The Golden Goose
Outlook for 2009
Americas
John Bridges CFA, ACSMAC
(1-212) 622-6430
john.bridges@jpmorgan.com
J.P. Morgan Securities Inc.
Ankush Agarwal, CFA
(1-212) 622-5623
ankush.agarwal@jpmorgan.com
J.P. Morgan Securities Inc.
Africa
Steve ShepherdAC
(27-11) 507-0386
steve.a.shepherd@jpmorgan.com
J.P. Morgan Equities Ltd.
Allan CookeAC
(27-11) 507-0384
allan.j.cooke@jpmorgan.com
J.P. Morgan Equities Ltd.
Australia
David GeorgeAC
(61-3) 9608-4002
david.b.george@jpmorgan.com
J.P. Morgan Securities Australia Limited
Brendan JamesAC
(61-3) 9608-4038
brendan.l.james@jpmorgan.com
J.P. Morgan Securities Australia Limited
Lun Zhang
(61-3) 9608-4053
lun.x.zhang@jpmorgan.com
J.P. Morgan Securities Australia Limited
Asia
Frank LiAC
(852) 2800-8511
frank.m.li@jpmorgan.com
J.P. Morgan Securities (Asia Pacific) Limited
Wenwen Wang
(852) 2800-8501
wenwen.x.wang@jpmorgan.com
J.P. Morgan Securities (Asia Pacific) Limited
See page 38 for analyst certification and important disclosures, including non-US analyst disclosures.
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• For gold it’s between deflation, inflation, and/or financial trauma. Gold has
historically been a winner in these situations.
• Gold has generally been seen as a hedge against the general market, and as a
relative outperformer in a deflation.
• Gold equities can face a margin squeeze in a deflation and will normally do
better in inflation.
• We believe investment demand for gold is making up for reduced jewelry
demand and this probably is stimulated by financial fears. In a report published
last month, Carmen Reinhart and Kenneth Rogoff of the NBER and Harvard
suggested that the lull in sovereign defaults might be over.
• During the period from 1985 until 1995 the gold equities outperformed gold as
the sector delivered organic growth. Some stocks have recently prospered as
they grew production, though we expect it will be more difficult for the equities
to outperform gold.
• Key new themes are dollar strength which will help gold mine profitability in
the resource currencies and concern that the “growthier” gold equities may be a
little ahead of themselves. We recently reduced our recommendations on AEM,
GG, and KGC, though we remain very positive on the gold space. Of special
note, weakness in the South African currency has lifted profitability for OWrated
stocks AU and HMY.
• While deflation persists there will be downward pressure on gold prices, though
financial fear and anticipation of inflation attracts gold buyers. We remain very
positive on the gold space and the gold equities as a relative safe haven.

Table of Contents
Summary and Conclusion .......................................................4
In More Detail............................................................................5
It’s all about how long it takes for deflation to morph into inflation ...........................5
Gold as a hedge against the general market .................................................................5
Gold equities are tricky................................................................................................7
SA stocks look very cheap.........................................................................................10
The View From the Gold Vault...............................................12
Data Tables & Charts .............................................................14
Tables
Table 1: Current global precious metals recommendations .......................................13
Table 2: J.P. Morgan’s dollar gold price forecasts.....................................................13
Table 3: Annual attributable production ....................................................................14
Table 4: Cash costs, historical and estimated.............................................................16
Table 5: Shares and capitalization .............................................................................17
Table 6: Earnings review and outlook .......................................................................19
Table 7: 2009E earnings sensitivity analysis .............................................................21
Table 8: Cash flow from operations...........................................................................22
Table 9: Balance sheet data and comparisons............................................................24
Table 10: Comparison of valuations, based on reserves and resources .....................28
Table 11: J.P. Morgan gold beta rankings..................................................................30
Table 12: NPV analysis at $700/oz gold price...........................................................31
Table 13: NPV analysis at $800/oz gold price...........................................................32
Table 14: NPV analysis at $900/oz gold price...........................................................33
Table 15: NPV analysis at $1,000/oz gold price........................................................34
Table 16: EBITDA table (at J.P. Morgan gold price forecasts) .................................35
Table 17: Global gold hedge book.............................................................................37
Figures
Figure 1: Pounds of Copper an ounce of Gold can buy ...............................................5
Figure 2: Ounces of Platinum an ounce of Gold can buy ............................................6
Figure 3: S&P500 Index per ounce of Gold – Long-Term (Log Scale).......................6
Figure 4: S&P500 Index per ounce of Gold – Short-Term ..........................................7
Figure 5: Gold Equities vs. Gold (1985 to 1996).........................................................7
Figure 6: Gold Equities vs. Gold (1995 to 2009).........................................................8
Figure 7: Relative performance of AEM, GG & KGC vs. Gold..................................8
Figure 8: Cash costs for producing gold ......................................................................9
Figure 9: Breakdown of mine costs .............................................................................9
Figure 10: Global gold cash costs ..............................................................................10
Figure 11: SA gold share P/NPVs and the rand gold price........................................11
Figure 12: Gold price in pounds ................................................................................12
Figure 13: Gold companies ranked by estimated 2009E production .........................15
Figure 14: Gold companies ranked by production growth, 2007-2009E ...................15

Figure 15: Estimated cash costs and EBITDA margins for 2009E............................16
Figure 16: Market capitalization and annual trading volume.....................................18
Figure 17: Current share prices relative to their 52-week range ................................18
Figure 18: Estimated P/E ratios for 2009E ................................................................20
Figure 19: Estimated P/E ratios for 2010E ................................................................20
Figure 20: 2009E EPS with $950/oz, i.e., % change against EPS with our forecast
gold price..........................................................................................................21
Figure 21: Estimated price/cash flow ratios for 2009E..............................................23
Figure 22: Estimated price/cash flow ratios for 2010E..............................................23
Figure 23: Financial gearing – net debt to total assets ...............................................25
Figure 24: Premium to Book......................................................................................25
Figure 25: Capitalization per 2009E ounce vs. 2009E EBITDA margins .................26
Figure 26: Capitalization per 2010E ounce vs. 2010E EBITDA margins .................27
Figure 27: Enterprise value per reported reserve ounce.............................................29
Figure 28: Enterprise value per reported total ounce (reserve + (M&I) resources oz)
..........................................................................................................................29
Figure 29: Price to NPV multiples at 5% discount rate, at $700/oz...........................31
Figure 30: Price to NPV multiples at 5% discount rate, at $800/oz...........................32
Figure 31: Price to NPV multiples at 5% discount rate, at $900/oz...........................33
Figure 32: Price to NPV multiples at 5% discount rate, at $1, 000/oz.......................34
Figure 33: Estimated calendar 2009E EBITDA margins...........................................36
Figure 34: Estimated calendar 2010E EBITDA margins...........................................36
Figure 35: Committed and Protected ounces positions as a percentage of total ounces
(reserves and M&I resources) ..........................................................................37
The authors acknowledge the contribution of Sadhak Bindal of J.P. Morgan
Services India Private Ltd., Mumbai, to this report.