Element Global Opportunities Equity Portfolio

September 2012

The Element Global Opportunities Equity Portfolio has the mandate to go anywhere in pursuit of attractive investment opportunities, using a bottom-up investment approach. Being equity focused, the portfolio has at least 70% of its assets invested in international equity markets. The portfolio uses as benchmark the MSCI World (Local) but it does not seek to mimic or track this index in any way.

Investment Highlights
I was taught at university that markets are efficient, which means that the market price of a security is its correct price. Fast forward a few years and here I am, scourging the global equity markets for underpriced securities, trying to do exactly what I was taught was impossible. In other words, I am going against modern finance, in disagreeing with the efficient markets hypothesis. Quite bold of me, don't you think?

Portfolio Details
Net Asset Value (NAV) : Portfolio Assets: Launch date: 99.13 70000 14-January-2011

Portfolio Manager: Filipe Alves da Silva, CAIA There is a joke amongst value investors: two professors who are walking down the corridors of their finance department, and one of them spots a a hundred dollar bill lying on the floor. He tries to pick it up but the other professor stops him and says you cant pick it up because its not there. If it were there, it would have already been picked up. There is a janitor who sees the two professors walk away leaving the hundred dollar bill on the floor. He picks it up and enjoys the money. I have been following a company called Yukon-Nevada Gold Corp for a long time. Yukon is a gold miner with properties in the US and Canada that got itself into serious troubles a couple of years ago: they ran into environmental problems and had to do major refurbishment work in their ore processing plant (roaster). Throw in a global recession and you have a recipe for disaster. To survive, the company was forced to raise cash, both by entering into forward gold sales, and by issuing lots of shares and warrants, resulting in massive dilution for shareholders. Needless to say, the stock price plunged, going from $1.70 to as low as $0.03. Despite believing that they would pull through, the possibility of the turnaround not being successful was too high, and the risk of dilution kept me at bay, that is, until now: Yukon recently reported that it achieved steady state production and is now generating positive operating cash flow. With the majority of the execution risk behind, I now feel comfortable investing. To the numbers: if all goes according to plan, the company will produce 200Koz of gold per year, of which it must pay 60Koz/yr to lenders (until 2015). With a production cost of around $750/oz and $10 million of G&A costs, you get a profit from operations of $140 Mn per year. I am more conservative, and assume annual production of 150Koz and production costs of $870, which returns profits from operations of $70 million. Because of losses in the past, the company will not pay taxes on profits any time soon. Plus, from 2016 onwards, it will keep all its production, which significantly increases operating profits. The market capitalization of Yukon is around $300Mn, or 5 times our estimated earnings, and it holds little debt (besides the forward gold sales, which are already accounted for in the estimate). This is already enough to get me very interested, but there is more: If you are going to mine gold in Nevada, you will need a roaster. There are only three roasters in Nevada, and the only with spare capacity is owned by Yukon. It is very difficult to get approval for a new roaster, and there are no plans to build a new one in the near future. The other two roasters are owned by Barrick and Newmont. The roaster is a very important piece of the puzzle. First, it has spare capacity, and management wants to do toll agreements where it will process ore from a 3rd party for a fee, which will be another source of revenue. Second, its estimated value eclipses the current market value of the company: management believes it is worth at least $1bn, I would play it safe and cut that in half. Third, the roaster makes Yukon a very attractive acquisition target for a bigger player. Even if it is not acquired, Yukon is trading for at very low valuation, something we expect to correct as the company proves it has turned the corner and left its problems behind. In Yukon-Nevada Gold Corp, I think we just picked up a hundred dollar bill that was lying on the floor. The portfolio is up by +13.37% this year, outperforming the general equity market, as measured by the MSCI World Index (local), by +3.07%.

Weekly Performance Chart

106 103 100

97 94 91 88
85 82 Jan-11 Apr-11 Aug-11 Nov-11

MSCI World Local Portfolio

Feb-12 May-12 Aug-12

Monthly Performance
Jan 2011 2012 -1,11% 7,06% Feb 1,61% 5,19% Mar -2,05% 1,62% Apr 3,30% -0,86% May -1,25% -6,98% Jun -1,72% 2,62% Jul -1,37% 0,62% Aug -7,23% 2,67% Sep -7,20% 1,35% Oct 8,70% Nov -2,83% Dec YTD -1,18% -12,57% 13,37%

Element Global Opportunities Equity Portfolio

Investment Guidelines
Max. Long Exposure: Min. Long Exposure: Equity Hedging: 130% 70% May use options on single name equities or equity indices to hedge downside risk Hedged on a best effort basis

Largest Positions
Name
i Sha res MSCI Worl d ETF Hedged IBM Appl e Inc Mi cros oft Corpora ti on Fi del i ty Chi na Speci a l Si tua ti ons Peps i Co Berks hi re Ha tha wa y Ama deus IT Hol di ngs Teva Pha rma ceuti ca l s BMW

Weight
15,9% 8,5% 8,1% 6,6% 5,5% 5,5% 4,2% 4,0% 3,9% 3,5%

Currency Hedging:

Total

65,8%

Allocation by Sector
Cash Real Estate Utilities Telecommunication Services Materials Health Care Consumer Staples 1,4% 0,6% 5,6%

Allocation by Country
Cash Others Brazil China Netherlands Italy Sweden Spain Switzerland Germany Australia France Canada United Kingdom Japan United States 0% 5,6% 6,4% 1,7% 6,5% 0,2% 0,2% 0,2%

4,3%
4,5% 6,1% 12,8% 17,6% 1,7% 1,9% 32,4% 11,8% 0% 5% 10% 15% 20% 25% 30% 35%

7,4%
0,6% 4,1% 0,6% 2,2% 4,9% 1,8% 1,4% 56,3% 10% 20% 30% 40% 50% 60%

Consumer Discretionary
Energy Industrials Information Technology Financials

Currency Exposure
120%
100,8%

Contacts
For more information please contact Filipe Alves da Silva directly or send an email to element.cap@gmail.com

100%

80% 60% 40%

20% 0% -20%
-14,1% 6,1% 1,7% 3,7% 0,3%

Disclaimer
1,8%

Past performance is not indicative of future performance. Reference in this document to specific securities should not be construed as a recommendation to buy or sell these securities.

-40% EUR USD CNY BRL CAD GBP UAH

E L E M E N T

Element Global Opportunities Equity Portfolio

Complete List of Holdings

Name
iShares MSCI World ETF Hedged IBM Apple Inc Microsoft Corporation Fidelity China Special Situations PepsiCo Berkshire Hathaway Amadeus IT Holdings Teva Pharmaceuticals BMW Archer Daniels Midlands Lowe's BlackRock Telefnica Corning Inc Avangard MRV Engenharia Renault Jakks Pacific Energold Drilling Chatham Lodging Trust Monument Mining IMAX Corporation GAP Inc Telefonica 11 PUT 06/2013 OPAP Cninsure Premier Exhibitions PAX Global Technology Yukon-Nevada Gold Corp Addvantage Technologies Ted Baker La Seda de Barcelona Cash

Weight
15,9% 8,5% 8,1% 6,6% 5,5% 5,5% 4,2% 4,0% 3,9% 3,5% 3,3% 2,7% 2,6% 2,3% 2,0% 1,8% 1,7% 1,6% 1,5% 1,4% 1,4% 1,2% 1,0% 1,0% 0,8% 0,7% 0,6% 0,5% 0,4% 0,3% 0,2% 0,2% 0,2% 4,8% 100,0%

Total

Disclaimer: Past performance is not indicative of future performance. Reference in this document to specific securities should not be construed as a
recommendation to buy or sell these securities.