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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”
Session 6 – Conference Summary Kamal Naqvi
LBMA Precious Metals Conference 2007 2
Question 1
Session 6 – Conference Summary Kamal Naqvi
LBMA Precious Metals Conference 2007 3
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
Session 6 – Conference Summary Kamal Naqvi
LBMA Precious Metals Conference 2007 4
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%)
Session 6 – Conference Summary Kamal Naqvi
LBMA Precious Metals Conference 2007 5
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
Session 6 – Conference Summary Kamal Naqvi
LBMA Precious Metals Conference 2007 6
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
Session 6 – Conference Summary Kamal Naqvi
LBMA Precious Metals Conference 2007 7
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.
Session 6 – Conference Summary Kamal Naqvi
LBMA Precious Metals Conference 2007 8
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
Session 6 – Conference Summary Kamal Naqvi
LBMA Precious Metals Conference 2007 9
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.
Session 6 – Conference Summary Kamal Naqvi
LBMA Precious Metals Conference 2007 10
Question 3
Session 6 – Conference Summary Kamal Naqvi
LBMA Precious Metals Conference 2007 11
Session 6 – Conference Summary Kamal Naqvi
LBMA Precious Metals Conference 2007 12
Session 6 – Conference Summary Kamal Naqvi
LBMA Precious Metals Conference 2007 13
Session 6 – Conference Summary Kamal Naqvi
LBMA Precious Metals Conference 2007 14
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
Session 6 – Conference Summary Kamal Naqvi
LBMA Precious Metals Conference 2007 15
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
Session 6 – Conference Summary Kamal Naqvi
LBMA Precious Metals Conference 2007 16
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
Session 6 – Conference Summary Kamal Naqvi
LBMA Precious Metals Conference 2007 17
Question 4
34GOLD IS GREEN
Session 6 – Conference Summary Kamal Naqvi
LBMA Precious Metals Conference 2007 18
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…
Session 6 – Conference Summary Kamal Naqvi
LBMA Precious Metals Conference 2007 19
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
Session 6 – Conference Summary Kamal Naqvi
LBMA Precious Metals Conference 2007 20
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
Session 6 – Conference Summary Kamal Naqvi
LBMA Precious Metals Conference 2007 21
LBMA Conference Forecasts - PALLADIUM
200
220
240
260
280
300
320
340
360
380
400
Johannesburg Montreaux Mumbai
US$/oz
Spot Forecast Actual
LBMA Conference Forecasts - PLATINUM
800
900
1000
1100
1200
1300
1400
1500
Johannesburg Montreaux Mumbai
US$/oz
Spot Forecast Actual
Session 6 – Conference Summary Kamal Naqvi
LBMA Precious Metals Conference 2007 22
LBMA Conference Forecasts - SILVER
6
7
8
9
10
11
12
13
14
15
Johannesburg Montreaux Mumbai
US$/oz
Spot Forecast Actual
LBMA Conference Forecasts - GOLD
400
450
500
550
600
650
700
750
800
Johannesburg Montreaux Mumbai
US$/oz
Spot Forecast Actual