US Global Investors Inc (GROW) 2012 Q4 法說會逐字稿

Welcome to the U.S. Global Investors webcast, U.S. Global Investors' earnings announcement for fiscal year 2012. Please note that the slides you see on your screen are controlled by the presenter. You may submit questions during the webcast. (Operator Instructions).

We would like to begin by introducing Susan Filyk, Investor Relations at U.S. Global Investors. You may begin.

Thank you. Welcome, everyone, to our webcast announcing results for the fiscal year ended June 30, 2012. The presenters for today's program are Frank Holmes, U.S. Global Investors' CEO and Chief Investment Officer; Susan McGee, President and General Counsel; and Catherine Rademacher, Chief Financial Officer.

During this webcast, we may make forward-looking statements about our relative business outlook. Any forward-looking statements and all other statements made during this webcast that don't pertain to historical facts are subject to risks and uncertainties that may materially affect actual results. Please refer to our press release and corresponding Form 10-K filing for more detail on factors that could cause actual results to differ materially from any described today in forward-looking statements. Any such statements are made as of today and U.S. Global Investors accepts no obligation to update them in the future.

If you have a question for us, it you can submit it at any time during the webcast. Simply type your question in the dialog box at the bottom of the screen and click submit. If we aren't able to answer your question during the live presentation, we will follow up with you individually.

Now let's go to Frank Holmes, CEO and CIO, for an overview of the quarter. Frank?

Thank you, Susan.

Strengths. As you see on slide number four, the go-to stock for exposure to emerging markets and resources, we will show you that both in a rising and falling and then rising trend. Debt-free, it is very important. We have a strong balance sheet and in these type of volatile markets we have a very reflexive cost structure which Catherine Rademacher will demonstrate.

Monthly dividend and returns on equity are our disciplines as we navigate through these volatile markets. Our top -- as you see on slide 5, our top institutional holders of GROW is The Royce Funds which are small-cap value specialists; FIM; Perritt Capital of Chicago; TEAM Asset Fund financial managers, and Fidelity in their Select Fund.

A snapshot, as you can see for the past decade, our annualized return has been 17.6% and you can see our market cap as of this snapshot, the stock is now higher from when this was taken from June.

The next visual is slide 7. What's been really sad for capital markets is this industry trend that asset managers have had to deal with, with not only declining markets, but people redeeming emotionally dissatisfied globally with government policies either fiscal or monetary. And this has basically seen redemptions and money flowing into bond funds leaving equity funds.

On the flip side of that is a challenge for us short-term, but is setting the stage for a phenomenal opportunity in companies which have very strong growth in revenue, a high rate of returns in capital and, especially, emerging markets that trade at six times earnings. So we are going to walk you through that.

But in this past year, we have seen, and I have been talking to people in Europe and also even in Canada which has been net export of resources of their currency now, they are stronger than the US dollar. They are seeing outflows also as people are just fearful of the contagion from Europe that would -- could impact -- what is taking place in China and the resolution of government policies does not give them the comfort.

Nevertheless, we are adapting to those volatile changes. And as you can see in the next visual, our asset breakdown. What is important to us is the law of strong retail direct to investors and, institutionally, we have revamped and restructured with a lot of factors that, I think, are key for growth and being courageous, I think, in spending the money that is necessary during these times to capture opportunities in the marketplace.

Susan McGee will comment more specifically on how we have reinvigorated what we are doing on institutional space.

What you can also see is that emerging markets of natural resources are almost 80% of our equity of our funds, and what that means is that we are going to just experience more volatility and that is why we have a low fixed cost structure and a variable cost structure that deals with assets volatility.

The next visual is this math of running our business, it shows up in our stock price. As you can see, trying to manage our expectations, what is the math? And for the past 10 years it has been a nonevent for over 12 months rolling 70% of the time, gold funds would go plus or minus almost 40%. Oil could be plus or minus 35%, emerging markets plus or minus 30%, which is substantially less than the S&P, and what is interesting is that bullion alone is the least amount in the volatility.

But the fact that we are equity fund managers in many of these emerging markets and resource-based funds, we experience a volatility in our revenue and our cash flow. And we want to make sure that investors are cognizant of these factors that drive that volatility.

The next visual is showing you just the math of markets measuring volatility, how often does the Company enter gold, et cetera. We show you here that gold 10% moves up or down is only 7% of the time.. For GROW, it is remarkable the volatility that shows up in GROW. Also basically you can see in our asset base with gold funds such as the Gold Index.

But nevertheless, through all that volatility, we have focused on how can we remain consistent for our fund shareholders and for our growth shareholders and not only ourselves, our own livelihood at U.S. Global. And one of the factors is consistent 60 months of paying a dividend, a monthly dividend of $0.02 a share and quarterly, even what you see here, quarterly assets, average assets under management have been falling.

We experienced this in 2008 and what we want to point out to you is that when 2008, these levels where we went to, we are doing substantially better for the year and even when you take a look at our numbers for the months of July and August. So, our cost structure is adapting. It is not as fast as the assets adapt or move around, but we are.

And what you are seeing on the next visual, slide 13, is the annual earnings per share over the past five years. Our year-end is June 30, so 2008 started to fall apart after when oil was over $120 a barrel and then it started to collapse in the second half as Lehman went under and you can see it didn't really turn around until the following March of 2009.

But during that period, we had a big loss in 2009, that time period, and we have seen our assets decline similar in this past 12 months. However, we still make money. And that is a real key factor of the difference in this type of marketplace. And any type of substantial rally, we have the capacity to make more money as a company under this structure that we have.

Now, the next visual on 14, you can see the annual pretax profit margin. It has declined but nothing like the second half of 2008 on the calendar year to 2009 or our year of 2009 how our sequence is for our year-end. But what is important is that our margins that, they have fallen, but nothing like what we experienced in the big market selloff. Even though many of the market indices went down to similar levels, we ourselves have done much better in this asset class.

I am going to skip over the next visual on 15 and go right to what is important, is slide 16. Three reasons GROW is more attractive than peers. When we took a look at our three-year average which we focus on, what is our returns on capital, and to which you can see here over the past three years our earnings per growth is 38%. For value invested return on equity is 12.9% and income dividend yield is higher than our peers when we take a look at the earnings and we take a look at returns on capital.

So these are important factors when considering investing is that we believe that growth is attractive for a growth investor, for a turn in resources and emerging markets, for the value investor and for the income investor.

Page 17 shows you the extreme volatility over the past 12 months. As you can see, GROW has performed terribly so as a stock and reflecting of the dropping in assets from emerging markets and resources, but not as bad as the Venture Index, the micro caps that we see, but we have declined. And what is interesting over that snapshot period, what you see on the next page is the explosiveness has taken place in the past two months as the funds have all gone above their 50-day moving average. We showed this last year, that every time we get some type of a positive risk on trade, there seems with emerging markets and resources, we have a stock that is extremely explosive on the upside. And this is what investors have to recognize that -- the volatility and use it to their advantage.

Now I am going to turn it over to Catherine who is going to give you a financial analysis, a recap of the income statement and balance sheet.

Thank you, Frank. Good morning. I would like to summarize our results of operations for the fiscal year ended June 30, 2012.

And beginning on page 20, you can see we recorded total revenues of $23.8 million for the year. And it is down 43% from the $41.9 million we recorded last year, primarily for the following reasons.

First, mutual fund advisory fees declined by about $12 million or 45% as a result of lower assets under management that Frank discussed. Of that amount, $7.4 million was attributable to a decrease in management fees due to market depreciation and shareholder redemptions, primarily in the natural resources and emerging markets fund.

In addition, $4.6 million of the decline was attributable to a swing in the mutual fund performance fee adjustments from positive last year to negative this year.

Secondly, transfer agent fees revenues decreased by $1.3 million or 27% as a result of a decline in the number of shareholder accounts and transactions.

Third, distribution fees revenues declined by $1.9 million or 32% due to lower assets under management. Other advisory fees comprised of our offshore fund management and performance fees decreased by $1 million or 74%, primarily due to a decline in performance fees.

And investment income declined by $1.2 million or 118% as a result of unrealized losses on trading securities.

And moving on to page 21, showing our expenses, total expenses for the year were $21.3 million. That is a decrease of $8.6 million or 29%, primarily for the following reasons.

First, employee compensation and benefits decreased by $2.5 million or 20%, primarily as a result of lower performance-based bonuses and fewer employees. As Frank mentioned earlier, this is one of the areas in which we can deploy our reflexive cost structure since our philosophy is to pay relatively low base salaries and relatively high performance bonuses.

Secondly, G&A declined $2.4 million or 29%, primarily due to prior period software implementation and consulting expenses. Platform fees decreased by $2.3 million or 37% as a result of lower assets held through the broker dealer platform. And advertising decreased by $1.3 million or 52% as a result of decreased payouts in marketing activity also reflecting our reflexive cost rupture.

Next on page 22, we show net income for the year of $1.5 million, or $0.10 per share, compared to the $0.51 earnings per share reported last year.

And moving onto page 23. As Frank mentioned, we still have a very high level of cash. Cash and securities combined make up 83% of our total assets. During the year, we invested $5 million of our cash in an offshore fund we advised that invests in dividend paying equity and debt security of companies located around the world. And this investment is reflected by a reduction in cash and cash equivalents and a corresponding increase in available-for-sale securities on the balance sheet.

And as you can see on page 24, we still have no long-term debt. The Company has net working capital of $25.7 million and a current ratio of 9.4 to 1.

And with that, I would like to turn it over to Susan McGee.

Thank you, Catherine, and good morning. We are excited about a number of significant achievements and progress taking place at U.S. Global Investors. For the next few minutes, I would like to highlight just a few of these.

As our growth shareholders know, the funds have received a number of awards over the past decade. Recognition of our outstanding performance continued during this past year with a Financial Planning magazine article highlighting the benefits of natural resources stocks over the past 10 years when included in a diversified portfolio and rebalanced annually. Of natural resources funds with a 10 year return, our Global Resources Fund added the most return.

Another accolade that the Fund received recently was Kiplinger's Personal Finance. In its September issue, the Global Resources Fund was ranked among the top 10 sector funds over the past 10 years.

You can see on the next slide that our funds remained highly ranked by Lipper over the 10-year period. As of June 30, 2012, four of our US Global Investors Funds were ranked in the top 2% for the 10-year period. You can see on this slide how highly ranked the Global Resources Fund, the World Precious Minerals Fund, the Eastern European Fund and the World Precious Mineral Funds were among your peers. And we think this is very significant and we are very proud of the performance.

Also, we are pleased to tell you that Near Term Tax Free Fund continues to be highly ranked by Morningstar also. As of June 30, 2012, the Fund had a four-star rating among 130 municipal short-term bond funds.

We continue to proactively brand and market GROW in multiple ways, and we believe that one of the keys to building assets is through reaching out to curious investors and building awareness about investing in natural resources, gold, and emerging markets. And you can see on this next slide that over the quarter, we have had about 14 TV and radio appearances, more than 1,000 Web mentions and nearly 100 newsletter recommendations.

To complement our strong base of this public relations and distributed content, we have also expanded our institutional sales team. Frank mentioned this earlier.

Over the summer we brought on experienced financial services veterans from industry-leading companies. Vanessa Magno joins our team from Legg Mason. Vanessa has more than 17 years of experience in the industry and she will be focusing on building relationships in the Central region. We've also brought on Henry Conkle who has over 31 years of experience in the financial services industry. And throughout his career, Henry has held sales management positions with various industry leaders such as Claymore Guggenheim, Putnam, Allstate Credential, and Morgan Stanley. Henry will reach out to investors in the Texas as well as the Western region of the US.

And finally, we are pleased to welcome back Kevin Trevor-Wilson who rejoined U.S. Global after working for Alliance Bernstein and the American Funds over the past decade.

Vanessa, Henry, and Kevin will join our Tadas Misiunas who works with the advisors on the East Coast. And together we believe this newly expanded team will help drive assets under management in the institutional channels.

To help our sales team make the most impact this fall, we have lined up a robust schedule of sales and marketing activities. In September, Frank will be speaking at the Chicago Hard Assets Investment Conference. Our sales team will also be reaching out to new advisors at the Financial Planning Association's national conference which will take place this year in our backyard in San Antonio, and it includes Frank as a featured speaker.

And finally, Frank will be a keynote speaker in Singapore at the Asia Mining Indaba in October.

And now, I would like to turn it back over to Frank who will lead you through what investors should expect for global markets over the next several months. Frank?

Thank you, Susan. And I need to comment on some of the excellent work that Susan Filyk has been working on. Her marketing team is The Goldwatcher presentation that we gave back in May was syndicated and, just on Business Insider, over 180,000 page views. Now remember this is over 70 pages. So we are talking about millions of pages were sent around the world.

Our e-mail subscriptions to Frank Talk blog was launched, and if you are not a subscriber, I highly recommend that you call up and subscribe to it as we try to comment on interesting anomalies almost like Malcolm Gladwell's book on Outliers, something that is unique and a different perspective that we see on investing, behavioral, finance issues that relate to investing.

And then syndication of commentaries and blog posts continue to grow with more than 60 websites who share our insights with curious investors. And as Susan commented, Financial Planning has recognized the Global Resources Fund and this seems to have a positive contagion of people looking at the Fund from the math of it and our unique processes of both explicit knowledge and tacit knowledge, and our team approach that is spearheaded by [John Derek], the Director of Research.

Now when we look at sales and marketing strategy, one of the things which Susan just commented on regarding the team, the bench, how we have expanded the bench and we spent a lot of money on technology and also money on consultants on training. What is the best practices for us to build out our distribution platform, and it is an ongoing process for us. But we are very proud that we did this in a real challenging environment and, with that, we have come up with a very simple sales strategy that investors are underweight. What the world needs are resources.

Also tax-free bond funds yielding more than 10-year treasuries and attractive dividend yields in resource and emerging markets and a price reversal on equity funds to try to demonstrate that.

Now on page 34, are you underweight? And what to us we discovered was that energy and basic materials are 15% of the S&P 500, and as you can see on slide 35 the exact percentage weighting. So the S&P 500 biggest companies in America are broken down to 10 sectors. And if you have been underweight over the past decade in energy and basic materials, you have underperformed the S&P by a dramatic way.

Well, what we saw in looking at analysis of all ICI mutual funds and all assets is that most investors are -- institutionally and retail -- are in fact dramatically underweight via this sort of key asset class when you look at the global arena. And with that, we looked at the simple math of $11 trillion in usual fund assets for simplicity. If they were 5% weighted in gold bullion that would be $500 billion. Well, gold ETF, bullion ETF is only $50 billion.

When we looked at resources as basically 15% of the S&P and we looked at domestic equity funds, it came out the math was basically only 1% is allocated towards the asset classes in this sector. So what is needed by investors? If you want an iPhone or an Android or a BlackBerry, what are the products that make those other needs?

One is you choose personal choices between those different types of carriers, but if you don't have the utility to recharge it and you don't have the basic materials to build it, you don't have them. And that is a key factor we have been educating investors and that is what we have come up with. Apple is a want and global resources are needs -- energy, food, water are needs. And we compare, which really shocked us was to compare the market capitalizations of what Apple is compared to utilities.

And Apple was bigger than all the utilities in America. Well, if you don't have utilities, you don't have air-conditioning in the summer and you don't have heating in the winter. You can't recharge your Apple. And if you compare it to -- the market capital of Apple to all material companies, the whole sector is bigger. What is remarkable is that Apple is bigger than all the telecom today, its current price has moved up higher, and then materials. It is really a shocker in that context.

So investors are, I think, are taking a look and exploring it is a key factor in what you wait for this turn in the global economy because there's been tremendous stimulation. Over 200 countries have -- not 200 countries, but 200 initiatives have been in emerging markets to stimulate their economy. Resources will turn.

And we have shown in the next visual, long-term investments in Global Resource Funds, how it has outperformed the iShares. There's more money in the energy select sector than there is in our Resource Fund, and there's more in the basic materials than our active money management, but we far outperform them.

So that to me is a real key factor of why investors need active money managers and that is part of our educational sales program.

The next part is -- as you see on 39 -- is that there have been huge redemptions past month, past quarter, past year, out of equity funds into bond funds and we have great bond funds, in particular tax-free, AAA rated, high quality. And what you see here is, you compare our tax-free yields to treasury and CDs, it is much more attractive. And when to us in the near term is one of the safest ways -- ideas for us for return versus risk when we are looking at where are you going to park your cash. Because it is priced at $2.00, so it has a very low monthly volatility, but overall it has a very attractive yield compared to any bank CD and compared to any money market fund.

Now it's not the stable $1.00 NAV but it is very, very stable. But the offset of that, the yield is so much higher. So we think that this is a key asset class and we have seen and witnessing growth in these funds with a very focused strategy of awareness.

And next is low volatility. What you are seeing here is that these two particular funds tax-free in near term, no down years over the past decade. And near term, the short-term tax-free solution and also an alternative to as you see on slide 41, if you compare that you could see, what, $10,000 has grown to $13,000.

So another part of this education program shows up on slide 42 is this compared dividend yields to 10-year government notes. And it reminds me of 1980 when I got in this business that the greatest buy ever was to buy government notes. They were paying 15% to 20%. Short term was up to 20% and long-term government bonds were paying 15% coupons. That was the all-time spectacular investment, because as rates fell these bonds exploded on the upside.

We have a unique opportunity because these redemptions that are taking place by investors both RIAs and the retail investor are knocking these stocks down to absolutely ridiculous relative valuations that the 10-year government note is lower than the S&P energy sector, materials sector, and utilities sector. The dividend yield is higher and you have topline growth that is higher than the GDP.

So when you combine that, this is just one of those unique anomalies where fear presents a great opportunity. And that is our big thrust in education awareness, and then how our funds are four stars and why we have been able to outperform any of these ETFs that people have seemed to park more money into.

The next one is just to articulate this attractive dividend yields that emerging markets also have been sold down to ridiculous prices, but that China, our Region Opportunity Fund, is at 3.3%. The All-American Equity Fund is 4.15%. Our Eastern European fund is 4.6% and the Global Emerging Market, GEM Fund is 5.79%. And we commented in the press release that small-cap micro cap companies in emerging markets are trading at six times earnings and growing over 20% in revenue topline. So there's just tremendous opportunities in these asset classes for investors.

And the next visual is to show you that things have reversed. Over the past couple of months we see a price reversal and our funds are all moving above their 50-day moving average. And I think that that is reflected earlier when I show what has happened since the beginning of July, how growth stock has bounced more than the emerging markets and a lot of these resources is the responsiveness of our stock has done this many times over the past 20 years.

Well, I can't stop what's really the reality and the job is -- we have is to explain what the problem is 20% of the time and 80% looking for a solution. It is sort of the 80/20 rule. And the apathy in global markets are providing an opportunity for dividend paying stocks.

As you can see here, the fear of China and the fear of Europe is a contagion, but we are also associating that the response has been, in particular of Europe, is over regulation and then showing up throughout the US. There's over regulation in every aspect of our life and that is basically shooting cholesterol into the blood system even though interest rates are so low.

It is just hard to get traction to move money around. The bureaucracy and the paperwork for every component has only grown, that it made the front page of The Economist which they had a special story on the overregulated America.

Now I share with you, we are feeling this pain in every aspect. However, when you take a look at Europe, it is even more severe. And we have commented that in our Frank Talk and our other research reports we presented that the highest unemployment in Europe for the youth, approaching 50% unemployment, is the highest in socialistic countries where regulations are excessive and prohibitive for job creation.

And with that we like to always comment on the metaphor of a tipping point, melting point and that H2O is a nice metaphor, it's like money. Because H2O turns to water at 32 degrees, but it is still H2O, is to look for those inflection points in investing both long-term cycles and short-term cycles, which we regularly comment on that there is a seasonal pattern to oil. Yesterday I was on Fox News commenting that oil historically rallies in July, August, and September and then goes through a correction October, November. It is recognized in a seasonal pattern and then, most important, is where are we in these super cycles?

And we still believe that we are in a big S-curve on a super cycle for many factors which we have commented before on previous presentations. But it is important to recognize in the great secular bull market of the 1980s and 1990s in stocks, we had the crash of 1987 where the market fell 40% in a day and it was just brutal. It was so significant that Hong Kong didn't open up for over 10 days. I remember in Canada that the stock market there was closed for almost a week, trying to process the paperwork that dealt with that crash.

So the market still went on. It still went up. And we had war. We had the Gulf War. It doesn't really matter when you are in a big S-curve is that things will trend higher when you look back over a 20-year period and that is what we think we are in -- still, in this period even though we are seeing a contraction of this contagion taking place out of Europe.

Europe is very significant to China because China actually sells more product to Europe than they do to America. A Europe slowdown does have a bigger impact on the small companies in China and, hopefully, these government policy makers in Europe are seeing that they will not take the discipline of fiscal constraint and they are going to turn around and continue to roll over debt below the inflationary rate and turn around to try to spur growth. So I think we are going to probably -- going to see a turn over the next 12 months based on the stimulus that we are seeing in many countries.

But what's important is H2O phenomena is the urbanization drives dramatic rise in wealth. And there are inflection points such as $3,000 GDP per capita, $6,000 GDP per capita, $10,000 GDP per capita. That consumption changes dramatically from buying cars from motorcycles. I remember first going to China, it was all bicycles. There were very few cars. Now there's hardly any bicycles. It is all cars. And that is because of the rising GDP per capita.

And the rising GDP per capita in emerging markets is a significant factor for the consumption of gold, which we have commented many, many times on the love trade.

But take a look at this next visual and don't forget emerging markets hold 50% of the global population and just 21% of GDP. But their economies are growing faster. And they have policies for job creation. When you are in Asia, you find substantially less bureaucracy to create wealth. And you are also seeing innovation. You do not see the innovation in Europe to the degree that you see in America and you see a big increase in innovation and patents being filed in Asia.

Now, reasons for active money-management. This is a very, very complex-looking visual, but what we are trying to show you is that no one country stays at the top forever and they go under tremendous volatility and the magic is to understand mean reversion. Mean reversion is a key factor that with countries on the bottom that cannot handle the pain for more than a couple of years that government policies change and all of a sudden they attract capital, create jobs, and their economies rise to the very top. So it's understanding those dynamics which we have written many times that government policies are precursors of change and how we track and monitor monitoring fiscal policy.

Now China is a key factor in this overall global growth. China's GDP growth tends to stabilize in the fifth year of leadership. It has not bottomed. When we take a look at a lot of factors, the biggest factor we see has a lot to do with the European contagion. But China is poised on 53 to rebound after being down for four years.

The next visual shows you rising wealth. This rising wealth is driving infrastructure spending, which GE is commenting on their presentations. There [in reading reasons] to why you should be fine GE stock is because they are participating in the $4 trillion of global infrastructure spending. And that is where they see opportunity and so do we.

We see it as a key factor and that is what many of our funds are to participate and positioned to participate in that strong growth in revenue.

When we look at China and India's increasing share of global oil demand it is important to recognize that Chindia affectionately known as, for China India, that 40% of the world's population, I repeat 40% with GDPs growing at three times even in a slow economy greater than America. So what happens when China and India consume 40% of the world's oil? Where will it be?

So this is still a strong backdrop for oil. And when we get this global turn where the European countries and the US all of a sudden get in the job creation program, along with what is taking place in the emerging markets, you can see oil at $150 a barrel.

Now another tipping point, explosive growth in the emerging markets auto market is taking a look with OECD as a collection of 31 countries around the world and this sort of visual is showing you the energy consumption by the transportation sector is not going to go through that inflection point where the non-OECD countries surpass the OECD countries to 2025.

Well, this is a big wind at our sail. And we think that investors cannot ignore this significant factor of where those growth opportunities are.

And gold. Look at gold. It is so simple to see that gold prices surge with the increase in the US monetary base. It is just a nice simple -- as the government, the Federal Reserve continues to print money to try to stimulate the economy that gold has been along to protect you of any type of a currency devaluation.

And further, when you look globally, that is why many -- the love trade comes in in other countries you are seeing central bankers increasing their exposure to gold because as global liquidity boom is taking hold, so has the price of gold gone up. So you can see in the dark blue is the US monetary base, but take a look at the global liquidity, and take a look at the price of gold.

So if governments around the world continue to devalue their currency by printing paper, you are going to see gold remain as an attractive asset class. And with that, you have to appreciate the seasonal factor and that short-term volatility can take place of how you use it too as an opportunity.

The next visual is showing you that a strong correlation between gold and negative real interest rates. And what you are seeing here is that negative real interest rates have historically been a key factor for gold rising. A year ago, gold was up substantially compared to today because negative real interest rates were higher for the G7 and EC -- seven countries we follow.

Now we still see the most populated countries basically rolling over debt at a negative real interest rate. Europe, Japan, and America are rolling over $8 trillion so far. $5 trillion of it rolled over at a negative return on your money. I think it is just amazing to see this being existed, would never have thought that and this is another key factor to hold gold as an asset class.

But gold does go through as you see on page 60 a very defined cyclical pattern. And that affects our assets which affects our revenue, which affects our disciplines of how we want to have a low-cost structure, and it reflects the system of managing this volatility. But right now we are in that rising sector of -- you see this visual over the past 15 years. Gold bottoms in July, August and starts its run. Over the past five years it has bottomed in June. Over the past 15 years it has bottomed in July and you get this run. And that is what we are experiencing.

Now what we are seeing is that the appetite for gold stocks has been so severe in dumping them that now gold stocks are much, much cheaper relative to bullion. And when we see takeovers we are seeing takeovers of 60% to 120%. So the opportunity truly is on these gold stocks.

Further when you take a look at gold stocks, appear undervalued to gold as you can see here, especially the small cap gold stocks, they are up 40% over a 12-month period and you can see that bullion was up 6% over a 12-month period.

So the opportunity is where [Pac-Man] is going to come in -- and I am a big believer and I have written and spoken about it right now the cheapest reserves in the world are listed. We have seen the Malaysian National Oil Company, we have seen China come in and make substantial acquisitions in Canada which -- on these Canadian oil companies which have substantial -- significant assets in the US at premiums that are mind-boggling that would close that gap and actually take them to a premium.

So we continue with this thesis that the cheapest resources for oil and gas and gold are listed, because investors out of apathy have sold these down to ridiculous levels, relative to normal valuation methodology of the underlying commodity.

The next visual is showing you again oil versus the Oil Index. And disconnect is the next visual showing you the junior oil stocks and what we are seeing here with this BMO junior oil ETF is that a couple of our companies have been taken over at 65% premiums and 120% premiums in our portfolio.

Reasons for active management, I showed you for emerging countries and now I want to show you look at these commodities. No one commodity stays at the bottom for long or the top. And what is interesting is when gas was at the bottom for two years, it has now finally had a big bounce here on a relative basis over the past four months. Do we think gas is going to go back to $10 an Mcf? Not for a while in the US, because of fracing and technology.

America's innovation has led to an explosion of exploration and development which has found lots of reserves which is beneficial and is showing up that they were importing less energy from rogue countries that are like Venezuela. And this is important for our overbalance of payments, but when you go to Asia an Mcf is not $3.00, not $2.00, but $15. The ratio of oil to gas has historically been 6 to 1 because of a unit of energy. Basically you need 6 million cubic feet of gas to give you the same amount of Btu, British thermal units, of energy for one barrel of oil.

So in Russia, when they sell gas to Europe, they sell it on a ratio of 6 to 1. So Russia is experiencing much higher gas prices, natural gas prices than we are in the US. So it is understanding these anomalies around the world and where are those opportunities; that is what we believe we have a unique expertise and a management process of both travel and modeling internally.

So trying to stop this bull market has risks. And what is important is to not be afraid of the volatility. We have published many times what manager expectations is to understand it and use it to your advantage.

Thank you very much for listening to this long presentation. And now I am open to questions.

Thank you, Frank. (Operator instructions).

Well, it appears there are no questions. If there has been any -- if you want to send questions later, please feel free. If you watch this presentation tomorrow or later today is to send an e-mail to me FHolmes@USFunds.com and or Susan Filyk -- her e-mail address is on the press release -- and we will do everything we can to return and answer your questions. And for any sophisticated institutional investors, feel free to reach out to Catherine. She will gladly answer any questions regarding the financials of the Company.

And thank you, all you loyal investors, for sticking with us through these volatile times. But just remember where there's risk in crisis there's always opportunity. And our job is to go and participate in those opportunities. Thank you.

This concludes U.S. Global Investors' earning webcast for the fiscal year 2012. This presentation will be available for replay on our website at www.USFunds.com. Thank you all for your participation today.