TESORO GOLD LTD — Interim / Quarterly Report 2009

Jul 30, 2009

van Eyk Three Pillars – June 2009 Quarterly report

Financial Results to 30 June 2009

Company Results – Jun’09	Company Results – Jun’09
Before Tax	After
	Tax
Profit (12 Months to June 09) ($30,222,358) ($19,645,791) NTA $0.91 $0.92 Share Price (VTP) at 30 June 09 77 cents VTP Stock Turnover in June 09 quarter 3,024,129

Pillar Weights – Jun’09	Pillar Weights – Jun’09	Pillar Weights – Jun’09
	Actual	Permitted
	%	%
Blue Chips	45.9	0 - 60
Growth	25.2	0 - 60
Special Situations	24.8	0 - 60
Cash	4.1
No. of stocks in portfolio 43

Performance Commentary

The company listed on 28 January 2004, with a net asset backing of $0.97 per share, while as at 30 June 2009 the NTA was $0.92 per share. Since inception total dividends of $0.35 per share fully franked have been paid.

For the quarter, the portfolio returned +10.91% versus the S&P/ASX 300 Accumulation index return of +11.49%.

The management expense ratio* for the twelve months to June 2009 was 1.10%. The gross portfolio performance for the twelve months to June 2009 was -19.22% compared to the S&P/ASX300 Accumulation Index loss of -20.34%.

*Based on total operating expenses and management fees over net assets

Investment Process and Portfolio Construction

**Top 10 Holdings **	**Top 10 Holdings **
Holdings	% Portfolio
BHP Billiton	9.5
Westpac	5.0
ANZ Bank	4.5
Commonwealth Bank	4.4
NAB	4.3
Origin Energy	4.0
CSL Ltd	3.8
Woolworths	3.6
Austal	2.5
ABB Grain	2.5
	44.1

The Three Pillars portfolio results from a disciplined process that incorporates quality assessment, classification, and valuation.

Three sub portfolios of distinct style, namely the Blue Chip, Growth and Special Situations, comprise the overall portfolio, giving a diversified outcome. The sub portfolios are blended with consideration given to the appropriate weightings between large and small companies and industry sectors.

• Blue Chip – Selected from the Top 100, utilising a free cash flow valuation methodology. The aim is to construct a diversified 12 stock portfolio of quality companies at a reasonable price. The ‘Blue Chip’ is the most conservative of the three sub portfolios, and aims for low turnover.

• Growth – The ‘Growth’ selection is taken from the ‘Dynamic Growth’ and ‘Stalwart’ stock classifications, which are at the high end of the quality scale. The aim is to select up to 12 high quality growth companies at reasonable prices, whilst maintaining diversification across sectors.

• Special Situations – The ‘Special Situations’ portfolio is comprised of up to 12 ‘value’ stocks, which have the potential for market re-rating, turnaround or takeover. The selection is taken from the lower end of the quality scale and as such has a contrarian flavour. This selection is the most volatile of the sub portfolios.

Contact Details: phone: 02 8236 7700 web: www.threepillars.vaneyk.com.au

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Returns (Gross)

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14%
12%
10%
8%
6%
4%
2%
0%
1 Month 3 Month Inception
van Eyk Three Pillars 2.38% 10.91% 7.99%
S&P/ASX 300 3.96% 11.49% 7.88%
Accumulation Index
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Quarterly Return Attribution (Gross)

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Total Portfolio
5 10.91% Return
4 11.49% S&P/ASX300 Accum
3 4.37% Blue Chip Portfolio
Return
2 3.18% Growth Portfolio
Return
1 3.36% Special Situations
Portfolio
0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0%
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Market Cap Exposure

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Market:

For the year ending 30 June, the ASX300 Index declined 20.34%. However, this masks the remarkable June quarter which returned 11.49% and the strong recovery rally of 27% from the low on March 6[th] . While the market was clearly undervalued at this point, the current raft of commentary declaring a new bull market and a return to strong economic growth is arguably premature.

A combination of some key macro indicators turning upwards, unprecedented government stimulus and a general improvement in business and consumer sentiment has seen previous talk of Great Depression Mark II all but disappear. Nonetheless the scale of the credit and asset price boom, and the attendant deleveraging process, means this is no garden variety business cycle recession, but rather a balance sheet recession, in which time will be the key component of repair.

While there are certainly gathering signs of improved economic activity in many parts of the world, the strength of the recovery may be under question at times given the transient nature of fiscal policy, the drag deficit funding will place on growth and the emergence of inflation necessitating changes to expansionary monetary conditions.

Best sector performances for the period;

•	Consumer	+17.5%
•	Industrials	+13.7%
•	Energy	+12.5%
Worst	sectors;
•	Utilities	-1.6%
•	Health	+4.7%
•	Telecoms	+6.3%

Portfolio:

The allocation between the three sub portfolios or ‘pillars’, was;

•	Blue Chip	45.9%
•	Growth	25.2 %
•	Special Situations	24.8 %
•	Cash	4.1 %

Contact Details: phone: 02 8236 7700 web: www.threepillars.vaneyk.com.au

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GICS (Global Industry Classification Standard) Sector Exposure Relative to Index

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10
5
0
-5
-10
-15
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van Eyk Stock Classification Relative to Index

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Aggregate Portfolio Ratios

Portfolio:

Over the quarter the portfolio underperformed its benchmark by 0.58%, albeit in one of the highest returning quarters for some time, with an index return of 11.49%. Market performance in the period was marked by continued volatility, and earnings confessions from a very broad range of sectors. Margin pressure remains a key area to watch.

Detracting from relative performance were again some varied sector exposures, however in general terms the underweight to consumer discretionary stocks had the most impact.

Of note is the declining influence of broad top down thematics on market performance. Looking forward, stock specific selections are expected to have greater influence on performance, particularly as volatility is expected to remain high.

Stocks producing largest contributions to performance during the quarter;

•	Austal	+1.18%
•	ABB Grain	+1.04%
•	BHP	+1.01%
ks	detracting for the quarter	include;
•	Cabcharge	-0.30%
•	Beach Petroleum	-0.30%
•	Lihir Gold	-0.23%

Stocks detracting for the quarter include;

Regarding sector exposures, the portfolio is overweight a number of key resources, cyclical and energy stocks, retains significant exposure to high quality industrials, plus some defensive holdings in both healthcare and gold.

The portfolio remains underweight to financials, property, utilities and consumer, however most importantly the portfolio remains heavily tilted towards ‘quality’ companies as defined by our proprietary criteria.

	ASX300	VTP
Price Earnings 14.5 15.2 Price to Book 1.6 2.3 Dividend Yield (%) 5.5 4.2 Price to Sales 1.2 1.4 Return on Equity (%) 10.9 19.2

Contact Details: phone: 02 8236 7700 web: www.threepillars.vaneyk.com.au

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Outlook:

Over the period some key global macro economic indicators have shown improvement, albeit from depressed levels. Combined with the immense amounts of monetary and fiscal stimulus being applied worldwide, which is now clearly being shown to be flowing through to real activity, business and consumer sentiment has also improved significantly from the depressed levels seen as recently as three months ago. The improved outlook has seen a continued re-allocation from defensive asset classes to those exposed to global recovery, particularly in emerging economies. While it is clear that the considerable stimulus applied is gaining traction, especially in China, the durability of such a recovery may be increasingly under question, given the transient nature of fiscal spending effects and the limits of deficit financing.

It is important to note that as much of the current fiscal stimulus packages have been funded by immense deficits, it will act as a drag on growth over time. While finding buyers for the massive amount of paper is but one concern, another is that this debt will have to be paid back, funded of course by a combination of higher taxes and lower government spending. Another area of concern is the eventual return of inflation pressures. While in the short term numerous indicators relating to production, capacity, producer prices, employment and wages are showing little pressure, policy makers face a challenge as when to restrain the current highly stimulatory fiscal and monetary policies. Indeed for investors, getting the investment mix right over the transition from mild deflation to moderate inflation as recovery takes hold will be crucial.

On the strength of the current rally, aggregate market valuations have rapidly come back to being in sight of fair value, however it is important to note “confession season” has delivered a series of downgrades from a wide range of sectors, with key themes in some recent commentary has been slower sales growth, margin compression and higher funding costs. Hence, earnings risk remains high and sound stock selection will be critical.

We continue to expect an environment of continued high volatility over a broad trading range, and we see an increase in value opportunities opening up, which should reward active stock selection over time. We expect strong support around current levels for the Australian stock market, with moderate upside risk for the balance of the year, on the proviso the global economy remains on the path of recovery and the financial system delivers no more shocks in the vein of Lehman Brothers.

Contact Details: phone: 02 8236 7701 web: www.threepillars.vaneyk.com.au

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