Investment commentary
Goldman Sachs JBWere
Resources Fund
Quarter to 31 December 2007
Features
Investment objective
Recommended
investment time frame
Fund inception
Fund size*
Outperform the S&P/ASX 300
Resources Accumulation Index over
rolling three-year periods.
5 - 7 years +
December 1994
A$25.4 million
*Represents fund size of the Goldman Sachs JBWere Resources Pooled Fund
into which the Fund invests.
Total returns at 31 December 2007
Goldman Sachs JBWere Resources Fund
Exit
price
$
4.1955
S&P/ASX 300 Resources Accumulation Index
3 mths
%
0.0
1 yr
%
49.8
3 yrs
% p.a.
33.6
5 yrs
% p.a.
28.2
Since
inception
% p.a.†
13.7
-1.8
48.6
39.0
34.3
16.0
†December 1994 Source: Goldman Sachs JBWere Asset Management
Past performance is not a reliable indicator of future performance. The total net fund returns shown are prepared on an exit to exit basis (i.e. they include all ongoing fees and
expenses and assume reinvestment of all distributions). They do not take personal taxation into account.
Market review
Portfolio review
The S&P/ASX 300 Resources Accumulation Index retreated 1.8%
over the December quarter. By comparison, the S&P/ASX 200
Accumulation Index dropped 2.7%. Companies exposed to bulk
commodities were the standout performers for the quarter with
prices on the spot market for coal and iron ore continuing to rise
strongly. Examples of these beneficiaries include Riversdale Mining
(+101%), Fortescue Metals (+57.2%), MacArthur Coal (+44%) and
Straits Resources (+42%). A return of corporate activity to the
sector was sparked by BHP Billition’s (-10%) approach to RIO Tinto
(+24%) for a merger between the global diversified mining houses.
Additionally, Jubilee Mines (+30%) and Resource Pacific (+36%) both
benefited from Xstrata’s all-cash takeover offers.
Key contributors
In the 12 months to December 2007, the S&P/ASX 300 Resources
Accumulation Index rose by 48% versus S&P/ASX 300 Accumulation
Index which rose by 12%. In addition, Materials (+42%) and Energy
(+28%) were the top performing sectors within the broader S&P/ASX
200 Accumulation Index.
Gold finished the calendar year close to its highs, rallying 38% over
the quarter. This drove several gold stocks to record highs including
St Barbara (+30%) and Newcrest (+18%). Oil continued its upward
trend, testing the US$100 level. This was not reflected in equity price
performance of oil and gas stocks, such as Woodside (+/-0%) and
STO (-6%). However, NXS (+25%) was a standout performer in the
space thanks to positive drilling results at its Crux project
RIO – performed strongly during the December quarter as a
consequence of the merger proposal presented by BHP in November.
The proposal involved offering three BHP shares for every one RIO
share which implied a premium to the then prevailing stock price.
The portfolio has retained its position in RIO given the strength of the
fundamentals which is broad based among RIO’s major products and
end markets and the potential for consolidation in the industry.
Jubilee Mines (JBM, overweight) – outperformed for the quarter
due to a $23 per share offer from Xstrata, a 36% premium to the 30day average price preceding the bid. The offer highlights the value a
strategic trade buyer will place on high grade, operating nickel mines,
despite a deflating nickel price.
Northern Iron (NFE overweight) – we acquired stock in the IPO in
early-December and subsequently increased our holding. We believe
iron ore demand will remain robust in the foreseeable future and we
are attracted to the company due to the relatively short lead time to
first ore production expected in 2010, as well as low capital intensity
to achieve production. Investor interest for the offer was reasonably
strong, which we believe was also reflected in the share price postlisting.
Key detractors
Newcrest Mining (NCM, underweight) – outperformed primarily due
to a 38% rise in the gold price over the quarter and an operating result
that, in aggregate, met market expectations in spite of a lower-thanexpected contribution from its Telfer mine. We remain cautious on
Newcrest’s prospects due to its mixed production history and believe
other gold stocks offer better relative value within the sector.
%
100.00
GSJBW Resources Pooled Fund
80.00
60.00
40.00
20.00
0.00
Oil & Gas
Key purchases
Sino Gold (SGX, overweight) – during the quarter the Fund
participated in a capital raising by SGX to fund a pre-production
tenement acquisition. We continue to believe SGX represents an
attractive investment in the gold sector due to its superior production
growth profile, low cash costs and further acquisitive growth
opportunities in China.
S&P/ASX 300 Resources Acc. Index
Energy
Equipment
& Services
Worley Parsons (WOR, underweight) – outperformed during the
quarter on the back of a number of significant contract announcements
in the petrochemical and power markets. We do not currently hold any
WOR stock in our portfolio, as we prefer to gain direct exposure to
explorers and producers whose earnings are more directly leveraged
to high oil prices.
Sector allocation at 31 December 2007
Metals &
Mining
Riversdale Mining (RIV, underweight) – outperformed following
announcement of drilling results defining a large coal resource within
its Benga licence in Mozambique and subsequent JV alliance with
Tata Steel, whereby Tata will acquire 35% equity in tenements in
Mozambique for A$100m. The Fund has elected to gain exposure to
coal markets through other active stock positions.
Source: Goldman Sachs JBWere Asset Management
Top 10 holdings* at 31 December 2007
Portfolio %
Index %
Key sales
BHP Billiton
39.1
39.1
Jubilee Mining (JBM, underweight) – as a result of the $23 cash
takeover offer from Xstrata during the quarter the Fund no longer
owns JBM.
RIO Tinto
16.2
11.0
4.2
2.9
Market outlook and portfolio strategy
The demand outlook for resources in 2008 is likely to remain strong,
driven primarily by growth of construction and industrial production
in North Asia, as well as solid global GDP growth. Concerns over
economic activity in North America, and the potential for a US
housing-led recession, appear to be growing. Hence, the likely impact
on global resources demand needs to be monitored, though the
weakness seen in metals prices and equity prices for mining and
material stocks more generally overstates the likely negative impacts.
While stock volatility is likely to persist, with a healthy commodity
demand outlook and persistent supply-related bottlenecks, we believe
strong commodity prices will feature in 2008. In particular, energy
and bulk commodities will continue to be well supported, while metal
prices should recover from price deflation seen in 2007.
We view the Fund as being well-positioned to capture these trends,
while maintaining an underweight exposure to uranium and gold
stocks due to an absence of fundamental value drivers. We also
maintain our exposure to larger, diversified companies with growing
production profiles, and expect industry consolidation, driven in
particular by the proposed merger of BHP Billiton and Rio Tinto,
will enable greater transparency and crystallise value for the sector
generally.
Fortescue Metals Group
OneSteel
4.0
1.3
Northern Iron
3.5
0.0
Kagara
3.5
0.4
Oxiana
3.4
1.6
Straits Resources
3.3
0.3
Origin Energy
3.1
2.2
Sino Gold Mining
3.0
0.3
Key active positions* at 31 December 2007
Active overweights
RIO Tinto
Portfolio
%
Index
%
Active
%
16.2
11.0
5.2
Northern Iron
3.5
0.0
3.5
Kagara
3.5
0.4
3.1
Active underweights
Portfolio
%
Index
%
Active
%
Woodside Petroleum
2.6
6.6
-4.0
Newcrest Mining
0.9
4.3
-3.4
WorleyParsons
0.0
2.4
-2.4
*Note: Holdings may change by the time you receive this report. Future
portfolio holdings may not be profitable. The information should not be deemed
representative of future characteristics for the strategy.
Website
www.gsjbw.com/assetmanagement
Adviser Service team
1800 670 556 adviserservices@gsjbw.com
Investor Service team
1800 034 494
investorservices@gsjbw.com
Units in the Goldman Sachs JBWere Resources Fund are issued by Goldman Sachs JBWere Managed Funds Limited ABN 63 005 885 567 AFSL 230251
(‘GSJBWMFL’). Prior to investing in the Fund you should obtain and consider the product disclosure statement (‘PDS’) for the Fund, available by contacting our
Investor Service team on 1800 034 494 or from our website www.gsjbw.com. Anyone wishing to apply for units will need to complete the application form
attached to or accompanying the PDS. This document contains general financial product advice only. In preparing this document, GSJBWMFL did not take
into account the investment objectives, financial situation and particular needs (‘financial circumstances’) of any particular person. Accordingly, before acting
on any advice contained in this document, you should assess whether the advice is appropriate in light of your own financial circumstances or contact your
financial adviser. GSJBWMFL manages the Fund and will receive fees as set out in the PDS. A once off contribution fee of up to 4% is payable in connection
with all applications for units in the Fund. For applications lodged through a Goldman Sachs JBWere Pty Limited (GSJBW) adviser, GSJBWMFL may pay
to GSJBW up to 90% of the contribution fee, and a trailing commission of up to 0.55%p.a. while the investment remains in existence. GSJBW may pay up
to 50% of this amount to your adviser. This document has been prepared by GSJBWMFL. It is not a product of the Goldman Sachs JBWere Investment
Research Department. To the extent that this document discusses general market activity, industry or sector trends, or other broad based economic or
political conditions, it should not be construed as research or investment advice. To the extent it includes references to specific securities, those references
do not constitute a recommendation to buy, sell or hold such security, and the information may not be current. GSJBWMFL believes that the information
contained in this document is correct and that any estimates, opinions, conclusions or recommendations contained in this document are reasonably held or
made as at the time of compilation. However, no warranty is made as to the accuracy or reliability of any estimates, opinions, conclusions, recommendations
(which may change without notice) and, to the maximum extent permitted by law, GSJBWMFL disclaims all liability and responsibility for any direct or indirect
loss or damage which may be suffered by any recipient through relying on anything contained in or omitted from this document.
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