Current edition contains:

UNDERVALUED COPPER MINING COMPANY

1
We found a very cheap way how to get exposed to copper prices.
UTA – CHINESE TRAVEL AGENCY
2
Travelling is on the rise in China, yet barriers to entry are very low.
SWING TRADE IN MUNICIPAL DEBT
3
We are long in short-term, short in the long-term.
AUTOMOBILE SECTOR REVISITED
4
The IPO of GM looks very promising to.
STOCKS TO OWN
5
Three ideas with great international exposure that we consider for our portfolio

GLOBAL MACRO STRATEGY

for absolute returns

In case you were interested in subscribing to our newsletter, please visit :

http://www.atwel.com/en/publications

First three months are completely free of charge.

Afterwards, if you decide to continue following us, annual rate is USD 390 per year.

© ATWEL International, s.r.o. www.atwel.com Page 1

1) UNDERVALUED COPPER MINING COMPANY

Materials have been a hot sector in past two months, especially as a result of QE2 effects and dollar weakness. China
has been busy securing supplies of almost every commodity, buying or financing assets in South America, Central
Asia, Indonesia, etc. India looks to be serious about developing its infrastructure so commodities should remain in
demand. With urbanization of China, China is on pace to almost triple its annual use of copper in 25 years, according
to CRU, a London-base metals and mining consulting firm, which is more than world produces today. These numbers
are clearly unsustainable and paths will be searched for how to substitute copper. Still, copper prices should remain
well bid.
Looking across the copper universe, we were intrigued by a recent fall in Taseko Mines (TGB) shares, almost a 30%
drop in one day. You do not see such moves too often (well, maybe you do), so we gave a try to explore if an
opportunity shaped up or not. Taseko is a company that owns the second largest open pit copper mine in Canada. It
also owns three other properties, of which the most interesting one is called Prosperity – a huge deposit of gold and
copper. Prosperity project was recently dismissed by the government for its environmental impact. Taseko claimed
to seek other options how to start production at the mine, for instance by looking at smaller scale pit and / or
redesigning the mine. The market is rightly skeptical of Prosperity’s future, but let us make a back-of-an-envelope
calculation of Taseko’s already running mine called Gibraltar.
Gibraltar produces about 80 million pounds of Copper annually and should continue to do so for next 25 years. The
long-term cash costs of production stand at about USD 1.50 per pound, about 60 cents more than the most lucrative
copper mine Kinserve in Congo.

With price at USD 4.50, the market cap is roughly USD 840M. If we convert market capitalization to enterprise value,
operation of the company is worth roughly USD 710M.
The company is giving guidance that in 2011, the production of copper should be around 110M pounds. Given that
company hedges half its production within the range of USD 2.50-4.00 / lb and we expect some volatility of copper
price, let us remain conservative and suppose average price of copper at around USD 3.00 per pound for next year.
With long term cash operating costs of USD 1.50/lb and 75% of production belonging to Taseko shareholders (Taseko
is a JV operation), the annual cash flow from operations to shareholders is 110M * (3.0-1.5) * 0.75 = USD 123M.
After taxes, shareholders are eligible for around USD 85M of cash. Most of the capital expenditures has already been
done in past three years so we see the payback time (calculated as ratio of 710 / 85) of 8.5 years quite favorable.
© ATWEL International, s.r.o. www.atwel.com Page 2
We think market has been very punitive for the recent setback in Prosperity project. As a matter of fact, two years
ago, Prosperity was not given any credit and not part of stock value at all and correlation with other companies was
very tight. Today, Prosperity does not go through, yet the stock price wildly deviates from other copper plays. The
truth is that politicians change and what may not go through today can well be passed in two or three year’s time.
For those bullish on Asian infrastructure development and material prices, we think the recent fall in Taseko’s price
may be a nice buying opportunity. We would not be surprised to see Taseko back to prices north of 6, just on the
simple correlation between the stock price, 1y futures on copper prices and also broad index of copper mining
companies ISE Copper Index.

As we will look closely into next month, Asian real rates stand heavily in negative territory today. Both
China and India have about 2.5% negative real rates, which mean the only way for rates is up and that
could put some pressure on commodities over short term. Still there is still a lot of infrastructure to be
done in Asia and demand for commodities should stay well bid.

© ATWEL International, s.r.o. www.atwel.com Page 3

2) UTA - CHINESE TRAVEL AGENCY

Although our fund is primarily top down global-macro driven, we also run several screeners to identify stocks
suitable for further research. Our analyst came across a company called Universal Travel Group (UTA), a China-based
small cap operating in tourism sector.
UTA has a market capitalization of about 100M USD, quite low institutional ownership (yet rising) and almost no
investment bank coverage. UTA is fully focused on booking air-tickets, hotel rooms, and offering packaged tours. It
operates both on-line and off-line, with significant majority of business still done offline in brick and mortar offices.
About 45% of income comes from packaged tours and it is the fastest growing segment of UTA. Packaged tour may
sound like an old-fashioned term to Westerners who nowadays tend to plan most of activities themselves, but it is
kind of big thing in China. I vividly remember dozens of groups of Chinese who would stay in Hong Kong in my hotel
and have an agent take care of them all day long, organizing and planning for them most of daily activities.
In terms of market share, it is an opaque statistics. Based on different metrics, UTA ranks as no.3 – no.10 in China.
Clearly Ctrip (CTRP) and E-long (LONG) are two largest online agencies with most advance interface and management
skills. Ctrip is a pure Chinese enterprise, E-long has backing from well-known Expedia.

The reason why we focused on UTA is because of improving technical charts and according to our understanding – a
deeply undervalued stock price. As we like to say, mispricing does not happen by itself and there has to be a catalyst.
Long story short, UTA entered into two subsequent capital raising procedures to raise funds for acquisitions. As
Chinese travel environment is heavily fragmented, part of UTA’s strategy is to buy out small travel agencies and
incorporate them into their business with a vision of cross-selling. As the book runners of capital raising process tend
to short stock heavily in order to protect themselves from a possible failed underwriting due to lack of interest, they
obviously drive the price down and the stock collapsed from 17 to 7. Not too much of surprise given the low market
capitalization and lack of strong hands. What happened later is a tale of its own – a short attack caused by a well
known short seller Mr. Hempton based on false and dubious information, trying to discredit the company going as
far as claiming the company does not have any internet operations at all and is lying in its quarterly and annual
statements about its cash position. This short attack was finely timed, exactly in the time period when the company
was changing its auditor and has been in search for a new CFO.

The stock dropped as low as 3.25 USD, well below its tangible book value. The stock was priced for a fraud. Since
then, UTA was accepted by a respected auditing firm in USA, which means it had to go through and client acceptance
process (the auditor does not want to get involved in fraud obviously and does some research on the company
beforehand). We also got into contact with a Hong Kong based hedge fund Bayshore Capital, whose senior partner
visited headquarters of the company personally and talked with the CEO. The results of the talks grew our
confidence in the company at that time and acceptance by the auditor even further. By the way, the CEO of the
company, Ms. Jiangping Jiang was awarded as the most influential figure in the travel industry in greater China and
UTA was awarded Top 10 travel agency within China.

Our investing style is rule based and we first got into the company after price broke the MA50 downtrend and we
added with each new high. Now that we are close to breaking MA200, we believe more investors will jump on the
wagon and we cannot rule out that they drive price to 17 again. Well, the fundamentals would justify such price
easily.

© ATWEL International, s.r.o. www.atwel.com Page 4

Let us review some facts:
the company has around 90 millions in tangible liquid assets, which stands roughly for 4.50 USD just in net
current assets;
the company earns 1.20 USD annually in operating cash flow
the company has zero long term debt
the company has been growing at 30%+ for past couple of years
the company has focused and delivered on improvement of its operational efficiency within all three
segments (air-ticketing, hotel, packaged tours)

Currently, the valuations stand at no more of two years of cash flows. It is a ridiculous valuation in light of multiples
that competitors receive. Ctrip is traded at 35x forward earnings and Elong at 65x forward earnings.

It is very hard to believe UTA is a fraud given it just started cooperation with Agoda, a giant in online hotel booking.
Agoda, which is a subsidiary of Priceline, will allow UTA to start selling reservations throughout the world and start
offering international packaged tours as well.

We do see risks connected with UTA, especially in its non-US corporate management style, which is focused more on
long term vision than shorter term shareholder value. In theory, these two should be aligned, but we all know that
such thing works only in textbooks. Yet, let us state some the warnings signs:
Much of the cash sitting on the balance sheet should be deployed to faster expansion or returned to
shareholders.
Stock buybacks should have been when short attack was initiated.
Only 13% of profit comes from online operations, compared with about 30-40% in case of Ctrip. UTA needs
to pay more attention to the future stream of income, which is online. Still, UTA targets especially Tier 2
cities that experience faster growth and where personal income is not that high yet and traditional brick and
mortar agencies are still very popular.
UTA still has only interim CFO

All in all, we are willing to take these risks given that market gives the company zero credit for the cash on balance
sheet and makes the company trade at 4.5x forward earnings. Should the stock get some momentum, it could easily
double within weeks.

The jury is out!

© ATWEL International, s.r.o. www.atwel.com Page 5

Valuation metrics point to a very cheap company, especially on the EV/12M EBITDA ratio.

If the uptrend materializes, the potential gains look promising.

© ATWEL International, s.r.o. www.atwel.com Page 6

3) SWING TRADE IN MUNICIPAL DEBT

Today, state and local governments represent about 12% of GDP and 15% of employment. The GDP in this part of
economy dropped in 4 out of 5 last quarters and due to horrific budgets, we can expects more cuts and drops to
come. The degree of problems measured by state and local budget deficits is estimated to reach USD 140bn in 2012,
yet states are required by law to pass balanced budgets.

So far this year, the biggest one time fix was federal stimulus, which will slowly disappear. Second, US Congress
approved during the crisis so called Build America Bonds that subsidize interest payments on bonds and therefore
benefit mostly long term maturity bonds. As this program is set to expire by year-end and we are not sure if it will be
extended or not, people started selling their municipal bond holdings in fear. Another uncertainty rests on
Republicans who may try to block any further aid to cities and states.

Today most states, with California in the lead, are trying to secure as much funding as possible before subsidies may
expire. That creates a lot of oversupply problem and mixed with fears about cities funding next year, situation
escalated into a violent rise in yields. Between now and year end, things may get pretty violent for some issuers and
opportunities may arise.

Here is how we view the situation:

a) In short-term, which means over the period of next three months, one should be possibly able to pick up
some municipal debt ETFs here at these depressed levels and add some yield into the portfolio. We would
see buying ETFs focused on the long term debt as the best leveraged play. The goal, however, is to sell the
bonds over first three months of 2011, when supply and therefore prices should normalize.
© ATWEL International, s.r.o. www.atwel.com Page 7
 b) In long-term, however, we are not that optimistic on municipal debt, as in next few years, fiscal challenges
faced by local budgets could become another systemic risk for the financial system. According to NBER and
Boston College Center for Retirement, unfunded liabilities of public pension funds should reach more than
USD 1 trillion in three years time. This calculation estimates 6% growth in the stock market and no further
recession. Local authorities are basically hiding debts in the public pension funds as they do not fully provide
for required contributions into pension funds. There is no immediate liquidity issue as the funds have
enough sources to pay out pensions for next 15-20 years easily, but still, this resembles our prior crisis in the
respect of huge off-balance sheet debts. We are living in a world where heavily debt-burdened states need
to cut and they will most probably cut on their contributions to individual municipalities as well. So
structurally, we have a hard time being proponents of either US government or municipal debt.

During the recession of 2008, municipal debt plummeted, unlike the general government one. So one
should keep in mind this asset class behaves more like corporate bond than government bond. No safe
heaven.

© ATWEL International, s.r.o. www.atwel.com Page 8

4) AUTOMOBILE SECTOR REVISITED

Back in mid June 2010, we pointed out that car sales in US were extremely low compared to historical measures and
that car companies and their suppliers were super mean and lean, thus poised to great profits in years to come. As
you may recall, we suggested opening long positions in the company called Dana Holding, as of today, the company
outperformed the S&P by 20% and is up nicely +26%.

Before we start patting on back too much, a skeptic might say – of course, with beta since beginning of the year at
2.5, it is not that difficult to outperform in a rising market. Well, true, ... at least, technically. However, we believe
the beauty of automobile segment investment resides in fundamentals of the industry (trimmed fixed costs), not the
elasticity to recovery. You need 15M+ new autos just to keep the fleet from aging and account for new drivers, today
we stand at 12 million. Apart of that US auto manufacturers have factories around the world supplying booming
emerging markets.

We are still very enthusiastic and we would buy into the new IPO of Generals Motors. After two days of trading, the
company stands at 34 USD, which we still view as a great entry point.

GE just announced it will buy 25.000 Chevy Volts over next five years in its push to go green. No matter how small it
may sound in comparison to 8-9M cars that GM sells worldwide annually, we think it is just a start. Volt was
announced as the best car of 2010 in US and it could be a deal changer that changes the negative perception of GM
in the eyes of US households as GM had to be bailed out by US government.

GM has a big advantage compared to Ford in its international presence (52% of sales outside US and Europe) and a
significant position in China, where it is no. 1 at the market. Although cars in US are generally priced at double
compared to China and offer much better margin, the benefit of strategic position in growing markets can be only
hardly disputed.

Today, the profit margin already stands at comparable levels to Ford, and valuations look compelling. According to
several analyst estimates we have been able to look at, PE for next year stands at around 7, slightly below Ford’s 8
multiple. Yet valuations are a hard play here as we are in a recovering market with cost structure quite different
from what we are used from the past. And GM is a bundle of different moving parts, for example its stake in China is
treated as an equity interest (worth probably around USD 20bn) and it is not reflected in margins or certain parts of
P&L.

All in all, we believe today’s prices are very attractive and we could easily gain 30%+ over next 12 months.

© ATWEL International, s.r.o. www.atwel.com Page 9

5) STOCKS TO OWN

Looking at the composition of our portfolio, our gross exposure by asset class is about 30% long / short equity, 20%
in currencies and about 1-2% in commodities. Currently we are developing certain screeners that would allow us to
increase our gross exposure and utilize a lot of cash on the sidelines. Apart from TGB, UTA, and GM that we
mentioned above as good plays, we would like to share couple other names that we find somehow interesting and
will think hardly about adding to our portfolio. Hmm, this is truly equity edition of Global Macro Newsletter.

Microsoft (MSFT)
Some hate it, some praise it. It has definitely lost some ground to companies like Apple and Google, but one can
hardly dispute its cash cow syndrome. Over past 10, 5, and 1 year, the total return to shareholders have been 48%,
7%, and -14%. That would look like a declining company, yet to us it looks like a cheap company, that has increased
revenues and earnings per share over past eight years by two and half fold. The free cash flow yield sits at record
11% and company is repurchasing stocks at nice speed. During last quarter, Microsoft saw growth across all
segments with improved business demand and adoption of Windows 7, Office 2010 and server and database
products. The company has a long term support at 21 USD, but with Enterprise Value / 12M Free Cash Flow at 7.7x,
its historical low, one may not want to miss this opportunity and rather buy now. We see a price tag of 32-35 as a
better gauge of value.

3M (MMM)
3M represents a reflection on global growth. It operates in almost all countries around the world and delivers
products ranging from electronics, to health care, safety, office equipment, ... almost anything you touch during the
day was impacted by 3M. Profit margins are holding at very healthy 16% and return on equity flirts with 30% mark.
3M is one of the companies that keeps raising dividend every year, almost no matter how difficult the environment
is. Sales in emerging markets grew by 25% in the last period and today comprise 34% of 3M’s worldwide sales. Isn’t it
fun to borrow at 1% for 3 year debt and finance growth in EM at the pace of 25% y/y? Enterprise value / 12M FCF sits
at 16 times today, 30% lower than the long term average.

Visa (V)
Visa is yet another cash generating machine that provides services all over the world. Visa’s management affirmed
20%+ EPS growth target for FY 2011 after renewing several client contracts in Q4. The company trades at 17x EV/FCF
of next year and offers the biggest growth prospects of all the three mentioned stocks. By 2015, 50% of revenues
should come from international markets. The biggest threat to Visa in the short term is the Durbin regulation, which
seeks to regulate interchange fees on debit transactions and may erode margins of US operations. However, only
20% of the company’s total revenues are exposed to U.S. debit interchange and costs will be shared by Visa, issuers,
merchants and customers. We should see initial draft from Fed by the end of the year, which will add more clarity.

© ATWEL International, s.r.o. www.atwel.com Page 10

Disclaimer

This document is being issued by ATWEL International s.r.o. (Company), which is a financial intermediary registered with Czech National Bank.
Company provides this document for educational purposes only and does not advise or suggest to its clients or other subjects to buy or sell any
security traded at financial markets, despite the fact such security may be mentioned in this material. Company is not liable for any actions of a
client or other party that are based on the opinions of the Company mentioned in this material.

Trading and investing into financial instruments bears a high degree of risk and any decision to invest or to trade is a personal responsibility of
each individual. Client or a reader understands that any investment or trading decisions that he or she makes is a decision based on his or her will
and he or she bears responsibility for such action.

Educational methods of the Company do not take into consideration financial situation, investment intentions or needs of other persons and
therefore do not guarantee specific results. Company and its employees may purchase, sell or keep positions in shares or other financial
instruments mentioned in this material and use strategies that may not correspond to strategies mentioned in this material.

© ATWEL International, s.r.o. www.atwel.com Page 11