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Columbia Yukon Explorations’ Perspectives

Investment Biker and Adventure Capitalist addresses the com-advice conference in Frankfurt, Germany

On February 1 – 2, 2008, Ron Coombes, President, Bruce Morely, Director and Ted Ohashi represented Columbia Yukon at the com-advice conference in Frankfurt, Germany. Keynote speaker, Jim Rogers, attracted a strong audience and press coverage for the event. Rogers first came into prominence by co-founding the Quantum Fund with George Soros that rose 4,000% in its first ten years. He retired at the age of 37 and wrote two books: ‘Investment Biker,’ the chronicles of a trip around the world on a motorcycle and followed by ‘Adventure Capitalist’ that diarized a drive around the world in a canary yellow Mercedes. His latest book is ‘Hot Commodities: How Anyone Can Invest Profitably in the World's Best Market.’

Rogers is considered an investment guru because of the profits he has generated as a hedge fund manager and more recently from the commodities markets. According to his data, since 1998 when the Rogers International Commodities Index (RICI) was founded:

U.S. Treasuries:
S&P 500 Stock Index
Rogers’ Commodity Index Fund  
+ 88.2%
+ 52.5%

In other words, commodities have returned about four times as much as bonds and seven times more than stocks over this time frame. He expects this trend to continue.

Rogers gave an enlightening and entertaining presentation of his current investment outlook. Because Rogers’ view was a virtual endorsement for investing in the shares of Columbia Yukon Explorations, some of his major points and our interpretation of how they apply to CYU are summarized below.

Rogers’ Perspective

  1. China will be the next world economic leader. The 19th Century belonged to the U.K., the 20th Century was led by the U.S. and the 21st Century will see the ascension of China. The Chinese save and invest 35% of income while Americans save and invest 2%. 
  2. As recently as 1987, the U.S. was a creditor nation and now owes $13 trillion with debt rising $1 trillion every 18 months. The Federal Reserve is pursuing a policy of driving the dollar down. Rogers foresees the day when the U.S. dollar will lose its standing as the world’s currency for international settlements. 
  3. Rogers believes the easiest time to invest is in a secular bull market. He says we are in the early stages of a secular bull market in commodities. In past commodity cycles, the shortest was 15 years and the longest was 23 years. There are probably 10 – 18 years left in this secular commodity bull market.
  4. When pressed by a questioner, Rogers guessed the current secular bull market for commodities will last until 2020.
  5. Rogers said he would rather own a commodity than a commodity stock. He feels a commodity stock price is influenced by many factors other than the supply and demand for the commodity. He used the example of buying gold coins or gold bullion rather than the shares of a gold producer.
  6. When asked about exploration stocks, Rogers said if you can pick the right one, they offer tremendous potential. He admitted he has never been able to predict who will make a discovery. Therefore he favours companies that are developing a known asset over those engaged in grass roots exploration.
  7. Rogers was asked to compare the military aggressiveness of the U.S. and China. Rogers said Americans have been very belligerent historically and have been involved in a major conflict in just about every decade of its existence. America also tries to impose its will on others. China historically has not been warlike and leaves other countries alone. Even today it is quietly going around the world buying assets. He said in ten years, the Chinese will own major resource holdings worldwide and Americans will wake up wondering how it all happened. 

Implications for CYU Investors

  1. The world demand, supply and pricing of molybdenum is driven by China. The recent Chinese tax on ferromoly exports is a strong indication this metal remains in short supply. With the Chinese economy growing at 9% per annum, the moly outlook remains positive.
  2. As owners of U.S. dollar based assets discovered recently, substantial investment value can be lost to a declining American dollar. CYU is a Canadian dollar based security with its major asset and primary listing in Canada. Rogers said the only currencies he holds at present are the Singapore and Canadian dollars.
  3. Columbia Yukon is a molybdenum play. Moly has and will continue to participate in the upswing in commodity demand and prices. Moly’s use in strengthening, hardening and making steel more corrosion resistant, places it in high demand in economies focused on efficiency and productivity.
  4. The 2020 time frame is more than sufficient for Columbia Yukon or a mining major to bring the Storie property into production.
  5. Unlike a major commodity such as gold, moly has been a minor metal. Therefore, the many alternatives for holding physical or paper gold are not available for moly except in very small amounts. Given the current low market cap relative to moly in the ground, CYU shares effectively offer moly at a large value discount.
  6. CYU’s Storie deposit was first discovered by Shell Canada in the early 1980’s. CYU’s drilling in 2006 established an NI 43-101 resource of 101.6 MT grading 0.067% Mo, in line with Shell’s historical 100.5 MT of 0.077% Mo. Drilling in 2007 was designed to increase the quantity and quality of this historical resource.
  7. Recently, Arcelor Mittal – the world’s largest steel company purchased 12.6% of General Moly and will take six million pounds of moly from the Mount Hope project; a major Korean steel manufacturer, POSCO, purchased 20% of the Mount Hope moly project; Derek Raphael & Co. – a metal trader has a yearly renewable contract to buy Roca Mines’ moly output and Molibdenos y Metales – a Chilean moly producer made a strategic alliance with Moly Mines. With vast U.S. dollar reserves and an insatiable demand for moly, China is an obvious potential acquisitor. 

Conclusion: according to Jim Rogers, commodities will be in a secular bull market for at least the next decade. Given Rogers’ track record, who would doubt him? In any event, I couldn’t help but see how well the shares of Columbia Yukon Explorations, Inc. fit into his scenarios: moly is a “China” play, the stock and the Storie property is in a most attractive currency region, moly will benefit from a secular bull market in commodities extending to 2020 or beyond, with moly it is difficult to hold the commodity so an undervalued stock is an excellent alternative and CYU is developing a known resource. Finally, being bought out by a foreign or domestic producer/investor is one potential end game for CYU. If these conclusions are correct, CYU shareholders have a lot to look forward to in the months ahead. Hope you agree….

Prepared by Ted Ohashi, CFA (604)-922-2030
Reviewed by Bruce Morely (604)-922-2030
February 5, 2008