Growth Portfolio March 15, 2008:

It certainly has been an interesting few months; so far 2008 seems to be the year of excesses. The surging energy markets have been defying all predictions, crude oil at $110.00 a barrel was unthinkable even just a few months ago, the credit markets continue to contract at an unprecedented pace in many areas interest rates are moving up even as the Federal Reserve tries to lower rates, the US housing market is falling faster and farther than any one imagined and the global equity markets have been in steady retreat.

The big question at the moment is what should investors do now, there seems to be very little confidence in the equity markets with only one strong trend and that is down to lower prices. We appear to be in a very well established bear market that is not going to end any time soon. I think it is time to step back a little from the day to day volatility and concentrate on the changes in the fundamentals that have taken place over the past few months. As other investors focus on the short term news and uncertainty, it creates opportunities for those willing to look to the longer term.

The underlying fundamentals in the equity markets have changed and not just a little, the problems in the credit markets have seriously reduced the potential for earning growth and that will be the story for all of 2008. The US consumer who has been the main engine driving economic growth is retrenching and trying to repair their balance sheets; this will increase the savings rate and reduce both consumption and investment. The repair process could last for years as the damage has been dramatic across a broad segment of the population.

It is likely that inflation will be the driving force in the economy going forward. The commodity markets are indicating this may be the beginning of a long term trend to higher prices across a wide range of commodities, the trend is already well established in the energy and base metal markets which have generally been moving higher over the past 4 years. Over the past year food prices have been increasing as well and this trend could continue for years as the global economy expands and creates many more millions of middle class families who can afford to diversify their diets.

Historically any time food and energy prices moved up together inflation also increased, the addition of billions of dollars injected into the financial system by central banks around the world, in an effort to stave off the collapse of the financial system, has added plenty of fuel to the inflation fire. It seems that the two decade decline in inflation has come to an end and many investors have never had any experience in a higher inflation environment.

The decline in inflation over the past twenty years has been a huge positive for the bond market as interest rates generally fell and bond prices especially long bond prices moved higher. That long term trend is over we may get short term rallies in the bond market over the next couple of years but the trend will be to lower prices as the world adjusts to higher inflation. Investors will have to be very cautious when looking at the long bond market going forward.

One sector has traditionally done well during periods of inflation is gold, which has a long history of being used as a hedge against inflation. The recent run up in the price of gold has been due to a combination of inflation fears and the general decline in the US dollar. These trends appear to have the potential to remain in place for an extended period of time. It may take a little time before gold breaks through the psychological bearer of $1,000 per ounce but once that bearer has been breached gold should continue to surge higher.

There are a number of methods of investing in the gold sector from the traditional investment in a gold producing company to the new option of investing in an ETF holding gold bullion.

Barrick Gold Corp (ABX-T) is one of the largest gold producers in the world operating 27 mines globally which produce 8.06 million ounces of gold annually and approximately 400 million pounds of copper. Barrick has exploration programs on 100 properties in 16 countries in an effort to expand the world’s largest gold reserves.

Barrick offers investors an interesting mix of production and exploration potential in a company with a dominate position in the precious metals sector globally.

Goldcorp (G-T) is one of the fastest growing senior producers; the company currently produces 2.3 million ounces of gold and 17 million ounces of silver annually from 10 mining operations located principally in North, Central and South America. The company has 7 development project ongoing offering investors an excellent opportunity to participate in the expansion of reserves over the long run. Goldcorp boasts the industry’s lowest cash cost of production of only $150.00 per ounce of gold.

Kinross Gold (K-T) is forecast to increase production by 60% over the next 2 years as new mines and expansions on current operations are completed. The company expects production for 2008 of 1.9 – 2 million ounces on a gold equivalent basis and 2.5 – 2.6 million ounces in 2009. Kinross operates in four countries, USA, Chile, Brazil and Russia. The company has dramatically expanded reserves over the past couple of years and currently reports reserves of 47 million ounces of gold, 77 million ounces of silver and 2.8 billion pounds of copper. Kinross offers investors an excellent opportunity to participate in the increased earnings potential from a combination of higher production and prices.

Investors looking for an opportunity to participate in the long term movement in gold will be well served by the StreetTRACKS Gold ETF (GLD-N) The Exchange Traded Fund is managed/ marketed by State Street Global Advisors; the units invest in bullion which is held in trust in a depository. Investors have a direct holding in bullion and with a much lower cost than bars or wafers; the annual MER is currently capped at 0.40% of the net asset value.

Original cost as at April 15, 2004

Company Profiles:

Cameco (CCO):

Cameco is the worlds lowest cost producer of uranium and supplies approximately 20% of the world’s production. The company has total proven and probable reserves of 550 million pounds of uranium. The company operates three mines in Northern Saskatchewan, McArthur River, Key Lake, and Rabbit Lake along with two properties in the US, Smith Ranch-Highland in Wyoming and Crow Butte in Nebraska. Cameco also owns 31.6% of Bruce Power which is a joint venture with TransCanada Corp and BPC Generation Infrastructure Trust. Bruce Power has leased eight Candu reactors located in Ontario, six of which are operational; the six reactors can produce 4,700megawatts of electricity enough to supply approximately 20% of the provinces power requirements. The company recently split the shares 3:1 and increased the annual dividend by 20% to a post split $0.24 per share.

Target Price: $60.00

HudBay Minerals (HBM):

HudBay is a Canadian zinc and copper producer. HudBay is the third largest producer of both zinc and copper in Canada and is the third largest producer of zinc oxide in North America. The company has the annual capacity to produce 115,000 tonnes of zinc, 100,000 tonnes of copper, 100,000 of gold, 1.4 million ounces of silver and 45,000 tonnes of zinc oxide.

Target Price: $25.00

Teck Cominco (TCK.B):

Teck is the largest zinc producer in the world and the third largest refined zinc producer. At facilities at the Red Dog mine in Alaska and the Trail metallurgical complex in BC. Besides zinc the company produces copper at its 64% owned Highland Valley Copper mine in BC and the Antamina copper-zinc mine in Peru, gold at the 50% owned Williams and David Bell mines in Ontario, and coal through its 41% interest in the Elk Valley Coal Partnership which is the worlds second largest producer of metallurgical coal. This diversified company has exposure to most of the metals that are increasingly in demand globally. 

Target Price: $55.00

Canadian Western Bank (CWB):

CWB is a schedule 1 bank operating with 31 retail branches in BC, Alberta and Saskatchewan. The bank operates an insurance subsidiary and offers commercial lending services and trust services as well. The region in which CWB operates is the growth region of Canada and this offers the bank an excellent opportunity for growth. Target Price: $35.00

CN Rail (CNR):

Canadian National Railway Company is a leading North American railway, after acquiring Illinois Central in 1999 and Great Lakes Transportation in 2004 along with the partnership agreement with BC Rail in 2004. The company has 19,560 miles of track in Canada and the US operating from coast to coast and down to the Gulf of Mexico serving the ports of Vancouver, Prince Rupert, Montreal, Halifax, New Orleans and Mobile Alabama.

CN transports a variety of products including petroleum, chemicals, grain, fertilizers, coal, metals, forest products and autos. The company generates revenue from the US (56%), Canada (25%) and international traffic (19%).

Target Price: $63.00

EnCana Corp (ECA):

ECA is one of the largest independent oil & gas companies in the world. Focusing on natural gas production from properties located in Western Canada and the US Rockies region. ECA has the largest land holding of any gas company in North America. Low natural gas prices have created a buying opportunity for investors. Target Price: $90.00

Suncor (SU): Suncor Energy Inc. is an integrated oil & gas company with operation focused in the Alberta oil sands, one of the world’s largest petroleum reserves, which represents 85% of current production.

The company has operations concentrated in the oil sands areas near Fort McMurray, Alberta, mining bitumen and upgrading it into refinery feedstock and diesel fuel. Natural gas is produced in Western Canada and managed from Calgary, Alberta most of the natural gas is produced for internal use in the recovery process in the oil sands operations. The company operates a refinery in Sarnia, Ontario and products are marketed in Ontario, Quebec and northeastern United States. Suncor operates 500 service stations in Ontario and recently acquired 43 Phillips 66 service stations along with a refinery in Denver Colorado.

The company has huge potential reserves the oil sands estimated at 10 billion barrels of oil. This positions Suncor as a long term supplier of petroleum products. Target price: $115.00

Gold Corp (G): Gold Corp is one of the world largest gold producers and one of the lowest cost producers as well. The company recently acquired mid tier producer Glamis Gold which increased reserves and production. The acquisition also diversified the company geographically as well. Target Price: $50.00

Kinross Gold (K):

A Canadian gold producer with 11 mines operating in The US, Canada, South America, Africa and Russia which produce 1.6 million ounces of gold annually. The company is a now one of the ten largest gold producers in the world. Kinross is a low cost producer of gold with a cash cost of production of only $265.00 an ounce. The company is well managed and well positioned to take advantage of the current high price of gold. Target price: $30.00

Agrium Inc. (AGU):

One of the largest fertilizer manufacturers in the world, Agrium is currently the largest agricultural retailer in the US offering farmers seed, fertilizers, pesticides and herbicides. The company sells a combined 8 million tons of nitrogen, potash and phosphates globally, most of that in the Americas. Target Price: $80.00