Volume IV, Issue 10 / October 2010

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Welcome Letter

Happy Holidays. Lots of holidays; Halloween, Thanksgiving, Eid, Hanukkah and a few others to be sure.  Despite what your calendar may indicate this is the very late and we hope much anticipated October edition of Without Borders.  I could tell you that the reason it is late is that I was trying to rally my team in the finals of the Hurlingham Open polo tournament or that I delayed publication to determine the effects the mid term elections and recent FED meeting on our portfolio.  However, that would be pure and unadulterated BS. The truth is I was overwhelmed trying to juggle several investment opportunities AND I organized my affairs very poorly. Then once I was already severely behind and on the road once again I was presented with a professional conundrum which put the very future of Without Borders in question.  I wrote about this in Global Speculations so I will not belabor the point again.  As you can see there were several reasons behind this delayed delivery but there are no excuses.  I merely ask for your forgiveness and presumptuously thank you for your patience.

Our Portfolio Update

This edition is the semi annual review of our open positions and it has come at just the right time as we around the Without Borders campfire have come to believe that the inflection point we have talked about exhaustively before is about to find new direction.  As we have oft mused, inflection points are almost never clear in their entirety.  Close observers can determine that the winds are changing and a new direction will soon materialize but there is a long calm period before that new direction will become clear.  Put another way, we have been riding in the eye of the hurricane for the last year or so and we are about to start feeling the gale force winds again.  We just don´t know yet what direction those winds will take us.

While we are stringing a series of disparate analogies together let us remind you of our Inflation/ Deflation sling shot.  Since the crisis began we warned that there would be a slow and steady deflationary period as credit was reduced and the years of mal-investment was worked out of the system.  Like drawing back on a slingshot the deflationary period would be slow and steady until the maximum point of elasticity.  Then we warned that the western governments would take a while aiming their money rock.  We have been in this period for a while now. Longer than even we expected.  With the FOMC´s most recent meeting and the announcement of another round of Quantitative Easing we suspect the rock is about to be launched in a fast moving arc of inflation.  We have been positioning our portfolio for just this situation and although we are up considerably we are convinced the really big gains are still ahead of us.

MODEL PORTFOLIO

Precious Metals

We now hold one third of our portfolio in precious metals. Gold and silver have been steady performers and are still the best store of portable wealth. Far better than any paper currency.  We recommend you hold your precious metals as physical coins and small bars and you store them in a place where you can get to them if you need them in a hurry.  Ideally you would keep some of your precious metals in a country other than the one in which you reside.  Precious metals have had quite a run.  As of this issue we are reducing our precious metals allocation from one third to one quarter of our investible assets.  We prefer gold and silver. We have nothing against other precious metals and certainly palladium and platinum have done well.  The downside of these metals is they are not as readily exchangeable into other forms of exchange or goods and services and the market is thin in comparison to gold and silver.  All precious metals are viable portable stores of wealth but we like to keep it simple.  Again we caution our subscribers not to keep their gold holdings in exchange traded funds.  These are a good way to speculate on price movement but they do not have the portability and they have both counter-party risk and the possibility of easy confiscation.

Publicly Traded Shares

Our portfolio of stocks has performed very well despite our continued concern that the worst is far from over for the financial markets.  We are still of the mind that another big correction is just over the horizon and that a systemic crisis is coming which will spook the markets and cause irrational selling.  As you will see below, we are trimming our portfolio to those shares we are willing to hold for five years or longer by either selling outright or putting in place a tight stop loss to lock in profits.  We are trimming our allocation to public shares to one quarter of our investible assets.

Currencies

For a while now we have had a third of our capital in cash.  We moved back into the US and Canadian dollar at about the right time and, although the US dollar is eventually doomed, we have been rewarded for the switch as the dollar strengthened.  We have been stockpiling cash in order to be able to react quickly when the next market crisis arrives.  This is still a sound strategy although we fear the coming currency crisis may paralyze many investors sitting on too much cash.

Productive Real Estate

Now is the time to move some of your assets into productive real estate.  We prefer un-levered productive land or other income producing property.  Our preferred investment is commercial property and farmland in South America or other places where the tax burden is minimal and the local market could not possibly consume the production. Why? Because in many parts of the western world the budget shortfalls are going to cause tax authorities to raise property taxes to painful levels and ¨rich property owners¨ ie anyone who owns property they do not use for shelter. Property investors will be taxed to the point where their activities are a so called public good and not a viable enterprise.  In places like Florida there are already serious, albeit stupid, discussions about taxing rental properties at twice the rate of owner occupied properties and instituting rent control.  In the US and Europe we also suspect there will be price controls on agricultural commodities as the Euro and the Dollar nosedive and demand from Asia and other parts of the world increases.  It will be a very popular political stance to cap food prices for the man in the street.  Whereas places like Uruguay and Paraguay produce about 50 times the food that their populace could ever consume and they are free to price their exports in any currency they like.  Just as Russia recently entered an agreement to sell its oil to China in renminbi, South Americans and Africans may soon be pricing soy, corn, palm oil and beef in whatever best suits their needs.   We are now upping our allocation to productive real estate to a quarter of our investment portfolio.

Thanks Again

Thank you once again for your patience as well as the kind emails and letters that many of you sent in during my prolonged absence.  I really do appreciate it and it is indeed the subscribers to Without Borders that make the endeavor viable.  I truly enjoy the time I spend with subscribers when our paths cross and if those I have been fortunate enough to meet are indicative of the group at large then we have a very special community indeed.

Before the end of the month you will be receiving a double issue with updates from my travels within and overland escape from Bolivia as well as my take on the European debt crisis after my trip to Spain, Ireland and the UK.  I hope it makes up for the sporadic publishing schedule which is now back on track. Well, mostly back on track anyhow.

Yours in exploration,

Fitzroy McLean
Chief Bon Vivant and Speculator

Portfolio Update

The Without Borders share portfolio has performed well for us even in a time where we have been expecting weakness in the markets. The overall portfolio has produced a 42% annual return since inception and our year to date performance is just under 53%.  This is calculated as though you had bought an equal US dollar amount of each stock recommendation at the time we recommended it and sold as we recommended selling. We know that this is not how most of you follow our recommendations as your insight and experience leads you to either follow our lead or dismiss our ideas as misguided.  We also realize you don´t weigh your purchases equally.  However, we feel this is a standardized way of calculating performance that allows us to keep track of the overall performance of our recommendations.

We recently had a delightful lunch in Punta del Este with a Dutch subscriber.  When we were finished eating, we offered to pick up the bill but he insisted stating, ¨ You already paid for this lunch and my airfare and the hotel room through your recommendations. ¨   After a few moments chatter it became apparent that he had gotten the picks better than we made them.  He had bought our big winners and held on to them long after we recommended selling.  He credited us with the ideas but then rightfully proceeded to point out how we were wrong on the timing.  He bought them well after we recommended them- they originally dropped before they took off.  He then sold well after we did- they went up another twenty plus percent after we took our profits and moved on.  He told us that his ¨Without Borders¨ portfolio was up several hundred percent annually because he was a much better at trading than we are.  He explained that he would trade in and out of his positions either partially or fully while we had a simple buy recommendation.  He credited us with finding ¨shares flying under the radar¨ while missing out on the opportunities to maximize profits.  His technique was to use our analysis to determine his downside risk because a good company is always safe to hold but then use his trading skills to maximize his profits. This is a strategy that works for him and if you are skilled it may work for you as well.

That is ok with us and we are happy for him and anyone else out there.  We can only hope there are more like him than there are subscribers who have the misfortune of following our less successful, or in some cases, horribly misguided recommendations.  We readily admit that we are not traders but rather we seek out undervalued shares that will benefit from the big trends and patiently wait for the catalyst that will unlock the value.   Several of our biggest winners- the shares that returned over 100%- were down 20% or more initially.  Please email us and let us know how your individual ¨Without Borders¨ portfolio has performed.

Pure Circle (LSE:AIM:PURE)

Pure Circle is a great example of the phenomenon we described above.  We originally recommended the Stevia producer in July of 2008 while it was trading at 200 pence. Over the course of the year it dropped as low as 130 pence before more than doubling to over 300 pence. It then dropped once again and was recently trading around 125 pence.  Some of you out there may have doubled your money on this company and others may have taken a hit.  We, however, are still holding the shares because Pure Circle is a great company in a great market and we suspect that before long we will see the shares at all time highs if it is not first the target of a takeover offer from its largest shareholder the Singapore based food producer and distributor Olam.

Some of you may have followed Olam´s takeover of another one of our former holdings New Zealand Farming Systems Uruguay.  While we made money on our New Zealand Farming Systems Uruguay Shares, we would have made significantly more if we were still around when Olam made its offer.

We have met several times with Olam´s management and with Pure Circle management.  We have more confidence than ever in Pure Circle´s management and Olam´s dedication to Stevia and to Pure Circle.  This alone is enough to cause us to buy more shares at these levels.  But there are plenty of other reasons.

The Share Price

The share price collapsed in August when the company announced lower than expected earnings.  It was immediately clear that the so called disappointing earnings came about because the company made the wise decision to invest in expansion and not because of a drop of in demand or any operational problems.  However, this is an AIM listed share and on the AIM shares trade down quickly on relatively low volume.  As we have written many times before the AIM market is a market for publicly traded private equity holdings.  It is noteworthy that since the share price has fallen several large shareholders have increased their positions including the Asian mega conglomerate Swire and the Hong Kong and Malaysia based AIMS investment management run by the renowned value investor David Crichton-Watt.  The recent low share price is a classic buying opportunity.  Just ask the CEO, Magomet Malsagov, who has been buying shares in the open market.

Recent Corporate Activity

But it is not just a matter of share price that has us increasing our position in the company.  In the last year the company has begun growing stevia in Kenya, Paraguay and in The United States thereby nearly doubling their production while reducing their reliance on Asian grown product.
The company has been very active in signing partnerships with heavy weight distributors in key regions. They are now actively marketing and distributing their products in Europe and North America through established companies in the sweetener industry.  Stevia has been approved as a food ingredient in the US, Switzerland, Australia, New Zealand and Russia and in September last year was passed for use in France. The French position is only temporary- pending the views of European food regulators, but last month it emerged that the European Food Safety Authority had issued an initial positive report, suggesting it regarded Stevia as safe. Full approval is expected within the next year.
And just as we were going to press, the third time this month…or last month or…. anyhow, Coca-Cola, in a joint application with Pure Circle, has requested permission to use of stevial glycosides (commonly called stevia) singly or in combination with allied nutritive sweeteners sucrose, glucose and fructose. A total of 15 product categories have been included in Coca-Cola’s application to the regulatory body.  This is a major development as it both signals the adoption of stevia within the mainstream beverage industry and it shows that Pure Circle is smart enough to team with the big boys rather than try to fight their way through the regulatory process.

Conclusion

Pure Circle is a BEST BUY.  Stevia is a product on the rise that will soon achieve mass market demand. Pure Circle is a leading provider of stevia.  The company is well run and in our estimation, on the verge of growing their earnings dramatically.  This is back up the truck time for PURE.  Buy some now so someday you can buy us lunch and explain how you made much more than you would have if you followed our initial recommendation.  We would be happy to eat the humble pie as long as the wine is first rate.

Japan Leisure Hotels (LSE:AIM:JAPL)

Japan Leisure is the worst performer in our portfolio.  The shares are presently trading nearly 45% below our purchase price. Our Love Hotel owner and operator has also seen a weakening of its share price although it is performing exactly as expected.  There have been very few developments since our last review.  The economic situation in Japan is difficult and occupancy levels have come off a bit from pre crisis levels, however, consumers continue to spend on a ¨bit of privacy¨.

The company is now selling at an enormous discount to it´s Net Asset Value (NAV) and is providing a 3% dividend yield.  Based on the most recent Colliers International independent valuation of the property portfolio the NAV is 77 pence per share compared to the current price of 30 pence.  The company has no debt, a steady cash flow and over a million pounds in cash.  This cash position is after the recent expensive renovations of two of its largest properties.  If the hotel or apartment building down the road from you was trading at less than half price and it was making money, wouldn´t you get a few friends together to buy it even if you had to manage it until you could sell it for the full price?  We would.  So why wouldn´t we do the same thing in the public markets with the added option of liquidity if necessary.

So Where is the Disconnect?

The share price is not really indicative of the value of the company.  Although at first glance the share price seems to have fallen off the proverbial cliff that is deceiving.  Goldman Sacs and their funds own 86% of the shares and have not sold any shares since the company first went public.  Credit Swiss and OMX Securities own nearly another 9% and have held their positions throughout the weak period.  What has happened is that the small individual shareholders seem to have gotten tired of waiting for the share price to move and have moved on while the institutions have patiently waited for the story to develop.

What to Expect?

We recently spoke to management and we believe that they will continue to pick up attractive properties from small owner operators during this soft period.  They believe that the increased awareness of their Bonita brand as a high end provider is allowing the company to maintain pricing power and occupancy levels while their competitors slash room rates to keep up occupancy.   If they are not using their capital to pick up new properties they intend to pay their shareholders with an increasing dividend.

Recommendation

Japan Leisure is a BEST BUY if you are willing to be patient and get paid while you wait.  We expect the value to be recognized eventually by the market even if it takes a much higher dividend to attract attention.  If you have a shorter time horizon and are looking to ride a stock higher before moving on then Japan Leisure is not for you.  Think of it as another publicly traded private equity investment that will take years to develop but will eventually provide you with a big ¨pop¨ and a healthy dividend. Even though this is a public company you could allocate this as part of your productive property portfolio.

Eredene (LSE:AIM:ERE)

For new subscribers, Eredene is our London listed private equity company, which controls an exciting portfolio of assets in India.  While Eredene shares are trading at only ten percent higher than we were when we first recommended them over two years ago, the company is worth almost double what it was in late 2008.  The company has transformed itself from a company seeking deals in Indian infrastructure and moderate income housing into a premier player in Indian logistics and infrastructure.

We recently met with management and other large shareholders. We came away impressed with the progress of the company.

Eredene has now entered a new phase of its development with its successful bid for the concession to develop the container terminal in the port of Ennore, and with the acquisition of a stake in Ocean Sparkle Ltd (‘OSL’), a leading port services company.

As a listed investment company, Eredene was able to swoop in and purchase the interest of a highly respected Swiss private equity fund that was forced to sell its investment because the fund was coming to the end of its contractual life.  The Swiss fund should have reaped the reward of an operational and profitable OSL but the global financial crisis slowed the timeline by two years.

Two years is a long time for a traditional five-year private equity fund and thus they were forced to unload the investment before it fully matured.  As we know from experience, the benefit of captive capital- as opposed to redeemable capital- is that you can wait until the right time to exit.  The Swiss company will leave with a profit but not as much as Eredene will reap.

The company also has an extensive pipeline of potential investments mainly related to either to ports, port related facilities or logistics. These areas are key elements in the government’s drive to modernize the country’s infrastructure.  The last reported results indicate the NAV per share rose to 23 pence per share from 21 pence six moths’ prior.  We believe the NAV to presently stand at about 29 pence per share compared to the recent price of 18.  So if the value of the company has almost doubled since we invested then why have the shares moved only a paltry 10%?

Understanding the AIM Market

This is a rather common conundrum on the AIM market.  The AIM or Alternative Investment Market of the London Stock Exchange is one of the most exciting markets in the world.  It offers companies a flexible way to list shares and focuses on the ¨light touch¨ regulatory regime that has made London the epicenter for emerging market finance.  The AIM can be best categorized as publicly traded private equity whereby companies list their shares but the majority of shareholders are financially solid and patient institutions and a core group of sophisticated investors.  AIM companies can have a majority shareholder with up to 85% ownership of the company.  This sometimes makes for a small free float and the shares can languish while the patient capital allows the story to develop.

Eredene is a a good example of a classic AIM listed company.  The company has a solid management with deep experience in the Indian marketplace.  On the back of their experience and financial acumen, the company raised fifty million pounds to invest in India.  Almost all of the initial capital raise was taken up by saavy institutional investors.  80% of the shares are still held by the initial shareholders.  There has been very little selling.  Individual investors have been able to buy the dips but most of the float has been unavailable.  We have met with several Without Borders subscribers who have accumulated six figure positions in ERE.  We continue to buy the dips and don´t plan on selling anytime in the near future.

We recently sat down with a fund manager of the second largest shareholder Ruffer LLP.   We have known Jonathan Ruffer for a long time.  He is a legendary old school English value investor.  He and his team are patient value investors who take a keen interest in the activities in the companies they invest in.  They shared the same opinion we do of Eredene.   With over 23% of the company, they have a vested interest in insuring that the company on track.  Their operating hypothesis is that very soon the company will start distributing its free cash flow via dividends and they reckon the dividends will exceed 12% annually beginning in the second half of 2011.

What to Expect

Our expectation is similar to Ruffer´s.  The company is transitioning from a closed end investment company into a full fledged operating company that will soon be throwing off an impressive amount of free cash flow.  If and when the company starts returning that cash flow to shareholders the yield will be well beyond what most investors are used to.  That will drive up the price of the shares as investors desperately chase yield in this low rate environment.   This will provide us with both an income stream and an increasing share price.  The company owns real productive assets in a fast growing emerging market.  We are holding.  We will continue to buy below 17 pence per share.

Recommendation: ERE is a BUY below 18 pence and a best buy below 15 pence.

Jardine Matheson Holdings (US: JARLF.PK or Singapore: JM)

We say it every time we write about the company but we shall say it again for the new subscribers.  We personally own Jardine Matheson and plan to will the shares to our grandkids.  It is one of the absolutely best run companies in the world and it serves as a proxy for pan Asian economies.

Even though the shares have appreciated over 80% since we first recommended them, we still believe them to be a good buy and a much better use of capital than most other options.  That said, would we buy more today?  Probably not.  We fully expect another major shock to the global financial system and those who have not yet built a position in Jardine Matheson will probably have an opportunity to enter at a lower price within the next year or two.  We recommend you keep these shares at the top of your watch list and buy when the opportunity arises.  If shares drop below 35 per share then we suggest you buy as much as you can afford.   Jardines is one of the growing number of companies where we are comfortable purchasing our shares on the Pink Sheets.  The pink sheets have come a long way in recent years and their new owner is cleaning up the act of pink sheet companies.  He has been aided by the fact that many multi billion dollar companies like Jardine Matheson have moved their ADRs to the pink sheets from the NYSE because of the unnecessary costs associated with Sarbanes Oxley and other pointless regulations with unintended consequences that by far negate the intended benefits.  We will be writing a feature article on investing in foreign companies listed on the Over the Counter Market (OTC) in a future Without Borders.  We still prefer to own the shares in Singapore but feel it is also acceptable to own the OTC ADR.

Endeavour Mining (Formerly Endeavour Financial) TSX:EDV

Endeavour has been an emotional disappointment but a rational success for us.  Why an emotional disappointment?  Because we originally chose to invest in Endeavour because they were a world class merchant banking organization with phenomenal global contacts and a world-class management team.  That same world class management then decided that they should go ¨all in¨ on their gold production strategy.  As much as we loved the romantic notion of old world merchant adventurers fermenting capitalism around the globe, we have to applaud their recent transformation into a gold producer.

Operational Efficiency

Since Endeavour took over the Etruscan properties, the average cost per ounce of gold produced has decreased by nearly 30% while increasing the production by nearly 20%.  That, dear readers, is the power of financial and operational expertise in action.   They are now producing nearly 80,000 oz per years and have over a million proven and probable oz in the ground.
In addition to the operating efficiency achieved at their existing producing properties, the company has ramped up an impressive exploration program on their properties in Côte d’Ivoire.

Growth Through Acquisition

Endeavour is still sitting on over 180 million dollars in cash.  On the last conference call, CEO Neil Woodyer told us that his focus remains on growth through acquisition.  If the Etruscan acquisition is a sign of things to come then we are excited to see what they come up with next.  The company has a preference for West African properties but they will look at other opportunities if they are compelling.

Added Bonus: Rare Earths

Ok. We must admit upfront that we are not believers in the rare earth fad.  Yes rare earths are important. They are used in almost every high tech device imaginable.  Yes China controls the majority of the rare earth reserves.  Yes, China has started to restrict the export of rare earths.  Yes, that is bullish for rare earths.  But that does not mean that it is necessarily bullish for rare earth companies or their shares.  There are way too many companies out there riding the rare earth wave.  Most of these are in the business of harvesting ¨hypium¨, ¨scamium¨and ¨stockpumpium¨.  If half the companies claiming to be the next rare earth star were to be for real then there would be a not so rare earth glut in no time.  However, Endeavour is spinning of its Namibian rare earth properties into a new company that will IPO in early 2011.   The company will be headed by the former chief of Etruscan and will likely get an impressive valuation from the market.  Good for Endeavour and good for us.

What Happened to the Merchant Bank?

The merchant bank seems to be relegated to the background at the moment.  The team is still in place but they seem to be only servicing their existing clientele.  As we write this we are somewhere over the South Atlantic.  We will meet with Endeavour´s bankers in the next couple of weeks while we are in London.  You will learn what we learn in a future issue.  We hope they spin out their merchant bank but for the time being we don´t expect they will add much to the bottom line.

Recommendation

EDV is up nearly 60% since we first recommended it just over a year ago.  We are not selling.  For new subscribers EDV is still trading at a discount to its NAV but we would not recommend buying right now.  If shares drop below CAD 2.50 then we would be buyers again.  For now EDV is a hold.  We look forward to seeing what Frank Giustra, Gordon Keep and Neil Woodyer come up with next.

Total SA (NYSE:TOT)

Total is an integrated oil and gas giant.  We are bullish on oil and energy in general but that does not mean we are bullish on all of the major oil companies.   We picked Total because it is the most active major in the emerging markets of Africa and Asia and because the French government actively bribes the backwaters of the world on behalf of Total and others.  Yes we know that is very politically incorrect.  We are very upset about it. Ok we are over it.  It is also accurate. The US and other countries including Germany and the UK have laws that prohibit companies from paying off government officials in return for major contracts or concessions.  France, on the other hand, solves the problem by offering state aid in return for sweet deals.  Give Total a great deal and the French government will build a hospital or a school or a road.  But wait a minute that is not the same thing as directly paying off a bureaucrat.  That is correct.  There is an additional step or step required.  First Total receives the contract but the government requires the use of certain well-connected subcontractors who kick back to government officials.  Then once the government gets the French money for the school or hospital you can bet your aid that the company that actually builds the school is owned or controlled by a government official or his family.  We have seen it first hand.  We have watched French officials sow up at negotiations between Total and certain ministries in certain countries.  It is the way the world works.  The Chinese are buying half of Africa using the same method.
But that is all to the benefit of Total and Total shareholders like us.  Since we recommended Total only a few short months ago the shares are up over 14%.  More importantly the company is rapidly expanding in the right part of the world.  In particular the company is increasing its activities in Gabon and Indonesia where it has recently won government approvals to expand operations.

Recommendation

As long as we want to have exposure to global oil and gas producers in general and those expanding in emerging markets of Asia and Africa in particular then we will stick with Total. As long as the inflationary practices of governments around the world continue we expect TOT share to keep rising.  However, we also continue to expect a major correction and therefore we are putting in place a five percent trailing stop loss under Total´s share price.  This is not a buy and hold forever company but rather a play on the immediate global circumstances.   We are up 20% in four months so we should lock in our profits.  The shares could, and probably will, continue to rise as various government policies and systemic sovereign issues drive oil prices higher.  But beware the ¨exogenous shock¨ that causes shares to plummet.  A 5 % trailing stop loss will lock in a minimum of a 15% gain and could likely result in even bigger gains.

VALE (SHORT) (NYSE:VALE)

We have an open short position in the Brazilian Iron ore giant that is riding a wave of exuberance over Chinese growth and rising commodity prices.  We are down 22% on this short position but we are keeping it open because it is the best way we know to protect ourselves from a whipsaw market.  Iron ore prices are  now well ahead of where they were before the crisis and in our mind that is unsustainable.  One minor blip and we could see VALE shares come back very quickly.  Add on to the fundamental concerns the fact that the Brazilian government is becoming markedly less business friendly and the new president is talking about forcing VALE to keep some of their output for below market sales to the burgeoning Brazilian steel industry and we may yet have a big gain on this short.  It is a recovery stumble put option and a Brazil put option all in one.  We are keeping our position open.

Treasury China Trust (Singapore:LG2U)

We now own the Treasury China Trust which is traded on the Singapore exchange.  We received these shares because the AIM listed China Real Estate Opportunities investment company which we owned delisted from the AIM and re listed in Singapore.  We held on to the shares because we were hopping that despite our rather negative view on China commercial property, a Singapore listing would revalue the company and provide us an exit in Singapore.  That has not really happened and we are even less comfortable with Chinese commercial properties than we were when we bought the original shares.  If you are a US dollar investor then selling at today´s prices will lock in a 9% profit. If you are a Euro or Pound investor than your profit will be slightly higher.

Recommendation

SELL Treasury China Trust.  However, we recommend you keep the proceeds in Singapore dollars in an account in Singapore.  We like a good number of shares in Singapore including Jardine Matheson which we reviewed above.

Compania Mina Buenaventura, S.A (NYSE: BVN )

Buenaventura is our Peru focused large cap gold mining company.  As most of our readers know, we are very bullish on good gold mining companies because of the leverage to the price of gold which we suspect will keep rising.  BVN is up 61.7% since we recommended it earlier this year.  While this is good news for all it does show our bias towards cheap companies because when we first recommended it we called it ¨pricey¨ and almost did not publish our recommendation because we hate buying shares that are already fully priced.   By now you know and understand our bias and hesitancy so you can make your own decision.  BVN is a spectacularly well run business with one of the premier management teams in the business.  We like Peru and are doing business there so we are not disturbed by country risk.  In fact we would be more afraid of country risk in a place like Canada, Australia and the US where politicians are clamoring for excess profit taxes and the like.

This is a 12 BN dollar market cap company which is trading at a price to earnings ratio of about 12. It pays about a 1% dividend at todays prices and it has nearly a half a billion dollars in cash with less than 50 million in debt.  But it is still not cheap enough for us.

Recommendation

BVN is a great company but we are sitting on a 60% percent gain.  Our official recommendation is to HOLD BVN and put in place a 10% stop loss.  However, we are leaning towards selling BVN and re deploying that capital elsewhere in another gold company that has the chance to double or triple in value.  There is no reason to sell BVN other than to invest the cash elsewhere.  But as the Dutchman and others have said correctly, we buy too early and sell to early. It is only one of our many flaws.

Perseus Mining (TSX: PRU ASX:PRU)

Speaking of other gold companies that still have the chance to double from here…….Perseus.  This is a great company and despite the shares having doubled since we recommended it earlier this year, it could easily double again or sell to a larger mining company for even more.  However, as we go to press the Ivory Coast looks like it may be heading towards civil war again.  Good for cocoa prices but not so good for a company with its flagship project in what could be soon deemed ¨rebel territory¨.  An African dust up could slow the progress of their Central Ashanti Gold Project which is located in Tengrela near the Mali border.  This won´t be a company killer by any stretch of the imagination but it could slow things enough to cause some weakness in the shares.

Recommendation

While we remain supremely bullish on the company we recommend you SELL HALF of your position in PRU.  Since the shares are up 100% that means you will take your original money off the table and keep the upside.  This is a junior resource company and the shares trade on the ASX and in Toronto with relatively light volume.  Therefore, we recommend you also keep an eye on the shares and on the news regarding Ivory Coast (Cote d’Ivoire) and sell the rest of you position if things look like they are getting a lot worse or there is general market weakness.  A double is a nice thing to have. A triple is even better but let´s not get greedy.

Aberdeen International (TSX:AAB)

Earlier in this letter we lamented the end of Endeavour as a merchant bank.  We really love the merchant banking model and when Endeavour transformed itself into a gold producer we went hunting for a replacement.  Aberdeen was just what we were looking for and the share price has increased almost 65% since we recommended the company this summer.

Since we just recommended this company a few months ago not much has changed except the share price.  However, in retrospect we realized we left a couple of their portfolio companies out of our original write up.

The first is Dacha Strategic Metals (TSX:DSM). Dacha is an investment company focused on the acquisition, storage and trading of strategic metals with a primary focus on Rare Earth Elements. Dacha is in the unique position of holding a commercial stockpile of Physical Rare Earth Elements. Its shares are listed on the TSX Venture Exchange under the symbol “DSM” and on the OTCQX exchange under the symbol “DCHAF”.  They actually own the metals and have physical possession.  If you want to play the rising tide of rare earth prices then Dacha is a good way to do so. The shares are presently trading at a discount to NAV and unlike many other rare earth plays they are not an exploration company and their stockpile is primarily held outside of China.

The second company we failed to highlight in the original write up is Avion Gold (TSX:AVR). Avion is a Canadian-based gold mining company focused in West Africa. The Company holds 80% of the Tabakoto and Segala gold projects in Mali. Additionally, a new, 1,670 km2 exploration property in Burkina Faso is expected to return good results from an ongoing drill program. The longer term goal of the Company is to ramp production to a 200,000 ounce run-rate in 2012. Avion has a highly skilled management team, with a focus on growth and consolidation within West Africa.  We like Mali and Burkina Faso as a place to mine minerals and the Aberdeen / Forbes & Manhattan involvement in the company is an added bonus.  The company is producing gold already and has an exciting exploration portfolio.  They were just approved to move up to the main Toronto Exchange from the Venture exchange which will make it more attractive to institutional investors.

Recommendation

All in all Aberdeen is the easiest way to play the junior resource market. You get a portfolio of exciting public and private companies as well as the deal generation abilities of Fobres & Manhattan and the Aberdeen team.  If you are new to the junior exploration investment market then we highly suggest you BUY Aberdeen at today´s prices and follow the company closely. It will give you a broad education on how this most exciting corner of the speculating world works.  If you already own Aberdeen we recommend you add to your position if the shares drop below .70 a share.

Cambium Global (LSE:AIM:TREE)

TREE is our land owning forestry company.  As mentioned elsewhere in this edition we really like land owning productive real estate.  We really like the geographic diversification of TREE´s portfolio which includes significant assets in Brazil, Australia, New Zealand  as well as in the southwestern United States and Hawaii.  The company just sold one of its properties located in Texas and will use the proceeds to retire debt and add to its Brazilian portfolio. Smart move.  The company is presently trading at a significant discount to its NAV.

Recommendation

Cambium is a BEST BUY at today´s prices.  This is an ideal inflation hedge and an implied call on Asian and Brazilian economic growth. It pays a 4% dividend and is a great place to safely park capital while we wait for the slingshot to let go of the inflation rock.
Editor´s Note:  Thanks again for your patience with us as I personally struggled with what to do with Without Borders. In the next issue, which is already mostly complete, we will be back to the normal publishing schedule or as near to it as we have ever managed.  My travel has been heating up and I plan to make the commentary and advise a bit more personal.  From the beginning, this letter was intended to be nothing more than a running commentary of what we are doing with our time and money.  I was fooling myself to think we could treat this like a proper publishing venture. It is not and I have come to the conclusion that it shouldn’t be. What you should be expecting from Without Borders is an old fashioned newsletter which should look and feel like a personal communication from a friend or at least from that nutty cousin your parents wish you didn´t stay in touch with at all. We hope this will satisfy our long time subscribers as well as our newcomers.  We really believe that the quality of the information you can use will increase as we give up on trying to produce a proper investment publication that is scaleable and easily marketable.  What we intend to do is deliver a unique optic in an unvarnished (sometimes read poorly proof read) communiqué from the field wherever that may be.  Without Borders has struggled to appeal to the mass market, partly because it is not suited for the mass market and partly because we can´t get comfortable with the in your face and somewhat over the top marketing required to grow in this business. While that has been a negative when it comes to building a large subscriber base and a profitable enterprise, I have realized is that it has indeed built a special community of like minded and open minded individualists who I am proud to be associated with even if it is only tangentially across the digital divide.   Bear this in mind when you soon receive the next edition entitled. ¨Don´t tell mom I write a newsletter writer, she thinks I am a mercenary. ¨  Until next time, thanks for sticking with us.

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“Before we lecture China on how to manage, we need to get our own house in order. Our spending, debt, trade, & deficits.” – Former Secretary of the US Treasury on CNN less than a month ago.