MATERIALS COMPANY
PRESENTATION
Kevin Jackson, Andrea Jimenez, Adam Myhal
SECTOR RECAP
Materials Sector at top of cyclical cycle
 Currently at 42 bps underweight
 Recommendation to reduce sector to 100 bps
underweight

Security
Ticker Percentage
Assets
Unit
Cost
Unrealized Market
Gain/Loss
Price
Alpha Natural ANR
Resources
0%
$56.52
$0
$56.52
International
Paper
IP
1.68%
$26.20
$21,468
$27.78
Newmont
Mining
NEM
1.43%
$62.98
($44,733)
$53.06
ALPHA NATURAL RESOURCES
Adam Myhal
OVERVIEW

Alpha Natural Resources, Inc. (ANR) is the third
largest producer, by market cap, in America

Only 11% of revenues come from exports (430
million)
The two main types of coal produced are
metallurgical and steam
 Aggressive Growth by Acquisition Strategy
 Recently Acquired Massey Energy

12-MONTH PRICE CHART
KEY ECONOMIC DRIVER
TECHNICAL ANALYSIS
2010 DCF
Analyst: Adam Myhal
Date: 1/25/11
Terminal Discount Rate =
Terminal FCF Growth =
Year
2010E
Revenue
3,894,666
% Grow th
399,909
Operating Margin
10.3%
Interest and Other
79,936
Interest % of Sales
2.1%
Taxes
67,194
Tax Rate
21.0%
Net Income
246,438
% Grow th
683,467
15.2%
82,267
1.8%
126,252
21.0%
467,002
89.5%
Add Depreciation/Amort
311,573
% of Sales
Plus/(minus) Changes WC
% of Sales
1.7%
168,562
21.0%
625,064
33.8%
395,980
15.0%
91,245
1.7%
148,449
21.0%
558,452
-10.7%
399,073
7.5%
743,606
13.0%
98,089
1.7%
135,559
21.0%
509,959
-8.7%
429,004
6,063,252
6.0%
727,590
12.0%
103,974
1.7%
130,959
21.0%
492,657
-3.4%
454,744
6,427,047
6.0%
674,840
10.5%
110,213
1.7%
118,572
21.0%
446,056
-9.5%
482,029
6,716,264
4.5%
671,626
10.0%
115,172
1.7%
116,855
21.0%
439,599
-1.4%
503,720
2018E
7,018,496
4.5%
701,850
10.0%
120,355
1.7%
122,114
21.0%
459,381
4.5%
526,387
2019E
7,299,236
4.0%
656,931
9.0%
125,169
1.7%
111,670
21.0%
420,092
-8.6%
547,443
2020E
7,645,219
4.74%
611,618
8.0%
131,102
1.7%
100,908
21.0%
379,607
-9.6%
573,391
7.5%
7.5%
7.5%
7.5%
7.5%
(45,970)
(55,307)
(43,949)
(47,245)
(50,788)
(53,836)
(57,066)
(59,634)
(62,317)
(64,810)
(67,882)
2,527,483
2,423,436
4,950,919
4.20%
21.3
20.1
7.8
7.4
94,454
$
$
84,879
798,146
5,720,049
2017E
7.5%
-1.2%
337,620
7.5%
389,187
77.0%
Shares Outstanding
17.9%
7.5%
2016E
7.5%
219,942
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
887,554
5,320,976
2015E
7.5%
% Grow th
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
10.0%
2014E
8.0%
7.5%
Free Cash Flow
4,949,745
2013E
7.0%
292,100
Capex % of sales
315,112
2012E
8.0%
-1.2%
Subtract Cap Ex
Debt
Cash
Cash/share
4,501,594
15.6%
Operating Income
Current Price
Implied equity value/share
Upside/(Downside) to DCF
2011E
10.5%
5.5%
55.45
52.42
-5.5%
790,253
465,869
4.93
-0.9%
371,231
7.5%
605,864
55.7%
51%
49%
100%
-0.9%
399,073
7.5%
511,207
-15.6%
-0.9%
429,004
7.5%
459,170
-10.2%
-0.9%
454,744
7.5%
438,821
-4.4%
-0.9%
482,029
7.5%
388,990
-11.4%
-0.9%
503,720
7.5%
379,965
-2.3%
-0.9%
526,387
7.5%
397,063
4.5%
-0.9%
547,443
7.5%
355,282
-10.5%
Terminal Value
Free Cash Yield
11.2
10.6
5.6
5.3
8.4
7.9
4.3
4.1
-0.9%
573,391
7.5%
311,725
-12.3%
6,577,402
4.74%
Terminal P/E
17.3
Terminal EV/EBITDA
5.8
10-year
18.1
8.8
MULTIPLES VALUATION

Multiples valuation provides an average price of
$57.60
Absolute
Valuation
High
Low
P/Forward E
P/S
P/B
P/EBITDA
P/CF
35.50
3.50
45.60
28.87
35.50
2.70
0.00
1.50
2.67
2.90
Median Current Target Target E, S,
Multiple B, etc/Share
14.30
1.00
4.40
8.11
7.20
15.30
1.80
2.60
8.37
10.00
15.50
2.00
3.00
8.45
8.00
3.78
28.94
22.26
6.92
5.79
Target
Price
58.59
57.88
66.78
58.47
46.32
SUMMARY
Using a weighted DCF and Multiples Price I get
a weighted average price of $54.23 (assuming
65% DCF and 35% Multiples)
 Feel that the stock is at or near a cyclical high
and is being propped up by external factors
 Have yet to see organic growth
 Used a price target of $52.00 which at the $55.45
stock price represents a 6.2% loss
 Recommendation: SELL

NEWMONT MINING
Andrea Jimenez
OVERVIEW

One of world’s largest gold producers
Acquires, explores, and produces gold and copper

Gold

81% of sales
93.5M ounces of reserves
6.5M ounces of consolidated production in 2010
 30% North America, 23% South America, 39% Asia Pacific,
and 8% Africa
 Produce doré bars, sold in international market




Copper
19% of sales
 9.1M ounces of reserves
 2010 had 600M pounds of consolidated production in 2010
 Indonesia, Australia


Sold in saleable concentrate to smelters
LOCATIONS
10 YEAR PRICE CHART: NEM VS. GOLD
1 YEAR PRICE CHART: NEM VS. S&P 500
HEDGING
Don’t hedge copper and gold prices
 Derivatives market


Cash Flow Hedges


Commodity Inputs


Diesel contracts
Treasury Rate Lock Contracts


Hedge portion of A$ and NZ$ denominated operating
expenditures (fixed forward contracts ranging up to 5 yrs)
Reduce variability from bond issuances
Interest Rate Contracts

Fixed & floating swap contracts to hedge against
debentures due 2011
DISCOUNTED CASH FLOW MODEL
Newmont Mining Corporation (NEM)
Base Case
Analyst: Andrea Jimenez
3/3/2011
Year
Revenue
Terminal Discount Rate =
Terminal FCF Growth =
2010E
2011E
9,540
% Growth
Earnings Before Taxes
23.82%
3,997
EBT Margin
Taxes
Equity Income (Loss of Affiliates)
10.6%
41.9%
3
% of sales
Net Income
(16)
% of Sales
% of Sales
Subtract Cap Ex
40.0%
30.0%
(1)
4.0%
4,338
(1,229)
(11)
5.0%
38.0%
(17)
5.0%
36.0%
(12)
6.0%
33.0%
(6)
5.0%
31.0%
(16)
15,445
5.0%
4,119
30.0%
(1,177)
28.0%
2020E
14,709
4,203
(1,158)
28.0%
2019E
14,009
4,136
(1,163)
28.0%
2018E
13,342
4,154
(1,208)
28.0%
2017E
12,586
4,315
(1,215)
28.0%
2016E
11,987
28.0%
(1,153)
28.0%
(14)
5.0%
3,861
25.0%
(1,081)
28.0%
(15)
28.0%
(15)
0.03%
-0.15%
-0.01%
-0.10%
-0.15%
-0.10%
-0.05%
-0.12%
-0.10%
-0.10%
-0.10%
3,144
3,316
3,241
3,150
3,106
3,095
2,984
2,962
3,012
2,951
2,765
5.5%
-2.3%
-2.8%
-1.4%
-0.4%
-3.6%
-0.8%
1.7%
-2.0%
-6.3%
1,002
1,044
1,076
1,119
1,175
1,221
1,294
1,359
1,427
1,498
945
Plus Changes WC
3.0%
43.5%
2015E
11,416
4,391
(1,389)
30.0%
% Growth
Add Depreciation/Amort
1.0%
45.1%
2014E
10,977
4,631
(1,428)
21.0%
2013E
10,657
4,760
(856)
Tax Rate
2012E
10,552
11.0%
5.0%
9.9%
9.5%
9.8%
9.8%
9.8%
9.8%
9.7%
9.7%
9.7%
9.7%
9.7%
(120)
(103)
(68)
(132)
(137)
(132)
(138)
(133)
(140)
(147)
(154)
-1.3%
-1.0%
-0.6%
-1.2%
-1.2%
-1.1%
-1.1%
-1.0%
-1.0%
-1.0%
-1.0%
1,498
1,402
2,744
1,812
1,647
1,598
1,558
1,510
1,468
1,401
1,471
Capex % of sales
14.7%
26.0%
17.0%
15.0%
14.0%
13.0%
12.0%
11.0%
10.0%
10.0%
9.7%
Free Cash Flow
2,567
1,472
2,405
2,448
2,490
2,580
2,556
2,655
2,830
2,759
2,610
-42.7%
63.4%
1.8%
1.7%
3.6%
-0.9%
3.9%
6.6%
-2.5%
-5.4%
Terminal Value
45,677
Free Cash Yield
5.71%
Terminal P/E
16.5
% Growth
NPV of Cash Flows
13,192
45%
NPV of terminal value
Projected Equity Value
16,087
29,278
55%
100%
Free Cash Flow Yield
9.83%
Current P/E
Projected P/E
8.3
9.3
7.9
8.8
8.1
9.0
Current EV/EBITDA
Projected EV/EBITDA
5.6
6.2
4.8
5.4
4.9
5.4
Shares Outstanding
Current Price
Implied equity value/share
Upside/(Downside) to DCF
Debt
Cash
Cash/share
487
$ 53.60
$ 60.12
12.2%
4,809
3,215
6.60
Terminal
EV/EBITDA
8.8
SENSITIVITY ANALYSIS
Base Case = $60.12
 Bull Case = $81.71
 Bear Case = 42.96

Discount
Rate
Terminal Growth Rate
4
5
6
10.5
$ 58.96
$ 65.37
$ 74.62
10.75
$ 56.84
$ 62.63
$ 70.87
11
$ 54.86
$ 60.12
$ 67.49
11.25
$ 53.03
$ 57.81
$ 64.42
VALUATION ANALYSIS
Stock looks cheap, but median numbers reflect
huge growth levels—not fair comparison
 Slower projected growth levels

Absolute
Valuation
High
Low
603.2
10.8
P/S
6.3
P/B
P/Forward E
P/EBITDA
P/CF
Median
Current
Target
Multiple
Target/
Share
Target
Price
30.5
10.8
12
4.95
59.4
1.8
3.6
2.8
3.2
21.98
70.34
4.2
1.5
2.4
2.2
2.3
25.12
57.78
661.59
6.70
11.67
7.46
9
7.41
66.68
26.3
7.0
14.4
9.4
10.5
5.88
61.74
RISKS
High Volatility, limited upside potential
 Stagnant stock price since 2008
 Forecasted economic improvements and gold
price decreases
 New governmental regulations regarding
pollution
 Increase risk from foreign governments for
approvals/permits
 Outlook for 2011: Higher tax rate, higher capital
expenditures, lower production

SUMMARY
Average P/S from DCF/Sensitivity
Analyses
Average P/S from Valuation
Multiples
$63
$63
P/S currently = $53 (at 3/3/11)
 Target Price = $63
 Recommendation = Sell

INTERNATIONAL PAPER
Kevin Jackson
OVERVIEW






Largest pulp and paper products firm in the world
Products include printing paper, pulp, packaging,
graphics, and maintenance and industrial products
Previously a large owner of forestry throughout the
globe, but has sold off this division
20% of operating income comes from international
operations
Historically manufactured plastic cups and plastic
lids for companies like McDonald’s and Wendy’s
Formerly in the Dow Jones
PRICE CHART
LOCATIONS
STRENGTHS/OPPORTUNITIES






Bullish domestic economy will generally help stocks
in Paper industry
IP, being the largest player in the world, will benefit
from greater economies of scale vs. competition
IP has dramatically reduced debt in 2010, paying
down $1.5 billion
IP’s Russian joint-venture, Ilim, is expected to provide
a strong contribution during 2011
Valuation multiples point to cheap valuation
Valuation multiples also point that IP is underpriced
WEAKNESSES/THREATS




Secular demand decline in uncoated free sheet, 4%
average decline over past 10 years
Global pulp markets are volatile and a decline in pulp
prices could negatively impact IP’s earnings
BRIC operational & political risk – IP generates
roughly 20% of operating income from emerging
markets
Elimination of QE2 and possible double dip recession
HEDGING



Net long in markets of primary operations
 Lumber
 Pulp
 Containerboard
Hedge foreign currency, interest rate, and commodity
price risk with derivatives
Natural hedge internationally by taking out loans in
currency of national operation
MULTIPLES
Relative to S&P 500
Absolute
Valuation
High
Low
Median
Current
P/Trailing E
2.2
0.26
1.2
0.86
P/Forward E
14.5
0.60
1.0
0.68
P/B
1.0
0.4
0.7
0.8
P/S
0.5
0.1
0.4
0.4
P/CF
0.9
0.1
0.6
0.5
High
Low
Median
Current
Target
Multiple
Target/
Share
Target
Price
P/Forward E
99.4
2.8
27.5
13.1
15
2.02
30.30
P/S
0.9
0.1
0.6
0.5
0.6
58
34.80
P/B
2.6
0.6
1.9
1.8
2.0
16.3
32.60
P/EBITDA
14.31
1.73
5.86
3.58
4.0
6.65
26.60
P/CF
10.7
1.1
7.9
5.0
9.0
3.4
30.60
SENSITIVITY ANALYSIS
Discount
Rate
Terminal Growth Rate
3
4
5
9.5
$31.35
$34.00
$37.82
10
$29.49
$31.65
$34.68
10.5
$27.86
$29.65
$32.09
DISCOUNTED CASH FLOW MODEL
International Paper (IP)
Analyst: Kevin Jackson
3/8/2011
Terminal Discount Rate =
Terminal FCF Growth =
Year
2011E
Revenue
27,680
% Grow th
2012E
29,511
6.6%
Operating Income
2,350
Operating Margin
Interest and Other
Interest % of Sales
Taxes
Tax Rate
2,644
2013E
31,670
7.3%
3,144
2014E
33,570
6.0%
2,686
2015E
35,416
5.5%
2,833
10.0%
4.0%
2016E
37,187
5.0%
2,789
2017E
38,861
4.5%
2,915
2018E
40,415
4.0%
2,829
2019E
42,032
4.0%
2,942
8.5%
9.0%
9.9%
8.0%
8.0%
7.5%
7.5%
7.0%
7.0%
637
679
728
772
815
855
894
930
967
2.3%
2.3%
2.3%
2.3%
2.3%
2.3%
2.3%
2.3%
2.3%
2020E
43,713
4.0%
2,841
6.5%
1,005
2.3%
2021E
45,461
4.0%
2,955
6.5%
1,046
2.3%
514
590
725
574
606
580
606
570
593
551
573
30.0%
30.0%
30.0%
30.0%
30.0%
30.0%
30.0%
30.0%
30.0%
30.0%
30.0%
Minority Interest
28
30
32
34
35
37
39
40
42
44
45
Interest % of Sales
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
Net Income
1,172
% Grow th
1,346
14.9%
Add Depreciation/Amort
1,384
% of Sales
Plus/(minus) Changes WC
% of Sales
1,583
1,306
-21.3%
1,511
1,378
5.5%
1,417
1,316
-4.4%
1,302
1,376
4.5%
1,166
1,289
-6.3%
1,010
1,341
4.0%
1,051
1,241
1,291
-7.4%
4.0%
874
909
5.0%
5.0%
4.5%
4.0%
3.5%
3.0%
2.5%
2.5%
2.0%
2.0%
(1,062)
(275)
(324)
(336)
(283)
(297)
(311)
(323)
(336)
(350)
(364)
-0.8%
-0.8%
-0.8%
-0.8%
-0.8%
874
909
2.0%
2.0%
892
927
1,107
Capex % of sales
4.0%
Free Cash Flow
387
% Grow th
-0.9%
1,180
4.0%
1,367
253.5%
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
23.2%
5.0%
-3.8%
Subtract Cap Ex
1,476
1,659
7,506
6,198
13,704
3.33%
-1.0%
1,267
4.0%
1,652
20.9%
55%
45%
100%
-1.0%
1,007
3.0%
1,474
-10.8%
-0.8%
1,062
3.0%
1,449
-1.7%
1,116
3.0%
1,205
-16.8%
972
2.5%
1,259
4.5%
-0.8%
1,010
2.5%
966
-23.3%
1,051
2.5%
1,005
4.0%
-11.2%
Terminal Value
Free Cash Yield
4.0%
16,075
5.77%
10-year
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
9.9
11.7
4.9
5.4
Shares Outstanding
Current Price
Implied equity value/share
Upside/(Downside) to DCF
Debt
Cash
Cash/share
433
$
$
26.78
31.65
18.2%
8,671
2,073
4.79
8.6
10.2
4.4
4.9
7.0
8.3
3.8
4.3
Terminal P/E
12.5
Terminal EV/EBITDA
5.9
ANALYST ESTIMATES
Analysts very bullish on IP
 Mean target illustrates a
36% premium over current
equity price
 Team looked at several
stocks in the materials
sector, none had a higher
upside
 Analysts also predict a 32%
increase in earnings for the
Paper industry

Mean
Target:
36.50
Median
Target:
36.50
High
Target:
46.00
Low Target:
27.00
No. of
Brokers:
14
SUMMARY
Current Price: $26.80 Price Target: $32.00 Return: 19.4% Rating: BUY
Recommend buying 80 basis points of IP
 Would bring our holding up to ≈ 2.5%

CONCLUSION
ANR: Remain uninvested
 NEM: Sell entire interest
 IP: Buy 80 basis points
 Net: Will own one stock in the Materials sector
at 2.53%
 Materials sector will be 100 basis points
underweight
