FP10 NATIONAL POST, THURSDAY, JUNE 14, 2007F I N A N C I A L P O S T

There is long-term strategy, and thenthere is the kind of strategy es-

poused by Andreas Hoefert, chief globaleconomist at UBS: Rather than look at what is coming down the pipe later thisyear, look at 2025 and 2050.

Unusual? You bet. But his ideas couldhave a big impact on investors as emer-ging markets move up the ranks of theworld’s largest, and potentially most im-portant, economies in the coming dec-ades.

To measure the economic size ofvarious countries, he modified grossdomestic product numbers by incor-porating purchasing power into his sta-tistics. This allowed him to convert, for example, China’s GDP into U.S. dollars without losing sight of the fact that theU.S. dollar goes a lot further in China.

Using this technique, the UnitedStates is today’s largest economy, fol-lowed by the European Union, China,Japan, India andGermany.

But things get more interesting in2025, when China takes the No. 1 pos-ition, followed by the United States, theEU, India, Japan, Brazil and Indonesia.By 2050, Indiamoves into theNo. 2 pos-ition, behind China. As well, countries such as Pakistan, Mexico and Bangla-desh crack the top 12.

His projections use a complex formu-la that takes into account such things ascapital and labour growth. Here, many emerging markets do well in the pro-jections because of the fact that theirpopulations are growing fast and areheavily skewed toward younger work-ers. Developed economies are sufferingfrom the opposite trend.

From an investing perspective, thesechanges are important. For investorswho are reluctant to go global, they could provide one more incentive toramp up exposure to foreign equities ingeneral and emerging market equities specifically.

That can be a hard sell among many North American investors who prefer the familiarity and relative stability ofthe home front. Right now, most strat-egists recommend exposures of just 5%to emerging market stocks — a numberthat could rise dramatically in the yearsahead as they gain greater importanceon the international stage.

“Some of these economies will dis-appear from the emerging markets sphere,” Mr. Hoefert said in an inter-view. “Currently, it is very debatablewhether Eastern European countries orKorea, Taiwan and Singapore can stillbe considered as emerging markets. Wedon’t think so.”

Mr. Hoefert added investors shouldalso consider the rates of growth amongthe developing giants, since fast eco-nomic growth often translates into abooming stock market. As fast as Chinais expected to grow by 2050, he notedIndia is actually expected to grow evenfaster. Vietnam, which is not expectedto make the top 15 largest economies by2050, also has an excellent growth story to tell, given its young, educated work-force and stable political environment.

Yes, long-term projections have ahabit of going awry as reality catches up. Capital growth could take a wildturn over the next 43 years, and the de-veloped world could benefit from eithera surge in its birth rate or rising immi-gration. The increasing desire for re-sources, including water, could also be asticky issue.

But if successful investing is aboutanticipating change, this could be one ofthe surest changes coming.

Financial Postdberman@nationalpost.com

COMMENT

Strategisttakes long

view tonew limits

UBS economist’sformula considersemergingmarkets

DAVID BERMANAhead of the Bell

JONATHAN SHIEBER

When venture investors first put money in nanotechnology ma-

terials developer Intematix Corp., thecompany had a very promising technol-ogy but lacked amarket.

Seven years later, Intematix finds it-self in the enviable position of turninginvestors away, as consumers flip on theswitch for new energy-efficient lighting.

Big hopes thus arise from tiny atoms. Nanotechnology is the science and tech-nology of building devices, such as elec-tronic circuits, from single atoms andmolecules.

Intematix’s story underscores how astart-up can prosper by narrowing itsfocus and placing a big bet in a smallmarket, and then locking in suppliers totake advantage of an eventual increasein demand.

In the early days of the new millen-nium, nanotechnology had matured asa science, but companies were only be-ginning to recognize that the technology could be used in commercial products such as lotions and coatings to enhancetheir performance.

Intematix raised its first US$2-mil-lion from East Gate Capital Manage-ment in August, 2000. It had developeda process for quickly and efficiently manufacturing nanoparticles —micro-scopicmaterials prized for their uniquephysical characteristics. Because thesematerials are less than 100 nanometers in diameter, they can exhibit different physical properties — for instance, cop-per is inflexible at a very small size andso can be used as a tough coating.

By 2003, the Fremont, Calif.-basedcompany had established its technol-ogy sufficiently to start to test commer-cial waters, according to Draper FisherJurvetson managing director Jennifer Fonstad. “We saw a very strong materi-al discovery platform,” she said. “And acrop of young promising materials that would apply to about a dozenmarkets.”

DFJ led the company’s US$7-millionsecond round in 2003, and focused pro-duction on a couple of materials that were closest to commercialization, Ms.

Fonstad said. “Solid-state lighting was,and continues tobe, ahigh-growth area,” she said. “We felt that working with theteam to really focus their resources onjust a couple of materials would enablethem to get tomarket more quickly.”

So Intematix began to produce phos-phor, a key component for manufactur-ing light-emitting diodes, or LEDs, thesemiconductor-based lighting that is re-placingconventional incandescent light-ing. Using its proprietary nanomaterialdiscovery platform, Intematix can maketailored phosphors that modulate thecolour of light emitted from LEDs, mak-ing it easier to produce the kind of whitelight used in office buildings that now typically comes from fluorescent lights.

Now, the bulk of Intematix’s rev-enue, which a person familiar with thecompany placed somewhere between

US$10-million and US$20-million for 2006, comes from sales of phosphor toLEDmanufacturers.

“I believe everything is going to beLED lighting over the longer run,” saidDave Epstein, a general partner withSan Francisco-based growth equity firmCrosslink Capital and a director on theIntematix board.

Crosslink co-led Intematix’s US$16.5-million Series C round with SamsungVentures late last year, as a way to placea bet on the hot LED market withouthaving to invest in an LED manufac-turer. Mr. Epstein said the partners at Crosslink expect the LED manufactur-ing business to become commoditized,with margins looking increasingly slimas more businesses race to produce bet-ter, cheaper lights. “With a commodity business, you don’t get to make a lot ofmoney,” Mr. Epstein said.

Instead, with its investment in In-tematix, Crosslink backed a company that sells a necessary LED component.“I liken it to selling Levi’s [jeans] duringtheGoldRush,” Mr. Epstein said.

In 2006, U.S. companies spent ap-proximately US$30-billion on lightingequipment, and that number is expectedto rise to US$40-billion by 2011, accord-

ing to a study from the U.S. Departmentof Energy, published in a recent report on the LEDmarket by research firm Ca-naccordAdams. Themarket demand forLEDs is expected to climb from aroundUS$230-million in 2005 to US$1-billionby 2010, the report says.

To make the leap into the main-stream, LEDs need to produce a lightsimilar in quality to the kind availablefrom incandescent bulbs, said Canac-cordAdams analyst JedDorsheimer.

One of the easiest ways to producewhite light, he said, is by using different kinds of phosphors to shade ultravioletlight. “That is precisely what Intematixis doing,” he said. “They’re manufactur-ing phosphors that can reproduce thewavelength that an LED emits naturallyand change it to a different colour.”

Canaccord Adams research showsIntematix has locked up supply agree-ments with most of the major LEDmanufacturers, including Taipei-basedEdison Opto Corp.; Tokyo-basedSumitomo Corp. (SSUMY/PINK); andGyunggi-do, South Korea-based Lumi-Micro Inc. (082800/KDQ) The company declined to discuss its customers.

Despite the “significant traction”Mr. Dorsheimer sees from Intematix,an IPO is not yet on the horizon for thecompany. Even as other nanomaterials manufacturers such as Buffalo, N.Y.-based NanoDynamics Inc., whichsells nanometals, nanoceramics andnanocarbons for industrial applications,begin to list on the public markets, In-tematix is holding back, said chief exec-utive Peter Larsson.

“We have more work to do,” Mr. Larsson said. Now that the company hasestablished itself in a core market, Mr. Larsson is looking to expand into new business sectors where it can apply its new materials-production process.

“A lot of the breakthroughs in cleantech and green tech will come fromma-terials science,” Mr. Larsson said. To that end, Intematix is also pursuing projectsrelated to novel materials for fuel cells,devices that convert some form of fuelinto electricity, and solar power applica-tions, he said.

As the company pursues these new applications, it will begin to face moredirect competitors. Within the LEDmarket, the main option to using phos-phors from Intematix is to manufacturethe material in-house, analysts said. Inother clean-tech applications, there arefar more competitors.

Still, investors are undeterred. “Welook at nanotechnology as a new way of producing devices — mechanical de-vices, electrical devices or chemical de-vices,” Mr. Epstein said. “The way nano-technology is going to win in the market is when it’s developed for aparticular ap-plication to solve a particular problem.”

By tackling one market at a time,investors expect to continue the com-pany’s steady growth, and eventually realize an exit.

Dow Jones

Big plans fortiny technologyFuture looks brightfor nanotechnologyin lighting fixtures

BY BRIAN TRUSCOTT

VANCOUVER • Exploration company Plato Gold Corp. (PGC/TSX), listed onthe TSX Venture Exchange since 2005,uses one basicmodus operandi:Acquiresites and land claims strategically adja-cent to producers, past producers and/or advanced exploration projects.

And that’s what president and chiefexecutive Anthony Cohen has accom-plished, primarily in Ontario and Que-bec, although investors should expectPlato’s footprint to soon be apparentsouth of the 49th parallel — way south.

“At the moment, we’ve got some di-versification in the portfolio; we’ve got properties in two of the signature goldcamps of Canada— Timmins [Ontario]and Val D’Or [Quebec] regions,” Mr. Cohen toldDow Jones Newswires.

These claims were gradually acquiredover time between 1996 and 2006, firstwith theGuibord,Harker,Holloway andMarriott properties in northeastern On-tario; and then, just last year, the Nor-deau East and Nordeau West gold de-posits and adjoining claims inQuebec.

“The Nordeau deposits are historicalgold deposits, non-NI43-101 compliant;they last had work done on them in thelate-1980s, early-1990s,” he said.

A late-2006, $1-million drilling pro-gram on the Quebec properties provedencouraging, Mr. Cohen said, with one10-metre intersection hitting grades of7.85 grams of gold per metric ton.

This kind of positive exploration re-sult — coupled with a mining-friendlyprovincial government — has promptedPlato Gold to increasingly concentrateon developing and expanding its oper-ations in Quebec. Mr. Cohen is actively looking to acquire additional land in-province. Although he would not bedrawn on details, an announcementcould be forthcoming shortly.

Not surprisingly, the company an-nounced on June 11 that it intends toraise an additional $300,000 in a non-brokered private placement of up to 2.7 million flow-through units priced at 11¢each. Proceeds will be directed toward\Plato’s Val D’Or operations. This endsup being the third financing with theMineralFields Group, Mr. Cohen said,with previous deals generating proceedstotalling $950,000 since last November.

If Plato’s Canadian and internationalexpansion plans are successfully closedin coming months, then the explorerwill have “increased its land position bya factor of 20 times since going public in2005,” Mr. Cohen said.

The Val D’Or claims are quickly tak-ing on the appearance of being Plato’s flagship operation, in part because ofthe Quebec government’s efforts to giveincentives to exploration and develop-ment companies in the mining sector.Mr. Cohen expects the Quebec govern-ment could give Plato enough money this year to more than cover a year’s worth of expenditure, or burn, whichstands at about $25,000 amonth.

The prospects of bankable feasibility studies are still well down the road andMr. Cohen knows considerable ground-work will have to be undertaken in com-ing years. “Unless you are fortunateenough to hit one or two bonanza-gradeholes early on ... you have to carry out alot of drilling for the geologists to under-stand what you’ve actually got.”

As the company pushes forward withits various exploration projects, it raisesthe question: Is Plato determined tostick to its exploration roots, meaningmore advanced projects will eventually be hived off to amid-tier or senior pro-ducer somewhere down the road?

“If we are fortunate to get to thefeasibility stage, I think there’s a goodchance that a senior gold play couldcome knocking,” Mr. Cohen said. “Wewouldn’t have a problem with that ... aslong as our shareholders thought a dealwould add value to the company.”

Mr. Cohen controls 25% of Plato’s out-standing shares, while chairman LuisNavas has just under 10%. While thereare a number of outstanding warrants,Mr. Cohen said investors would prob-ably be satisfied if they were all eventu-ally exercised, diluting the company’sshare base, if only because that wouldmean Plato Gold would have made thetransition from penny stock to a Ven-ture-listed company sitting on a shareprice north of 30¢ and a $20-million-plus market capitalization — clear signsthe exploration play is moving in theright direction.

Dow Jones

COMMENT

INTEMATIXMAKES

PHOSPHURFORLIGHT-

EMITTINGDIODES

PlatoGoldlooks to expandinQuebec andparts south

PRIVATE PLACEMENT IN WORKS

PLATO GOLD CORP.

PlatoGold holds properties inOntario andQuebec, with plans to expand its footprint outside of Canada.

Shares of Apple Inc. (AAPL/NASDAQ) fell US$2.88 or 2.39%

to US$117.50 yesterday after the stock was downgraded to the

equivalent of a “hold” rating at ThinkEquity Partners LLC,

which said it was overvalued due to excessive “hype” over the

iPhone. “The stock is overbought on the hype and hoopla of the

yet- to-be-launched iPhone,” analyst Jonathan Hoopes wrote in

a note to investors. “While we may be wrong, we believe the

near-term ‘easy money’ has already been

made.” The iPhone, right, is Apple’s com-

bination mobile phone and iPod music

player. While saying he still “loved” the

company, Mr. Hoopes lowered Apple’s

stock rating to “accumulate” from

“buy.” Bloomberg News

iPhone ‘hype’ overvaluesApple shares, analyst says,

sending stock down 2%

T E CHNOLOGY