AgAu Global Producer Fund
January 2009
Strictly Private and Confidential
AgAu Capital Pty Ltd
Disclaimer
The information contained in this document is provided to you by Agau Capital Pty Limited (“AgAu”). This document and the matters
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The information in this document is merely a proposal and is provided solely for discussion purposes. The proposal discussed in this
document and the information provided is subject to change without notice. The information may contain statements which are either
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or to contain all the information that may be required in relation to such discussions or for an evaluation of the proposal. This document
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Although all reasonable care has been taken to ensure that the information given in this document is accurate, it has not been
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any other person, for any of the information or for any action taken by you on the basis of the information or opinions expressed in this
document.
The following information contains forward-looking statements. These forward-looking statements are based on AgAu’s current
expectations and beliefs, as well as a number of assumptions concerning future events. These statements are subject to risks,
uncertainties, assumptions and other important factors, many of which are outside AgAu’s control that could cause actual results to
differ materially from the results discussed in the forward-looking statements. You are cautioned not to put undue reliance on such
forward-looking statements because actual results may vary materially from those expressed or implied. All forward-looking statements
are based on information available to AgAu on this date and AgAu expressly disclaims any obligation to update or revise any forward
looking statements, whether as a result of new information, future events or otherwise. Past performance is not a reliable indication of
future performance.
AgAu Capital Pty Ltd
Table of Contents
I.
Overview of AgAu Capital
II.
Market Opportunity
III. Investment Strategies
IV. Team
V.
Performance Record
VI. Fund Terms
VII. Appendices
I. Overview
Overview of AgAu Capital Pty Limited
A Uniquely Experienced Team and a Compelling Market Opportunity
Compelling Market
Opportunity
 Gold/Silver is the only Currency not beholden to a Government.
 Gold/Silver is traditionally the most effective hedge against loose monetary policy.
 Gold/Silver equities offer leveraged exposure to gold price rises
 Gold/Silver equities are massively undervalued relative to gold
 Low/No correlation to other assets, notably in extreme market conditions.
Fundamental Approach
 Select companies with lowest cost per ounce of reserves
 Select companies most likely to convert resources into production.
 Select companies with highest cost of production which provide greatest leverage
to increasing gold price
 Historic Gold Producing landholders
 Diversify production to minimize Sovereign risk
Experienced Team
 Senior team 20 years experience in Investment Banking, Trading and Commodity
Price Risk Management.
 Pre-eminent market insight/analysis, trading and risk management skills.
 Producer Financial Risk Management, Central Bank Operations, Project Finance
Analysis, Proprietary Trading, International Investment Bank Commodity Exposure
and Risk Management, Market leading Macro-Economic analysis
Strong Performance
 Significant outperformance of traditional Equity returns.
 Reduced volatility versus comparable indexes.
 Negative Interest Rates for equivalent rated assets.
II. Market
Opportunity
Industry Overview

Global Mine Supply in Significant Decline
Peak Global Gold production seen in 2001
South Africa, Australia, USA suffering increasingly large production declines
No significant discovery of Precious Metals deposits this decade
Significant Reserve depletion via Mine Production
Silver to outperform Gold in coming years. No stockpile. Inelastic supply
Discontinuance of Central Bank Sales and Producer Hedging

Massive Increase in Global Demand for Physical Precious Metals
- Investment Demand (Traditional and Situational)
- Fiat Currency rejection
- Safe Haven Currency / Risk Diversification
- Capital Preservation versus Capital Appreciation
II. Market
Opportunity
Gold Since the Nixon Default
II. Market
Opportunity
Declining Supply & Rising Demand
Global Mine Production (tonnes)
3000
2500
2000
1500
1000
500
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
0
Central Bank Gold Sales (tonnes)
700
600
500
400
300
200
100
0
2003
2004
2005
2006
2007
2008
Est 2009
II. Market
Opportunity
Equity Market Overview

Gold equities form a tiny component of the overall equity market. A minor increase
in capital allocation to the Precious Metal sector will have a dramatic effect on
associated equity prices.

The HUI Index of 15 largest Un-hedged Gold Producers has comparable market
capitalisation to McDonalds Corporation or Boeing Inc.

Every Gold and Silver mine in the World can today be bought for less than the
market capitalisation of large US retailer, Walmart.

Precious Metals equities are massively undervalued relative to the physical metal.
- Gold shares, when valued versus the gold price are cheaper than when
gold was $270 per ounce in 2002.

Natural Leverage of Producers to the Metal Price.
- The inherent call option of unhedged gold in the ground.
II. Market
Opportunity
Gold shares, when valued versus the gold price are cheaper than when gold was
$270 per ounce in 2002.
Gold/HUI Ratio 2002-2008
4.00
3.50
3.00
2.50
2.00
1.50
Gold/HUI Ratio
Oct-08
Jun-08
Feb-08
Oct-07
Jun-07
Feb-07
Oct-06
Jun-06
Feb-06
Oct-05
Jun-05
Feb-05
Oct-04
Jun-04
Feb-04
Oct-03
Jun-03
Feb-03
Oct-02
Jun-02
1.00
Feb-02

Equity Market Overview
II. Market
Opportunity
Compelling Market Opportunity
Market Capitalisation
Long Term Trend
Index /
Stock
HUI Gold
Index
McDonalds
Boeing
HP
IBM
AIG
Intel
Citigroup
Walmart
Google
AT & T
Microsoft
GE
Market Cap.
USD
5 Dec 2008
HUI
Multiple
62 bio
58 bio
32 bio
95 bio
120 bio
5 bio
85 bio
40 bio
216 bio
86 bio
166 bio
171 bio
175 bio
1x
0.94x
0.51x
1.53x
1.93x
0.08x
1.37x
0.64x
3.48x
1.39x
2.67x
2.75x
2.82x
II. Market
Opportunity
Macro Economic Overview

Gold – A True Store of Wealth.
- Dow Jones 30 Index devalued over 75% in gold terms since 2002.
- Gold has appreciated 2000% in US Dollar terms since 1971.
- Investment in US Treasuries today guarantees a capital loss via Negative Real
Interest Rates.

Macro-Economic analysis incredibly bullish for Precious Metals.
- Massively inflationary policies from Governments/Central Banks globally via
bailouts due to the “Financial Crisis”.
- Currently over 4 Trillion Dollars globally.
- Competitive Devaluation of ALL currencies.
- Inevitable flight from Fiat Currency to tangible assets.
- Paper Metal versus Physical Metal. Refer the 1966 London Gold Pool.
II. Market
Opportunity
Compelling Market Opportunity
Inflation Adjusted Gold
Monetary Inflation
Global Mine Production Decline
2007 - ??? Financial Crisis
II. Market
Opportunity
US$ Cost in Billions (Inflation Adjusted)
4500
4000
3500
3000
2500
2000
1500
1000
500
2008
Financial Crisis.
World War II
NASA
Vietnam War
Invasion of Iraq
The New Deal
Korean War
Savings and
Loans Crisis
Race to
the Moon
Louisiana
Purchase
Marshall
Plan
0
III. Investment
Strategies
Investment Strategies
Strategies
Buy gold reserves cheaply
Concentrate on the companies whose reserves are most attractively valued.
Invest in high cost producers
High cost producers have the greatest operational leverage to an increase in the gold price. Optionality.
Gold is harder to find. More will be found where it was before.
Companies who control significant historic production sites mothballed for decades due to price and indifference.
Diversify globally.
Evaluate country risk and diversify accordingly.
Synthesize Silver Production
Silver is significantly undervalued relative to Gold. Limited market. Synthetically convert gold production to silver
production.
III. Investment
Strategies
Buy Gold Reserves Cheaply
 Metal in the ground provides shareholders with a very real call option on the metal itself.
- No hedging is a fundamental requirement
 Market Capitalisation divided by Proven and Probable Reserves. The lower the better.
 Price of Gold used to calculate Proven and Probable Reserves understated in our view.
- Many Producers using $500-600 per ounce to calculate reserve base.
- Reserves Increase at higher prices in most cases.
- Economic conversion potential of Resources to Reserves. Strip Ratio’s.
III. Investment
Strategies
Invest In High Cost Producers
 Unlike many other equity investments, we prefer exposure to Producers with high
costs and therefore very tight margins. Natural leverage to higher prices inevitable.
- Consider the following example of a gold price of $800 per ounce.
Miner A produces at $400 per ounce. Their margin is $400 per ounce.
Miner B produces at $700 per ounce. Their margin is $100 per ounce.
-
The Gold Price subsequently rises to $1000 per ounce.
Miner A still produces at $400 per ounce. Their margin is now $600 per ounce.
An increased profit margin of 50%.
Miner B still produces at $700 per ounce. Their margin is now $300 per ounce.
An increased profit margin of 200%.
-
The share price of miner B should mirror the obvious outperformance.
III. Investment
Strategies
Historic Goldfields…More to Yield.
 Many historic multi-million ounce gold producing regions have been dormant for
more than a Century. Many simply shut after the mid 1800 gold rushes or the
end of World War 1 due to costs, lack of a labour force and lack of capital.
- Many historic mining regions have not been seriously re-worked or
explored with modern methods and technology.
- Many suffered due to disjointed and fractured ownership. Some regions
are consolidated under one focused owner for the first time in their rich
history. Examples such as:
- Ballarat/ Bendigo in Victoria, Charters Towers in Queensland, Mt Lyell
in Western Tasmania, the Carlin Trend in Nevada,
Bathurst/Hargreaves in Western New South Wales.
 Gold doesn’t appear in the crust in single “pipes” like diamonds. Where there is
one gold mine there will be others. Red Lake Ontario, now controlled by
Goldcorp Inc.
 Pure Silver mines are located in Mexico, Peru and Argentina. Historic areas
again.
III. Investment
Strategies
Synthesize Silver Production
 There are very few pure Silver producers available anywhere to invest in. The
Silver supply-demand imbalance suggests significant outperformance of Gold
as an investment.
- Silver is generally a bi-product of lead zinc and copper mines.
- Supply is inelastic until pure silver mines from Mexico, Peru and Argentina
become viable at much higher prices.
 Use of simple derivative contracts (with superior rated global banking
institutions) allows AgAu Capital to convert Gold production to Silver
production.
- Buy silver / Sell Gold contracts effectively converts 1 ounce of Gold
production to 80 ounces of silver production.
- We expect the silver / gold ratio to fall from 80 to 1 at present to around 161 in the next 5 years.
III. Investment
Strategies
Gold/Silver Ratio
Gold/Silver Ratio 1995-2008
90.00
 We expect significant
80.00
outperformance by silver in
coming years.
70.00
 Historic Bi-metallic
monetary standard set at
16 to 1.
60.00
50.00
40.00
30.00
 Geologically the ratio is
14 to 1 but currently
trading at 80-1
20.00
10.00
Gold/Silver Ratio
Feb-08
Feb-07
Feb-06
Feb-05
Feb-04
Feb-03
Feb-02
Feb-01
Feb-00
Feb-99
Feb-98
Feb-97
Feb-96
Feb-95
0.00
 Industrial and Monetary
applications ensure
demand
III. Investment
Strategies
Diversify Globally
 Australian Investors have very few options when looking at attractive Precious
Metal investments in the local market.
- We see significantly better value outside Australia at present.
 International Investors must be cognizant of Sovereign Risk when looking at
Precious Metals as an asset class. Diversification is essential for risk
management.
- Nationalisation of Mines – Crystallex Inc in Venezuela
- Exchange Controls – Zimplats in Zimbabwe.
 AgAu Capital monitors sovereign risk and adjusts portfolio balance accordingly.
- Preference for companies incorporated in Commonwealth countries with
operations in mature economies.
- Manage exposure to African and South American production depending on
country risk.
III. Investment
Strategies
Global Production
Global Gold Production has changed dramatically over the past 3 decades.
 A Precious Metals portfolio cannot ignore developing economies and
countries of lesser sovereign risk
IV. Team
Experienced Licensed Team
Relevant
Experience
(years)
Previous Firms
Experience Highlights
Citigroup
Head of Energy Derivatives Asia Pacific. Three times voted No 1
Corporate Risk Manager for Strategic Advice by Australia’s top
500 companies.
Analysis, structuring and implementation of significant Precious
Metals hedge books for major Gold Mining Companies and
Central Banks.
Construct and manage the groups Investment portfolio
particularly PM’s and Equity portfolio.
Investment
Professionals
Laurie McGuirk
22
Transmedia Group
Mark Long
Kyle Shortland
20
14
Merrill Lynch
Citigroup
Managing Director and Head of Commodities for Asia Pacific.
Responsible for trading, structuring, sales and risk management
of all commodities in Asia.
Head of Commodities – Asia Pacific
Suncorp Metway /
Westpac / Next
Financial
Various roles including Senior Portfolio Manager, Prop trader,
and Model Development as well as writing financial market
commentaries for a number of global sources.
VI. Fund
Terms
Illustrative Investment Terms
Investment Strategy
Earn an attractive risk-adjusted return by creating a globally diversified portfolio of gold mining stocks.
Absolute Return Strategy employing both Fundamental and Technical analysis with a Long Delta position
at all times. Specific sector concentration with commensurate risk diversification. Appropriate strategic
futures and derivatives trading to enhance return and ameliorate risk.
Target Size
US$ 1 billion (Soft close at $600 million with excess capacity allocated to initial investors).
Base Currency
US$
Fund Structure
Master-Feeder Cayman Islands Domiciled
Investment Period
3-10 years
Management Fee
2% of committed capital paid monthly.
Performance Fee
20% of profits paid quarterly with a high water mark.
Preferred Return
15%
Expenses
The Manager will be reimbursed for all financing costs and all direct and indirect operating costs and
expenses and all out-of-pocket costs and expenses incurred in connection with the operation of the assets
and the provision of administrative services
Diversification Requirements
Company Exposure: Not more than 10% FUM exposed to any one company, Not more than 5% of
a single company. Not more than five days average daily volume.
Geographic: Appropriate Diversification of Sovereign risk.
Fund Lawyers Caymans
Walkers
Fund Lawyers Australia
DLA Philips Fox
Fund Administrator
Citco Fund Services (Australia) Limited
AgAu Global
Producer Fund
Appendix
I. Mitigating Risks
II. AgAu’s Portfolio
III. Representative Transactions
IV. Australian Financial Services License
Appendix
Mitigating Risks
Risk
Protection/Mitigant
Metal Price





Operation/Project
 Core portfolio production cost at industry standard. Low Cost eg Goldcorp.
 Analysis includes Geology, Underground vrs Open Pit, Production History, Infrastructure, Costs, Experience of
Contract miners.
 Production diversity. Single mine companies rate lower than multiple production sites.
Liquidity





Exchange Listed Equities
No more than 10% FUM exposed to any entity.
No greater than 5% ownership of common shares of an entity.
Exposure no greater than WAV (weekly average volume) for last 12 months.
OTC derivatives must be a function of either Gold or Silver price. No Exceptions.
Management





Reputation. Know their pedigree.
Experience. Accountants don’t make good explorers. Geologists don’t make good CEO’S.
Horses for courses.
Skin in the game.
Board Experience, involvement and oversight.
Sovereign




Diversification.
Multiple production sites offset some of the risk. eg Newmont.
Continual monitoring via respected independent sources.
Common Sense.
Overwhelming physical market demand underpins price.
Significantly Reduced Official Sales and Producer Hedging
Futures Market for our portfolio hedging and positioning.
Derivatives both OTC and ETO. No Gold or Silver Lease exposure permitted.
Employ both Fundamental and Technical analysis for strategic positioning/Hedging/re-weighting.
Appendix
Portfolio Composition/Stock Selection
AgAu Capital selects appropriate Precious Metal equity investments following intensive analysis focussed on maximum leverage to the gold price
via proprietary qualitative and quantitative measures. Examples such as :
Goldcorp Inc
 Cornerstone investment of the
AgAu Portfolio.
 “Bombproof” gold investment.
 The lowest-cost and fastest
growing multi-million ounce
gold producer. (-$300)
 Canada/USA production.
 Significant Silver exposure
Golden Star Resources Limited
 Lowest cost Proven and
Probable Reserves in the
world.
Profile
Listing:
NYSE, TSE
Production p.a.
Reserves (P+P
off US$550)
2.5 mio
50 Mio +
 Highly liquid
Mine Life
 Exchange Traded Derivatives
and Options markets.
No of Operations
 Control one of the worlds most
lucrative and under-explored
Gold zones. Red Lake.
Share Price
US$29.60
Market Cap
23 Billion US$
 Massive exploration upside
potential and budget.
 Dividends.
15 YEARS+
16
 Significant exploration
potential – Gold production
since 1873.
 Ghana based production
possibly the best sovereign
risk in Africa.
 High cost producer. (+$700).
 Difficult ore-body now
understood and to be
profitably exploited.
731 mio
 Debt Free
 Non Hedger.
WAV (NY-TOR)
 Reserves calculated at $550
Resources
Cost
per
Reserve.
18 million
shares
25 million +
Oz
$450
Listing
AMEX, TSE
Production p.a
Reserves (P+P)
300K
5.1 Mio
Mine Life
12+ years
No. of Operations
3
 Production Cost declines
expected
Share Price
US$0.80
 Exchange Traded Options
Market Cap
US$200 mio
 Infrastructure completed
Shares issued
Profile
 Negative market sentiment
Shares Issued
 Reserves Calculated at $560
WAV (NY-TOR)
 Massive undervalue on Peer
Comparison basis.
Resources
Cost
per
Reserve
240mio
15 million shares
2 million ozs
Oz
$80
Portfolio Composition/Stock Selection
Appendix
AgAu Capital selects appropriate Precious Metal equity investments following intensive analysis focussed on maximum leverage to the gold price
via proprietary qualitative and quantitative measures. Examples such as :
Lihir Gold Limited
Silver Standard Resources Inc
 Low cost Proven and Probable
Reserves.
 Cornerstone Silver investment.
Profile
 Largest in-ground silver
resources in the world.
 Projects in USA, Canada,
Australia, Mexico, Peru, Chile
and Argentina.
Listing:
NASDAQ, TSE
 Control of historic silver
producing areas
Reserves
(P+P
off US$11 ag)
Production
p.a.
 Pure Silver Call Option
Mine Life
 High cut-off grades for Reserve
and Resource estimates
No of Projects
Soon to
Commence
200 Mio +
10 YEARS+
15
 Transition to Silver Producer on
budget and timetable.
 Exchange Traded Derivatives
and Options markets.
 Massive exploration upside
potential and budget.
Share Price
US$18
Market Cap
1.2 Billion US$
Shares issued
67 mio
 Debt Free
 Non Hedger.
WAV (NY-TOR)
Resources(ag)
Cost
per
Reserve Ag.
8 million shares
1 Billion +
Oz
US$6
 Significant exploration
potential Victoria – Gold
production since 1850.
 Total control of historic
Ballarat Goldfield
 Recent close-out of hedge
book.
 Geothermal Power Station on
site.
Profile
ASX,TSE,
Nasdaq
Listing
Production p.a
1mio
Reserves (P+P)
24 Mio
Mine Life
15+ years
No. of Operations
3
 PNG Sovereign risk negligible
due to Geography.
 Medium cost producer.
(+$450).
 Exchange Traded Options
 Infrastructure
Share Price
US$2.00
Market Cap
US$4.5 Billion
Shares Issued
2.2 Billion
100 million
shares
 Reserves Calculated at $600
WAV (ASX)
Resources
Cost
per
Reserve
35 million ozs
Oz
US$180
Appendix
Sell Oil – Buy Gold at 7 Barrels per ounce
- Strategic Long term trade first published at Minyanville.com - August
month or so thereafter).
30, 2005 (and every
Gold/Oil Ratio 1995-2008
30.00
25.00
20.00
15.00
10.00
5.00
Gold/Oil Ratio
Feb-08
Feb-07
Feb-06
Feb-05
Feb-04
Feb-03
Feb-02
Feb-01
Feb-00
Feb-99
Feb-98
Feb-97
Feb-96
0.00
Feb-95

Representative Transactions
Appendix
Sell Dow Jones 30 Index – Buy Gold at 25
- Strategic Long term trade first published at Minyanville.com – June 20, 2005.
Dow/Gold Ratio 1995-2008
45.00
40.00
35.00
30.00
25.00
20.00
15.00
10.00
5.00
Dow/Gold Ratio
Feb-08
Feb-07
Feb-06
Feb-05
Feb-04
Feb-03
Feb-02
Feb-01
Feb-00
Feb-99
Feb-98
Feb-97
Feb-96
0.00
Feb-95

Representative Transactions
Appendix
Australian Financial Services License
 AgAu Capital is regulated by the
Australian Securities and Investments
commission (ASIC)
 AgAu Capital has held an AFSL (306152)
since Nov 06