SF t1ps Smaller Companies Gold Fund

Newsletter - Issue 13
August 2010

When is a record high not a record high?

Benjamin Graham explained that investing was essentially simple: identify long term growth prospects, with solid fundamentals, investing and enjoy the ride. Gold has been on a 10 year bull market but - at $1200 - it may be close to a headline record high but in real terms it is still well over 40% below levels seen in 1980. And the feeding frenzy we saw then has been far from replicated. A study released last year by Barrick Gold explained how only 0.7% of all globally managed assets are within Gold, compared to 26% in 1981.

The recent slight retreat in the gold price has undoubtedly had a negative effect upon the Gold- Investor relationship. However, according to Pierre Lassonde, Chairman of Franco-Nevada, this is nothing to worry about (and we agree!). A drop in bullion prices through the summer months is in fact a normal occurrence. Whether this is an 'urban myth' or in fact a reality, looking back over four decades of seasonality, it would seem that in fact September is normally the most exciting month for Gold price rallying, following a dip throughout the summer months.

The world's second largest gold buyer is now China whose middle classes traditionally see Bullion as a store of wealth and of social status. An ever expanding and wealthy Chinese middle class should incrementally boost the Gold price. Indians have traditionally been a large hoarder of Gold, and with its economy growing that will not harm the cause. In India the Autumn and Winter gift giving season is also approaching, with the Muslim Holy month of Ramadan an added bonus. Following Ramadan, India's post monsoon wedding season gets under way, where the Bride's parents traditionally provide the couple with an amount of Gold bullion as a financial security for the couple's future. This is the reasoning behind the urban myth. We suspect that this seasonal effect is marginal but it all helps.

The fundamental reasons to stay long of gold have not gone away. The majority of European banks managed to get through the recent 'stress tests' but this was a fudge. In reality, the major issues in Spain, Portugal, Greece and now Estonia have not gone away. Nor have the problems of the US and UK and as we write the printing presses are being turned back on for another bout of Quantitative Easing. This can only lead to inflation - and already there are signs that this particular genie is out of the bottle. Cue a gold run

The other day Bank of America-Merrill Lynch forecast a gold price of $1,300 by October/November, whilst Gold analysts at CIBC World Markets in Toronto foresee Gold reaching highs of $1,400 next year, through increased investment demand. We regard both forecasts as pessimistic. Search the net and credible analysts are looking for $2,000, $3,000 and higher. So where does that leave gold shares (a geared play on the gold price)?

A 4% decline in the gold price has seen gold equities retreat by up to 25-30%. Your fund has outperformed that sort of fall as a result of astute stock selection but we are of our highs too. Markets always over-react and so as gold heads higher we expect gold equities to race ahead. Hence we remain fully invested and confident. The recent sharp decline in the value of gold equities is unwarranted and it is an opportunity

Finally there will be a few technical changes in the administration of your fund. We will notify you all by post during September. Suffice to say that the team managing the fund is unchanged and so too is our strategy.

Tom Winnifrith, Ross Jones, James Faulkner and Robert Sutherland-Smith

Past performance is not a reliable indication of future results.

If you have any questions about investing in the SF t1ps Smaller Companies Gold Fund or if you want a simplified prospectus and an application form please visit our website at www.t1psim.com or email goldfund@t1psim.com

Total return, bid to bid line chart from 11/09/2009 to 12/08/2010 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!

1. Contact your broker. Most brokers offer the chance to buy units although few can match our initial rate of 2.5%. But call your broker and give him the fund's SEDOL code: B3 YQ 855. 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 email goldfund@t1psim.com or go to www.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 any questions about investing in the SF t1ps Smaller Companies Gold Fund visit our website at www.t1psim.com or contact 0208 099 0566

Medusa Share Price slide

Many of us have been left wondering why a stock patently worth 300p, 400p or more has been sliding back towards 200p in recent weeks. In part - as we noted above - all gold stocks have slipped back with the most liquid hit hardest. Medusa is liquid.

Admittedly Medusa has scored one or two minor own goals, notably delays in moving from AIM to the main market. But we understand that this issue will be resolved soon and at an operational level it is clearly delivering. It has cash and is adding to its hoard at a rate of knots. It is expanding its resource. So what is the problem?

The problem is nothing to do with the Co-O mine. It is quite simply that two Australian institutions are - for reasons relating to them not to Medusa - selling their entire holding. They have been slipping out shares for weeks and still have (at the last count) 6 million to go. There are two possible near term outcomes. Either a drip drip of shares will continue for a number of weeks, or (more likely) Medusa will attempt to place out the remaining 6 million. If it is the former we will not see 250p or 300p for a while. If it is the latter the price will snap back very quickly.

None of us are smart enough to know when the shares will bounce so you just have to take a view on value. The shares are very cheap at 216.5p and so one just has to buy, sit back and wait. A market capitalisation of £406 million does not reflect the value of a mine producing at a headgrade of 12-15g/t which will produce 130,000 oz of gold ( at sub $200 oz) next year so throwing of at least £60 million of free cashflow. The company has plenty of cash and exploration upside.

So you know our view. We have bought more. We wait. We are not clever enough to call the bottom but we are patient and patience will have a clear reward.

Ross Jones

If you have any questions about investing in the SF t1ps Smaller Companies Gold Fund or if you want a simplified prospectus and an application form please visit our website at www.t1psim.com or email goldfund@t1psim.com

Vatukoula - Placing

Vatukoula's recent trading news has been generally positive. It should produce almost 60,000 oz of gold in the year ended 31st August and will continue to increase output steadily as 2011 draws to a close. Progress has not been as rapid as supporters might have hoped but progress has been made and the company is increasingly profitable and cash generative.

However, life is never simple at Vatukoula and last month also saw a placing raising £7.4 million at 1.85p. Why on earth should a company with cash and generating cash dilute us all once again? Post placing there will be c£12m cash in the kitty and Vatukoula boss Dave Paxton says he wants this hoard to accelerate further exploration into the new surface and underground targets in the vicinity of the main mine that have been discovered. Paxton reckons that this work will accelerate the growth towards output of 200,000 oz a year at a cash cost of $500 oz - That would be free cashflow for the company of c£100 million. At 1.83p the market capitalisation is just £75 million - hardly demanding given Paxton's targets. The man is delivering. We back him.

Ross Jones and Tom Winnifrith

If you have any questions about investing in the SF t1ps Smaller Companies Gold Fund or if you want a simplified prospectus and an application form please visit our website at www.t1psim.com or email goldfund@t1psim.com