“Scrap”

Jeffrey Rhodes | Global Head of Precious Metals

& CEO INTL Commodities DMCC
LBMA Precious Metals Conference | Berlin|
September 26-28, 2010
International Assets Holding Corporation | [Link]
 Agenda
 What Is Scrap Gold?”

 The Major Scrap Markets of The World

 East Versus West
 Europe & The Americas
 The Middle East & Indian Sub-Continent
 East Asia
 Rankings By Volume & Growth
 First Half of 2010

 Key Drivers of Scrap Flows

 Outlook For The Global Economy
 Gold Prices
 Gold Price Expectations
 Global Physical Arbitrage

 Scrap Supply Versus Primary Production

 Price Elastic Versus Price Inelastic

 Conclusions
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 Those Were The Days

Insert slide – Steptoe & Son

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 Some Definitions of Scrap Gold

“Any gold supply that not from a primary

production source is regarded by refineries
as scrap”

“Scrap gold includes any piece of metal that

is entirely or partly gold. Some common
items sold as scrap gold include broken
gold jewelry, gold coins, gold dental bridges,
gold wire and gold shot”

“The term "scrap gold" usually refers to karat gold jewelry that is at least 10K that
is broken, damaged, or out of fashion and no longer worn. Typically includes
chains, earrings, bracelets, anklets, charms, rings, watches, money clips,
lockets... any item made out of gold.”

“Scrap Gold is the term used for the process of recycling broken jewellery, coins
and other items that are no longer wanted”

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 Scrap Supply – East Versus West

Tonnes 2000 2005 2008 2009 2009 v 2000

EAST
Middle East 202.5 325.3 415.8 488.5 141%
East Asia 143.0 207.8 349.6 425.5 198%
Indian Sub-Continent 102.1 129.9 132.5 176.9 73%
Total 447.6 663.0 897.9 1,090.9 144%
WEST
Europe 62.2 99.8 195.2 269.9 334%
North America 58.1 65.4 100.4 132.8 129%
Latin America 20.0 31.2 64.6 101.6 408%
Africa 12.3 17.7 29.2 41.1 234%
CIS 17.2 23.5 26.7 35.3 105%
Oceania 2.2 1.9 1.6 2.2 0%
Total 172.0 239.5 417.7 582.9 239%
Source: GFMS Gold Survey 2010
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 Scrap Supply – Europe & The Americas

Tonnes 2000 2005 2008 2009 2009 v 2000

United States 53.6 60.4 93.5 124.0 131%
Italy 24.6 46.7 61.0 78.0 217%
UK & Ireland 3.7 4.5 38.7 59.4 1505%
Mexico 3.8 7.2 28.1 50.3 1224%
Germany 4.9 7.6 24.4 32.4 561%
France 5.9 12.1 21.2 24.9 322%
Spain 2.5 3.7 10.6 20.1 704%
Source: GFMS Gold Survey 2010
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 Scrap Supply – The Middle East & India

Tonnes 2000 2005 2008 2009 2009 v 2000

Turkey 56.0 67.7 199.0 217.2 288%
India 79.0 94.0 89.5 115.5 46%
Egypt 34.0 72.7 35.8 65.0 91%
Saudi Arabia & Yemen 60.8 92.5 69.4 57.3 -6%
Pakistan 20.0 30.9 35.5 53.9 170%
Iraq & Syria 3.5 14.4 21.9 35.6 917%
Iran 11.0 16.1 26.0 32.2 193%
United Arab Emirates 10.6 28.2 25.4 27.1 156%
Source: GFMS Gold Survey 2010
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 Scrap Supply – East Asia

Tonnes 2000 2005 2008 2009 2009 v 2000

China 24.0 41.7 70.3 102.8 328%
Indonesia 36.0 67.0 72.5 79.9 122%
Thailand 13.5 12.4 51.7 66.0 389%
Vietnam 6.0 7.8 12.5 51.5 758%
Japan 13.5 24.5 53.6 35.3 161%
Taiwan 10.8 13.0 33.6 30.1 179%
Korea 11.8 17.5 20.4 21.3 81%
Source: GFMS Gold Survey 2010
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 Scrap Supply – Top 10 Ranked By Volume

Tonnes 2000 2005 2008 2009 2009 v 2000

Turkey 56.0 67.7 199.0 217.2 288%
United States 53.6 60.4 93.5 124.0 131%
India 79.0 94.0 89.5 115.5 46%
China 24.0 41.7 70.3 102.8 328%
Indonesia 36.0 67.0 72.5 79.9 122%
Italy 24.6 46.7 61.0 78.0 217%
Thailand 13.5 12.4 51.7 66.0 389%
Egypt 34.0 72.7 35.8 65.0 91%
UK & Ireland 3.7 4.5 38.7 59.4 1505%
Saudi Arabia & Yemen 60.8 92.5 69.4 57.3 -6%
Source: GFMS Gold Survey 2010
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 Scrap Supply – Top 10 Ranked By Growth

Tonnes 2000 2005 2008 2009 2009 v 2000

UK & Ireland 3.7 4.5 38.7 59.4 1505%
Mexico 3.8 7.2 28.1 50.3 1224%
Iraq & Syria 3.5 14.4 21.9 35.6 917%
Vietnam 6.0 7.8 12.5 51.5 758%
Spain 2.5 3.7 10.6 20.1 704%
Germany 4.9 7.6 24.4 32.4 561%
Thailand 13.5 12.4 51.7 66.0 389%
China 24.0 41.7 70.3 102.8 328%
France 5.9 12.1 21.2 24.9 322%
Turkey 56.0 67.7 199.0 217.2 288%
Source: GFMS Gold Survey 2010
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 Scrap Supply – So Far This Year
Tonnes 2009 2010 H1 2010 v 2009
Turkey 217.2 73.5 -32%
United States 124.0 62.5 1%
China 102.8 60.6 18%
Indonesia 79.9 44.8 12%
Italy 78.0 38.3 -2%
UK & Ireland 59.4 35.4 19%
India 115.5 34.0 -41%
Saudi Arabia & Yemen 57.3 33.0 15%
Thailand 66.0 32.9 0%
Mexico 50.3 27.3 9%
Source: GFMS Gold Survey 2010

Tonnes 2009 2010 H1 2010 v 2009

Japan 35.3 22.5 27%
UK & Ireland 59.4 35.4 19%
China 102.8 60.6 18%
Saudi Arabia & Yemen 57.3 33.0 15%
Indonesia 79.9 44.8 12%
Mexico 50.3 27.3 9%
France 24.9 13.0 4%
Iran 32.2 16.8 4%
Iraq & Syria 35.6 18.2 2%
United States 124.0 62.5 1%
Source: GFMS Gold Survey 2010

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 Key Drivers Of Scrap Flows
 Outlook For The Global Economy

 Gold Prices
2000 2005 2008 2009 2009 v 2000
Average Gold Price USD/oz $279.11 $444.45 $871.96 $972.00 248%
Average Gold Price Euro/kg € 9,734 € 11,521 € 19,071 € 22,409 130%
Average Gold Price Yen/g ¥967 ¥1,577 ¥2,907 ¥2,919 202%
Average Gold Price Yuan/g ￥ 74.29 ￥ 117.09 ￥ 194.79 ￥ 213.98 188%
Average Gold Price Rs/10g Rs4,518 Rs6,454 Rs12,256 Rs15,233 237%
Source: GFMS Gold Survey 2010

 Gold Price Expectations

2009 2010 H1 2010 v 2009
Average Gold Price USD/oz $972.00 $1,150.60 18%
Average Gold Price Euro/kg € 22,409 € 26,880 20%
Average Gold Price Yen/g ¥2,919 ¥3,325 14%
Average Gold Price Yuan/g ￥ 213.98 ￥ 250.00 17%
Average Gold Price Rs/10g Rs15,233 Rs16,925 11%

 Global Physical Arbitrage 12

 Scrap Supply Versus Primary Production
3,000
Gold Mine Production (tonnes)
2,500 Gold Scrap Supply (tonnes)
Average Gold Price USD
2,000

1,500

1,000

500

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

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 Conclusions
 Average gold prices rose by 3 ½ times from 2000 to 2009

 Despite this primary gold production fell by 1%

 Producer hedging is no longer an acceptable practice

 Central Banks are no longer sellers

 With primary gold production completely inelastic, hedging non-existent and the Official
Sector moving to the buy side, scrap gold flows are the only credible counter to
investment buying

 The only reason to buy gold is the anticipation of capital gains

 Above ground stocks estimated at 165,000 tons, 55% or 90,000 tons held as jewellery

 Investment buyers and scrap sellers are driven by the same

motivation – price expectations

 Possibility of a “Perfect Storm” of selling once sentiment changes

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Thank You

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