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Presentation to

CFA Vancouver Wealth Conference

Canada’s Resource Centricity Opportunities and Challenges

Roger Mortimer Parador Asset Management, LLC

October 18th, 2012

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1) How the investing world perceives Canada

2) Resource truisms

3) Macro influences

4) Energy drivers

• Oil

• Natural Gas

• Gold

5) Where we see Opportunity

Canada’s Resource Centricity

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Why would an International Investor consider Canada?

Canada offers

1) Exposure to the emerging market themes with less volatility

2) Optionality to a recovery in the US

3) Hedge against the possibility of future inflation

4) Currency diversification from the U.S. dollar and other major currencies

Canada’s low sovereign, fiscal and legal risk and its high natural resource asset quality will allow for a structural valuation premium to persist

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Structurally attractive but cyclically volatile

1) Energy and materials comprise 46% of the Canadian index – and set the tone

2) More public mining and oil and gas companies than on any other exchange

3) Perceived as having a high correlation to China growth, the price of oil, and global liquidity

4) Virtually all sectors are correlated as is C$

5) Investing in Canada and investing in resources are closely linked ideas – ‘risk on’

After a decade of outperformance, Canada has dramatically underperformed the S&P for the last year as forward global growth visibility has become less transparent

Canada is a ‘Beta Index’

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Long term demand growth is driven by consumption intensity, and supply side pressures affect prices over the longer term

In most industries, the low hanging fruit has been picked The “hole” is now deeper, technically more complex; typically in a more politically challenged

environment, and the overall cost of doing business has risen Cost structures are rising in most commodity industries as

1) Politics causing investible universes to shrink 2) Mine grades are falling 3) Environmental and permitting costs are rising 4) Economic rent is rising 5) Consolidation has introduced more rational behavior over time 6) Volatility makes financing more difficult and costly

Companies are spending more and getting less

There are some secular truisms

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1) Companies have little control over the sale price of their product

2) Valuing companies requires a revenue assumption

3) Heavily levered to global economic growth

4) Credit conditions impact new project financing, inventories and speculative activity

5) Influenced by the US dollar

6) Government policies can materially affect economics

Investors have to be willing to take duration risk and accept volatility

But, in the short term, volatility and cyclicality reign

Commodity prices and resource equity valuations are rarely static

Misjudging short to mid term demand is a common error

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MACRO China - inextricably linked to resource demand

China: % of world share

0.3

8.8

61.5

14.5

28.6

10.6

19.7

29.4

58.5

18.2

22.8

6.3

12.614.4

0

10

20

30

40

50

60

70

Iron o

re

Coal

Copper

ore

&

concentr

ate

Oil

consum

ption

Pow

er

genera

tion

Conta

iner

lifts

Soyabean

2000 2010

Source: CEIC, World Steel, Brook Hunt, CRU, Credit Suisse

Understanding China’s role in the demand picture is important

1) Dominant Chinese demand is a double-edged sword

2) ‘Capex’ versus ‘Opex’

3) Understanding causality is important, but as Yogi Berra says, “it’s tough to make predictions, especially about the future.”

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US Private Hourly Earnings Y/Y

Unlike QE1 and QE2 – which were one-time crisis management tools, QE3 is perpetual

In a world where the Fed is reflating – Canada is the “inflation index” The Fed is telling you that they will provide continuing accommodation until labour conditions improve – ie until we have a more inflationary environment

The bond and pure yield investments that have been so popular for the last two years will increasingly be at risk and investors should consider some inflation sensitive exposure

MACRO USA - QE3 targets “substantial improvements” in labour markets

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MACRO Middle East - Arab Spring travel guide

The countries on this map account for nearly 40% of global oil supply

The S&P/TSX Index is positively correlated to oil supply disruption

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MACRO – Where would you rather do business?

Cenovus • $16 billion integrated Canadian oil

company producing 155,000 bbl/day • Technologically innovative, proven record of

low cost operation and social leadership • Owns 50% of Foster Creek (with COP) • 50% of Christina Lake (with COP) • 100% of Pelican Lake, Weyburn • Also has Saskatchewan Bakken and other

conventional production

Royal Dutch Shell • Longest standing western oil co in Nigeria,

produced 18% of nation’s oil in 2008 • Bomu-Bonn pipeline bombed Sept 30th • Loss of output 150,000 bbl/day causes

$450 million/month economic impact • Insurgent attacks date back to 2006 • New Nigerian govt bill would up state take

from current 61% to 73% - IOCs can no longer justify further investment

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MACRO - Canadian Assets are Attractive to both industry and customers

There has been a sustained high level of foreign capital investment in Canadian resource companies (with assets both in Canada and overseas) as international companies and large sovereign investors seek to -

• Vertically integrate • Diversify • Secure supply of key resources, and • Hedge natural resource input cost

Canadian domiciled assets attract premium valuations

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Financial alignment continues to increase, particularly in the energy sector, where capital inflows from overseas are accelerating development and enhancing value

Source: Scotia Waterous

MACRO - Leveraging Foreign Capital

Asian entities have made

substantial investments in

Alberta energy.

Since 2005,

Chinese investors have

completed US$44 B in

transactions

of which US$34 B

were in the energy sector

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International investment and M&A has been strong across all resources sectors

Oil Nexen (CNPC, pending)

Athabasca (JV with PetroChina)

MEG (CNOOC 16.7%)

Pennwest (CIC 45% of Seal)

Syncrude (Sinopec 9%)

Harvest Energy (KNOC)

Addax Petroleum (Sinopec)

Western Oil Sands (Marathon)

Duvernay Oil (RD Shell)

Primewest Energy (TAQA)

Natural Gas Progress (Petronas, pending)

Kitimat LNG (Kogas/Mitubishi JVs)

Canadian companies with assets both at home and abroad have been acquisition targets

MACRO - Canada is Open for Business

Steel Related Consolidated Thompson (Cliffs)

Western Coal (Walter Energy)

CIC Energy (JSW Energy)

Teck Corp (CIC investment)

Ipsco (SSAB)

Other Mining Alcan (Rio Tinto)

Inco (CVRD)

Falconbridge (Xstrata)

LionOre (Norilsk)

Athabasca Potash (BHP Billiton)

Eldorado Gold (Sino Gold)

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Oil and Natural Gas are defined by the breadth of their customer bases

Oil is a global commodity

Primarily a transport fuel Limited substitution Concentrated supply Price set by marginal buyer China and Mid East matter

ENERGY - Oil vs. Natural Gas

Canadian natural gas is a local commodity

Used for power gen and industry No access to global market Technology driven supply glut Produced as a by-product Pipelines and LNG terminals matter

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ENERGY - Technology Drives Value Enhancement

1) While capital intensive at the initial stages, oil sand project economics improve over time as technological and process improvement drive recovery factors up and cost structure down

2) Disruptive technology can shift cost structures and introduce end demand substitution

3) In natural gas, application of new drilling and

fracturing technology has “unlocked” significant unconventional resources and shifted the supply cost curve down

Major energy companies understand and believe in the option value of technology

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OIL - Key Oil Sands Attributes

1) The oil sands offer high visibility, no-decline oil production in one of the world’s most stable democracies

2) Forecast mid-term production growth is among the best outside of OPEC

3) Unlike many jurisdictions, Canada is open to foreign direct investment

4) There are more buyers than sellers, and buyers will often use a lower cost of capital than for conventional energy projects.

Stable, long duration energy resources are a global rarity

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OIL - Reserve Life Drives Valuation

1) Investors place a high value on visible future production

2) As they bring on oil sand projects, many Canadian energy companies are increasing the long life proportion of their total production. This will drive their corporate valuations higher

3) Underdeveloped long life energy assets in both large and small Canadian companies can drive value surfacing through capital partnerships, asset dispositions and outright sale of the company

4) A re-rating can work independently of the oil price above a certain threshold

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To capture its full economic value, Canadian heavy oil production growth will require new avenues to market

OIL - Transport is a Key Issue for Canadian Oil Economics

Cushing

Mississippian

Casper

PatokaDenver

El Dorado

Robinson

Tulsa

Salt Lake City

Gallup

Sarnia

Woods Cross

Lima

Detroit

Utica

Uinta Basin

TMS

SBD

Toledo

Mandan

Bakken

El Paso

Permian Basin

Anacortes

Gulf of Mexico

Navajo

Catlettsburg

Ardmore

Memphis

Hardisty

Edmonton

Alberta oil sands

Clearbrook

St. James

Niobara

St. Paul

Canton

Montreal

Billings

Refinery

Storage hub

Existing pipeline

Proposed/under construction

Rail flow

Foreign crude oil imports

Maturing unconventional plays

Emerging unconventional plays

Coastal refining regions

LEGEND

WynnewoodBorgerMcKee

Wood River

Whiting

Coffeyville

Cheyenne

Oil supply growth from US liquid shales and Canadian oil sands is overwhelming refining and pipeline infrastructure in the US Mid-Continent

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Natural Gas price differential trends: AECO vs. Japan (imported LNG)

GAS – All about price arbitrage to Asian markets

To capture this price spread, Canada needs

1) A permissive regulatory and policy stance

2) Access to capital

3) Adequate reserves to support the scale and duration of exports required to recover the

cost of invested infrastructure

All three exist

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GAS – Shifting to Shale Prominence

1) Falling conventional production will be offset by growing unconventional development

2) The Montney and Horn River shales are cost competitive in the new unconventional age

3) Proximity to export access is key to value realization

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Capital is required for continuing oil

sand project build-outs, the

development of pipeline and midstream

infrastructure,

and for LNG export facilities.

In the absence of substantial continuing

investment, Canada will fail to capture

the economic growth opportunity; will

forego substantial revenues due to

infrastructure constraints and will

become increasingly dependent on the

United States

The Canadian government understands

this reality and is proactively working to

attract and sustain foreign investment

Canada has huge incremental capital investment needs for resource development, and this capital will be provided by external parties

RISKS – External Capital

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Gold is another supply challenged industry where the capital expenditure buys less each year Canada is one of few global stock markets with precious metals exposure

Precious Metals

Industry cost curve is rising

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• Has portfolio value - advocates suggest it as a hedge against other asset classes

• The opposite of paper currency? In 2011 the Fed bought 61% of newly issued federal debt

Gold has a diversification benefit

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There are secular signs that investor acceptance is growing and that exposure is timely • Broad central bank buying reverses previous trend

• Central bank liquidity provision: buying MBS and sovereign bonds, is positive

• Priced at all time highs in many currencies

We believe gold is a necessary portfolio inclusion at this time

Investor Appreciation is Growing

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We try to focus on the known rather than the possible • Take a strategic view and accept volatility We believe in long term investment growth in Canadian energy, particularly oil • Own the highest quality long life oil assets • Selective strategic exposure to natural gas • Position to benefit from continuing technological improvements • Own enablers - midstream energy infrastructure companies Scale benefits of capital and operations suggest continued consolidation We think that gold is an important portfolio asset

Areas we Like in Canadian Resources