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Supporting Drivers for Commodity Equities: Outlook, Gold, Energy, Mining, Agriculture

This presentation discusses the supporting drivers for commodity equities, including the outlook for commodities, gold, energy, mining, and agriculture. It analyzes the impact of macroeconomic factors, supply constraints, and inflation on commodity prices. The presentation also provides insights into the gold market and its relative valuation as a currency alternative and safe haven investment.

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Supporting Drivers for Commodity Equities: Outlook, Gold, Energy, Mining, Agriculture

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  1. Commodity Equities“Les Patrimoniales” Pau, June 16th, 2011 Arnaud du Plessis Global Commodity Team Senior Portfolio Manager This material is solely for the attention of “professional” investors (see more details and definitions at the end of the presentation).

  2. Table of Contents • 01 Supporting drivers for commodities • 02 Commodity Outlook • Energy • Mining • Gold • Agriculture • 03 Commodity Equities in Asset Allocation : Exemple of gold equities • 04 Commodity Expertise • 05 Appendix • 06 Q & A

  3. Supporting Drivers For Commodities 01

  4. Big picture supportive for commodity equities • Growth: More homogenous • Improving macroeconomic data in the West; reconstruction in MENA and Japan: => commodity demand likely to be less dependant on Asian and Latam emerging countries • Rates: expected to edge up • Developed countries about to start a cycle of rising rates, but no sharp upturn anticipated • Interest rate hikes to continue in emerging markets in an attempt to curb inflation, but close to the end • Inflation: commodity-driven. A rising pressure for all countries • As commodity inflation will result more and more from supply issues than from growth, monetary policies could be less efficient to stop rising prices. • Commodity inflation: should drive more investments into hard assets A favourable environment for commodities

  5. Our view on the super cycle Demand from developed countries matched with full supply availability 10 years of booming commodity demand from Emerging countries; Supply constraints on a rising trend • The next decade: • Global demand will continue to be strong for commodities, still supported mainly by urbanization and industrialization in Emerging countries • Demand response to higher prices will be slow: a long, difficult and costly process • Main drivers for commodity prices will come increasingly from supply constraints Supply constraints + Inflation: another leg of the Super Cycle ahead Source: Reuters

  6. Supply constraints becoming the supporting factor for prices Our general view on Commodities markets • Global demand from China • Global demand for commodities • Supply constraints over time • Commodity prices are expected to remain very firm as supply constraints increase market imbalance for most commodities. The last series of companies reports have shown very poor figures on production volumes. • High prices driven by supply constraints, likely to limit the impact of rising interest rates • Consensus is revising upwards estimates for 2011

  7. Gold Environment Source: US Global Investors

  8. Commodity Outlook 02

  9. Energy: Short term supply risks • Unrest in several countries puts short term supply at risk • For the moment, only part of the Libyan production is disrupted • OPEC spare capacity represents 6% of world production (5.2mmbbls/day), of which 70% is in Saudi Arabia • Countries most at risk represent 74% of the spare capacity which explains the nervousness on the oil price Oil price spikes how much should be political premiums? Source: Financial Times Oil prices will factor in a higher political risk premium in the future

  10. Energy: Long term supply constraints • Depletion of existing fields: 5% per year = 4mmbbls/day = 1 Iran per year • Geopolitical risk: New fields in more challenging areas = higher finding & development costs OPEC market power to increase: 40% of oil production and 77% of reserves • Operating risk: Impact of Macondo oil spill on resource access and costs • Easing of Supply constraints to come from the rapid development in Iraq and Brazil Reserve replacement Production costs ($/b) Production increasing more rapidly than discoveries Supply constraints will put a floor on price levels Source: UN, McKinsey

  11. Copper: Constraints deriving from risk exposure of new mines • A continued deficit in copper concentrates markets 2.7% expected deficit in 2011. Inventories below 4 weeks; ETF impact • New supply: little to come …………………………………..and more risky 25-35 year reserves, but associated risk going higher Source: Macquarie, SG Cross Asset Research, Brook Hunt 1: country risk derived from Global Insight’s country risk rankings

  12. Copper: Constraints through the supply chain • Deteriorating accessibility: geology, technology, costs, environment…. * • Deteriorating infrastructure: harbours, railways, roads, power, water, … Source: Brook Hunt *: all new discoveries over 4 millions tons of contained copper

  13. Manager’s views on Gold market Attractive macro and fundamental outlook Today Source: GFMS Historical price evolution of the physical Gold and Gold equities Relative valuation

  14. Gold: two main factors strongly in place Currency alternative Search for safe haven • Sovereign risk remains high in Europe • Japan and US could be the next • Rising currencies volatility • Dollar leading position much debated Gold: reinforced save haven appeal Source: Bloomberg

  15. What could happen with US Debt…

  16. Central Bank: reserves diversification – In a new Era Central banks are once again net buyers after being net sellers for 21 years Gold accounts for only 5% of reserves of BRIC Central Banks compared to >50% in developed countries Market imbalance as Central Banks sales have dried up Reserve diversification still strongly needed Source : WGC, BofA Merril Lynch Global Commodities Research

  17. Soft commodity : strong demand growth Change in global population (bn inhbts) Global meat consumption (kg/capita/yr) US biofuel production quotas (bn l) Demography Economy Energy Source : United Nations, USDA, Bloomberg

  18. None Slight Moderate Severe Very severe Not listed Soft commodity : supply constraints Severity of Human induced soil degradation Global arable land (ha/inhbt) Impact of global warming on farmland productivity Urbanisation Soil degradation Climate change Source : USDA, FAO, IPCC

  19. Commodity Equities in asset allocation: Example of Gold Equities 03

  20. Gold Equities : diversification within a Global Equity portfolio Asymmetry of returns Higher returns with higher volatility Low correlation with Global equities Data : MSCI AC World Investable Market U$, DJTM World Gold Mining U$, June 1994- December 2010 Data : MSCI AC World Investable Market U$, DJTM World Gold Mining U$, Monthly returns matrix, June 1994- December 2010 Strong diversification benefits with Gold Equities Amundi Rendez-Vous March 2011- page 20

  21. Gold equities in a global portfolio: 2 examples Gold Equities allocations generate more performance without added risk Gold Equities performance asymmetry enables to control volatility Data: MSCI AC World Investable Market U$, DJTM WORLD GOLD MINING U$; June 1994- December 2010 Gold Equities Allocation improve Risk/Return Profile Source : Datastream, Amundi Research Amundi Rendez-Vous March 2011- page 21

  22. Commodity Expertise 04

  23. Commodity equities: the obvious winners of higher prices Cash Flows M&A • High cash flows to continue • Producers to reduce further debt levels and turn net cash positive • Cash flow generation quicker than capital expenditure High returns • Cash surplus to be returned to shareholders through dividends and share buybacks • More return than with physical commodities • 2010 a record year for M&A. For example in mining with over $134bn • M&A strong start in 2011 Favorable factors for equity shareholders

  24. Return of M&A activities – most recent deals In the portfolio M&A the only option for quick production growth

  25. Equities outperform physical commodities in the long run Source : Datastream

  26. Investment Philosophy • The fund does not invest directly in commodities, but through equities only. Rather than adding to price pressure and speculation • We hold a long term-approach, as our goal is to identify throughout the entire value chain the sectors and companies that will most benefit from supply/demand imbalance and best deliver on their growth potential through a strong and sustainable development. The minimum recommended investment horizon is 5 years.

  27. Global Resources Anne Ruffin (Head of the team since 98) • USD 1 250mHenrietta Lance • Annualised excess return of 2.0% - IR of 0.321 • Energy & Renewables Stéphane Soussan • USD 320 m • Annualised excess return of 5.0% - IR of 0.531 • Gold Arnaud du Plessis • USD 728 m • Annualised excess return of 4.5% - IR of 0.431 • Agriculture & Water Nicolas Fragneau • USD 496 m • Annualised excess return of 4.2% - IR of 0.433 Global Commodity Equity team • Global Mining Anne Ruffin • USD 517 m • Annualised excess return of 3.8% - IR of 0.922 • USD 3.3 bn AuM (04/30/2011) • 19 years average experience 1since Dec 31, 98 2 since Apr 26, 103since Dec 12, 07

  28. Amundi capabilities in commodity expertise: Global Resources • Consistent outperformance over the past 12 years Composite Global Resources Benchmark • Performance in USD since inception (31 December 1998) *Benchmark : 1/3 MSCI World Materials – 1/3 MSCI World Energy – 1/3 FTSE Gold Mines Source: Amundi Gross performance in USD as at the end of April 2011. Past performance does not prejudge future results, nor is it a guarantee of future returns

  29. Amundi capabilities in commodity expertise: Global Gold • Consistent outperformance over the past 12 years Composite Global Equities - Gold Annualised excess return since Dec 31 1998: 4.6% Information ratio since Dec 31 1998: 0.50 Benchmark • Performance of Gold Equities composite in USD since inception (31 December 1998) Source: Amundi. Gross performance in USD Past performance does not prejudge future results, nor is it a guarantee of future returns.

  30. Consistent outperformance over the past 7 years • Calendar yr returns (gross) • Composite • Bench • Out-perf • 2004 • 18.4% • 18.9% • -0.5% • 2005 • 61.7% • 48.4% • 13.3% • 2006 • 2.9% • 5.4% • -2.5% • 2007 • 23.1% • 17.1% • 6.0% • 2008 • -39.9% • -34.9% • -5.0% • 2009 • 29.9% • 22.3% • 7.6% • 2010 • 20.2% • 19.7% • 0.6% • 2011 YTD • 5.3% • 5.4% • -0.1% Performance in EUR since inception (01 January 2004) Composite: 150M EUR Global Energy Benchmark *Benchmark : MSCI WORLD ENERGY (DS) Source: Amundi Gross performance in EUR as at the end of April 2011. Past performance does not prejudge future results, nor is it a guarantee of future returns

  31. Amundi capabilities in commodity expertise: Global Agriculture Source : Amundi From inception to 31 August 2010: S&P Global Natural Resources Agriculture From 31 August 2010: S&P Global Agribusiness

  32. Appendix 05

  33. Global Commodity Equity Team Anne Ruffin Head of Commodity Equities Senior Portfolio Manager Global Resources; Global Mining Arnaud du Plessis Senior Portfolio Manager Global Gold Anne is Head of the Global Commodity Equity team and has been managing Commodity Equity portfolios since 1998, including LCL Actions Or Monde. Prior to that, she worked as an Auditor with Ernst & Young 1988-1991 within the oil department. Anne Ruffin joined Amundi in 1991 where she worked as a Financial Engineer until 1994, a Financial Analyst on commodities 1995-1998, and then a Global commodity Portfolio Manager 1998 - 2010. Anne holds a Masters in Banking & Finance and in Financial Engineering (1988) from Ecole Supérieure de Commerce de Paris, one of France’s top Business schools. She is also a Graduate of the French Society of Security Analysts (SFAF). Arnaud du Plessis joined Amundi in November and has taken responsibility of the Gold expertise, in close cooperation with Anne. Arnaud was previously head of cyclicals at Natixis Asset Management (2002-2010). He co-managed gold equities and cyclical funds. More particularly, he was in charge of precious metals and basic materials , as well as energy. Prior to that, he worked as a European equities portfolio manager with Credit Lyonnais Asset Management (1998-2002) after being Head of derivative trading (1989-1998).Arnaud started his career with Patrice Wargny SA in 1988 as an option broker. Arnaud is a Graduate of Institut Supérieur de Gestion and also of the French Society of Security Analysts (SFAF).

  34. Global Commodity Equity team Research team Stéphane Soussan Portfolio Manager Global Energy , Renewable Energy Nicolas Fragneau Portfolio Manager Global Agriculture, Fishery, Water Stéphane started out as a Fund Manager Assistant at Sinopia Asset Management in 1996. He joined Oddo in 1998 as a sell-side Analyst for oil and metal sectors and went on to Exane BNP Paribas in 2001 where he was a sell-side Analyst for the oil sector. In 2008 he joined the Global Resources team as a portfolio manager focusing on energy and renewable energy sectors. Stéphane is a graduate from ESSEC, he has a Master of finance from IEP and is a SFAF member (Société Française des Analystes Financiers). He has more than 14 years experience in asset management. Nicolas joined Amundi in 2006 as a Commodity Equity portfolio manager within the Global Commodity Equity team. Prior to joining the company he worked as a North American & Energy equity portfolio manager at Raymond James Asset Management after joining in 2000. He began his career at Cap Gemini in 1999 as an IT developer. Nicolas holds a Masters degree in Management Science (Specialization in Finance) from the University of Paris IX Dauphine (2000). He is a graduated of the French Society of Security Analysts (SFAF) and the CEFA (2003).

  35. Global Commodity Equity team Henrietta Lance Senior Portfolio Manager Global Chemicals and other Materials Henrietta Lance started her career in London in 1985 with Prudential Bache. In 1989 she moved to Paris to specialise in European equities first working for François Dufour Kervern. In 1992 she joined Société Générale and then in 1999 she moved to Exane before returning to Société Générale Asset Management in early 2007. She joined the Global Resources team in October 2008. Henrietta graduated from Edinburgh University, she holds the CIIA and is a SFAF member (Société Française des Analystes Financiers). She has more than 25 years experience in asset management.

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