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Shift in gold production from traditional to emerging countries Marino G. Pieterse

Shift in gold production from traditional to emerging countries Marino G. Pieterse Editor Gold letter International. DISCOVER MONGOLIA-2008 – ULAANBAATAR November 6 – 8, 2008. Global financial crisis in perspective Prime mortgage crisis $ 500 billion

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Shift in gold production from traditional to emerging countries Marino G. Pieterse

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  1. Shift in gold production from traditional to emerging countries Marino G. Pieterse Editor Goldletter International DISCOVER MONGOLIA-2008 – ULAANBAATAR November 6 – 8, 2008

  2. Global financial crisis in perspective • Prime mortgage crisis $ 500 billion • Credit crunch$ 1.000 billionGlobal Financial Stability Report (IMF):Rescue package United States $ 700 billion Europe $ 300 billion- Banks write-off : $ 580 billion (40% European banks)- Estimated additional write-off over next 5 years $ 675 billion • Credibility crisis→ Economy crisis$ 6.200 billionin one week :Tokio - 24% Brazil - 22% London - 21% Russia - 21%Frankfurt - 21% India - 19%Paris - 21% Shanghai - 13%New York - 20%Global stock markets melt-down2008 – to date : ± - 40% $ 12,000 billionOctober 3-10, 2008 : ± - 20% $ 6,200 billion • Capital infusions and loan guarantees $ 1.400 billion

  3. Asian growth of financial wealth • 2001 – 2008 growth monetary reserves China $ 1,800 billion • Sovereign Wealth Funds $ 3,000 billionHistory of financial crises Dow Jones • 1973 – 1974 : Oil crash 2-year fall 40% • October 19, 1987 (Black Monday) : - 22.6% 3 week fall - 34%(blamed on the rise of computerized hedging strategies) • 1997 – 1998 : Asian CrisisOctober 1997 - 11%(Russian debt default in 1998)

  4. Measuring the New Gold Bull Market

  5. Gold does not run its own course as a safe haven

  6. Demonetization of gold ■ Story of modern gold market begins with free float of gold in March 1968 central banks give up trying to defend a fixed gold price at $ 35 per ounce■ US Treasury closes “gold window” in April 1971 gold holdings of Europe central banks frozen■ IMF alters articles in 1978 to suspend gold as an ultimate means of settlement■ Central Bank Gold Agreements:first agreement (September 1999 – 2004) : sale quota of 400 tonnes per year, with anabsolute limit of 2,000 tonnes over the whole 5-year periodsecond agreement (September 2004 – 2009) - sale quota of 500 tonnes per year with an overall total of 2,500 tonnes over the whole 5-year period■AsianCentral Banks don’t consider gold as a monetary instrumentGold holdings : 15 signatories + US: 20,238 tonnes 76%Major Asian countries 2,287 tonnes 9%Others 3,936 tonnes5% 26,461 tonnes 100%

  7. Course of gold price determined by producer hedging and dehedging in last 10 years:

  8. Source: World Gold Council

  9. Source: World Gold Council

  10. World Gold Mine Production (10-year comparison – in tonnes) Source: GFMS

  11. Overview of foreign exploration and development companies active in Mongolia Mongolia Holdings Corp. (indirect subsidiary of Kerry Holdings) made a take-over bid on QGX, valued at Cdn$ 259 million (Cdn$ 5.00 per share), at a premium of 52%. QGX ceased trading on the TSX on October 20, 2008

  12. Improvement of investment climate of predominant interest • Passage of the Minerals Law in 1997. • Amendments to the Minerals Law in 2006 create concern among international mining communityallowing government to invest up to 50% in strategic deposits being defined by exploration activities funded by the State budget. • September 2007, Chairman of Mineral Resource and Petroleum Authority of Mongolia (MRPAM) states that so far not a single licence out of 34 licences had been invalidated. • On October 1, 2008, President Nambaryn Enkhbayar, in his opening speech to the Mongolian Parliament, said that it is the reality that Mongolia cannot invest in its deposits independently, introduce advanced technology and provide qualified experts and therefore there is no other way than attracting major investors aspiring to recover their investment and make profits. The President continued to say that there is no other way than for all parties concerned to accept market principles of allowing investors to own more than 51% of their deposits. • In the 10-months period January 1 – October 31, 2008 market value of foreign gold/copper/molybdenum and uranium companies, being followed by Goldletter International, fell by Cdn$ 3.38 billion from Cdn$ 4.77 billion to Cdn$ 1.39 billion. Recommendation: Fair windfall tax to restore confidence investment climate in Mongolia as one of the world’s most attractiv emerging miningregions to the benefit of all parties involved

  13. Performance and risk associated with junior gold companies • Quality and experience of management • • Access to financing • • Size and grade of projects  economically exploitable • • Development process from: • inferred resources  measured and indicated resources • to probable and proven resources (NI 43-101 compliant) • pre-feasibility  bankable feasibility study • • Valuation of resources/reserves : ranging from $ 20  > $ 400 per ounce • • Joint ventures with majors  acquisitions  consolidation • • Geopolitical shift : from traditional to emerging countries • - new mines, lower costs, higher political risks • •Environmental problems • • Promotional impact on valuation

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