President's Message

To the Shareholders

Humboldt is pleased to report that at June 30, 2010, the Company’s net asset value had increased to $44.9 million, compared with $35.8 million a year earlier. Humboldt’s net asset value increased to $3.68 per share, compared with $2.86. Humboldt closed the quarter with $9.8 million of working capital or 22 % of its asset value.

At the time of writing, international markets are going through another turmoil due to concerns regarding debt issues and fears of a “double dip” recession in the United States economy. While satisfactory growth numbers are still being reported by China
and Germany, it is fortunate that Humboldt’s focus on commodity price growth is only partly impacted by a US recovery. Humboldt continues to focus on equities active in the oil, copper and precious metals commodities. The pricing of these three commodities are positively impacted respectively by; OPEC production curtailments; the international demand for copper, for construction purposes, principally in the far east; and as a hedge against a financial implosion and fear of the over issuance of fiat currencies.

The Economy and the Markets

This current business cycle, while very severe, seems to be following a similar pattern of previous stock market and economic downturns, where a year of financial crisis is followed by a lengthy period of declining economic fundamentals. Ironically, by the
time the worst year of most economic recessions is reached, the stock market usually has already discounted economic problems and has commenced a recovery phase. This pattern appears to be unfolding at present, with very strong stock market recoveries throughout the last half of 2009, continuing into 2010, with somewhat of a sideways movement in the last quarter.

Furthermore, the seeds of the world wide economic recovery have been sown. These comprise very low interest rates, low energy prices, low metal prices, the availability of cheap labour and in the US, the abundance of inexpensive homes and commercial properties. The weight of steady debt liquidation for the next several years will hang over the world economies but most of the difficult problems seem now to be known and will gradually be eliminated.

Commodity Outlook

Humboldt continues to have a positive outlook for commodity based stocks.

After six years of robust growth, the US economy entered into a severe recession in late 2008. The United States has been shaken by the collapse of the housing sector followed by severe financial problems caused principally by irresponsible lending, as well as the negative impact of high energy prices. The economic slowdown in the United States, and in other countries around the globe, resulted in a major reduction of demand and the price collapse of almost all commodities.

The run-up of oil prices to near $150 per barrel, which resulted in extremely high gasoline prices and led to major demand destruction, was ironically coincident with the steady deterioration of the US economy. Consequently, when the bubble burst, oil trended downwards and only strenuous efforts by OPEC to constrain production have brought production back into line with world wide demand.

Natural gas prices similarly ran up to extremely high levels during the first half of 2008, engendering a drilling boom in the United States. The increased supply from the large number of long reach, fractured shale wells, typically commencing production at very high rates, before declining, combined with demand destruction, has resulted in a similar gas price collapse. There is not much bright news on the natural gas scene as the collapse in drilling activity in early 2009 has been followed by a slow and steady recovery in US gas focused drilling rates. In addition, there is a gradual increase in the number of horizontal wells drilling for natural gas and the advent of major companies looking at natural gas exploration as a “manufacturing process”. These factors do not bode well for higher natural gas prices and Humboldt plans to limit its exposure in this sector.

While Humboldt limited its new exposure to mining in the past 18 months, this sector has a much brighter future. Hence, gold and silver prices have steadily trended upwards as a result of the “safe haven” aspect of these metals. Indeed they appear now not to be an inflation hedge but, a catastrophe hedge as an investment medium, in case of significant sovereign debt defaults.

Base metals however, which are easier to evaluate on a supply demand basis have been positively impacted by Far Eastern, principally Chinese buying, especially affecting copper and nickel. The continued rapid expansion of Asian economies has provided steady price increases in these metals over the last year and should spill over into related metals such as molybdenum and tungsten in 2010. While Humboldt is still minimizing its exposure to this sector it will purchase higher quality mining stocks on a selected basis.

International Energy Focus

Humboldt remained optimistic about the international oil sector throughout 2008 and as a result when share prices fell in the sector, Humboldt suffered significant losses. Humboldt remained confident of the values in this area however, especially when
compared with gas, or Alberta focused energy companies, and believed that the exposure to large oil projects in favorable jurisdictions would lead to significant gains. Humboldt increased its exposure to companies exploring in Australia, the Far East,
Africa, and Europe, while maintaining a substantial exposure to North Sea stocks.

Humboldt increased its investment in this sector by $6 million during 2009 and was rewarded with the value of its international holdings increasing to $17.8 million by the end of Q1 2010 however with the European debt crises and fears of a double dip recession in the U.S. the international shares have retreated some what, losing $2.7 million in Q2 2010.

Outlook

The stock market decline in Q1 09, clearly indicated the panic bottom for this market cycle and with the steady increase in world wide indices since, bodes well for a sustained, but choppy, upward move. Humboldt’s investment outlook for 2010 is now more optimistic and the Company plans to steadily redeploy a portion of its cash in selected equities throughout the year.

Humboldt is in an enviable position, with a substantial cash balance to be able to weather any market set back. In addition, Humboldt’s Board has strongly encouraged the management teams of its major holdings to control their capital expenditure
programs to reduce their balance sheet leverage.

On behalf of the Board,

(Signed)

"R.W. Lamond"
Chairman of the Board