging about Central Bank gold purchases and the need to diversify away from high US$- denominated reserves by countries such as China.
Attractive sector valuation induced corporate activity which accelerated in the 2H05: GFI/Harmony (unsuccessful), Goldcorp/wheaton River (successful), Barrick/Placer (approved), plus smaller deals.
Our Outlook For 2006 : Our Outlook For 2006
Gold bullion appears to have begun its 2nd bull market phase (the first was April 2001 to Dec. 2003), hitting $540/oz in January 2006. Strong potential to move higher, to $600/oz and beyond, in our opinion.
Most of the equity activity to date has been in the large/intermediate group, which seem fairly priced at spot gold prices, while the junior group currently trades at a discount.
Limited growth in seniors and intermediates but significant growth in selected juniors. We prefer the RISK/REWARD in this group as many are driven by non-gold price valuation catalysts. This is the group that is likely to outperform its larger peers. This is our skill set.
The industry to re-focus on reserves/resources addition and exploration to add mine life and expand production. A shift from cost control to growth.
M&A activity sees seniors/ intermediates companies looking to acquire junior with high quality projects to replace mature assets. IT’S THE ASSETS THAT MATTER.
Gold Equities set to outperform bullion, but STOCK SELECTION will be a critical variable
ETF Gold demand is rising, a positive for gold equities : ETF Gold demand is rising, a positive for gold equities
Fund Information & Terms : Fund Information & Terms Investment Advisor: David W Tice & Associates, LLC
Management Company: Tice Management Ltd.
Prime Broker: Scotia Capital
Legal: Sadis & Goldberg (US); Ogier & Le Masurier (UK)
Auditor: Price Waterhouse Coopers
Offshore Administrator/Trustee: EFG Reads Trust Company
Offshore Domicile: Jersey (Channel Islands, UK)
Domestic Administrator: Bisys-RK Alternative Investment Services
Portfolio Manager: Darko Kuzmanovic $250,000 minimum
2% management fee
20% of net new profits (high-water mark)
Monthly reporting
Conclusion : Conclusion Macro and structural issues should pressure the US$ lower and gold will benefit.
Historically, inflationary environments have been very positive for gold.
The sector in general – and junior and intermediate gold stocks in particular – look inexpensive given historical pricing.
In our opinion, the gold price has entered the 2nd stage of its bull market phase after the 1st phase lasted 2001-2003.
The Prudent Global Gold Fund is designed for portfolio diversification and to provide insurance for dollar-heavy portfolios.