the kamal naqvi conference wrap-up - lbma · the kamal naqvi conference wrap-up “the last one...

Session 6 – Conference Summary Kamal Naqvi

LBMA Precious Metals Conference 2007 1

The LBMA Precious Metals Conference 2007

18-20 November

Mumbai, India

The Kamal Naqvi Conference Wrap-Up

“The last one – I promise”



Question 1



5Gold as a strategic asset

Base case, gold and commodities: 1974-2005

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

1.1% 2.6% 4.8% 7.1% 9.8% 13.6%

Risk

Asset

weig

hts

US TBills Intermed Govt Long Govt US Large Cap US Small Cap International CRB Futures GOLD

6How “reliable” are precious metals?

Reliability Index

2.37

2.27

2.27

2.2

2.1 2.15 2.2 2.25 2.3 2.35 2.4

Gold

Silver

Palladium

Platinum Platinum

Palladium

Silver

Gold

Source: WGC



Investors - spoilt for choice

Futures

Commodity

indices

Structured Notes

Certificates & warrants

Coins & small bars

Loco London

Bank Gold accumulation

accounts

ETFs

LBMA November 2007

Large Cap. gold equities modestly underperforming gold

over longer term (gold industry growth challenged)

Longer Term Performance of Gold Equities versus Gold

Source: Bloomberg

Phi l adel phi a Gol d Index ( XAU) and XAU rel at i ve t o Gol d Bul l i on ( si nce 1986)

XAU Gold Index

Gold Bullion

But not rel at i ve t o gol d ( +127%)



Question 2

Mines Projects

Decision Making in Gold Mining

Canada

UnitedStates

Dominican Republic

Peru

Chile

Argentina

Tanzania

South Africa

Australia

Papua New Guinea

Pakistan

Russia



Expanding Margins

Total Cash Costs vs Gold PricesUS dollars per ounce

Total Cash Cost

Margin

Spot Price659

222 224253

271

317

372

88139

156173

287

286

222 224253 271

317

372

88139

156173

287

287

604

444409

363310

02 03 04 05 06 H1 07

12Precious Metals Conference, November 2007

Gold: the changing nature of exploration expenditure

Larger companies are leaving the juniors to discover new sources of metal and exploration focuses on less developed areas

Source: Mining Eye, Metals Economics Group

Exploration expenditure by company type compared toM&A deals

0

10000

20000

30000

40000

50000

60000

70000

$m

0

10

20

30

40

50

60

70

% of total industry expenditure

Total value of M&A (left-hand side)

Majors

Intermediates

Juniors

Source: Metals Economic Group

Exploration expenditure by region

0

5

10

15

20

25

30

%

2002

2003

2004

2005

2006



13Precious Metals Conference, November 2007

Industry margin curve extrapolated to 2015 on a steady-state basis

Source: SFA estimates using three-year average PGM prices

50

100

150

200

250

300

350

2000 2001 2002 2003 2004 2005 2006 2007F

Palladium

Silver

Platinum

Gold

Jewellery Demand Trends 2000-2007F: Volume*(calculated basis fine metal content with 2000 = 100)

*Volume of metal in fine terms.

Source: GFMS Ltd.



0

50

100

150

200

250

300

2000 2001 2002 2003 2004 2005 2006 2007F

Palladium

Silver

Platinum

Gold

Jewellery Demand Trends 2000-2007F: Value*(calculated basis value of fine metal content with 2000 = 100)

*Value of contained metal, calculated basis volume multiplied by average annual price.

Source: GFMS Ltd.

16Key Jewellery Trends in China



Key Changes

• Seasonal pat t erns

• Underl yi ng reasons f or demand

• Demographi cs

• St ruct ure of t he l ocal market

• Exchange rat e t rends

Future of the Industry

The Indian consumer has stayed in the trap of traditional designs for long.

While increase in the Income levels of the Middle & lower Middle Class will continue to drive the consumption of gold, this is largely driven by the latent demand of the OLDER age group

As this group graduates from gold jewellery to other product category the jewellery demand will start plateau.



Question 3



Money Mar ket and For ei gn Exchange

Mi chael Papr ot t a, Member of Management

LBMA Gol d Conf erence, Mumbai

20 November 2007

Cr edi t Def aul t Swaps and 5 Year Gol d Deposi t ( uncol l at er al i zed)

0

10

20

30

40

50

60

70

80

90

1 Jun 21 Jun 11 Jul 31 Jul 20 Aug 9 Sep 29 Sep 19 Oct 8 Nov

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

GLD 5Y Depot (rhs) CDX IG 125 Institutions ( lhs) iTraxx 25 Sen. Financials ( lhs)

BP BP



Reference (apr02)

Presentation/Client logo

to be inserted at this

location via the Slide

Master

‘View/Master/Slide

Master’

(delete if not applicable)

Estimated Official Lending

Official Gold Lending

0

20

40

60

80

100

120

140

160

180

1999 2000 2001 2002 2003 2004 2005 2006 2007E

Year

Mil

lio

ns o

f o

z

Total Official

lending

CBGA

Rest

Withdrawal of liquidity from an

over supplied market

Reference (apr02)

Presentation/Client logo

to be inserted at this

location via the Slide

Master

‘View/Master/Slide

Master’

(delete if not applicable)

Cost of funding



LBMA speech.pptIncreasingly, sovereign assets go into ―stabilization‖¹ funds

As much as US$2.8

trillion, and growing

US$400+ billion p.a.

Note:

1 aka Pension Funds,

Investment

Companies, etc

Norway

Kuwait

U.A.E

Azerbaijan

Kazakhstan

Qatar

BruneiSingapore

South Korea

Colombia

Chile

Oman

BotswanaSaudi Arabia

East Timor

Mauritania

Russia

LBMA speech.ppt

Many thought—as go ―barbarous relics,‖ so go prices

Silver Gold

Source: UBS Investment Bank

0.4

0.5

0.6

0.7

0.8

0.9

1.0

1.1

1.2

1.3

1.4

Silv

er

price (

US

$ / o

z)

1870

–1910

19701870

19801880

19901890

20001900

20101910

Demonetization of Silver vs. demonetization of Gold

0

100

200

300

400

500

600

700

Gold

pric

e (U

S$ / o

z) 1

970

–2010

800



Question 4

34GOLD IS GREEN



VAIDYA WISH LIST

• Hallmarking For Silver

• Certified Bars

• Silver Banking Product

• (Fully fledged metals bourse)

• (Mumbai bullion fix)

36

Conclusions

• Long-term growth for India as centre of PGM demand:

– autocatalysts

– petroleum refining / petrochemicals

– electronics… etc

• And notable growth in secondary material flows:

– autocat scrap

– e-scrap

– petchem catalysts: reforming, isomerisation,

hydrotreating, aromatics, PX, PP…



37

Conclusions: bureaucracy is (still) a four-letter word

"the economy works at night

when the government sleeps"

―Cairn India is facing fresh bureaucratic hurdles to its flagship

oil project in Rajasthan, north-

west India, potentially delaying

development of the country’s

biggest oil find in decades‖ FT, 13th Nov 2007

CNE.LN

145219-001

A “new paradigm”— is EM the source of global stability?

And are China and India the drivers of that stability?

0%

10%

20%

30%

40%

50%

60%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

EM as % of world GDP

EM as % world GDP, PPP-adjusted

Source: JPMorgan

Emerging markets GDP has grown in importance in nominal terms, and is now over 50% in PPP terms

4CH

IN

AA

ND

IN

DI

A:

TH

EN

EX

TB

IG

TH

IN

G



Commodities

Winners & Losers of the Super Cycle

Infrastructure Intensive Consumer Intensive

China Short

China Long

Gold

Agriculture Commodities Alumina

Lead

Aluminium Industrial Minerals

Copper

Zinc

Steel

Iron Ore

Coking Coal

Thermal Coal

Nickel

Source: Citi Investment Research

Question 5



LBMA Conference Forecasts - PALLADIUM

200

220

240

260

280

300

320

340

360

380

400

Johannesburg Montreaux Mumbai

US$/oz

Spot Forecast Actual

LBMA Conference Forecasts - PLATINUM

800

900

1000

1100

1200

1300

1400

1500


US$/oz




LBMA Conference Forecasts - SILVER

6

7

8

9

10

11

12

13

14

15


US$/oz


LBMA Conference Forecasts - GOLD

400

450

500

550

600

650

700

750

800


US$/oz


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