SF t1ps Smaller Companies Gold Fund

Newsletter - Issue 12
July 2010

Estonian Madness: Surely A defining moment for paper currencies

James Faulkner wrote the other day:

Just as the Eurozone abounds from disaster to err... disaster, Estonia is preparing to adopt the single currency in January 2011. Despite massive austerity measures having been implemented to see the country satisfy the EU’s laughably titled 'stability and growth pact', the majority of the country's people seem to support the move. They may be in for a rude awakening; the more thrifty northern countries and spendthrift southern states of the Eurozone continue to look incongruous and as a rare dissenter to the move, Professor Ivar Raig, points out sticking to the Eurozone rules will likely see Estonia locked into years of low growth, at a time when it should be developing rapidly. The Estonian economy reportedly shrank by more than 14% last year and unemployment presently stands at just under 20%. Does this country need much the same economic policies as Germany? Only in Euroland!

Well there you have it. Estonia's economy is in a mess and the answer is to sign up to the same currency as Greece, Italy and Spain but also thriving economies such as Germany and Holland. This is sheer insanity of the highest order but in Estonia at least they still seem to think that changing the type of paper currency they use will solve their problems. It will not. It will just give them new problems.

In the non Eurozone West there are conflicting signals. Some think economic growth is slowing which means another run on the printing presses. Others fear inflation (the inevitable result of printing press overdrive). Folks talk quote openly now about the end of the Euro as we know it and of how inflation is a good thing. It all amounts to the same thing. The decades when anyone believed that paper money was a good store of wealth is drawing rapidly to a close and as such we are set to enter a new Golden age.

How high can gold go? Well there are some out there who talk about $6,000 oz. These are not lunatics. This is based on the belief that there will be a complete collapse of the Euro and global currency stability. Others talk of $3,000 oz. We like to take a conservative stance and thus while we believe higher numbers are possible we would see gold heading towards $1500 oz as 2010 draws on while $2,000 oz (enough to match the previous highs of 1980 in real terms) is our longer term target.

However since our last newsletter gold has slipped back from c$1250 oz to $1210 oz. Not a mammoth slippage and no doubt some devilish chartists are even now working out a triple cross Fibonnaci based head and shoulders flag based reason why it may go down again. This is all cobblers. Nothing rises in a straight line and in the greater scheme of things a 4% move does not change much. The fundamentals will move gold higher.

Gold shares have responded to a 4% fall in the gold price with falls of 10-25%. Whoever said that investors were rational? The reality is that all shares have had a poor summer and those which look cheaper than ever have not swum against the tide. But the value is obvious even at $1210 oz. As gold moves sharply higher so too will gold shares. As such our strategy is simply to add to our holdings of existing stocks at these more attractive levels. We welcome the sell-off as a chance to buy more. That opportunity will not last long.

Finally, on a housekeeping note James Faulkner has passed his second set of fund management exams and he now officially moves from trainee to a full blown fund manager. To me exams are far less important than underlying analytical skills and James has always been well ahead on that score. Taking his place as our trainee within t1ps Investment Management - and working from our Douglas office directly with me - is Ross Jones - who is a welcome addition to the team.

Tom Winnifrith

PS. I shall be giving a rare talk in London 20th July at the Minesite Forum at the Armourers Hall on Coleman Street in the City. The event kicks off at 9 AM and there is a free buffet afterwards. 6 Mining companies are presenting and I am talking on ''why perceived wisdom is your greatest enemy''. If you want to attend it is free but you need to register fast. You can do so by sending your name, phone number and snail mail address to amy.clayton@minesite.com

PPS. If you wish to add to your Gold Fund Units you can buy through any decent broker (and also put units in your ISA or SIPP) or you can download a form from www.t1psim.com

Total return, bid to bid line chart from 11/09/2009 to 15/07/2010 from UKUT and OEICs Universe

Source: Financial Express
Past performance is not a reliable indication of future results

Now is the Time to Buy Gold Fund Units - How to Do it!

If you agree with us that the case for gold equities is now utterly compelling it is remarkably easy to buy units for your ISA, SIPP or simply as a stand alone investment. You can do so by:

1. Calling your broker and quote B3 YQ 855. Most brokers offer the chance to buy units although few can match our initial rate of 2.5%. But call your broker. If your broker will not deal please call Spiros Kurtidis on 0208 099 0566 and he will try to rectify the situation.

2. Deal through t1ps and The Share Centre at the initial fee rate of 2.5%. If you want an application form visit our website at www.t1psim.com or email goldfund@t1psim.com

3.Once you have made an initial investment (of as little as £500) you can set up a monthly standing order with the Share Centre to drip feed further cash (as little as £25 a month) into the fund. All existing fund holders can set up such an order. If you have questions please email admin@t1psim.com

A 3 stock Review

The newsflow from our portfolio of stocks has been pretty intense during the past month so there is no space to cover it all. But we thought we'd flag up three situations where great news has been met with indifference by investors. Ultimately - as we know - fundamentals always out and so we just sit patiently, nibbling away.

Jubilee Platinum announced just this week that it has entered into a Memorandum of Understanding with Northam Platinum Ltd to establish a joint-venture to evaluate the construction of a new furnace facility using Jubilee's licensed ConRoast technology to treat a portion of Northam's platinum group metal concentrate. This represents a potential further advancement in the commercialisation of the ConRoast smelting process following the recent successful completion of a development programme for the process and Jubilee's acquisition of a site with infrastructure to establish such a plant.

The potential and progress of ConRoast towards being the solution to the increased chrome ratios now oft present in platinum ore together with the Tjate project in South Africa, potential in Madagascar and exploitation rights to significant BHP Billiton-owned nickel tailings in Western Australia, mean we remain ever more convinced that Jubilee's valuation (£72.5 million) is materially too low. With Jubilee already ''well advanced in the establishment of a commercial ConRoast facility'', house broker FinnCap estimates both ConRoast smelters will generate approximately $15 million of annual free cash flow from 2013. That on its own underpins the share price but remember Jubilee also owns a PGM mine with 65 million ounces contained. The market does not seem to like Jubilee but on a tangible asset value basis this is a nil brainer. We are happy to use the market's scepticism as a buying opportunity.

For more information visit our website at www.t1psim.com or email goldfund@t1psim.com

Conroy Diamonds & Gold is that rare stock in our portfolio - a greenfield explorer. With a market capitalisation of c£8 million it is also one of the smallest companies in which we have a stake. Again, a forced seller has seen the shares drift back but within two months we expect it to announce an independently audited statement of its resource and a clear plan to bring a large open pit mine into production on the borders between Eire and Ulster. We had lunch with the Conroy team last week and it does seem abundantly clear that there is at least a 1 million ounce deposit on its acreage and possibly three times as much. Now we do understand that for some folks the idea that there may be a major gold mine in Ireland is like asking you to believe in the tooth fairy. But there are a number of small gold mines already producing not that far from Conroy's acreage and there was similar scepticism about zinc before the man behind this company (Professor Conroy) discovered Eire's largest zinc deposit at Galmoy 26 years ago. Either the Prof has lost it completely (we doubt that) or we may be onto a huge winner. On a risk reward basis we are really very excited.

For more information visit our website at www.t1psim.com or email goldfund@t1psim.com

Medusa Mining. From the small to the massive. Shares in Medusa were 300p just a few weeks ago. They then fell to 216p for no reason. They are back up at 237.5p now. There was no reason for the fall other than the fact that this is a highly liquid stock and so those who were panicked/short of cash/nervous/locking in capital gains ahead of the budget could sell this stock in a way they could not sell others. Indeed in terms of fundamentals things have actually got better as on 30th June with an upbeat statement on drilling results from the flagship mine at Co-O. In a couple of weeks there will be revised resource estimate on the project. For revised read increased. We first bought Medusa at 26p. But we happily bought more during the slide in the 240s. We are not clever enough to call trading opportunities. We leave that to poor men in dirty raincoats (aka chartists). We just buy value and wait. It may not appear for a while but in the end you might prosper.

Tom Winnifrith & Robert Sutherland-Smith

For more information visit our website at www.t1psim.com or email goldfund@t1psim.com