Sa resource report mar 2012

The S&A Resource Report

March 2012

China’s Gold Binge Gains Steam We’re Taking Advantage Through This Low-Cost Producer Last month, China’s “Fort Knox” got several million ounces bigger...

On February 24, Venezuela announced Citic – the Chinese state investment company – would help develop Las Cristinas, the largest undeveloped gold deposit in South America and a classic “trophy” asset.

Las Cristinas contains at least 16.9 million ounces of gold. (And that calculation is based on a $550 per ounce gold price... At today’s $1,700 an ounce price, its reserves should be much greater.) And it will be a simple, giant open-pit mine. The capital cost will be just $356 million. So once the trucks start hauling off its ore, Las Cristinas will be wildly profitable...

It’s exactly the kind of gold deposit China wants to bolster its gold holdings, as I explained in last month’s issue and my special report “How to Be an Early Investor in China’s ‘Ft. Knox.’”

The deposit used to belong to a Canadian mining company, Crystallex. With the prized Las Cristinas at the center of its portfolio of assets in 2007, the $1.2 billion company looked like a company on the rise...

Inside This Issue • How Hugo Chavez Stole This Trophy for China • This Low-Cost Producer Could Return 85% This Year • Why I’m Incredibly Bullish on North American Oil Stocks...

• ...But I Won’t Buy Them Yet • Newmont Lays Out Its Growth Plan

____________________ Editor: Matt Badiali

But then Venezuela’s strongman president, Hugo Chavez, decided he had other plans for the resource. Suddenly, Crystallex’s environmental permit application had mysterious problems. The government now blocked the development of Las Cristinas and dragged the process out over years.

Finally, in February 2011, the Venezuelan government canceled Crystallex’s contract. Chavez literally confiscated the gold deposit without explanation. Crystallex’s market value fell to $23 million. It shut its doors for good, delisting from the Toronto Stock Exchange before the year ended.

And look who Chavez brought in to develop the project...

Chavez and the Chinese go way back... China lent Venezuela more than $30 billion in 2007 to develop oil projects. And it became officially involved in Las Cristinas in June 2010, when Crystallex announced a deal 1

with China Railway Resources Group to “help” the company develop the project.

it in action in November 2011, when the governmentowned Chinese gold company Shandong Gold Group bought gold company Jaguar Mining for $1 billion. And we saw it again with Las Cristinas.

Last month, Chavez handed the Chinese exactly the kind of trophy asset the Chinese are scouring the world to find. What’s happening to Las Cristinas is just another chapter in the big story we introduced last month...

China’s concerted effort to acquire valuable gold properties around the world will increase the value of many mining companies... whether or not they are targeted directly by the Chinese. To take advantage of the trend, we want to own world-class, trophy gold deposits now.

China is engaged in a huge, shadowy program to accumulate as much of the world’s gold supply as it can.

This “gold grab” has provided a huge source of buying support for physical gold... and made China the No. 1 gold-producing country in the world, as well as one of the largest shoppers for the world’s best gold deposits.

This month, we’ll look into a great value play in this story...

Last month, I recommended shares of Seabridge Gold (AMEX: SA) and Keegan Resources (AMEX: KGN) to play this trend. In this month’s issue, I’m going to highlight another stock positioned to benefit from China’s gold binge...

China Picks Up Another Asset in its Gold Binge

The Cheapest Major Gold Producer Kinross Gold (NYSE: KGC) is the sixth-largest gold producer in the world by production volume. I first featured Kinross in the “Fort Knox” report. And as I said then, Kinross is too cheap for a major gold producer:

As we detailed in the “How to Be an Early Investor in China’s Fort Knox” special report, China is trading its dollars for gold as fast as it can. (It owns fewer Treasurys now than it did a year ago.) Bullion, individual gold mines, or entire companies… it doesn’t matter. China wants gold in massive volumes...

Investors punished Kinross shares for the company’s September 2010 acquisition of fellow junior miner Red Back Mining. The deal cost $7.8 billion.

You see… over the last 30 years, China’s overwhelming success selling its exports to the world has resulted in a massive foreign currency reserve, equal to about $3.2 trillion...

Roughly half of that is in U.S. government bonds... But the United States’ policy of printing endless new dollars to pay off its mountainous debts has created a problem for China.

However, the main asset, the Tasiast gold mine in the African nation Mauritania has been beset with engineering problems surrounding how Kinross will extract the gold from the ore (milling in industry parlance)... The result is that Kinross says production will be delayed nine months from its original goal.

And even that may be optimistic.

If China hangs on to those bonds... it could see their value “inflated away.” But if it tries to dump those bonds, it would flood the market. And the value of its bonds would collapse... So instead, China is trying to secure the value of its reserves against inflation by buying gold. The country has official gold reserves of 33.9 million ounces.

But it plans to get more...

The share price fell from about $20 immediately after the takeover to a recent low of $10 per share.

Kinross shares fell 21% on January 17 when the company informed its shareholders that it wrote off $2.9 billion. The charge was against the value of its Tasiast gold mine. What Kinross wrote down is classified as goodwill... It’s the difference between today’s value of the mine and what the company paid.

The plan goes deeper than that... And if you haven’t read my report on it yet, I urge you to do so. (You can find it posted on the S&A Resource Report section of the Stansberry & Associates website, www.stansberryresearch. com, under “Special Reports.”)

Simply put, Kinross paid far too much for Red Back Mining.

The company made a tough decision (but the right one) in January to revalue the mine. The choice hurt the company’s 2011 performance and Kinross’ reputation

But part of China’s strategy is to comb the globe for world-class gold deposits it can buy for cheap. We saw S&A Resource Report

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Issue 78, March 2012

with investors, who dumped the company’s shares.

Also, unlike many of its peers, Kinross doesn’t benefit from sales of metals other than gold.

However, Kinross can now get back to business.

That’s our opportunity. You see, Kinross’ business has not changed... Its shares will recover.

Kinross makes much less per ounce of gold sold than its peers. That’s not because of anything Kinross is doing wrong. It’s because most of the other mining companies are selling more than just gold. They produce several pounds of copper and/or silver for every ounce of gold they produce. That pads revenues.

It grew production by 13% to 2.6 million ounces in 2011. Its growth curves since 2005 are fantastic. It grew reserves from 24.7 million ounces to 62.6 million ounces over that period. That’s a 153% increase. And it will continue to grow in 2012.

In the table below, we can see how its business compares to its peers.

Company

Market Cap

Gold Reserves

Barrick Gold

$48.6 billion

140,000,000

7.7 million

Goldcorp

$39.8 billion

64,700,000

2.5 million

Newmont Mining

$30.5 billion

98,750,000

5.2 million

Yamana Gold

$13.2 billion

17,038,000

2.6 million

Kinross Gold

$12.7 billion

62,568,000

1.1 million

Agnico Eagle

$6.3 billion

19,047,000

1.0 million

IAMGOLD

$5.8 billion

21,299,000

1.0 million

2011 Production

EV to Production

Kinross Gold

$203

$4,857

IAMGOLD

$300

$5,055

Agnico Eagle

$318

$6,860

Newmont Mining

$363

$6,905

Barrick Gold

$440

$8,025

Goldcorp

$606

$15,598

Yamana Gold

$771

$11,921

Average

$429

$8,460

Kinross Gold

$1,511

$756

IAMGOLD

$1,740

$808

Agnico Eagle

$1,845

$809

Barrick Gold

$1,865

$1,085

Yamana Gold

$1,972

$1,153

Newmont Mining

$1,998

$996

Goldcorp

$2,132

$1,205

Average:

$1,866

$793

The Lowest-Cost Producers are the Best Investments One lesson we’ve learned over the years is that the low-cost producers are best. They make the most money as the price of resources goes up. They also survive the longest (and emerge the strongest) when resource markets fall.

That’s another reason why we like Kinross. Let me explain further…

We can do some simple math to figure out the company’s costs. Let’s subtract earnings from revenue and then divide it by the volume of the gold production. That way, we can figure out exactly how much it costs for a company to produce an ounce of gold. The results show

Kinross is the cheapest company on an EV-to-reserves basis and an EV-to-production basis. That reflects the market’s selloff after Kinross wrote down Tasiast.

Issue 78, March 2012

Earnings per Oz. Production

However, most of the companies choose to use the extra income to reduce the cost of production. Without that extra metal, companies like Newmont and Agnico Eagle would have difficulty staying profitable at all.

To find that value, we’ll use a simple comparison.

First, take the company’s enterprise value (or “EV”). (To calculate “EV,” take the market value, debt, and subtract cash.) Then divide it by production and reserves.

EV to Reserves

Revenue per Oz. Production

So when we just compare gold ounces to revenue, it appears that they are getting premium values for their gold. For example, Goldcorp appeared to receive $2,132 per ounce of production. That’s because 27% of its revenue comes from metals other than gold.

As you can see, Kinross ranks fourth in reserves and fifth in production in this group. However, those data are cursory comparisons for gold companies. To get its real value, we need to compare the price investors pay for shares to its operations.

Company

Company

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S&A Resource Report

that Kinross is the lowest-cost gold producer among its peer group.

of this page, I’m using EV instead of the conventional market cap. As I explained, EV factors in debt and cash, so it gives us a more precise gauge of value...

Kinross’ cost of gold production is just $755 per ounce. That’s 25% lower than Newmont’s, 19% lower than Goldcorp’s, and 27% below Agnico Eagle’s. While it doesn’t make as much revenue from selling other metals, this shows that it’s a well-run company.

Company

The industry average P/E ratio (using 2011 earnings) is 8.9 times. Kinross is well below the average and it’s the cheapest valuation in the group. Using 2012 earnings estimates, we see that the P/E falls even further. Kinross trades for just 4.6 times Bloomberg’s estimated 2012 earnings.

Cost Per Oz. of Gold Production

Company

EV-to-2011 Earnings

EV-to-2012 Earnings

Kinross Gold

$755

Barrick Gold

$780

IAMGOLD

6.3

4.4

Yamana Gold

$818

Kinross Gold

6.4

4.6

Goldcorp

$927

Newmont Mining

6.9

5.6

IAMGOLD

$932

Barrick Gold

7.4

5.5

Newmont Mining

$1,002

Agnico Eagle

8.5

7.3

Agnico Eagle

$1,036

Yamana Gold

10.3

6.7

$893

Goldcorp

12.9

8.0

Average

8.4

6.0

Average

That’s critical because low-cost producers are the best businesses to own in resources. That includes everything from mining to oil and gas. The low-cost businesses are the ones left standing when everything collapses. And Kinross is one of those companies.

It’s again the lowest in the group… and well below the average of 6.1 times earnings.

I believe the company is cheap for two reasons. We already discussed the first – which was overpaying for Red Back Mining. However, the market is pricing in another risk as well.

Kinross Offers Us 42%-85% Upside in 2012...

Kinross’ high-profile development project Fruta del Norte in Ecuador adds some risk. This project accounts for 6.7 million ounces of gold reserves. The company’s position on this mine is that no mine plan can be put in place without “successful conclusion of negotiations with the government.”

However, that’s just looking at these companies as gold producers. Let’s forget about that for now and just evaluate the businesses. One of the best ways to compare regular businesses – whether it makes pool toys, t-shirts, or bars of gold – is the price-to-earnings (P/E) ratio.

So the market is pricing Kinross as if the Ecuadoran government plans to block Fruta del Norte. However, that’s not material to the company’s business. And its business will grow in 2012.

The P/E ratio is simply the market cap of the company relative to its annual earnings. It shows us the premium over the company’s earnings that an investor today will pay.

Typical P/E analysis looks backward at last year’s earnings. But we want to buy companies that are cheap based on the coming year’s earnings. Mining companies are either growing or shrinking. A company that’s shrinking will look cheap against last year’s earnings... because the coming year’s earnings will be smaller.

According to Bloomberg, Kinross’ earnings should grow 41% this year. If nothing changes, and Kinross continues to trade for 6.4 times earnings, we should make 41% based on that growth alone.

However, there is a best-case scenario here. The market will forgive Kinross for its blunder at Tasiast eventually. And any positive movement by the Ecuadorian government will cause shares to rally. If those things happen, it should trade

If we take an average of Wall Street’s estimates of Kinross’ 2012 earnings... we again see Kinross is cheap compared to its peers. In the table in the top right corner S&A Resource Report

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Issue 78, March 2012

up closer to the group average of 8.4 times earnings.

Energy companies are fanning out across the country, applying modern techniques to virtually all the big shales. The implications are huge. One speaker at NAPE put our ability to crack shale in the top 10 technological innovations in history...

If that happens, and Kinross grows its earnings the way we expect, we could make 85% on our shares this year.

Based on the analysis, I’m continuing our buy recommendation on Kinross Gold.

Every major oilfield has a shale formation associated with it. But for generations, we’ve ignored the shales...

Action to take: Buy Kinross Gold (NYSE: KGC) up to $13 per share and use a 33% trailing stop.

Throughout my education and the early part of my career, I was taught to disregard shale formation. It was impossible to get economic volumes of oil and gas from the thin, complicated layers of rock. Instead, we looked for oil in sandstone... where petroleum would pool in easy-to-tap reservoirs after leeching from the shales. In fact, I spent years studying sand in the ocean because, historically, sand equals an oilfield.

The U.S. Shale Boom Is All About Oil Now Just as I’m bullish about gold... I think oil companies represent a tremendous opportunity for resource investors...

If we play it right, this could result in triple-digit gains... or more. But “playing it right” means we can’t simply rush in and buy every stock in sight. We have to be patient.

Fracking and horizontal drilling changed all that...

And that means all those areas that produced oil back in the early part of the century – but have been considered tapped out for years – are back on the table as viable sources of “new” production.

But first, let me explain why I’m so excited about oil...

As we’ve discussed many times, new drilling technologies – notably hydraulic fracturing (fracking) and horizontal drilling – have revolutionized the U.S. energy complex.

They have allowed oil and gas companies to access vast deposits that were long thought to be uneconomic.

This story has been playing out in the natural gas arena for roughly a decade. Today, the shale basins account for 34% of the more than 28 trillion cubic feet of natural gas we produced in 2011.

That’s the most natural gas we’ve ever produced in the U.S., and we can keep it up for decades. But now, energy companies are turning their attention to oil...

Fracking and horizontal drilling created a huge boom in natural gas supplies... and now oil and gas companies are using them to get unbelievable volumes of petroleum out of the ground. Last August, I wrote about how, for the first time in 16 years, more drill rigs in the U.S. were chasing oil rather than natural gas. That trend has only intensified since then...

Let’s consider the Bakken shale. This massive rock layer underlies 200,000 square miles of North Dakota, Montana, and Saskatchewan, Canada. One estimate puts the total contained oil between 410 billion and 503 billion barrels. We’ve known about this oily shale for 50 years... but we couldn’t get the oil out.

Last month, I flew to Houston for the annual North American Petroleum Expo (NAPE). It’s a key date on the industry calendar... an opportunity for oil company executives, commodities traders, and bankers to do business.

Back in the 1990s, the U.S. Geological Survey estimated Bakken would yield a total of just 151 million barrels over its lifetime. It seemed like the potential of the giant shale would never be realized...

At NAPE, I expected to learn about the next Eagle Ford... Eagle Ford is the huge shale basin in Texas where energy companies are using fracking and horizontal drilling technologies to extract huge amounts of oil and natural gas liquids – valuable hydrocarbon fuels, like butane, ethane, and propane.

Today, it’s a different story. Wells drilled in the Bakken produce oil at a higher rate than wells anywhere else in the lower 48 states. It’s the premier oil shale in the world... Industry now believes it can extract 24 billion barrels from the region.

But I didn’t hear about “the next Eagle Ford”... Instead, I heard about dozens (or more) of Eagle Fords.

Issue 78, March 2012

As I said, U.S. energy companies are applying their new drilling technologies in oil shale regions across North America.

5

S&A Resource Report

Look what it’s done already for U.S. domestic oil production. We’ve just reversed 25 years of production decline. That’s mostly from results in the Bakken. It’s going to get better. In December 2011, we produced more than 182 million barrels. That’s the most oil we’ve produced in a month since May 2002.

U.S. FIELD PRODUCTION OF CRUDE OIL (THOUSAND BARRELS)

I believe oil prices are due for a correction... and sooner than most people expect.

One of my best sources – a brilliant fund researcher – told me at NAPE that he expects oil prices to fall dramatically before there’s any political or military resolution to the Iranian nuclear situation. He sees an analogy with what happened to oil in the lead-up to the first Gulf War...

©RightWayCharts.com

3.25

In August 1990, Saddam Hussein invaded Kuwait, a significant oil producer, and began threatening to cross in the Saudi Arabia. His actions threw the oil markets into complete chaos. Oil prices exploded upwards nearly 160% in just four months.

3.00 2.75 2.50

2.25

At that moment, the situation felt incredibly volatile. Would Saddam invade Saudi Arabia? Would he ignite a regional Mideast war? Unable to account for all the variables, a terrified market simply priced oil for the worst possible scenario.

2.00

Source: U.S. Energy Information Administration

1983

1986

1989

1992

1995

1998

2001

2004

2007

2010

The potential for investors is colossal...

But then... as fast as oil prices rose... they started falling again. During the fall, the U.S. began marshaling support for a military campaign to oust Hussein from his neighboring state. Once it became clear that this was how the crisis would play out... the market adjusted and returned oil to more normal prices. Although it wouldn’t be until January 1991 when the U.S. and its allies launched their attack... the market didn’t need to see F16s in the air to gain a sense of certainty.

In 2000, you could have invested in then-small energy firms – like Range Resources, Pioneer Natural Resource, and Chesapeake Energy – as they were just beginning to apply fracking and horizontal drilling techniques to gas shales. Those stocks grew thousands of percent over the ensuing years as the companies developed into mature, mid-sized gas producers.

The same scenario is playing out today, but this time with oil...

I think we’re going to see the same thing in the near future. Any action – even a military one – will give markets a sense of certainty about how this conflict will play out. Then the market can adjust... and oil prices will retreat to closer to where they were before Iran’s nuclear program was dominating headlines. My source says that’s about 15% below current prices. I think even that’s too high. I believe the correction could be closer to 25%.

That’s why I’m bullish on small Northern American oil explorers over the long term. So why aren’t we buying today? In a word... Iran.

How the Middle East Crisis Will Play Out in Oil Markets

A sharp drop like that in oil prices will undercut oil stocks across the board... I want to buy junior oil companies and I’m excited about the potential of oil shale companies to grow huge. But I don’t want to open a position, only to have a falling oil price knock us down 25% or more right out of the gate.

Oil stocks come with enormous price risk right now.

Oil prices have been soaring in 2012. Oil is up about 10% from its low in early February of $96 to about $105 today. Much of that increase reflects tensions between the U.S. and Iran over the Arab nation’s nuclear program... Commodity traders worry that the crisis could evolve into a military conflict and that could lead Iran – the world’s No. 4 biggest oil-producing nation – to curtail its critical supplies.

S&A Resource Report

Instead, we’re going to keep our powder dry... We’re going to wait for commodity markets to become a little less fearful of the Iran situation. And we won’t have to wait long. I believe a correction is weeks (not months) away.

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Issue 78, March 2012

When that happens, we should have outstanding entry prices to pick up some of the companies that I expect to be big winners in the oil shale boom. This will be our opportunity to load up the portfolio with several winners...

And its end-of-year conference call laid out a clear plan for growth over the next few years… CEO Richard O’Brien said the company plans to begin construction at Akyem in Ghana, Minas Conga in Peru, and the Tanami shaft in Australia. However, he announced that the company will not build the Hope Bay mine in arctic Canada.

Portfolio Update

Writing off the value of Hope Bay cost Newmont $1.6 billion from its bottom line. But killing the project now also saved them billions of dollars in construction costs and future headaches. And losing Hope Bay doesn’t reduce Newmont’s gold reserves.

I just published a comprehensive review of our portfolio, updating each position we currently hold. I you haven’t read it yet, please look for it posted on the S&A Resource Report web page, under “E-mail Updates.”

Little has changed for most of our stocks in the last week, so I’ll keep today’s review brief. However, I need to update you on two positions...

The company announced 99 million ounces of gold reserves, including 5.3 million ounces of new gold. Newmont also announced almost 10 billion pounds of copper reserves.

We had a trailing stop casualty this month. Peabody Energy (NYSE: BTU) – our $8.4 billion trophy coal company – fell below our stop-loss price of $31 per share. We based our exit strategy on that price because it reflected the stock’s low in 2011.

Newmont plans to concentrate exploration in 2012 on its Long Canyon property in Nevada. Longtime S&A Resource Report subscribers will recognize Long Canyon.

It was held by the gold explorer Fronteer Gold, a previous holding in our model portfolio. We made 131% on Fronteer when Newmont bought it out.

Peabody’s shares closed at $30.74 yesterday (March 6). The company suffered from two pressures... Coal prices continue to fall as demand for the fuel declines, in part due to cheap natural gas. At the same time, analysts cut Chinese demand forecasts due to slower growth than expected in the giant resource consumer.

Newmont’s gold-backed dividend plan kicked in last year. The company paid out almost $500 million. That’s $1 per share, about 23% of its net income.

Newmont’s results are in line with what we expected.

This year looks to be even better for investors. At the current gold price, we’ll earn about 2.5% on our position from its dividend alone.

If you haven’t already done so, sell your shares of Peabody Energy. We held the position for only two months, and we’ll record a 15% loss on it in the model portfolio.

Newmont Mining remains a buy up to $70 a share.

Meanwhile, Newmont Mining (NYSE: NEM) announced its 2011 results at the end of February. We bought Newmont shares back in December 2011 as part of our Golden Paycheck investment idea.

Regards,

The company posted record revenue of $10.4 billion on 5.2 million ounces of gold production. It kept $2.2 billion in net profit. Its operating cash flow also hit a record high of $3.6 billion.

Matt Badiali March 7, 2012

The company focused on repaying its long-term debts. It paid back $265 million in 2011. (And it has paid back almost $800 million so far in 2012.)

Issue 78, March 2012

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S&A Resource Report

S&A Resource Report Model Portfolio Prices as of March 6, 2012

Company Best Buys Kinross Gold (KGC) Keegan Resources (KGN) Newmont Mining (NEM) Potash (POT) Vale S.A. (VALE) Southern Copper (SCCO) Seabridge Gold (SA) Hold ConocoPhillips (COP) Calpine (CPN) ExxonMobil (XOM) Penn Virginia Resource (PVR) Enterprise Products (EPD) Mesa Royalty Trust (MTR) Dorchester Minerals (DMLP) Pretium Resources (PVG.TO)

Ref. Price

Ref. Date

Recent Price

Total Return*

Recommendation

Stop Price

Description

$10.95 $4.79 $67.15 $43.59 $22.85 $32.00 $20.17

2/17/2012 10/5/2011 12/7/2011 1/11/2012 1/11/2012 1/11/2012 2/1/2012

$10.57 $4.50 $57.17 $43.28 $23.36 $30.74 $21.63

-3% -6% -15% -1% 2% -3% 7%

Buy up to $13 Buy up to $5.25 Buy up to $70 Buy up to $48 Buy up to $27 Buy up to $35 Buy up to $26

$7.73 $3.09 $45.37 $38.00 $20.00 $24.00 $15.50

Gold Trophy West African Gold Gold-Backed Dividends Trophy Assets Trophy Assets Trophy Assets Trophy Assets

$45.73 $13.03 $65.40 $23.73 $37.72 $44.48 $24.00 $6.23

2/3/2009 8/4/2009 3/2/2010 8/3/2010 8/3/2010 9/15/2010 9/15/2010 1/5/2011

$76.45 $16.00 $85.86 $23.98 $51.75 $41.00 $24.71 $17.06

93% 23% 37% 15% 47% 3% 14% 174%

Buy up to $52 Buy up to $15 Buy up to $70 Buy up to $29 Buy up to $46 Buy up to $58 Buy up to $28 Buy up to $6.50

$68.00 $12.66 $68.24 $22.75 $42.04 $38.59 $22.46 $9.00

Energy Hedge Fund Power Generator Oil Insurance New AOP New AOP Royalty Trust Royalty Trust Golden Triangle

Coeur d'Alene (CDE)

$25.33

6/6/2011

$25.85

2%

Buy up to $30

$20.25

Cheap Silver

Natural Resource (NRP) Sprott Resource Corp (SCP.TO)

$33.56 $4.60

7/6/2011 7/7/2011

$23.79 $4.01

-24% -13%

Buy up to $36 Buy up to $5.25

$23.26 $3.53

Coal Paychecks Trophy Assets

Contango Oil and Gas (MCF)

$60.45

8/3/2011

$59.44

-2%

Buy up to $67

$46.06

Natural Gas Producer

Cameco (CCJ) Halliburton (HAL) Hecla Mining (HL) Permian Basin Trust (PBT) Sabine Royalty Trust (SBR) Endeavour Silver (EXK) Franco-Nevada (FNV) Banro (BAA) IAMGOLD (IAG) Sold Peabody Energy (BTU)

$23.31 $40.87 $6.06 $19.76 $65.33 $10.24 $41.14 $4.71 $16.31

9/2/2011 9/7/2011 11/2/2011 11/25/2011 11/25/2011 12/15/2011 12/7/2011 2/17/2012 2/17/2012

$22.96 $34.13 $4.72 $22.10 $62.33 $9.51 $42.34 $4.83 $14.29

-1% -16% -22% 14% -3% -7% 3% NOT YET -12%

Buy up to $25 Buy up to $50 Buy up to $8 Buy up to $21 Buy up to $63 Buy up to $9.50 Buy up to $42.69 Buy up to $4 Buy up to $18

$19.51 $28.37 $4.61 $17.21 $50.51 $7.66 $31.08 $3.79 $11.69

Trophy Assets Oil Services Champion Cheap Silver Royalty Trust Royalty Trust Silver Mining Gold-Backed Dividends Gold Trophy Gold Trophy

$36.05

1/11/2012

$30.74

-15%

SOLD

$31.00

Trophy Assets

This portfolio is not intended to represent the exact prices at which you could get in or out of a stock, rather, it represents the value of our insights at the time our material is published. * Total Returns includes dividends. ** Recent price reflects closing price on the day our position stopped out.

How to use a trailing stop: A stop loss is a predetermined price at which you will sell a stock in case it declines. A “trailing stop” is a stop loss that “trails” a stock as it rises. For example, let’s say you set a 25% trailing stop on a stock you purchase for $10. If the stock rises to $20, you would move your trailing stop to $15 ($5 is 25% of $20, $20 - $5 is $15).

Only use closing prices, and never enter your stop into the market. For more information, see our frequently asked questions at www.stansberryresearch.com/secure/faq.asp.COP Published by Stansberry & Associates Investment Research.

Stansberry & Associates welcomes comments or suggestions at feedback@stansberryresearch.com. This address is for feedback only. For questions about your account or to speak with customer service, call 888-261-2693 (U.S.) or 443-839-0986 (international) Monday-Friday, 9 a.m.-5 p.m. Eastern time. Or e-mail info@stansberrycustomerservice.com. Please note: The law prohibits us from giving personalized investment advice. © 2012 Stansberry & Associates Investment Research. All rights reserved. Any reproduction, copying, or redistribution, in whole or in part, is prohibited without written permission from Stansberry & Associates, 1217 Saint Paul Street, Baltimore, MD 21202 or www.stansberryresearch.com.

Any brokers mentioned constitute a partial list of available brokers and is for your information only. Stansberry & Associates does not recommend or endorse any brokers, dealers, or investment advisors.

Stansberry & Associates forbids its writers from having a financial interest in any security they recommend to our subscribers. All employees of Stansberry & Associates (and affiliated companies) must wait 24 hours after an investment recommendation is published online or 72 hours after a direct mail publication is sent before acting on that recommendation.

This work is based on SEC filings, current events, interviews, corporate press releases, and what we’ve learned as financial journalists. It may contain errors, and you shouldn’t make any investment decision based solely on what you read here. It’s your money and your responsibility.