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Gas Natural SDG’s (GASNF) CEO Rafael Villaseca on Q4 2015 Results – Earnings Call Transcript

Gas Natural SDG SA ( OTC:GASNF ) Q4 2015 Earnings Conference Call February 3, 2016 4:00 AM ET Luis Calvo Good morning to everyone. Welcome to the presentation of results of Gas Natural Fenosa for 2015. The presentation will be done by our CEO, Mr. Rafael Villaseca, accompanied by the CFO, Mr. Carlos Alvarez, and the General Director for Strategy and Development, Mr. Antonio Basolas. After the presentation will start, we’ll have a Q&A session and it won’t be possible to accept questions on the phone. We’ll begin with the people in the room and then we’ll answer the questions that have been sent in using the form that you will find on the website. And we request those of you who use this form of asking questions to send in the questions during the presentation, because once we have started it will not be possible to send any more questions in. I’ll pass the floor to our CEO, Mr. Ramon Villaseca. Rafael Villaseca Good morning to everyone. Welcome to the meeting. We’re going to explain the closing of our year and the situation of the strategic plan. This is the agenda, the order of the day. We’ve got the strategic plan objectives, 2013/2015. Next we will talk about the results of 2015, and finally we will give you details about the P&L account and then conclusions and the Q&A session. We begin with the strategic plan. We have to say that the key data of the year are that our net profits have been €1,502 million, an increase of 2.7% over the previous year. If we talk about the EBITDA without — 2015 non-restated EBITDA, I’ll explain what that means, it’s €5,376 million, which is an increase of 10.8%. The need to express the data of the previous year has to do with the fact that we have discontinued our liquid gas operation in Chile. And to adjust this, as a result of this operation, our partial disinvestment in the gas business, in GLP in Chile, leads to a situation where the increase is 10.8% in non-restated terms. If we did, the increase would be 8.6%. The net investments of the period have dropped by 62.1%. The total is €1,422 million, because mainly of atypical operations, the purchase of the Chilean group CGE and the purchase of the new methane ship. So our financial structure is sound. We continue to deleverage and we’ve reduced the net debt by 7.6% as regards the previous year. As regards the dividend, the Board will propose to the AGM the payment of €0.9328 per share, payable in cash. We’ve advanced a dividend of €0.4078. The complement would be €0.5250 to be paid as from July 1. So the total amount to be paid out as dividends would be €933.4 million, which is an increase of 2.7% as regards the previous year. That means a payout of 62.1%, and it means a profitability per dividend of 5% as regards or as compared to the previous year. So we are honoring our commitments as expressed in the 2013/2015 strategic plan. As regards the remaining financial targets, you have them on this graph. We had committed an EBITDA of more than €5 billion and that has been the case. We’ve made €5.3 billion. A net income of €1.5 billion, which has also complied with the target. A net debt to EBITDA ratio of about 3, and it has been 3. And a dividend payout of 62%, which in fact has been 62.1%. So it’s a source of satisfaction to be able to say once again that we have accomplished what we promised, we have delivered what we promised. Now, if we look at the strategic plan overall, as a whole, and including profitability for shareholders in the 2013/2015 period, you see that if we consider the price and the dividend, profitability for the shareholder has been up 58.4% in the 2013/2015 period, which is equal to a cumulative return of 16.6% for that period. Now, that period, we have to remember the factors of the economic environment and energy environment. Also within the aims, qualitative aims of our strategic plan, we have to say that the three lines of growth that we had set out to achieve were networks, generation and gas. So in these three lines, there’s been significant advance made, which will undoubtedly bear fruit in the near future. In the distribution network business, we’ve increased our points of supply by 3.7m and we’ve got an additional potential of 1m connection points for between here and 2020. As regards the gas networks, we’ve got a concession for the Arequipa region in Peru and the new concessions for gasification in Mexico, the purchase of Gas Directo in Spain, or direct purchase of gas in Spain, the entry into new towns in Spain and the recent purchases of liquid gas networks that belonged to Repsol. As regards gas and electricity networks, we have to underline an increase as a result of the purchase of the Chilean company CGE. As regards electricity, we’ve added 520 megawatts to our generation portfolio as a result of the incorporation of the Bii-Hioxo plant in Mexico, the Torito plant in Costa Rica and the purchase of Gecalsa. We also have to highlight the creation of Global Power Generation and the entry of the KIA Company into that business. As regards the wholesale gas business, we have signed agreements for 11 bcms associated with different projects, two in the US, Sabine Pass and Corpus Christi; the Yamal project, liquid gas project in Russia; the Shah Deniz project in Azerbaijan; and the purchase of five new ships that are going to be incorporated gradually, one of them has already been incorporated, which will increase our capacity by almost 1m cubic meters for the management of the liquid natural gas business. As regards the synergies that we had contemplated in the strategic plan, we’ve covered them satisfactorily. The aim was €300 million. At the end of 2015, the total was €306 million. Here you see the increase of these synergies obtained, and we would have to add that’s the next plan to consider, all the ones that will result from the CGE operation. And we have to point out too that the main reductions in costs have been discretional services costs, rationalization of operational costs and optimization of costs in corporate areas. It was foreseen, you know, the beginning of this year, this quarter, that we were going to present the strategic plan for 2016/2018, with a larger vision of up to 2020 but a three-year plan. And we have to say that we think it’s convenient to delay this to the second quarter. We have May 30 as the set date. Because the process is being finalized, the strategic plan is being finalized, and very soon we will begin the internal review and approval process. But the volatility of the financial and currency markets and the volatility of the energy indexes all over the world and uncertainty as regards the growth of emerging markets and what that will mean in terms of the energy that they need have led us to decide that we need a little bit more time to see what the variables are going to be within our activity and business, and we are trying to avoid giving you figures that are not definite or ranges that are not definite. Up until now, we have always liked to be able to produce specific figures and objectives. So we’ll take our time. We will finalize the strategic plan, and at the same time try to see whether we have greater visibility as to what is going to happen. But this won’t go beyond May 30, as I’ve just said. Now, if we go into the breakdown for 2015, considering everything, all things considered, it’s been a very good year in spite of the very difficult situation of commodity prices, especially Brent, and the situation of currency markets. We have to point out there’s a sound behavior of regulated businesses and a great stability of these businesses in Spain and South America. And at the same time, we have to say that we’re very satisfied about the purchase of the CGE company in Chile, and this was a very good operation which has produced profits after considering the costs of the operation right from year one. In Spanish America, there’s been a general growth of all our activities, even in countries where the economic situation is not as good as it was a few years ago, but we must say that the devaluation of currency, foreign currency in recent months especially has had a negative impact. However, we have been able to make up for those effects with results that have complied with the strategic plan. If we look at the evolution of EBITDA by business lines, here you see it, it’s grown by 8.6%, 10.8% without considering the disinvestment in the GLP business. If we do consider that, as I said before, there is an agreement with the minority shareholder group of Gasco to proceed with the splitting of that business and disinvestment, which has not yet been finalized but it will probably be finalized. So in accordance with accounting rules, we have to discontinue, and that is what causes this adjustment that causes the figure to go down from 10.2% to 8.6%. It’s important to point out that the networks have allowed a growth of €557 million, but as you’ll see in a minute in detail, even if we discount the CGE factor, which accounts for a lot of this growth, the quote/unquote organic growth has been above — exceeded 3.4%. As regards the electric generation business, it’s relatively flat in terms of EBITDA. Wholesale gas business, there’s a negative amount of €109 million, which we’ll give you details about now, due mainly to the evolution of the commodity scenarios. As regards other activities, 28 negative points, mainly because the previous year we had the effect of the sale of our telecommunications business. As regards the EBITDA breakdown, if we look at main effects or main factors that have determined it, we see that the scope, the perimeter for consolidation, the purchase of GCE has increased that EBITDA by €431 million, CGE and Gecalsa, especially the Chilean group, and discounting the negative effects of disinvestments of the previous year. The translation of currencies, when it comes to the balance, basically corresponding to the Latin American investments, if you put that into the consolidated balance there’s a positive balance of €19 million, which is important because of the correlation between the dollar and foreign currencies which has made up for this. As regards the regulatory measures, there’s an impact of — negative impact of €59 million resulting from the new regulation measures of the gas business, which only partially affected 2014 but have affected 2015 fully. And finally, the activity, which is net, obviously, includes the effects of scenarios in the commodity markets, has grown by €28 million. If we analyze the factors that I was talking about now and we start with the effects of foreign currencies on the consolidated results of the Group, you see that the total is €19 million, with a singular or quite peculiar behavior. In the first three quarters it was positive, but it — first two quarters, but it was negative in the second two quarters and been positive at the end of the year. Now, this is an important situation. The interaction between exchange rates of the different currencies has led to a situation where the behavior you see on the right, of the dollar, made up for, to a large extent, the negative behavior of the Brazilian currency and Colombian currency. But as you can see, especially in the last two quarters, clearly in the last two quarters, those negative factors couldn’t be made up for through the influence of the dollar. And that we see because the current behavior of the dollar has not really changed as compared to the previous year, and it’s not having this mitigating effect on the devaluation of the Latin American currencies. But we have to insist that the devaluation of these currencies is the result in those South American countries of the inflation that they have in some of these countries. And you must remember that the regulatory formulas that cover our services for gas and electricity distribution in many countries include inflation, and in some countries the ups and downs of the exchange rates. So when these readjustments take place, as recently in Mexico, that is made up for via tariffs. The inflation and exchange rate effects are made up for using tariffs. One case is Mexico. It was resolved fortunately positively recently. If we look at the businesses and networks, the networks account for almost 60% of the EBITDA of the Company. As you can see on this graph, we have compared the EBITDA for the two years and the differences we’ve expressed in different items. Problems of exchange rate, impact of regulations, impact of consolidation perimeter, and finally the column corresponding to activity, the business itself. Now, if we discount all those effects, exchange rate, regulation, consolidation perimeter, the activity in the networks has involved an increase of EBITDA of €233 million, which means an increase of 9.2%. If we consider that networks account for almost 60% of the business and that 52% is generated outside of Spain, most of this EBITDA has to do with the gas networks, and we must insist that the regulations are stable there and there’s a high potential for growth. The incorporation of CGE has been very relevant, but we have to insist that even if we don’t take that into consideration, the increase as a result of activity of the EBITDA has been, I repeat, 9.2%. The business continues to grow very much, and we have to say that the effects of devaluations can be mitigated as a result of the tariff adjustment operations in exchange rates and inflation in the countries. We have to say, you know, that the purchase of the Chile operation has been very positive for this Company, after discounting the purchase costs, positive in terms of the bottom line of our accounts from day one, and there’s a high potential for growth too. Although it is true that in 2015 the Company — the Group did not have the atypical positive values that we achieved in 2014, the Group has progressed very favorably in its different lines of business, and we’re convinced that this has borne fruit but will continue to do so in the future, with a very high potential for growth which we are going to utilize immediately. In terms of the generation businesses, power generation, they account for 19% of the EBITDA of our Group. Here you have it broken down, Spain and international, GPG. You see that if we discount, we take away the phenomenon of the foreign exchange that only affects the GPG and the consolidation perimeter, the result has been €53 million negative, whose main reason has to do with the lower margins of electricity in our country. 74% of the business is in Spain, 26% abroad. Abroad, mainly, we have PPAs; the contracts are PPAs. And you can see that there’s €45 million more resulting from the fact that most of the income in this activity, in this business, is in dollars. Now, as regards the gas business, it’s important to point out that generation accounted for 19% of our EBITDA. Gas accounts for 21% of our EBITDA, but of that 21%, 7% is infrastructure and 15% is procurement. I have to insist procurement, which you are obviously very interested in, accounts for 15% of our EBITDA. Now, as you can see, the infrastructure business dropped by €42 million, 14%, as a result mainly of the lower degree of activity of the Maghreb/Europe pipeline, which belongs to us. Procurement dropped by 12.6%, €114 million, which we will break down in a minute for you. But as you can see, in spite of the very, very difficult situation of the international energy markets, we’ve been able to advance and make progress, and you can see this on this chart more clearly. On the left, you see the amounts that we’ve sold in supply, retail, industrial, domestic and LNG. You see how they’ve gone up and down. All told, the volumes have gone up by 1.8%. As you can see on the right, you can see the evolution of the unit margins of all these business lines of the Group in supply as a whole. And as you see, as regards the previous year there’s been a drop of 14.1%. We’ve gone from €2.90 to €2.49, the EBITDA, so there’s a drop of 14.1%. But allow me to summarize. All the EBITDA of the business, the completely overall EBITDA, has dropped by 12.6% as a result of a drop in the unit margins of 14.1%, which has been made up for by an increase in volume of 1.8%. Now, when one year ago, just over one year ago, we gave you the figures of the first quarter, we said that we foresaw that in this year the drop, the decrease, would not exceed two digits, but it has. It has. It’s 12.6% as compared to the previous year, the drop in EBITDA of the business. Now, in the same period — the reasons are clear; you know them, we could not imagine what would happen. We’ve dropped by 12.6%. But Brent has dropped by 50% in the same period, National Balance Point has dropped by 21% and the Henry Hub by 35%. Now, these factors have been very much concentrated in the third and fourth quarters, and that explains why we’ve not been able to comply with this desire of not exceeding or reaching two digits and we’ve even gone above it — slightly above it. And this has been due to the enormous volatility of general energy prices, as I have explained when I’ve presented these changes between — when we compare 2014 and 2015. If we look at the net income, we’ve grown by 2.7%, and here you have the big items that explain and account for this increase of 2.7%. Firstly, we have the provision — the impairment of our investments last year, in Union Fenosa Gas mainly, €458 million, and also the positive effect of the fiscal reform, which produced €325 million last year which is not — that amount is not there this year. And then the values obtained as a result of disinvesting in telecommunications, €185 million, what we got back from that. So next we’ve got to consider that the consolidation perimeter, mainly the investment in Chile and the disinvestment in telecommunications, has produced a net amount of €47 million. And the activity of the Company without bearing in mind these phenomena has increased the profit after taxes by €45 million. That simplifies the results. Now, if we do the same in terms of cash flow of the holding and the situation of the debt, we have to highlight the cash flow is very relevant, has been very relevant, very positive in 2015, and it has allowed us to have the debt to EBITDA ratio at 3 in spite of the significant investment last year when we bought CGE. The generated FFO is €3,575 million, 25% more than the previous year, and that has allowed us to invest up to a total of €1,560 million, pay €1,070 million in dividends and have a free cash flow of more than €900 million. The graph also explains the impact of €315 million deriving from the restatement of the financial data of the discontinuation of the business in Chile. So the debt has gone down by 7.6% and we have a debt to EBITDA ratio of 3. That means €15,648 million. If we look at our investments, you see on the left total investments, €1,767 million, and on the right you see the evolution of investments, net tangible and intangible investments. On the left you see 79% of investments have been in distribution and networks. It’s important to point out that on the right you see that the situation — the Company has invested, including the investment of CGE, up to a value of €6,987 million, which is an average annual amount of €2,200 million. We have continued with our activities. We’ve disinvested in telecommunications and Begasa and we’ve incorporated KIA, a strategic partner, to Global Power Generation, with a contribution of $550m. At the end of the last financial year, we acquired 8.3% of the capital of Metrogas, and then there’s the thing of the discontinuity of the GLP business in Chile. We came to an agreement with the shareholders of Gasco to divide the company into two parts, the gas business which will be incorporated into our Company and the GLP business which is going to be discontinued. Now, in the long term, what can we say about the last few years? Well, the financial discipline and the robustness of our business are noteworthy. We have had clear financial robustness. We not only complied with quantitative profit and EBITDA targets in our strategic plan, but in addition we managed to grow, acquiring the Chilean company for €4.3 billion. And all of this has been done compliant with the borrowing levels that we had set ourselves. So we have a good distribution, a good geographical distribution, and our credit indicators are really very robust, with a flow per operation that’s really noteworthy and an average cost of debt of 4.5%. Now, to conclude, let me tell you that we are satisfied that our balanced business model has made it possible for us to circumvent the difficulties that we have had in the businesses indirectly related to the macro variables of the energy sector and energy commodities. We have been able to comply with our growth targets in terms of EBITDA and profit after tax. Our business model has also been strengthened and our dividend has also been very good. That’s the reason why we believe that the Company’s efforts should be appreciated, and of course they will be seen in our new business plan which will be presented to you in May. So this is all I wanted to say. The more detailed figures can be found in the presentation. And now I’m at your entire disposal in case you have any questions. Question-and-Answer Session A – Luis Calvo So let’s start with the Q&A session, starting by the questions from the floor here. Before you ask your question, please identify yourself. The first question is going to be asked by Fernando. Fernando Garcia Hello. I come from MainFirst and I have three questions. The first one, I would like to ask your guidance in terms of the new commodity situation and the world growth. Because the previous guidance was based upon compensating for the fall in margins with volume, but what is your take on this now? And the second question is I would like some detail on the hedging for generation prices in Spain for 2016. And in terms of the commodity impact, you’ve given us the impact in terms of EBITDA, but could you please give us the impact on the net profit? And what do you think is going to be the impact on the different currencies for the net profit of 2016, taking into account the current commodity situation? Thank you. Rafael Villaseca Well, we have said this on several occasions. We don’t give guidance figures for current financial years, but we can make a few comments about what our take on things is. This year, our main activity is going to be focused on the organic growth of our core activities, basically the networks. In terms of gas distribution, at a world level we believe that increase in supply points will be around 770,000 and in Spain the figure will be around 300,000, justified by the acquisition of the supply points of GLP and Repsol. In Chile we also expect to grow by 150,000, and Colombia 120,000. Also, tariff reviews have positively started in Mexico and we hope that the period until 2020 will close positively in terms of electricity distribution, but will grow significantly in Latin America. In Colombia we expect to make investments to improve the network and reduce our losses. In terms of the electrical business, we will enjoy a full year for Torito and Gecalsa. And in terms of gas distribution, we believe that there’s going to be an increase of 6%. We will also have two new methane vessels, which will help us mobilize early gas quantities coming from Cheniere. And as you know, these quantities are going to be smaller and there’s a certain delay. So this year, the impact is not going to be too significant. The contract really starts next year. Now, in terms of growth investments, we believe that they will be around €2 billion, basically focused on the network business, as I said before. This is going to be a challenging year, there’s no doubt about that, because of the commodity situation and also because of the exchange rates, because as I said, the fluctuations of the U.S. dollar are not compensating for the falls in the Brent price. So things are behaving in a different way from what used to be the case, and this is a factor that needs to be considered. And we also need to consider the situation of demand. In January, demand in Spain did not really start off very promisingly. Red Electrica already said that the demand in Spain fell by about 5%. So we need to see how things evolve in the rest of the year. So it’s a challenging year. We will have two face up to the volatility of demand, and we will also have to tackle the exchange rate and the commodity situation. These are things that are outside our control, but we’ll try to manage them as efficiently as possible. Carlos Alvarez Well, we don’t do hedging, financial hedging. We have a hedging called natural hedging and through two formulae. First one, the volumes sold in our wholesale and retail markets and part of the gas that we are burning in our combined cycles has a certain index for the majority pool. So with those two formulae, we obtain a hedging of almost 100% of the volumes generated, but we don’t act on the hedging markets in an artificial way. Regarding your third question, we don’t have a detail of BDI per business. We just give information about EBIT. But to give you some indication, to answer your question at least partially, most countries where there is exchange rate differences, we have minorities, because — well, even including U.S. dollars for NPL, except for the cycles in Mexico, which is also U.S. dollar. In the other countries, Colombia, Mexico, Brazil, etc., there’s minorities and so the bottom line effect is lower, so the impact of exchange rate differences for the whole of the Group is lower. So, in other words, the effect — the U.S. effect for combined cycles is slightly higher. Luis Calvo Any further questions from the floor? Yes, Alejandro? Alejandra Vigil Hello. Good morning. Alejandra Vigil from Cygnus Asset Management. I have two questions. One of them is again on GNL, or LNG. Well, the growth in volumes cannot be compensated for with a fall in margins. This year we have witnessed a fall of 14%. Now, what do you expect the figure to be for 2016 in terms of the fall of unit margins? And the second question has to do with the remuneration to the shareholder. You have maintained your payout target in line with your strategic plan, but 2016 is a year in which, with the €2 billion in investment you announced, well, your debt ratio will go down. So do you expect to devote more of that cash flow to the shareholder? Are you expecting to increase your payout? Rafael Villaseca Well, one of the reasons — one of the things we are now analyzing for the strategic plan is a movement of the significant variables of the energy scenario, to decide what scenarios are going to affect our strategic plan. I would like to mention the higher volatility. The Company is doing its best to manage this situation, which is such that from January to January the fall in Brent price was 35%, and this was not mitigated by the dollar factor. And this is atypical. We need to see how things evolve in the end, and this will also affect our forecasts. In any case, it is true that the increase in volume will allow us to more positively manage this situation, but the situation is challenging. I also want to insist on the importance of all this within our earnings, 15% of the total of EBITDA. And we also need to take into account the management factors. In terms of the dividend for the next strategic plan, well, we have been as good as our word, which is what we normally do, and the Company will decide what the new policy is, if it does change it. This is a decision that has not been made. We will decide this later. But my opinion is that the company has a very powerful cash generation, and this might allow the Company, even in the current circumstances, to maintain the current dividend, although this is a decision that needs to be made by the board of directors and it has not been made. And I would like to say that the Company does have a robust generation of cash, even in the current circumstances. Luis Calvo Any further questions from the floor? Yes? Unidentified Analyst I’m sorry. Good morning. I wanted to mention three things. First of all, could you give us an update on Egypt? Number two, the financial expenditure, this 4.5%, what can we expect for 2015? Because some bonds will start falling due, so are you going to launch a transaction such as Repsol has conducted in terms of buyback? And what about the tax rate? Thank you. Rafael Villaseca Well, in terms of your first question, we are having negotiations with the Egyptian government. There are two fronts, two lines of action. The first one is the legal avenue. The Company will defend its rights, tooth and nail. The second avenue is the negotiations that we’ve had with the Egyptian government for a long time to find a positive settlement. We trust that this will happen. There have been explicit declarations of the Egyptian authorities in this regard which make us believe that there will be a positive solution. Because Egypt, the main reason why it is not honoring its obligations with us, well, they said that they couldn’t because of a lack of gas, but now the situation is changing rapidly. So we trust that in the medium term, an agreement will be reached that allows us to recover our rights in Egypt and defend our interests in that country. Carlos Alvarez Yes. What we’re doing, we are making some buybacks. Well, we really — you know that our subsidiaries in Chile had a lot of debt denominated — well, in a certain unit we generated a certain volatility in your P&L, which was hardly in agreement with the policy that Gas Natural defends. And so last year we started — we launched a plan to try and denominate all that debt in pesos, and the idea is to continue on this path gradually and in 2016, so we’re doing that. And secondly, I think that this 4.5% we have this year is the average. It has to do with the incorporation of [indiscernible], which had an EBITDA that was three times higher than ours, namely debt that was quite significant. And this raised or this led to an increase in the cost of debt that we have at a consolidated level. Next year we will reduce the figure a little, but don’t expect too big changes. We’ll be slightly below 4.5% in 2016, but just slightly below the figure. In terms of the tax rate in Spain, in 2015 the rate was 28%. In 2016 it will be 25%. And there’s also fiscal changes in other countries, so the reduction of the effective rate will not be as high as we might think. There will be a reduction, but it won’t be equal to the difference that we’re going to have in Spain, because in other countries the rate has increased rather than decreased, as it has done in Spain. Luis Calvo Any further questions from the floor? There’s no further questions from the floor. Therefore, I will read the questions that we have received through the Internet. We will start by Carolina from Morgan Stanley. She has three questions. One of them was answered already. It was about the gas margins. And the other two questions are the following. For 2017, what is the volume of gas that is already contracted? And then the second question is whether we believe that the profit for 2015 will be a historic low and whether this is going to continue in the next few years. Carlos Alvarez Well, we said this during the presentation. For 2017, we will have the Cheniere contract indexed to Henry Hub. And then there’s the recurrent activities of the Company. We have the industrial volume which keeps renewing itself, and we will have a similar portfolio. And therefore — and the same will happen in the residential market and so there’s incremental volumes. And rather than volumes we need to focus on indexing, the indexing process. When we made the presentation of the third quarter, we already said that we have already three bcms indexed to Henry Hub. So this is what to some extent allows us to keep working, and it allows us to have naturally hedged amounts, which is what really counts. And the rest is the Company’s normal activity, which is the commercial activity that we still have, especially in the main two areas in terms of volumes, namely Spain and Europe, in industrial and residential markets where we still have a share that is around 45% in Spain in terms of sales. Rafael Villaseca In terms of the question as to whether 2015 can be considered a historic low, well, I don’t think so. We will see this in the strategic plan, but there’s no doubt that some strategic scenarios could make this impossible. Reductions of 50%, as we’ve had in the macro energy market and in the currency markets, could of course affect the businesses that are more linked to these variables. Now, volatility in energy indices and in exchange rates will be a very significant factor. Having said this, I can say that this needs to be placed in the context. This would affect a significant part of the businesses, but especially the 15% devoted to the supply business, which would be heavily affected. The others would be less affected. So I just want to say that the evolution will be closely related with the macro situation, both in terms of energy indices and exchange rates. And secondly, without any doubt, there are factors to do with the business mix that are such that this could be seen not as a phenomenon that is directly related to the bottom line, because there are other businesses that are less affected. So the supply business is the most exposed one, but it only accounts for 15% of our activity. Luis Calvo The next few questions come from Manuel Palomo. Its two questions that have already been answered, so we will go on to the next analyst, Javier Suarez. He asks five questions. Three of them have been answered. And the two that still need an answer are, first of all, can you indicate the reasons why provisions have been reduced in 2015 with respect to 2014? And the second is the Chilean newspapers have said that Gas Natural is analyzing the takeover of CGE. What are your plans for restructuring your activities in Chile? Carlos Alvarez Reduction of provisions, basically, the greatest provisions we have along those lines are those for delinquency. And the most significant one is the area of Colombia, where we have a presence in the Caribbean, but the most — there’s others, but the most relevant one is the Colombian one. And here there’s been a negative effect in terms of currency, because currency differences are in our favor, thanks to the devaluation of the Colombian peso. So in constant currency, in local currency, there’s not much variation. There’s a slight reduction, but it’s at the same levels as the previous year. This is the most significant thing. Rafael Villaseca Now, with respect to Chile, this news is significant. What the Company is analyzing is the merger of CGE with Gasco, once we have divided Gas Natural off, and with Gas Natural Fenosa Chile, not with the mother company but with our company in Chile, our affiliate in Chile. So it will be a merger between these three companies, simplifying the organizational chart. It’s just a project. What is already underway is the split of Gasco into two businesses, and then we will retain the Gas Natural business. And then there will be this reshuffling process, which would not affect Gas Natural but only Gas Natural Fenosa Chile. Carlos Alvarez Yes, the three companies are three shareholding companies. Gasco has a stake in electricity distribution companies and the new Gasco, Gas Natural, has a stake in Natural Gas and GasSur, which are two independent companies. And Gas Natural Chile holds shares for the whole of Chile. So the idea is just to simplify the structure; instead of having three holding companies, have a single one. Luis Calvo Right. The next few questions come from Cosma Panzacchi from Bernstein. He is asking seven questions. Three of those have been answered already. I will read out the other four. The first one refers to the prospect, the growth — organic growth prospects versus inorganic growth prospects. And the second one, given the flat performance of networks in Europe, the negative impacts coming from Latin America which will negatively affect the networks’ growth in 2016, and given the weakness in gas sales in 2016, would it be fair to expect that the only growth in 2016 might come from inorganic options? And if not, could you clarify the range of organic growth you expect in 2016? Rafael Villaseca Well, I don’t share your viewpoint, really. The network business, and I was mentioning it during the presentation, we believe that next year there will be a growth of 770,000 supply points, of which 300,000 will be in Spain in the gas business. Now, the performance in terms of EBITDA of gas networks in 2015 does not represent any growth, because it compares with €60 million of the previous year because of regulatory reasons. In 2014, half of the year was affected by the new regulation, and 2015 was affected, the whole year, by the new regulation, but now we have incorporated the one shot to our results basis. We still believe that the growth of gasification in Spain is going to give us vegetative growth. We expect the same from Mexico and the same for Colombia. The growth in Latin America will come from the translation of currencies, depending on how currencies perform. So we believe that that, plus the review of tariffs which are already happening and which incorporate the inflation and exchange rate effects, will still allow us to grow our networks especially. As I was saying before, growth in 2016 will come from organic growth, as I already said. Luis Calvo Okay. The second question is about gas margins. The LNG of the United States seems not to be competitive, if you compare it with the current prices in Europe, for spot prices or prices linked to oil. And you also said that buyers of — European buyers of LNG in the United States wish to enter into long-term contracts and so they would be willing to pay a premium. Would that premium be around 10% to 15% above the hub prices? Rafael Villaseca Well, in the first place, let me tell you that we don’t believe that the situation is exactly like that. If you think about 2017, of the 4.5 bcms that we will be buying related to Henry Hub, 3 bcms have already been sold, linked to Henry Hub, and we believe that the others will be managed appropriately. So we don’t expect a negative situation with respect to those volumes. In any case, and in a more strategic manner, we observe that the North American natural gas market in the first place, given the adjustment that has occurred because of the price falls and because of the applications of efficiencies of American producers, has adjusted to price levels that are low and stable, and they will stay low and stable for a long time. We don’t expect increases in the Henry Hub figure. We believe that — like other analysts, we also believe that the efficiencies of the sector and the structures — the efficiencies have been adapted to the current situation and the prices will remain low. And then there’s Brent linked prices, and we believe that at some point they will have to slowly go up. It might be a moderate rise, but in the medium term we believe that North American gas, and there’s going to be 8 bcms in that market and so it will have a significant weight, so it will become competitive in general terms. Now, specifically as far as we are concerned, we have been striving to mitigate this effect for quite a long time already. Luis Calvo The next question from Cosma Panzacchi. The third quarter, we were told that two-thirds of the contract of Sabine Pass/Cheniere contract had been finalized. What about the third part of that contract? Rafael Villaseca Well, we’re negotiating it. We’re in negotiations. We’re working on many of our portfolios. They don’t just have one index. They have several indexes for a lot of our customer portfolios. So we’re convinced that we will be able to manage that issue for 2017 reasonably well. Luis Calvo And the final question. Could you give us an indication as to the status of the reform of gas regulation in Chile? Rafael Villaseca The reform of gas in Chile is undergoing — is going through Parliament. It’s got to go to the Senate, the proposal. It was published at the end of December. We published this. We said that we had important meetings in Santiago de Chile with the Minister for Energy and President Bachelet to present to her our expansion plan in Chile, in accordance with the policies of the Chilean government to intensify the gasification of the country. As a result of that, we were very well received by the authorities, and we are convinced that the law that will be finally approved by Chilean Parliament will intensify and accelerate the gasification of the country. We are convinced as a result of those meetings, and also because it’s a basic energy policy in Chile to gasify the country. And even more, because last week there was news — in the news we saw that the ministers of Chile and Argentina have agreed to supply Argentina with gas through Chile, which will strengthen even more the determination of the Chilean government to gasify their country. So as a result of this, we have high hopes and we’re launching all our investment plans, of course pending the final approval of the law. But we’re convinced that it will be a good law and will incentivate gasification of the country. Luis Calvo Good. The next question is from Martin Young, Canada. One of these questions has been replied to. The second one is what conversations have you had with the supervisor as regards shareholders? Rafael Villaseca Well, we haven’t had any conversations. That’s an issue of Repsol. We don’t have much to say about that. Luis Calvo Ivan Martin [ph] has asked a question that’s already been answered. Franco from Merrill Lynch Bank of America has asked four questions. Three of them have been answered. The final one is would you be open to considering a sell/buyback operation? How do you think this could affect your ability to increase your purchases? Rafael Villaseca No, we have not considered an operation like that. Luis Calvo The next question is from Borja Pagoaga from La Caixa. And he asks, considering the political regulatory risk that exists, have you considered the possibility of a social bonus within the gas business to protect deprived families? Rafael Villaseca Well, we don’t — we haven’t envisaged this. In the gas business, it’s very different from the electric business. Most of the cost of what we sell has to do with supply so it doesn’t really make sense, as it would in the electric market, for the distributor to carry that cost. I don’t think that’s in line with the EU regulations. Social support’s all very well, but has to be channeled through other routes. Luis Calvo Javier Garrido asks a question that has been answered already. And to finish, we have two questions from Fernando Lafuente from N+1. He says could you give us more details about the margin for electric trading in Spain? There’s been a drop in 2015. Why has that been? The second question is, when you’ve explained the supply details of the gas business, you haven’t included the effect of the exchange rate. Why? Because most of these costs are in dollars; there should have been a positive impact and it should have been finally more negative for the activity. Carlos Alvarez I’ll answer the second question first. When we talk about exchange rate, we’ve said it several times, and its effects on the P&L account, we only refer to the exchange rates that have to do with the translation from non-euro currencies to euro currencies in the consolidation process. That’s the only effect that we contemplate and envisage in the slide. The other effect, the dollar, within the gas business or the electricity business, is part of — it’s like a commodity. It’s part of the exchange rate commodity. And we’ve repeated it several times, not just today but — just now but during the presentation, it’s on the slides, one of the mitigating factors in 2015 that has allowed the drop in the energy commodities, basically, it hasn’t had such a relevant effect because of the reverse correlation in 2015 between these currencies and the dollar. That’s in the presentation and it’s on the graphs; in the third-quarter presentation too, it was. There’s a bullet point there. And that is the situation that has helped us. Another, different matter is, as the CEO has said, that in January we say — we can see that at this time this is not the situation. The commodities are dropping, Brent and what have you, and the dollar, however, is more or less similar to what it was before. So that would be the explanation. As regards the first question, I think that there’s a bit of everything there. But to summarize, the margin as a whole is lower in electricity than the previous year. There’s a bit of a mix. The hydraulic component this year has been lower than the hydraulic part the previous year. Coal has been higher than the previous year. So that makes the generation cost as a whole slightly higher than the previous year. If we add that in 2014, especially in the first half, that year benefited from better margins especially in trading, because prices had been low. Contracted prices had been low and pool prices were high, and that allowed for margins that are not possible now because the scenario is different. So that series of — that mix of effects has led to a situation where electricity this year has produced slightly less money than the previous year. Luis Calvo Good. Well, thank you. There are no more questions, so we are going to finish this session. I’ll pass the floor to our CEO, Mr. Rafael Villaseca, for him to close the meeting. Rafael Villaseca Well, thank you. That’s all. Thank you for your attention and hope to see you at the next. Thank you very much. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited. 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Drilling Down For Bargains After Oil’s Decline

Stocks have suffered lately, with year-to-date returns for U.S. equities once again negative . The most recent driver of the selloff , and accompanying volatility, hasn’t been fears of a Federal Reserve (Fed) rate hike, but rather collapsing oil prices and the implications for energy-related debt. Paying less at the pump might seem like a good thing for consumers, but the recent drop in crude prices has reinforced fears over slow economic growth and deflation, placing pressure on a range of asset classes related to energy . According to Bloomberg data, amid concerns over energy issuers in the high-yield market , high-yield spreads continued to widen last week. The fall in oil is also putting more pressure on already battered emerging market oil exporting currencies , including those of Mexico, Russia and Columbia. Finally, and not surprisingly, any company in the energy space is feeling pressure. This includes not only oil production and service stocks, but also Master Limited Partnerships (MLPs). However, while market sentiment has certainly turned more negative lately, many investors are wondering if it’s time to start bottom fishing, especially with regards to beaten-up energy assets. Considerations for Energy Sector Stocks My take: Though I would remain cautious toward the commodity and believe energy-related names are likely to come under more short-term pressure, I do see longer-term opportunities for those with little or no exposure to energy stocks. The near-term risk for investors is that, regardless of the particulars of the business model, any stock even tangentially related to oil or energy is being thrashed. This is likely to continue to the extent oil prices have more downside. In fact, given the abundance of supply and bulging inventories, I’d be hesitant to call a bottom in oil prices. While I believe that oil supply and demand will start to balance toward the middle of next year, absent a supply disruption from the Middle East or a much sharper deceleration in U.S. production, the simple truth is that there’s still too much oil supply relative to demand. The outlook for Middle East supply remains undimmed, despite growing geopolitical risks. The Organization of the Petroleum Exporting Countries (OPEC) is unable to even set a production target , and Saudi Arabia and Iraq are producing record amounts of oil. Even a country like Libya, with no functioning national government, has dramatically increased production in recent months. Making matters worse, non-OPEC oil production has remained resilient. In an attempt to generate much needed revenue, Russia is pumping a record amount of oil. In the U.S., while production has pulled back from the spring peak, production cuts have been modest thanks to improving efficiency. The number of U.S. rigs is down more than 60 percent from its 2014 peak, but U.S. domestic production is off by less than 5 percent, according to data accessible via Bloomberg. Nor is a surge in demand likely to quickly rescue oil markets. For 2016, global demand growth is estimated to fall to 1.2 million barrels per day (bpd) from 1.8 million bpd this year, as data via Bloomberg show. It will take time to balance out oil markets, assuming we don’t see a more meaningful disruption in supply or a spike in demand, which is unlikely given the sluggish pace of global growth. However, while an imminent V-shaped recovery in physical oil looks unlikely, some of the stocks in this sector may still represent a good long-term opportunity, especially considering that energy-sector valuations are now the cheapest we’ve seen in decades, according to data accessible via Bloomberg. There are two places in particular investors underweight the energy sector may want to start looking to add positions: U.S. drillers levered to low cost production sites and midstream MLPs. 1. U.S. DRILLERS LEVERED TO LOW COST PRODUCTION SITES The cratering in oil prices is hurting any and all energy companies, but I believe those with lower production costs, such as Exploration & Production companies focused in the Permian Basin in west Texas, are better positioned to ride out a period of depressed oil prices. 2. MIDSTREAM MLPS While MLPs aren’t immune to the energy market, as evidenced by the recent 75 percent dividend cut by Kinder Morgan, many MLP businesses are focused on natural gas storage and pipelines. These midstream businesses are less exposed to the daily fluctuation in oil prices. The bottom line: While the energy sector comes with considerable near-term downside, the key for the long term is selectivity and a focus on those names best positioned to survive, or even thrive, in what may be a prolonged period of low energy prices. This post originally appeared on the BlackRock Blog.

Ian Ball: Above-Average Capital Allocation Yields Above-Average Results In Mining

Strategies for capital allocation. Where are the bottlenecks in mine efficiency? Beware of excessive share dilution in mining stocks. Companies seeking capital meet potential financiers via the internet. Ian Ball brings us Abitibi Royalty Search, an online platform where mining companies in need of financing can easily submit geological data on their projects for consideration. In the mining sector, above-average capital allocation yields above-average results. The bottleneck in efficiency is in equipment provider innovation. Ian sheds light on our current position in the commodity market cycle, he expects the bottom within 12 months and his investment strategies reflect this. He advises to beware of share dilution in mining companies and not just opt for the cheapies. Ian Ball was appointed president of Abitibi Royalties ( OTC:ATBYF ) in 2014. Ian worked 10.5 years for Rob McEwen, initially at Goldcorp (NYSE: GG ) and then McEwen Mining (NYSE: MUX ). He most recently served as McEwen Mining’s president where he was responsible for overseeing production, construction and exploration activities throughout North and South America. He was responsible for discovering McEwen Mining’s El Gallo 2 project, scheduled to become one of the 15 largest silver mines in the world and building the El Gallo 1 gold mine that is forecasted to produce 75,000 ounces gold in 2015. www.youtube.com/watch Palisade Radio Host, Collin Kettell : Welcome back to another episode of Palisade Radio. This is your host, Collin Kettell. On the line with us today is a new guest to the program. I am very happy to have him. It is Ian Ball, President and CEO of Abitibi Royalties. A lot of people are probably familiar with the name as he has been around in the industry for quite some time and he has worked in the past – and still does to this day – with Rob McEwen. Ian, welcome to the program. President and CEO, Abitibi Royalties, Ian Ball: Thank you for having me today. CK: Yeah, as we were talking before the interview here, you went through your background that got you into mining. I thought I had started young, but you were saying that your background in mining went all the way back to when you were five years old. If you do not mind just giving a brief overview of that story again, it would be great. IB: Yeah, I would be delighted to. I grew up with mining because my parents were investors in mostly junior mining companies, and they had me looking at mining stocks at the age of five. There is always a discussion around the dinner room table on gold mining, exploration success, and the amount of wealth that it could generate on the back of discovery, so it has always been very intriguing for me. As I sort of went through school, I became very intrigued also in terms of how different mining companies were run and it seemed to me it was quite clear that the best mining company in terms of its management, in terms of its assets was Goldcorp. This was back in 2002, 2003. I was very fortunate to have met Rob McEwen at that time and then have him offer me a job to go and work there. CK: And so from therein you became the president of McEwen Mining, if you can give a brief overview of your time there and what you are doing now. IB: Sure. Well, after Goldcorp, because if you think back to 2005, Goldcorp merged with Wheaton River and the head office was then subsequently moved to Vancouver. Rob stepped down as CEO, which was always his intention. We went out and started a small company called US Gold which then became McEwen Mining. I had started at US Gold and slowly started to move into the exploration’s operational side and started in Mexico with a small exploration budget. We were fortunate enough to make a reasonable size silver discovery that now has almost a construction permit and is scheduled to be one of the fifteen largest silver mines in the world. On the back of that headed up a team that built what is now McEwen Mining, the main operating act of the El Gallo 1 Mine in Mexico. With those two successes then being promoted to president of McEwen Mining and that will have to be about ten years. CK: Great! So now you are working with Abitibi Royalty. I think a lot of our listeners have seen many of the press releases you guys have been doing, what you are calling a royalty search over the past few months. But, essentially, if you kind of outline the concept for potential shareholders behind how you guys see making money. It is quite a unique business model that I do not think has been executed on before. IB: Well, we look at Abitibi as having almost like a number of divisions inside of a company. Number 1 is the royalty search. If you think of any job of the CEO, it is allocation of capital. In a mining company, we have done an absolutely horrible job of allocating capital. When I was working at Goldcorp and then McEwen Mining, what become Rob’s primary themes is that if you do the average you should expect to get the average result. Most mining companies view the same as everybody else. That is why it is mostly we are all in the same position. When I look at the world in terms of mining, oftentimes it is not large sums of capital that generate the highest return; usually it is small sums deployed in a different fashion. We looked at it and said, well, it is a tough market right now. There are a lot of prospectors and junior mining companies that are having a difficult time in terms of financial position. They cannot pay the claim fees that are coming due and, therefore, they are going to have to drop the properties. Then I say, well, would we be willing to pay the property taxes on their behalf, in doing so getting back a royalty? We have also asked that should the properties be sold we would also get 15% of the net proceeds. But we are looking for properties that have certain characteristic. They have to be near a mine site. They have to have good geology and they have to have science and mineralization through previous exploration. I thought if we could build up a portfolio of 25 to 30 of these, we might walk away with two that end up being successful. Today, we have 70+ submissions. We completed eight transactions and we are continuing to review submissions as they come in. We have been pretty happy with what we spent. Today, I think for the first eight we spent $90,000. CK: I want to dig in a little bit deeper on this model behind paying for the claims fees and in turn getting a royalty and some upside on the project. The purest form of speculating in the mining sector is picking up or staking projects and holding them from the cheap point of a bear market into the craze that comes into a bull market, and that is essentially what you guys are doing. I mean I have looked at some of the press releases coming out and the costs to cover these claims fees are quite low and you are ending up with a substantial royalty. But for our listeners that are not as familiar, what is the value of the royalty? I mean some of these assets are not going to become a mine, and even if two of them do it, it is going to be a long time out. If you can explain how these things become valuable just through a bull market emerging that would be great. IB: Well, if you look at some of the royalties that we acquire, couple of them are 200 meters away from an operating mine. They are very, very close. A lot of the geology indicates that the mineralization may trend over where we have the royalty. You are right where even if there is a discovery it could be some time before you see cash flow. But if you look at the industry in the history of mining, the history of royalties, the best royalty ever purchased was by Franco-Nevada (NYSE: FNV ) in the early to mid-’80s on the Goldstrike mine, and that was when Barrick (NYSE: ABX ) then subsequently made the large discovery just like Goldstrike. If you look at Franco, it was not so much the cash flow that was the driver of their share price; it was the exploration success in knowing that cash flows were coming in the future. I think that this way, if the exploration company has a good drill hole, their share price starts to increase because you are building the underlying value. We suspected the same thing would happen initially here as any of these properties was to have a resource, and the value would have continually be increased as they get closer to production. The thing that we like most about these is that they are all right near a mine site and these are not in an area that has no infrastructure. They are 200 meters away, 500 meters away, a kilometer away from where usually substantial mines are operating. CK: For the benefit of our audience, Ian, can you explain how royalty is tied to a project? When a royalty goes away? How it sticks with the projects as long as the project remains in good standing, etc.? IB: Yeah. In that sense, it is a good question because royalties, in terms of their legal standing, they do vary by jurisdiction. You have to know the underlying rules that are applicable. Ontario, for example, in Canada is different than in Quebec. It might seem strange that you are on the same country but one is common law, one is civil law. The rules do change. One thing that we are building into our agreement is saying that once the claims come due again we are putting in a clause that we will be willing to pay the claim fees again for a higher royalty. That is where we can maintain if we like the property that it shows it stays in good standing and does not go to any default status. CK: Okay, thank you for the clarification there. I want to shift gears a little bit and talk to you about the industry that we are in which is, oftentimes, as you pointed out, mismanaged, money is misallocated. Much of your career was started at Goldcorp, and you said that at the time it was extremely innovative, shareholder-friendly. Of course, there was what I believe was referred to as the “Challenge” which was that first online exploration challenge that was a huge success and has now been replicated a few different times. Can you talk about the use of technology and the internet in how you have gone ahead and worked in the mining sector? IB: Well, I think the internet has a lot of uses in terms of its reach to connect people, to bring in new ideas. You did see it with the Goldcorp Challenge. You have to remember that was back in 2000 when the internet really was at the early stage and what you are able to do today versus then has obviously been drastically increased, so there is more we can be doing on the internet. If you think about it other companies have tried it and there is always success. Barrick would be an example where they had a challenge on metallurgy. This was in 2006 where they put up a prize of $10,000,000 I believe it was. But I think the problem there was they did not have an internal champion to keep pushing it ahead. I think without that a lot of these initiatives end up failing where I think Rob was a very good example where he came up with the idea, was the internal champion, and continued to push it so it became a success. I think that is the key. We have tried to use the internet saying that rather than trying to talk to people individually about what claims they want to have in good standing. We have created an online platform where you can submit all your technical data online and you will have an answer within 48 hours. I think that is a much more efficient process. Those are just two examples. In terms of innovation technology as a whole, right now we are seeing a lot of cost cuts in the industry. But it is just cutting cost; it is not innovation. The two should not be confused. To give you an example, two years ago, I went down to the Caterpillar (NYSE: CAT ) factory in Illinois and my question was why are we not developing an electric coal truck? Because according to the work that I had done, mining cost would go from – and this is in Mexico because this is where I was primarily working at the time. Mining cost would go from $2 a ton to $1 a ton if you can move from a diesel to an electric haul truck. I thought, “Okay, well, that would drastically impact the economics of a mining operation.” Caterpillar’s response was, “We do not do electric. We only care about expanding the hours on a diesel engine.” That is the wrong mindset for the mining industry. I think we need to push the suppliers to work harder on the innovation side. CK: Well, that is very interesting. Well, Ian, at 34 years old, you have ridden a couple cycles up and down. I want to talk about where we are at right now in the cycle. I think action speak louder than words. Certainly with you picking up assets under Abitibi and other projects you are working on, it would indicate that you think we are near a bottom. How do you see things developing over the next couple of years? Are we close? Is the bottom behind us? IB: Well, a couple of things. You are right and we launched the royalty search on the back of a very difficult time in the market. Four years ago, when we could not have done the royalty search idea because there was a lot of capital available, the other thing that we have done to sort of show that we think it is the good time to be buying is that we are one of the few companies that have launched share buyback program. Rather than issuing shares, we are buying back our shares currently. The other thing is I agreed to take all my salary in shares versus taking it in cash. That is also my belief that the share prices are going to go up, not down. In terms of where we are in the market, I think kind of pick a spot or a price in terms of where’s a bottom, I think that is a very difficult thing to do. I sort of try to look at it in terms of where are we are in the cycle. This might sound like I am looking at myself a lot as a buffer but I think we are in the bottom twenty to bottom third of this downward trend. If you look at the technicals, which I know, I am not a big believer in technicals, but if you look at the charts you would assume that gold is going to go to a thousand. It is probably going to overshoot a thousand as it typically always overshoots support to some degree. Whether it is $975, $950, $925, I think gold is going to go there somewhere in the next twelve months. Knowing that is very difficult to do deals and markets can turn around quickly. We have looked at it and see we are in the bottom third of the market that is safe enough for us to start deploying our capital, share buyback, asset acquisitions. We think in the next twelve months, we will probably see the bottom, but we do not know where that would be or we do not know how quickly we would recover from there or whether it sort of just tread water for some time. CK: What do your past experiences in bull markets tell you about the type of gains will be made for investors? Obviously, it depends on if you are going to the ground level purchasing assets like yourself or if you are buying mid-tiers or majors. But what will you expect over the next few years? IB: Well, it is an interesting question because I just sort of give you an example. If you go back to 1995, this is when Goldcorp made the high grade zone discovery at Red Lake and the shares did very well off the back of that. Then in ’96 we had Bre-X. We then had gold prices starting to decline making significant declines in ’97, and then they ultimately bought, did a double lot then in 1999 and then in 2001. By the time you got to 2001, Goldcorp, despite having arguably the best gold discovery in fifteen years, was back to the same price they were pre-discovery. If you look at it and say – in hindsight it makes sense and here you have a deposit that ends up being five million ounces of gold at 88 grams per ton gold. Think of it. That is almost unheard of. It is unheard of. Then if you have the nerve to buy at the time the gains were phenomenal going from 2001 to 2005, 2006 where the share price ultimately went from $5 in 2001 to $46. Big games can be had with the announcement of a company of reasonable size. I think that now people should be looking at companies that have good assets, good discoveries, that are trading at fractions of what it even cost to discover those deposits. I think there is a few of them out there right now. CK: Yeah, that is great. Well, Ian, at this point, I want to ask you if you have anything to add. Any suggestions for audience, members, and also if you can give us some more information on the companies you are working with where people can find out some more information that would be great. IB: Well, I would say the thing you will come to appreciate over time is that with a lot of these mining companies, you should be looking at the share dilution. I think that is what has been a killer in this industry and that the cost of capital to finance these companies was quite high, and you are looking at companies that are cheap and that is why we buy shares. But do they have any money? How long will that money take them. If they have to do a financing, how many more shares are to be issued plus the warrant? There’s a bit of a cautionary tale to be had there. In terms of other mining companies, I only invest in one and that is Abitibi. I do not invest in any others. There are specific reasons why and I think Abitibi has a good story in terms of its fundamentals. I do think that there are other companies out there that are doing good work, but it is still a bit of a cautionary tale. Right now, you have an opportunity to probably buy a handful of very good companies at a reasonable price rather than trying to buy companies that are just cheap for the sake of being cheap. CK: Okay, well, Ian, thanks so much for coming on the program. Really appreciate it. We will try and get you back on next year maybe in a better market, maybe not. IB: Okay, that sounds good. Thank you for your time today.