Summary from Gold and Mining Conference Call

1. What caused the recent volatility in the gold price?

There were a number of factors. Firstly, speculation over whether or not Cyprus would sell part of its gold holdings as part of a bail-out deal. Unfortunately, the media coverage did not put this into context. The 10-12 tons Cyprus might sell will not make a large impact compared to the hundreds of tons purchased each year by central banks around the world. This was followed by some significant transactions in the gold market. The speed and size of these transactions was unusual; an alleged 100-ton sale in the futures market was followed the same day by another 300-ton sale. These sales amounted to roughly 10% of the entire gold market being shorted in one afternoon, which was an incredibly dramatic move.

However, in our opinion, this was very much a sell-off driven by the paper market. In the following days, indicators showed demand for physical gold remained strong and since the fall, the spot price of gold has increased 3.2% to $1,416/oz. The large traditional markets for gold, such as India, have been taking advantage of the fall in the price and we have anecdotally heard of them increasing demand.

We think this is probably towards the bottom end of any range that we are likely to see. Something we have been talking about for quite some time is the all-in cost of producing gold opposed to the cash cost. Companies are increasingly reporting their all-in costings and this data shows cost levels are anywhere between $1,100 and $1,300/ounce. So when the gold spot price goes as low as $1,371 that is very close to the all-in cost break-even points. If the behavior of other metals is any guide, this is the sort of level where we would expect to see some kind of rebuild and recovery.

2. What are your expectations for gold equities?
Our expectations are evolving all the time and the main reason for this is the traction being gained in the gold companies in their moves towards more shareholder-friendly practices. Investors placed pressure on management teams to raise dividends, restrain capital investments, and avoid building projects and chasing the marginal ounce of margin, which increased the overall cost of the production base. While it is still early days, we are pleased with the progress that is being made.

Falls in the gold price are likely to accelerate the changes which we believe will increase investor trust and significantly improve overall returns to shareholders. At the same time, a lower gold price will negatively impact earnings. However, we are not heavily exposed to any gold companies with any large amounts of debt. We are exposed to companies that have been doing the things that I mentioned earlier - they are the ones that are best positioned for this kind of
environment. Some of those companies use $1,000/ounce for calculating their reserves and evaluating projects. Those are relatively rare investments in this space. They are the ones that will continue to make a very strong rate of return at $1,300 or $1,400/ounce.

3. Are dividends still a possibility at today’s gold price?
Absolutely. The dividends are so low in terms of the overall amounts of cash that the companies are paying out indollars per ounce that there’s easily room for these gold companies to maintain the same quantum of dividend.

4. What has been happening elsewhere in the mining sector?
Pricing has been stable for most of the key commodities, such as iron ore which has been around $130-$150/ton for most of the year. This is an incredibly profitable price for our iron-ore producers. Volumes also remain very strong. The iron-ore market has been a very safe harbor with regards to overall context; however, the valuations of the shares have not reflected the safe harbor of the fundamentals, so we have seen these two things move apart. As time goes
on and the market remains stable, which is what it appears to be doing, then we might see a correction in the shares as they move back to reflect what’s really going on. However, for the second half of the year there have been some question marks with regard to new additional iron-ore volumes coming on, which might put pressure on the price. I think that’s what the equities are anticipating or pricing in, so it will be a question of time to see whether that actually transpires.

We expect copper to remain significantly above $3/pound for the rest of the year. Events such as the pitwall failure at Utah’s Bingham Canyon mine and strikes in Chile look set to cut the small copper surplus that was originally forecast. We expect to move back into a deficit situation for the copper market towards the end of 2014 and into 2015, so we are quite happy with our medium to long-term exposure in our copper equities.