Kopernik Q1 2015 Conference Call | Presentation

Kopernik Global All-Cap
1Q 2015 Conference Call
Presented by:
David B. Iben, CFA
CIO & Lead Portfolio Manager
.
Index
Kopernik Overview
•
Centering on Client Success
•
Investing with a Distinctive Philosophy
•
Uncovering Value with Industry Specialists
Market Overview
•
Markets in Review
•
Return-Free Risk?
•
Bifurcated Performance
•
Unsustainable Margins
•
The Dollar Has Soared
•
Taking Advantage of Investors’ A.D.D.
•
Uranium
•
Coal
•
Hydropower
•
What Would Newton Think?
•
Is the Secular Decline Over?
•
Gold & Gold Industry
•
Advanced Economies vs Emerging Economies
•
Stock Market Capitalization
2
Centering on Client Success
Kopernik Global Investors, LLC (“Kopernik”) is a global equity investment management
specialist, organized to ensure a culture centered on client success
•
Leadership and ownership by investment professionals
•
100% employee owned
Private Funds
8%
Mutual Funds
46%
•
Equity participation for all professionals
•
Principals invest alongside clients
•
Capacity to be limited, enhancing return potential
•
Founded by David Iben – July 2013
UCITS
10%
Separate Accounts
36%
Total Firm AUM by Type (As of 3/31/2015)
Mutual Funds
Private Funds
UCITS
Separate Accounts
Total Firm AUM
Assets as of 3/31 are preliminary.
$681.94 MM
126.49 MM
152.28 MM
531.25 MM
$1,491.96 MM
3
Investing with a Distinctive Philosophy
The likely outcome of a distinctive philosophy consistently implemented by skilled investors –
sustainable investment success and low correlations to other managers
•
We view ourselves as owners of businesses:
-
Market inefficiencies present numerous opportunities to identify quality businesses that we believe are mispriced
-
Independent research of a company’s business, industry supply/demand, competitive positioning and management uncovers
opportunities
•
We predicate our intensive, original research on:
-
A global perspective to enhance understanding of markets and companies
-
A long-term investment horizon to allow for inherent value to be realized
-
Value as a prerequisite, not a philosophy
-
Bottom-up, fundamental analysis to gain a thorough understanding of a company’s business and valuation
-
Industry-tailored valuation metrics to assess distinct industry characteristics and success drivers
4
Uncovering Value with Industry Specialists
•
Far-reaching investment experience in global markets with a long record of success
•
Searching for market anomalies with industry specialists who have diverse backgrounds and distinct perspectives
•
Group vetting to challenge ideas and develop high conviction
5
Markets in Review
NON SEQUITUR © 2014 Wiley Ink, Inc.. Dist. By UNIVERSAL UCLICK. Reprinted with permission. All rights reserved.
6
Global equity markets have become increasingly bifurcated over the past six years. This trend was
magnified by the S&P’s stellar performance in 2013 and 2014. Emerging markets and Europe on the
other hand have lagged behind. The U.S. equity bull market, that started in March 2009, has been
propelled by unprecedented quantitative easing. While there are notable differences, today’s current U.S.
equity market reminds of the tech bubble experienced in early 2000 with valuations that are, in our
opinion, unsustainable. As a result of the “economic recovery” observed in the U.S., policy makers worldwide now view quantitative easing as the cure-all for their economies as well. While government debt
levels in most countries around the globe continue to grow, global bond yields remain at extremely low
levels and nominal yields have even turned negative in as many countries such as Germany, Denmark
and Switzerland. Over $5 trillion of sovereign debt is trading at negative nominal interest rates. We must
pay them for the privilege of loaning money to them. We fear that this experiment in monetary policy is
bound to end badly.
While investing in these bifurcated markets is particularly challenging, we have taken advantage of the
many opportunities to buy dominant companies at very attractive valuations. Although we have clearly
been early, we believe we have never had a more attractively valued portfolio. Diversification across
industries, countries, regions and currencies is more important than ever.
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Return-Free Risk?
Historical 30 Year Bond Yield
Source: Bloomberg
16.00%
30 year bond current yield = 2.6%
$1,051
14.00%
12.00%
10.00%
Yields go to
2%
Price of Bond
$1,224
Gain/Loss
16.46%
4%
$827
-21.31%
8%
12%
$435
$273
-58.61%
-74.02%
16%
$196
-81.35%
8.00%
6.00%
4.00%
2.00%
0.00%
8
U.S. Stock Market as % of GDP
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9
Bifurcated Performance
Performance of Equity Markets
Source: Bloomberg
July 1, 2014 - December 31, 2014
$1,100
$1,050
$1,000
$950
$900
MSCI Emerging Markets Index
MSCI AC World Index
MSCI EAFE Index
Dec-14
Dec-14
Nov-14
Nov-14
Oct-14
Oct-14
Sep-14
Sep-14
Aug-14
Aug-14
Jul-14
Jul-14
Jul-14
$850
S&P 500
10
Unsustainable Margins
U.S. Corporate Profits as a % of GDP
12%
7/1/2014, 11%
10%
8%
6%
4%
2%
0%
1947
1952
1957
1962
1967
1972
1977
1982
1987
1992
1997
2002
2007
2012
Source: Economic Research Division, Federal Reserve
Bank of St. Louis
11
The Dollar Has Soared
U.S. Dollar vs Major Currency
September 2014 - April 2015
$102
$100
$99.48
$98
$96
$94
$92
$90
$88
$86
$85.20
$84
September-14
October-14
November-14
December-14
January-15
February-15
March-15
Source: Bloomberg
12
NON SEQUITUR © 2014 Wiley Ink, Inc.. Dist. By UNIVERSAL UCLICK. Reprinted with permission. All rights reserved.
13
Taking Advantage of Investors’ A.D.D.
14
Uranium Getting Cheaper On “Wall Street” Even As It Gets More
Expensive On “Main Street”
Uranium
8/28/2014 – 3/23/2015
$140
$130
UXA1 | +18.94%
$120
$110
U CN | -7.24%
$100
$90
$80
$70
CCJ US | -23.26%
8/28/2014
9/28/2014
10/28/2014
Uranium Spot Price | UXA1
11/28/2014
12/28/2014
Cameco Corp | CCJ US
1/28/2015
2/28/2015
$60
3/31/2015
Uranium Participation Corp | U CN
Source: Bloomberg
15
Uranium demand (klb U3O8)
Uranium
Uranium Supply & Demand
2003-2020E
Source: Bloomberg
215,000
195,000
175,000
155,000
135,000
115,000
95,000
75,000
2003
2004
2005
2006
2007
2008
2009
2010
2011
Total Demand (Power Utility)
2012
2013
2014E
2015E
2016E
2017E
2018E
2019E
2020E
Total Supply (Mine Production)
New Reactors Under Construction
90 net new reactors by 2023
Source: Cameco, Q2 2014
Operable 2014
New
Shut
Operable
Change
Under Construction
2014
Americas
Europe
Asia
Other*
India
China
Russia & E. Europe**
126
136
77
6
21
21
49
8
10
14
16
15
57
21
(8)
(16)
(14)
(13)
126
130
77
22
36
78
57
0
(6)
0
16
15
57
8
6
4
9
5
6
27
12
Total
436
142
-51
526
90
69
Region/Country
*Other: Bangladesh, Iran, Pakistan, Saudi Arabia, South Africa, Turkey, United Arab Emirates
**E. Europe: Armenia, Belarus, Ukraine
16
Uranium
Source: UX Consulting Company
17
Coal
World Electricity Production
By Fuel Source
Source: World Bank
9,000
8,000
World Electricity Production (TWh)
7,000
6,000
5,000
4,000
3,000
2,000
1,000
1980
1982
1984
1986
1988
1990
Coal
1992
Gas
1994
Hydro
1996
1998
Nuclear
2000
Oil
2002
2004
2006
2008
2010
2012
Other
18
Energy Stocks vs. Energy Prices
$1,200
$1,100
$1,000
$900
$800
$700
$600
$500
$400
Apr-14
May-14
Jun-14
Jul-14
Aug-14
WTI
Sep-14
Nat Gas
Oct-14
PRB Coal
Nov-14
Dec-14
Jan-15
Feb-15
CAPP Coal
WTI – West Texas Intermediate | PRB Coal – Powder River Basin | CAPP Coal – Central Appalachian Coal
$1,200
$1,100
$1,000
$900
$800
$700
$600
$500
$400
$300
Apr-14
May-14
Jun-14
Jul-14
Peabody Energy
Aug-14
Sep-14
Exploration & Production
Oct-14
Oil Services
Nov-14
Dec-14
Global Energy Index
Jan-15
Feb-15
Source: Bloomberg
19
Hydropower
Source: Bloomberg
IDA vs Eletrobras | P/B
2.00
1.80
1.80
1.65
1.60
1.51
1.49
1.40
1.31
1.27
1.22
1.19
1.20
1.09
1.06
1.00
0.80
0.60
0.40
0.52
0.37
0.28
0.43
0.41
0.47
0.33
0.22
0.23
0.15
0.20
0.00
2005
2006
2007
2008
2009
P/B Eletrobras
2010
2011
2012
2013
2014
P/B IDA
20
What Would
Newton Think?
Market Capitalization
$432 billion
$670 billion
$724 billion
Price-to-Sales
0.76x
1.00x
3.80x
Price-to-Book
0.50x
1.26x
6.00x
77,000,000
107,300,000
83,000
6.6 million sq. miles (4.2 billion acres)1
3.3 million sq. miles (2.1 billion acres)1
2.9 sq. miles(1,866 acres)6
25% of the world2
12% of the world3
-
80,000 (m b)
13,219 (m b)
-
48,676 (billion standard cu m)
459 (billion standard cu m)
-
1,060.7 TWH4,5
557.4 TWH4
-
Gold Holdings
38.8 million ounces (1,208 tons)
2.2 million ounces (67 tons)
27.1 million ounces (842 tons)7
Gold In-situ
160.8 million ounces (5,000 tons)
77.2 million ounces (2,400 tons)
-
No
No
Yes
Size of Workforce
Resources
Land
Freshwater
Crude Oil
Natural Gas
Electricity Generation
Rapidly Obsolescing Products
1 Russia
and Brazil are the 1st and 5th largest countries by land size in the world, respectively.
largest of Russia’s bodies of fresh water, Lake Baikal, is the oldest, deepest and purest fresh water lake in the world. Baikal alone contains over one-fifth of the world's fresh surface water.
Of the country's 100,000 rivers, the Volga at 2,294 miles is the longest river in Europe.
3 Brazil has a dense and complex system of rivers, one of the world's most extensive. The Amazon Basin is the most extensive river system in the world. It has a total area of 7,008,370 km 2. The
Amazon river basin alone, which covers 48% of the country’s territory, accounts for 75% of Brazil’s freshwater resources.
4 Russia and Brazil are the 4th and 8th largest electricity producers in the world, respectively.
5 Brazil is the second-largest producer of hydroelectric power in the world, trailing only China, and the country depends on hydroelectricity for more than 75% of its electric power supply. Much of
Brazil's hydroelectric potential lies in the country's Amazon Basin.
6 Over a period of nine months ending in January 2015, Russia has been purchasing gold and has now overtaken China as the fifth largest country in total gold reserves. In November 2012,
Brazil doubled its gold holdings.
6 Apple Inc., Form 8-K for qtr. ended Dec. 27, 2014. Approximately 15% is leased property, 85% is owned.
7 Cash and Short Term Investments of $32.46 billion as of December 27, 2014 converted to ounces of gold ($1,199/ounce as of April 2015).
2 The
Russia P/B, P/S – RTS Index
Brazil P/B, P/S – Ibovespa Brasil Sao Paulo
Stock Exchange Index
Apple - AAPL
Sources: World Gold Council, USGS,
Britannica, OPEC, Bloomberg, CIA.gov,
EIA.gov, BP, Reuters
Gold statistics are displayed in Metric Tons
and Troy Ounces.
Data as of March 31, 2015 - Unless
otherwise noted
21
Is The Secular Decline Over?
USDX Index
December 1984 - April 2015
$160
$151.47
$150
$140
$130
$120
$110
$99.54
$100
$90
$80
$70
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
DXY Curncy (DOLLAR INDEX SPOT)
Source: Bloomberg
22
Gold
Production Input
Generates Income
Gold
No
Dollar
No
No
No
Edible
No
No
Medium of Transaction
Fair
Excellent
Excellent
Poor
*
*
Store of Value
Intrinsically Valuable
Source: Kopernik Analyst
23
Gold
Gold Price / U.S. Monetary Base
0.0030
Source: Bloomberg
0.0025
0.0020
0.0015
0.0010
0.0005
-
24
25
Gold Industry
($bn)
Gold Industry | Comparison of Market Caps
800
700
600
500
400
300
200
100
Gold
Chevron
Pfizer
Facebook
JNJ
Microsoft
Apple
($bn)
Gold Miners Market Cap vs Upside Potential
$1,600
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
Aggregate Market Cap of Gold Miners
Liquidation Value
Optionality Value
Theoretical Value
Source: Bloomberg
Gold Miners Market Cap vs Upside Potential
Liquidation Value: $200/ounce for ounces in the ground and an 85% recovery rate.
Optionality Value: $260/ounce (the price of a 5yr call option with a strike price of $1300); same ounces and recovery rate
Theoretical Value: $900/ounce; same ounces and recovery rate.
26
Advanced Economies vs Emerging Economies
Gross domestic product based on purchasing-power-parity (PPP)
Source: IMF
Current International Dollar in $B
$70,000
$60,000
$50,000
$40,000
$30,000
$20,000
2000
2001
2002
2003
2004
2005
Advanced economies
2006
2007
2008
2009
2010
2011
2012
2013
2014
Emerging market and developing economies
As of: April 2015
Name
P/B
P/E
Curr
EV/T12M
Sales
EV/T12M
EBIT
FCF Yld
Dvd 12M
Yld - Gross
S&P 500 INDEX
2.885
18.484
2.187
16.274
5.040
1.977
MSCI EAFE
1.722
17.752
1.472
15.316
3.834
2.884
HANG SENG INDEX
1.520
11.601
2.188
11.145
7.843
3.271
ARGENTINA MERVAL INDEX
1.282
10.783
1.958
15.779
-6.789
0.499
IBOV
BRAZIL IBOVESPA INDEX
1.329
14.813
1.528
11.580
20.569
4.026
KOSPI
KOSPI INDEX
1.202
53.740
1.261
26.188
1.549
1.235
RTS Standard Index
0.364
4.192
0.917
6.303
33.091
Ticker
SPX
MXEA
HSI
MERVAL
RTSSTD
0.088
Source: Bloomberg
27
Stock Market Capitalization Relative to GDP
% of
World GDP
2013
% of
MSCI ACWI
Jan 2015
United States
22%
52%
China
12%
2%
Japan
7%
7%
Germany
5%
3%
France
4%
3%
United Kingdom
4%
7%
Brazil
3%
1%
Italy
3%
1%
Russia
3%
0%
India
2%
1%
Other
36%
23%
Source: World Bank, Bloomberg
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THANK YOU
Q&A Session
A copy of this presentation will be made available on Kopernik’s website shortly after the call.
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Important Information
The information presented herein is proprietary to Kopernik Global Investors, LLC. This material is approved for a presentation to authorized individuals only and,
accordingly, this material is not to be reproduced in whole or in part or used for any purpose except as authorized by Kopernik Global Investors, LLC.
Please consider all risks carefully before investing. The accounts managed according to the Global All-Cap investment strategy are subject to certain risks such as
market, investment style, interest rate, deflation, and illiquidity risk. Investments in small and mid-capitalization companies also involve greater risk and portfolio
price volatility than investments in larger capitalization stocks. Investing in non-U.S. markets, including emerging and frontier markets, involves certain additional
risks, including potential currency fluctuations and controls, restrictions on foreign investments, less governmental supervision and regulation, less liquidity, less
disclosure, and the potential for market volatility, expropriation, confiscatory taxation, and social, economic and political instability. Investments in energy and
natural resources companies are especially affected by developments in the commodities markets, the supply of and demand for specific resources, raw materials,
products and services, the price of oil and gas, exploration and production spending, government regulation, economic conditions, international political
developments, energy conservation efforts and the success of exploration projects. There can be no assurances that investment objectives will be achieved.
Kopernik Global Investors, LLC is an investment adviser registered under the Investment Advisers Act of 1940, as amended.
This document, as of March 31, 2015 is descriptive of how the Kopernik team manages the Global All-Cap strategy. There is no guarantee that any strategy’s
investment performance objectives will be achieved. This profile is not legally binding on Kopernik Global Investors, LLC or its affiliates.
© 2015 Kopernik Global Investors, LLC | Two Harbour Place | 302 Knights Run Avenue Suite 1225 | Tampa, Florida 33602 | 813.314.6100 | www.kopernikglobal.com
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