Buy, Sell or Hold TG World Energy (TGE:TSX-V)

On February 27th /08 Wellington West Capital analyst Malcolm Shaw released an update on TG World Energy.



Company Profile

TG World Energy is a Canadian exploration firm listed on the TSX Venture exchange and based out of Calgary, Alberta. TGE is part of a joint venture that has assembled over 335,000 acres on the Alaskan North Slope where the company is targeting fields too small to be of interest to the majors. The company also has 20% interest in the Tenere block in Niger – an early-stage multi-hundred million barrel potential frontier project.

Event

In a note entitled “North Shore Flow Test Heats Up Alaska’s Central North Slope for TG World” Shaw explains the reasons behind his Speculative Buy rating and $2.10 target.

Takeaways From The Event

On February 27th/08 TG World announced that their -

“North Shore #1 well was re-entered by the Operator on January 10, 2008. The Operator has advised the Company that the bottom 1,000 feet of the original well was re-drilled in a sidetrack to 13,361 feet total depth (“TD”), to a location 153 feet offset from the original bottom-hole location, and that production liner (4.5”) was run to TD. The Operator has also confirmed that the Ivishak and Sag River Formations were perforated before releasing the rig on February 6, 2008.

TG World has been advised that the Ivishak Formation was successfully tested using a Coiled Tubing Unit. The 22 foot perforated zone near the top of the Ivishak flowed when lifted with nitrogen, and had oil to surface at 2300 hours on February 19, 2008. After cleaning up load brine and mud filtrate, the well flowed oil for a total of 16 hours with continually decreasing water cut and salinities indicative of completion brine. The final 5 hours of testing recorded a stable oil flow rate of 2,092 barrels of oil per day (“bopd”) of 34 degree API oil. The North Shore #1 well is located 1,100 feet to the west of, and is interpreted to be in the same Ivishak oil pool as, the Gwydyr Bay South #1 well, which reportedly flowed at a rate of 2,263 bopd from a 35 foot perforated zone on a production test conducted in 1974. The Company has a 35% working interest in the North Shore #1 well.

Due to mechanical issues down-hole, the test on the Sag River Formation has not been completed. The Joint Venture participants are currently evaluating their options. An update is expected to be provided by the Operator when a decision has been made.”

In response, Shaw writes that the North Shore “Test results compare favourably with test of 2,263 bopd from a nearby Mobil well in 1974. We carry $0.33 NPV/sh for the North Shore cluster. The Sag River zone is a secondary target overlying the primary Ivishak target. Sag River sands are generally poorer quality than the Ivishak.” With respect to the Tofkat #1 well, he says it is “ahead of schedule and is expected to reach the Kaparuk sandstone primary target within 7-10 days.” The Tofkat #1 prospect has 65 mmbbls in play and carries a risked “EMV/sh of $0.56.”



The North Shore #1 well tested 2,092 bopd of light oil from the primary target zone. “The test was conducted through 22 feet of perforations within a 70 foot-thick oil pay interval. The bottom hole location is approximately 1,100 feet west of Mobil’s historic Gwydyr Bay South well where Mobil Oil tested 2,263 bopd of light oil in 1974 from 35 feet of perforations. The North Shore #1 well will be suspended as a future producer. North Shore #1 was drilled into one of three prospective structures that make up what we call the “North Shore Cluster” where we carry 5 mmbbls of gross potential (1.75 mmbbls net). TG World has a 35% working interest in the North Shore #1 well and the entire surrounding Gwydyr Bay land package.” Shaw’s “risked NPV/sh estimate of $0.33 for the North Shore cluster is based on 5 mmbbls of gross recoverable resources (1.75 mmbbls net) based on [his] expectation of the recoverable resource potential associated with the North Shore #1 structure and at least one of the two North Shore satellites. Given the new 3D seismic coverage over the North Shore area showing well-defined structures in a proven migration fairway, we believe there is a high-degree of probability that at least one of the two North Shore satellites will be successful. Our valuation of North Shore is based on a total gross peak production rate of ~3,500 bopd (~1,000-1,200 bopd net to TG World) from two production wells coming onstream in Q2 2009.”



The Tofkat #1 well is located in the company’s “Titania acreage block and targeting a Kaparuk sandstone stratigraphic trap analogous to the producing Nanuq field 5 km to the northwest. The Tofkat #1 well is targeting a seismic amplitude anomaly that suggests a Kaparuk sand body capable of trapping hydrocarbons is present within the prospect area. The company has a 25% working interest in Titania and has agreed to pay 35.7% of the ~US$10 million well costs. If the initial well results in what appears to be a material discovery, TG World and their partners plan to drill a sidetrack appraisal well to further define the limits of any discovered oil accumulation.”

Valuation and Price Target

Based on the successful North Shore test results Shaw reiterates his Speculative Buy recommendation and $2.10/sh target. He writes “With 2,092 bopd tested from North Shore #1 well and expected completion of at least two exploration wells over the next four months, we believe TGE is showing good progress on this year’s work program. We believe the share price is currently well-supported by the risked NPV of North Shore ($0.33/sh) and the company’s strong cash position of ~$30 million ($0.25/sh). For the portfolio of prospects currently in our model, we estimate a risked exploration value (EMV) of $3.21 per share for the 25.5 mmbbls of net risked potential shown in the figure below.”



Shaw expects the Tofkat #1 well “to be the most highly anticipated well of this year’s drill program, given the upside potential of $2.31/sh in a 65 mmbbl gross success case. Although we expect a significant amount of focus to be placed on the Tofkat #1 well, we believe it is important for investors to recognize that there are already a number of other high-impact targets in the prospect inventory and that the company is fully funded for two to three seasons’ worth of drilling.”



Furthermore, he believes that the successful well test at North Shore #1 combined with what he believes “is a strong probability that at least one North Shore satellite discovery will be made, keeps TG World on track to begin producing oil from North Shore in Q2 2009 at a net rate of 1,000 bopd. We believe the transition from pure exploration to production could be a significant event for the company as cash flow from North Shore would likely cover the majority of exploration costs going forward.”

Investment Risks

Without limitations, some of the risks include reserves and resource risk, development risks, permitting risks, off-take agreements, commodity price risks, geo-political risks, exchange rates, weather related impacts etc.

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Buy, Sell or Hold Arcan Resources (ARN:TSX-V)

On February 25th /08 PI Financial analyst Geoff Ready initiated coverage on Arcan Resources.



Company Profile

Arcan Resources Ltd. (V-ARN) is a Calgary, AB based junior oil & gas company with operations in the province of Alberta. The Company is exploiting light oil development plays in Hamburg and Deer Mountain where they are implementing waterfloods.

Event

In a note entitled “Light Oil Reserves Capture Story” Ready explains the reasons behind his Buy rating and $3.40 target.

Takeaways From The Event

Arcan Resources currently produces approximately 1,400 boe/d with a 70% weighting to light oil and natural gas liquids. It’s portfolio of assets are located in the Deer Mountain, Mcleod and Hamburg areas of Northern Alberta. The company is expecting to shortly bring on over 600 boe/d of light oil. According to Ready “The Slave Point “GG” pool in Hamburg has a few prolific wells that are restricted by MRLs. A portion of this pool has already been approved for an ER Scheme and an application is in with the ERCB to add other wells in the pool. We expect approval over the next couple of months which will allow all of the wells to produce unrestricted.” With waterflood projects being implemented at Hamburg and Deer Mountain since 2007, these projects will “arrest the declines and extend the lives of their respective oil pools. The Company currently has 2-3 years of exploration prospect inventory in both gas and oil. Target gas pools have potentially greater than 5 bcf recoverable reserve and oil pools have potentially greater than 10MM bbls recoverable reserves. Upside potential in these pools is over $2.70 per share.”

Even though management failed to meet their production targets for 2007, Ready believes that the “delays were widely outside of management’s control.” He reckons that the delays did not materially affect the underlying value of the assets and that most of the issue have now been resolved. With the share price down 60% from its July 2007 high of $4.80/share, ready believes that “the market will reward ARN with a higher share price if they meet our production target for 2008.”

Ready opines of the management that “They have put together a good mix of exploitation and exploration projects in 3 main core areas and focused their land acquisition on sections where they have strong prospects. The group, led by Ed Gilmet, have extensive experience in each of the core areas which helps mitigate the risks inherent in the oil & gas business. [H]e believe[s] they are a top tier team within the junior oil & gas sector.” Management and directors own 19% of the basic and 25% of the fully diluted shares of Arcan.

With regard to the new proposed royalty framework by the Alberta government, the reserves value impact to Arcan is estimated as a 7% impairment.

Valuation and Price Target

At Hamburg Ready focusses on the “Slave Point “GG” pool which has approximately 12MMbbls OOIP (gross company estimates – GLJ [independent reserve evaluators] has not yet released their estimate). Assuming a 20% recovery factor (a conservative estimate for primary plus secondary recovery) calculates to a recoverable reserve base of 2.4 MMbbls (gross). Subtracting off production to date leaves 2.15 MMbbls remaining. Since there are 5 producing wells at 50% and 1 well at 100% Arcan working interest, a crude weighted average of pool reserves is 71%. Multiplying the remaining recoverable reserves by the pool interest and then by $25/bbl (a conservative “in the ground” light oil reserve value considering minimal capital needs to be spent going forward) reveals an Arcan Slave Point “GG” Pool estimated value of $38MM.”

At Deer Mountain, “GLJ estimates an OOIP of 33 MMbbls for Deer Mountain Unit #2. With infill drilling and a waterflood the recovery factor is expected to increase as high as 35%-40%. Since recovery to date is only 8%, we will assume that an incremental 30% recovery is possible. This equates to 9.9 MMbbls gross and or 8.0 MMbbls net (at 81% WI). This time using a $20/bbl reserve value estimate (since there is capital to be spent going forward), Arcan’s estimated value in this pool is $160MM.”



Adding together Hamburg and Deer Mountain results in a value of $198 million. “Since McLeod is producing about 350 boe/d and using a multiple of $30,000/(boe/d), a rough value of $10.5MM is inferred. The total corporate value is estimated at $208MM (not including land or seismic) or more than double the current enterprise value of $97MM. This equates to a difference of over $2.70 per share of unrealized upside.”

“Arcan is currently trading at $57,332/(boe/d) which is only slightly over the peer group’s mean. This metric is quite misleading in the case of Arcan since its production has been suppressed due to MRLs and partner issues. If Arcan was producing its wells at their full capability then ARN would actually be well below the mean for this metric. [Ready] believe[s] that Arcan should be trading at a premium to their peers based on their high netback light oil production and long life reserves attributed to their waterflood projects.”



“Arcan has an EV/DACF ratio (based on Q3/07 DACF) of 4.5x, which is below the mean of the peer group [see figure above]. It is just below the median of the group which in this case is more relevant since there is an outlier skewing the mean upwards (AEC). We believe that not only should Arcan be trading at a premium to its peers, but it should do materially so as its Q3/07 cash flow is clearly not indicative of the underlying value of the Company (due to restricted well production and long reserve life assets).”

Investment Risks

Without limitations, some of the risks include reserves and resource risk, development risks, permitting risks, off-take agreements, commodity price risks, geo-political risks, exchange rates, weather related impacts etc.

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Buy, Sell or Hold Wesdome Gold Mines (WDO:TSX)

On February 27th /08 Jennings Capital analyst Peter Campbell (formerly of Loewen Ondaatje McCutcheon) initiated coverage on Wesdome Gold Mines.



Company Profile

Wesdome operates two underground gold mines: Kiena in the Val d’Or mining camp and Eagle River near Wawa, Ontario. Kiena produced 1.56 M oz Au between 1981 and 2002 and was reopened by the Company in 2006. Eagle River has been in continuous production since 1995 and has reserves grading 9.4 gpt Au. Wesdome is well positioned to increase gold reserves and resources at these two operations.

Event

In a note entitled “Initiating Coverage” Campbell explains the reasons behind his Buy recommendation and $2.20 target.

Takeaways From The Event

On February 27th 2008, Campbell “recommend purchase of Wesdome shares for investors seeking exposure to un-hedged gold production with strong leverage to increases in the price of gold.” The company has 2 undeground gold mines: Kiena in the Val d’Or mining camp and Eagle River near Wawa, Ontario. Both mines have their own mills. Annual production from these 2 mines is expected to be 80,000 ounces, an improvement of 11% over 2007 production. Keep in mind, that Wesdome exceeded its guidance for 70,000 ounces in 2007. The company’s cash costs are decreasing and Campbell expects “$725 per oz Au in 2007, $500 in 2008 and $460 in 2009.” Additionally, every $50 increase in the average price of gold above Campbell’s baseline of $900/oz results in an added $3.2 million in cash flow for Wesdome.

The Eagle River Mine which is located near Wawa, Ontario, has been constantly producing since 1995 and “has an impressive record of reserves replacement, which [Campbell] expect[s] to continue. The known deposit remains open below the current mining horizon and to the west.” Throughout its life, Eagle River has averaged production of approximately 50,000 ounces of gold per annum. “At Eagle River, production is now moving into the high grade “811” zone. Recent stope development in this zone reported 47 metres grading 16.5 gpt Au (“cut”) over a width of 1.5 metres and another at 80 metres grading 25.8 gpt (“cut”) over a width of 2.1 metres. Mining in this zone will increase overall gold output from Eagle River.”



Around the Kiena Mine, the company owns a large continuous land position in the Val d’Or mining camp. The region hosts 8 pas producing mines, which together have produced 4.5 million ounces of gold. According to Campbell “There is ample opportunity for the continued discovery of additional ore zones on this property.”

Using the 2008 outlook for gold production from Kiena and Eagle River, there are adequate reserves and resources for over seven years of production at Kiena (i.e. Kiena + Wesdome A Zone) and at Eagle River (i.e. Eagle River + Mishi). Campbell notes that “It is common for junior gold producers to have less than five years production in reserves and resources. The strategy for these producers is to engage in enough exploration to replace annual production with newly discovered ounces. Investing in exploration to carry more ounces than this is needlessly expensive.”




Catalysts

“Price of gold: Wesdome’s production is 100% un-hedged and is therefore positioned to participate fully in the appreciation of the price of gold.

Leverage to increase in the price of gold: Although Wesdome’s current cash costs are quite high (i.e. in the C$725 range), this makes Wesdome’s profitability highly leveraged to the price of gold. A US$50 increase in the price of gold results in an approximate C$3.2 M increase in the 2008 expected cash flow.

Decreasing costs per ounce in the near- and intermediate-term: Compounded with increasing gold prices is our expectation that Wesdome’s cash cost to produce an ounce of gold will decrease in 2008 to the C$500 range and to the C$460 range in 2009, before again increasing to more “normal” levels. This is due to our expectation of higher mined grades at Kiena and especially at Eagle River.

Exploration success on the Kiena property: Wesdome has already demonstrated its ability to discover new gold ounces in the S50 Zone, the Martin Zone and the Shawkey 22 Zone. Wesdome’s property is well situated geologically to host other, yet-to-be-discovered deposits.

Exploration success on the Eagle River property: Wesdome has been successful in discovering additional gold ounces down dip of current mining areas. There is no indication that
the gold trend has been cut off at depth. Indeed, recent exploration results from the 811 Zone indicate that gold grade may improve with depth and certainly extends to the west.

Developments at Moss Lake: Every 5¢ change in the price of Moss Lake shares should result in a 3¢ change in Wesdome shares. Moss Lake is presently drilling on the Shebandowan property and has engaged Watts-Griffiths-McQuat (WGM) to complete a PEA on the project.”

Valuation and Price Target



Campbell contructs an after tax discounted (5%) cash flow model using company guidance and his own assumptions (see figure above) to arrive at his base case NAV of $73.48 million. He then applies a 2.0x multiple to the NAC since comparable gold producers have been histoically valued in the 1.0x to 3.0x NAV multiple range. Furthermore, he says “Given recent drill results and the understanding of the deposits, we believe that this pattern of replacement will continue and that our 2.0x NAV multiple conservatively represents this. Additionally, we have valued Wesdome based on a 10.0x multiple to 2008 expected cash flow.” When he applies an equal weighting to his NAV and cash flow multiple valuations he comes up with a value of $1.52/share (fully diluted).

Moreover, he writes “To account for Wesdome’s 62% interest in Moss Lake, we have added $0.45 per fully diluted share to our target price. The additional value equates to approximately $50 per oz for Wesdome’s interest in Moss Lake’s inferred resources.”

“In the last quarter of 2007, Wesdome released several announcements of successful exploration drilling programs designed to replenish and replace production resources. [Campbell] added $0.20 per fully diluted share to [his] target price to account for this known exploration success. The $0.20 per fully diluted share is equivalent to adding two years of production, at the end of the mine life, to both Kiena and Eagle River operations.”

Investment Risks

Without limitations, some of the risks include reserves and resource risk, development risks, permitting risks, off-take agreements, commodity price risks, geo-political risks, exchange rates, weather related impacts etc.

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Buy, Sell or Hold Noront Resources (NOT:TSX-V)

On February 26th /08 Genuity Capital analyst Michael Gray released an update on Noront Resources.



Company Profile

Noront Resources (NOT-V) is a Canadian base and precious metal exploration company focused on Northern Ontario and Quebec, Canada. Its key asset is its relatively new Ni-Cu-PGM Eagle One discovery on the Double Eagle project, James Bay lowlands, Ontario. The discovery is attractive, as it represents a rare high-grade nickel-copper-platinum-palladium discovery in an area that is under-explored.

Event

In a note entitled “New Ni-Cu discovery by Noront dubbed “Eagle Two” Gray explains the reasons behind his Speculative Buy Rating and $7.00 target.

Takeaways From The Event

On February 25th 2008, Noront was halted mid-day pending news that turned out to be the “discovery of a second massive sulphide occurrence located 2 kilometers to the southwest of its Eagle One magmatic massive sulphide occurrence within Noront's 100% owned Double Eagle Project in the McFauld's Lake Area of northeastern Ontario.”

In response, Gray writes “We now have drill hole validation that the Double Eagle property hosts multiple occurrences of Ni-Cu sulphide mineralization. It also establishes that Noront is onto a larger Ni-Cu “system” and not a one-off deposit.” He highlights that “Of the four holes drilled, three intersected Ni-Cu-bearing massive sulphides, including a nickel-bearing *7m interval in hole NOT08-1G6 (*not true thickness).” Other highlights include “29m mineralized deformation zone interval in altered peridotite that includes a 3m massive sulphide-magnetite breccia section – hole 2, 3.4m massive pyrrhotite-magnetite-chalcopyrite interval within a deformation zone as hosted by altered peridotite – hole 3, 5m and 3m long intervals of massive chromitite – hole 3, 17.8m deformation zone in peridotite with local semi-massive sulphide pyrrhotite-chalcopyrite-magnetite “veins” and “breccias” – hole 6, 9m interval with chromitite seams and domains – hole 6 and 7m long interval of massive sulphide mineralization includes pentlandite eyes “with a stronger tenor of mineralization”– hole 8 (in progress).”

In assessing the impact of this discovery, Gray writes “Documentation of Eagle Two sulphide-related mineralization was an important validation step as it established: a) multiple sulphide occurrences; b) that the Double Eagle property hosts a larger Ni-Cu “system”; c) EM techniques are effective at directly detecting mineralization on the Double Eagle property; and, d) further support for our view that Noront’s “Ring of Fire” may be part of a new Nickel-Copper-PGE belt.”

In discussing the geology associated with the new discovery, Gray points out that “Mineralization associated with the new Eagle Two discovery was mainly tied to “deformation zones” with “altered peridotite” rock types. We were interested to note the general higher volume of peridotites and other ultramafic units in the holes (magma conduits?) and general lack of granodiorite (except one hole) as compared with Eagle One. The alteration and brecciation zones described in the news release suggest to us that structural/and or hydrothermal remobilization events and controls impacted the massive sulphide, semi-massive sulphide, and breccia mineralization (we note that at Eagle One the highest Pt grades at +40g/t Pt were associated with the only assay interval described as a “breccia sulphide” mineralization type).” Gray goes on to say that he believes “nickel sulphide deposits tend to occur in clusters and are usually podiform irregular shapes. In this regard, Eagle Two was “expected” given the cluster of nearby EM conductors.” He also suggest that Eagle Two has a “strong chance” of returning similar grade mineralization as Eagle One. However, since only hole 8 specifically mentioned pentlandite in the news release, Gray cautions that “there could be grade differences.” Although, he adds that “For the Pt and Pd contents, the news release description of structural “deformation zones” and potential hydrothermally “highly altered peridotites” are encouraging for the PGE potential for Eagle Two, in our view.” Lastly, Gray notes that Noront is “in the early stages of documenting the potential for a new Nickel-Copper-PGE belt, and we are impressed with the discovery rate in this part of the James Bay Lowlands given the minimal amount of exploration in the region to date.”

Near Term Catalysts

Detailed Account of Eagle Two – Further clarification and details of the Eagle Two discovery should follow shortly (as indicated by the Feb 25th 2008 news release). “To the extent that there is a more thorough description of the nickel-bearing mineralization and the attendant specific intervals, this should provide a better picture of the discovery.”

Hole NOT08-IG8 Is In Progress – “This hole is being pushed to depth to apparently test the down dip potential for sulphide mineralization in hole 3 and chromite-related mineralization in hole 6.”

Assays For Eagle Two – Gray writes “Although we tend to lean on the nickel grades in Eagle Two as likely to have similar tenors (wt. Ni on a 100% sulphide basis) as Eagle One – as is typical of clusters of magmatic Ni sulphide deposits – it is difficult to be sure, especially with the Pt-Pd (PGE) contents. If similar PGE contents to Eagle One (+10g/t Pt+Pd for massive sulphides) are returned for Eagle Two, it would be very significant and would increase the value of all other untested EM targets.”



Drilling New EM Targets That Flank Eagle One – Noront still has 6 more targets to be tested, plus potential “partial anomalies” H & I as shown the picture above. While one drill has been dedicated to drilling Eagle Two, a second drill is committed to drilling the other conductors. Gray adds “of the target conductors shown in Exhibit 1 have been subjected to detailed ground geophysics on grids (MaxMin, TDEM, gravity, magnetics, VLF). We rate the potential for additional discovery along this eight kilometre NW-SE “trend” dotted with EM conductors to be very high. In particular, target B, although only a Channel 3 expression, appears to be a very attractive EM target as it is larger than Eagle One and would appear to be just as strong.”

Eagle One resource Estimate Due At The End of Q1/08 or early Q2/08 – Gray expects the “the market will appreciate the additional validation of the Eagle One discovery via an independent 43-101 resource estimate. It should help anchor value for Noront.”

Downhole EM Surveys And Follow Up Drilling – Later in Q1/08 and early Q2/08 “Holes will be downhole EM-surveyed to direct expansion drilling later in March 2008 for Eagle One and presumably will be employed to help successfully direct the current drilling on Eagle Two.”

Valuation and Price Target

Based on “reduced exploration risk/higher exploration potential, along with the expectation that Eagle Two will also return high-grade Ni-Cu-Pt-Pd assays,” Gray increases his value for Noront’s 100% land position to a premium US$1,200/ha from US$600/ha (which adds approximately $40 million to his 12 month NAV). He also increases his “Belt Goodwill Premium” by $100 million to integrate the upside associated with his optimistic case scenario (see figure below). He acknowledges that “the rare nature of the ultra high-grade Eagle One mineralization and high potential for this early exploration “new Ni-Cu-PGE belt” story is attested to by the Eagle Two discovery.” He maintains his Speculative Buy rating and increases his price target to $7.00/share based on his higher exploration rating.



Investment Risks

Without limitations, some of the risks include reserves and resource risk, development risks, permitting risks, off-take agreements, commodity price risks, geo-political risks, exchange rates, weather related impacts etc.

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Buy, Sell or Hold Timminco Limited (TIM:TSX)

On February 24th /08 CIBC World Markets analyst Michael Willemse released an update on Timminco.



Company Profile

Timminco Limited (TSX: TIM) is a leader in the production and marketing of lightweight metals, specializing in solar grade silicon for the rapidly growing solar photovoltaic energy industry. Using its proprietary technology, Timminco processes metallurgical grade silicon into low cost solar grade silicon for use in the manufacture of solar cells. Timminco has expanded its solar grade silicon capacity to 3,600 mt per year, and plans to further increase capacity to meet anticipated future demand. Timminco also produces alloy magnesium, silicon metal and specialty ferrosilicon, calcium and strontium alloys for use in a broad range of industrial applications serving the aluminum, chemical, pharmaceutical, electronics and automotive industries.

Event

In a note entitled “Timminco Provides Details For The Next Capacity Expansion Phase” Willemse explains the reasons behind his Sector Outperformer Rating and $27.00 target.

Takeaways From The Event

On February 22nd 2008, Timminco “announced that its Board of Directors has approved capacity expansion plans for the production of solar grade silicon at its wholly owned subsidiary, Bécancour Silicon Inc. (“BSI”), at its location in Bécancour, Québec. The expansion is expected to raise the total annual production capacity of its solar grade silicon facilities to 14,400 metric tons from 3,600 metric tons. The expansion is expected to have a capital cost of approximately $65 million and will be completed by mid 2009, on a schedule that will enable BSI to meet all current customer commitments. Funding of the project will be from current liquidity, customer deposits under long term supply agreements and expected cash flow from operations and will be expended throughout 2008 and the first half of 2009. Existing long term customer supply contracts commit BSI for delivery of up to 6,000 metric tons per year beginning in 2009, and BSI has a pipeline of prospective customers who have expressed interest in entering into long term purchase commitments with BSI for solar grade silicon.”

In response, Willemse writes “We believe investor concerns over "execution risk" will continue to diminish over the next few weeks given management’s progress ramping up capacity on Timminco’s first two production lines. The comment by Timminco related to customer deposits is also encouraging as we believe this further signals the customers' validation with Timminco's solar silicon product. We estimate customer deposits to total up to $20 million, which reflects a payment of approximately $750,000 for every 1,000 tonnes committed over the next five years (or roughly 1.5%-2.0%) of the total committed contract depending on pricing).”
In addition, Timminco’s press release also indicated that “The expansion will include a new production facility equal in capacity to the manufacturing plant currently being commissioned. In addition, new production lines will be installed in BSI’s existing silicon metal facility in Bécancour to process first pass material.” The installation of production lines into the existing facility could suggest “a lower cost structure” according to Willemse. He expects “a new production line of 1,200 tonnes to be added every month starting in December 2008 and Timminco to reach total capacity of 14,400 tonnes by July 2009. For all of 2009, [h]e expect[s] shipments to total approximately 11,000 tonnes.”



Polysilicon Capacity Growth – Near Term Risks Diminishing

Willemse believes that “polysilicon supply for the solar industry will remain tight into 2010 as projects for new supply continue to be delayed. On February 6, 2008 major polysilicon producer REC Silicon announced that capital costs for its newest 6,500 tonne production facility (in Moose Lake, Washington) had increased close to $800 million, an increase of close to 20% above its earlier forecast of $660 million, and that completion of the plant will likely be delayed by two months. REC had first announced the project in October 2005; production is now slated to start in late Q4/08. REC is one of the largest polysilicon producers in the world with a market share of approximately 15%. Our channel checks have suggested metallurgical silicon producer Elkem has also delayed its production ramp up by approximately six months. We expect a significant portion of the announced Chinese expansions for 2010/2011 to be delayed or cancelled as new entrants encounter similar challenges. The significant interest Timminco has generated over the past few months from a wide customer base further reinforces our view that silicon supply will remain tight into 2010. At the same time, the silicon metal market (the feedstock required for polysilicon) has continued to tighten as spot prices have now reached U.S.$1.60- U.S.$1.80/lbs, with reports of some smaller transactions at U.S.$2.00/lbs (source: American Metal Market). The amount of siliconmetal available in the Western world is currently at approximately 800,000 tonnes/year (of the 1.3-1.4 million tonnes of total silicon metal supply globally per year, we estimate high quality silicon metal supply is less than half of this total). Silicon metal demand is expected to be 1.415 million tonnes in 2008 (Timminco estimate). As demand from the solar industry increases by approximately 30,000-50,000 tonnes per year over the next few years we are forecasting silicon metal supply to continue to tighten (silicon metal prices as high as U.S.$3.00/lbs would not be unreasonable).”

Primary upside risk to Willemse’s target price is “greater than expect solar silicon shipments, pricing and capacity growth. Other upside risks include a quicker-than-expected improvement to 6-nines solar silicon purity, higher-than-expected selling prices or margins, increased valuations following the award of additional long-term solar silicon supply contracts, increased valuations due to a decision to spin off Timminco’s solar assets, and the potential for significant earnings through the licensing of Timminco’s MgSi refining technology.

Primary downside risk to Willemse’s target price is “potential challenges with the ramp-up of Timminco’s new solar silicon production lines or negative customer feedback from the initial commercial shipments of solar grade silicon. Other downside risks include contract delivery volumes at the low end of the agreed upon range, weaker-than expected polysilicon and MgSi pricing and financial stress at customers due to a weaker pricing environment for solar modules. Macroeconomic risks include cuts to government solar power incentive programs, reduced investment spending by companies and homeowners, and a stronger-than-expected Canadian dollar versus the U.S. dollar, euro, and Chinese renminbi. Valuations of solar-related equities have increased significantly over the past year; a significant decline in solar sector valuations due to a deterioration in fundamentals could negatively impact our price target.”



Valuation and Price Target

Due to the better than expected increase in capacity, Willemse increases his target price to $27.--/share from $25.00/share based on 12.5x 2009E and 10.8x 2010E fully diluted earnings per share. He writes “The closest comps for Timminco are trading at approximately 14.9x 2009E and 11.8x 2010E FD EPS. Investors should also be aware that Timminco will likely be added to the TSX Index sometime in mid-March when the next index revisions are announced.” On a discounted cash flow basis, Willemse comes up with a value of approximately $27.00/share, although he cautions “this DCF analysis is subject to several alternative underlying assumptions with respect to ultimate production capacity and pricing.

Willemse believes a new trading range “for the share price of Timminco of $20-$30 is
much more appropriate than the range of $10-$20 that occurred in late January and early February.” He also believes that the company’s peers may be trading at inflated valuations and hence he “applied a valuation discount to Timminco to adjust for this risk.” However, he adds “we recognize that a valuation discount may be viewed as conservative since we believe that the negative earnings impact from declining polysilicon and solar grade silicon prices would be much more significant for the polysilicon producers relative to Timminco (due to the higher cost structures of the polysilicon producers). He expects “net cash at Timminco to total approximately $3.50 per share by the end of 2010. This available cash should allow Timminco to continue to grow (even in a declining price environment) while other suppliers are potentially struggling (particularly in attempting to raise capital).”

Investment Risks

Without limitations keys risks include increased competition from low cost producers (particularly from China), prolonged challenges at Fundo Wheels and a decline in end market demand for silicon metal and magnesium due to economic weakness.

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Buy, Sell or Hold Bridge Resources (BUK:TSX-V)

On February 15Th /08 Blackmont Capital analyst Martin Pelletier initiated coverage on Bridge Resources.



Company Profile

Bridge Resources Corp. (BUK-TVX) is a Canadian-listed, emerging international E&P company with assets focused in the UK North Sea – specifically, the Central and Southern North Sea areas. Since forming the company in 2005, management has actively built up a respectable inventory base. This is comprised of 20 blocks encompassing 2,288 square kilometres, 17 of which are 100% owned and the remaining three are at a 50% interest. Bridge has a market cap of $128.3 million and an estimated working capital surplus of $45.8 million; its recent $44.3 million financing closed in December 2007. The company’s Head Office is in Denver, Colorado along with satellite offices in Calgary, Alberta and Aberdeen, Scotland.

Event

In a note entitled “Bridging Value in the North Sea” Pelletier explains the reasons behind his Speculative Buy Rating and $1.95 target.

Takeaways From The Event

The company’s principal focus is to establish a reserve, production and cash flow from its 100% owned Durango play in the South North Sea. Should this US$30 million horizontal well which is expected to be spudded at the end of February with production expected by the end of the year at rates of 30mmcf/d of natural gas be successful, Bridge plans to use the cash flow from this play to prove up the immense resource potential of its outstanding prospects on 20 blocks.

Bridge plans to drill a minimum of 3 wells per year, starting with Durango in late February 2008, North Piper in mid to late 2008 and Aspen by early 2009. Pelletier estimates these prospects alone offer “exposure to 278.5 mmBOE unrisked, or 35.6 mmBOE risked, reserves translating into a near term risked NPV of US$308.1 million or US$1.96/share fully diluted. About US$0.82 per share of this is from [his]
risked estimated value of the Durango and Aspen targets, with the remaining US$1.14 coming from North Piper. Bridge’s current share price of C$1.29 therefore represents [his] risked NPV estimates for Durango and Aspen, and just under 41% of [his] risked value for North Piper (assuming C$/US$ on par).” Therefore, he concludes Bridge looks attractively valued particularly considering the noteworthy near term unrisked potential from North Piper, a 500+ mmBOE prospect.

Pelletier likes the company’s management team that has a combined 151 years of oil and gas experience. Bridge is led by Edward Davies, a 40year industry veteran with stints at Conoco Companies UK and Energy Corporation of America (Private). Furthermore, Pelletier writes “Other members of the senior management team and technical team have extensive senior level experience with top energy names such as ExxonMobil (XOM-NYSE), EnCana (ECA-TSX), El Paso (EPG-BE) and Southern California Edison (SCEDO-PS).” That being said, this is the first time this group is running a public company together.

Durango, which is scheduled to be drilled in March is a development well in the Southern North Sea where Bridge hold a 100% working interest in 2 blocks subject to an 8% overriding royalty. This well is a 40bcf natural gas prospect as a follow up to an existing appraisal well that was drilled in 1967. The drilling, tie in and in associated infrastructure costs of the well will cost an estimated US$90 million, of which US15 million has already been spent. If things go as planned, Bridge expects first production in mid October at the earliest.

The next well to be drilled would the very high impact exploration prospect at North Piper, in the Central North Sea. According to “seismic interpretation and analogs to similar pools in the region, this prospect holds potential for approximately 505 mmbbls, comprised of 440 mmbbls of light oil in the Piper formation and 65 mmbbls of heavy oil in the Paleocene formation.” Bridge owns 2 blocks in the region with 100% working interests in both but will “very likely will undertake the farm-out of a portion of this interest. The first well will be an exploratory appraisal well, would require the use of a
semi-submersible, and likely take 40 days to drill with a total Authorization for Expenditure (AFE) of approximately US$16 million. Should this well prove successful,
Bridge would then proceed with further appraisal and development wells to define the size and scope of the field with first production three years out at the earliest.”

The company’s next prospect, Aspen is scheduled to be drilled in December 2008 or early 2009 with the same jack up rig used for Durango. This will be an exploration/appraisal well “to test the Leman down to the Carboniferous formation at nearly 10,000 feet. In total, it is a 113 bcf target if the size of the structure as identifi ed on seismic is gas charged with closure. The fi rst well’s AFE will be US$14 million, which Bridge plans to drill at its 100% working interest. Should it prove successful, it would commence a development program in 2009 with the drilling of two additional wells.”

Finally, Bridge’s next target would be South Trent, in the “Carboniferous section of the South North Sea.” This exploration well would cost an estimated US$24 million, and the company ahs indicated that it will most probably farm out a portion of its 100% working interest. “The company has two separate unconformities based on its seismic interpretation with a preliminary target of 210 bcf. Drilling of an exploration well is slated for sometime in 2009, in order to meet its December 22, 2009 commitment. The remaining prospects have yet to be formally prioritized, and timing will be determined over the next year as the drilling program progresses.”

Valuation and Price Target

In total, Pelletier estimates that Bridge’s inventory of prospects offers risked net recoverable resource potential of 48.5 mmBOE. According to him “this risked resource potential is worth approximately $477.1 million or US$3.04 per share (fd) net to Bridge after-tax.” However, is only Durango, North Piper and Aspen are taken into account, he estimates “they offer exposure to 278.5 mmBOE unrisked, or 35.6 mmBOE risked, translating into a near-term risked NPV of US$308.1 million or US$1.96 per share (fd). About US$0.82 per share of this is from [his] risked estimated value of Durango and Aspen, with the remaining US$1.14 coming from North Piper. Bridge’s current share price of C$1.29 therefore represents his] risked NPV estimates for Durango and Aspen, and just under 41% of our risked value for North Piper.

On a side note, on January 21st, 2008 Wellington West analyst Malcolm Shaw released a report entitled “Go Big or Go Home – 9 International Stories Where Exploration is the Name of the Game” among which he highlighted Bridge Resources. He went on to say that if successful, “Durango is expected to generate $60mm/yr in free cash flow” that is expected to “fully fund the company’s exploration plans for 3 years.” Furthermore, he adds “If North Piper is successful, we assume 200 mmbbls net to BUK would be worth ~$3 billion (~$20/share). Downside risk limited by Durango.”

OF INTEREST

On February 20th 2008, the TSX Venture Exchange Daily Bulletin indicated that it” had accepted for filing documentation with respect to a Brokered Private Placement announced December 13, 2007 for Bridge Resources (BUK:TSX-V). The number of shares happened to be 52,084,206 Units, with each unit consisting of one common share and one share purchase warrant. Purchase price was $0.85 per unit and there were 473 placees in the placement. Some of those placees include Malcolm Shaw (International Oil and Gas Research Analyst at Wellington West Capital Markets), Kim R. Page ( Energy Analyst at Wellington West Capital Markets), Mark Heim (Integrated Oils & Exploitation and Production Companies Analyst at Macquarie Research Canada), Kevin Williams (Director, Institutional Equity Sales at Cormark), Chris Burchell (Vice President, Investment Banking at Cormark) Daniel Cristall (Former Chairman of Orion securities which was bought out by the Macquarie Group) and many others.

Investment Risks

Without limitations, some of the risks include reserves and resource risk, development risks, permitting risks, off-take agreements, commodity price risks, geo-political risks, exchange rates, weather related impacts etc.

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Buy, Sell or Hold Inca Pacific Resources (IPR:TSX-V)

On February 21st /08 Haywood Securities analyst Stefan Ioannou initiated coverage on Inca Pacific Resources.

Company Profile

Inca Pacific is rapidly advancing its 100% owned Magistral project in Peru. Production start-up, targeted for Q1/11, is expected to ramp up to about 75 million pounds of copper and 6.3 million pounds of molybdenum annually. We expect total copper cash costs will average US$0.20 per pound net of credits over a 15-year open pit mine life. A feasibility study, published in January 2008, confirms the technical and economic viability of the project. Furthermore, the project will utilize standard ‘off-the-shelf’ froth flotation sulphide processing technology, mitigating project risk.

Event

In a note entitled “A ‘Hidden Gem’ Offering Significant Copper and Molybdenum Exposure” Ioannou explains the reasons behind his Sector Outperform Rating and $4.00 target.

Takeaways From The Event

According to Ioannou, Inca’s relatively small market capitalization ($60.2 million) and apparent lack of trading volume (share liquidity) is reflective of “a fundamental lack of familiarity with the quality of the Magistral project.” He believes “the project could represent a good growth opportunity for a number of small- to mid-cap producers looking to increase copper and molybdenum exposure at a relatively modest capital cost and in a mining ‘friendly’ jurisdiction.” The Magistral project ahs already completed a feasibility study and is now working on obtaining government approval of the feasibility study. The company is also working on submitting the project’s Environmental and Social Impact Assessment (ESIA) to the government. Following approval of the permit and project financing, expected in H2/08, the company can begin start-up construction in Q1/09. As each of these hurdles is crossed, Ioannou thinks “Inca Pacific’s attraction as an acquisition target will increase.”

Inca Pacific provides low cost exposure to the “fundamentally strong” molybdenum market, since 40% of its expected gross revenue is derived from the commodity, “which is expected to total approximately 6.3 million pounds per annum.” Of note, Sprott Molybdenum Participation Corporation owns 53% of Inca Pacific and Ioannou believes this is a “significant vote of confidence in the Company’s management team and the Magistral project.”

Valuation and Price Target

Ioannou bases his target price on a 1.0x multiple of a fully financed after tax corporate Net Asset Value (NAV) (at a 10% discount) of $4.00/share at a US$2.00/lb copper and US$15.00/lb molybdenum price. For reference, Inca’s peers currently trade at 0.9x their corporate NAV. Furthermore, Ioannou writes “A change of US$0.25 per pound to our forecast copper price alters our implied target price by about $0.40 per share or 10%. Similarly, a change of US$1.00 per pound to our forecast molybdenum price alters our implied target price by about $0.15 per share or 4%.”





For information purposes, the price of copper closed at $3.75/lb today and the price of molybdenum closed at $33/lb.

Investment Risks

Without limitations, some of the risks include reserves and resource risk, development risks, permitting risks, off-take agreements, commodity price risks, geo-political risks, exchange rates, weather related impacts etc.

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Buy, Sell or Hold ProspEx Resources (PSX:TSX)

On February 20th /08 Wellington West analyst Kim Page released an update on ProspEx Resources.



Company Profile

PSX is a junior oil and gas company focused on adding value through a balanced portfolio of drilling prospects. The company has over 165,000 net acres of undeveloped lands, focused in three core areas: 1) shallow gas and CBM plays at Medallion, 2) medium depth, multi-zone Cretaceous horizons and deep structural foothills gas exploration plays in West Central Alberta, and 3) stacked Cretaceous potential in the Deep Basin at Elmworth, Gold Creek, Kakwa and Wapiti.

Event

In a note entitled “Edson/Salter Success Supports ’08E Prod/sh Growth > 25; Target increased to $5.00” Page explains the reasons behind her Buy Rating and $5.00 target.

Takeaways From The Event

The company’s producing properties and concentrated in 3 main operating areas: 1) shallow gas and CBM at Medallion, 2) medium depth, multi-zone Cretaceous and deep structural Foothills exploration in West Central Alberta, and 3) stacked Cretaceous potential in the Deep Basin. Page believes “ProspEx’s development of existing
discoveries will sustain [her] forecast of over 5,000 Boe/d at end of 2008. With a
high likelihood of further accretive acquisitions given ProspEx’s strong balance
sheet, CapEx budget, and successful high impact prospects, [she] view[s] [her]
estimates as moderately conservative.”

The exploration upside from deep impact wells at Edson and Salter have the potential to create significant shareholder value. At Edson, which is located in West Central Alberta, the company has a 35% working interest and is a partner with Duvernay (which has a 65% working interest). Plans are to deepen a previously drilled deep Devonian sour gas well test. Page writes “The 8-13-54-19W5M well was deepened by just over 200 meters into the Wabamun, which was subsequently cased based on encouraging open-hole log analysis. The well will undergo completion operations, and likely be tied-in by late Q1 or early Q2 via a 5km tie-in and ultimate delivery to the Talisman Edson gas plant. This well is the first of two seismically identified locations (with more in-fills possible), the second of which may be drilled this summer, subject to permitting. Prognosis for reserve potential was estimated by the partners, with a mean in the 50-100 bcf gross range.”

At Salter, PSX has a 40% carried working interest in an “encouraging” horizontal development well into a “Mississippian thrust reservoir that was originally discovered by a vertical well that tested at 1.5 mmcf/d. The horizontal well tested at 4.8mcf/d on initial sustainable flow rates at strong flowing tubing pressures of 1,410 psi. Reserve potential of this pool was originally estimated at 50 Bcf gross.”

Facility shortfalls at Harmattan were corrected earlier this year and PSX reached a third party agreement for access and start-up of an incremental 500 boe/d of capacity, beginning in March. Page’s forecast “for 2008 average production of 4,750 boe/d remains based on a $55mm capital budget, implying a re-investment efficiency of $27,500 boe/d net of 30% average corporate decline rates. PSX is budgeting capital spending of $55mm, including the $11.8mm acquisition of producing properties in the Ricinus area completed in January. In view of the company’s strong financial position (forecast year-end net debt of $55mm against $65mm bank lines resulting in a trailing Debt/CF ratio of 1.3x), and ongoing drilling success in the Harmattan, Medallion and now Edson and Slater areas, [she] believe[s] PSX in will achieve YoY production growth of 17% per share again into 2008.”

Valuation and Price Target

Page clearly likes PSX’s healthy debt/cash flow level (estimated at 1.3x at year-end 2008E), and the potential for significant reserve growth and hence rates the company a Buy, increasing her target from $4.00 to $5.00/share. The target is based on 2007E EV/DACF multiple of 6.7x, “which is an increase from [her] prior target multiple of 5.7x in view of reserve and production growth upside stemming from the discoveries and development potential at Edson and Salter.”

Investment Risks

Without limitations, some of the risks include reserves and resource risk, development risks, permitting risks, off-take agreements, commodity price risks, geo-political risks, exchange rates, weather related impacts etc.

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Buy, Sell or Hold Eastmain Resources (ER:TSX)

On February 14th /08 Laurentian Bank Securities analyst Eric Lemieux initiated coverage on Eastmain Resources.



Company Profile

Eastmain Resources Inc. (ER) engages in exploration and development of gold, silver, copper, nickel, and zinc deposits in Canada. ER is a strong explorer focused on the Eastmain River area of James Bay. The company is actively exploring for gold and base metal deposits within the Opinaca / La Grande sub provinces. It owns 100% of the Eau Claire gold deposit (Clearwater Project), 100% of the Eastmain gold deposit and has significant land holdings covering key geology adjacent to the Eleonore discovery.

Event

In a note entitled “Exploring James bay” Lemieux explains the reasons behind his Speculative Buy Rating and $1.50 target.

Takeaways From The Event

Lemieux’s comments on the James Bay Area -

“The James Bay area may well turn into the next major gold and base metal camp in the near future. Exploration potential is a dynamic spectrum; new advancements in technology, new mapping and new modelling can all lead to a discovery in an area once thought barren. Evidently the James Bay area is turning into a hot area for exploration. With potential further infrastructure being discussed such as a road connecting Mistassini and Canispicau (“eastern buckle”), which has been logically encouraged by Stornoway Diamonds Corporation for the development of the Renard-Lynx (Foxtrot) diamond project, any future exploration projects in this sector will gain in terms of access.

In a rising energy cost environment and the scarcity of skilled workforces, the proximity of hydroelectric complexes and an established mining region just south in the Abitibi sub province should provide a competitive edge to any projects in the James Bay area. To quote John Embry - Chief Investment Strategist, Sprott Asset Management: “…we may be confronted with a situation where the industry will depend more and more on higher grade, underground mines in reasonably friendly locales” (Cambridge House Conference – January, 2008).”

Eastmain’s “Eau Claire deposit on the Clearwater project is an advanced target with sizeable potential. It contains an estimated resource of 310,000 ounces of gold (Indicated) and 679,000 ounces of gold (Inferred) resources with high grade zones showing potential at depth.” The deposit is open in all directions and drilling has confirmed that the high grade gold bearing vein system is both laterally and vertically extensive. The project consists of a dozen quartz +/- carbonate-tourmaline sheeted veins and alteration zones open laterally and at depth. “An open pit target is presently being defined with appropriate metallurgical studies in order to see the viability of processing eventual mineralized material at a future mill at Goldcorp’s Eleonore project.” With regards to infrastructure, “Hydro Quebec has constructed an 80km all weather road from Nemiscau across the Eastmain River, to a point 1.5km south of the Eau Claire deposit.” The Clearwater project is located in the central Eastmain Greenstone Belt, approximately 320km north of the town of Matagami. It is near Hydro-Québec’s Eastmain camp (EM-1) and covers 199.4 km2.

“The Eleonore South project is an exciting joint venture with Goldcorp, Eastmain and Azimut near the Eleonore discovery. A 14km-long gold-in-soil anomaly occurs on the south boundary of Goldcorp's Eleonore property and a $3M exploration program has been recommended on this mine-scale Roberto-type gold target for 2008. The project consists of 281 map designated claims totalling 147 km2.” Lemieux suggests that the “local geological context and the suggested Roberto-style mineralization could suggest an exploration target on order of 300,000 to 500,000 tonnes grading 5 g/t Au.”

The company’s Reservoir project is located in the central part of the Eastmain Greenstone Belt, 60 km southwest of the Roberto discovery and 45km west of the Eau Claire deposit. It is an 8,226-hectare property of 157 minerals claims owned entirely by Eastmain. Wide-spaced drilling identified three copper-gold zones grading up to 8.15% copper, 36 g/t gold (1.05 oz) and 52 g/t silver (1.52 oz). Lemieux writes “Several similarities exist between the geologic settings of the Reservoir project and the Eleonore’s Roberto deposit. At both projects there seems to be a relationship between diorite intrusions and copper mineralization. Alkali alteration is prevalent in both settings. Sedimentary rock formations thought to be the key host to gold mineralization at Eleonore underlie a large portion of the Reservoir property and remain relativity unexplored.” He believes that “the local geological context could suggest an exploration target of polymetallic mineralization (copper-gold-silver). An initial target of 200,000 to 400,000 tonnes grading 10 g/t Au equivalent could likely be expected with more exploration.”

Eastmain has a number of other significant projects and for more information you should visit their website

Catalysts

Lemieux expects that the “grades will increase significantly at the Eau Claire deposit as the gold is high grade and better sample representation is being achieved by definition works. Metallurgical work on HQ-size drill core with on-going work by Goldcorp should provide some key feedback as to the Eau Claire’s deposit potential as feed for the Goldcorp Eleonore project perhaps in the pre-production phases.”

Drilling in the company’s portfolio of properties in the James Bay area should provide excitement as the potential for discovery is high. Results from Eleonore South project may suggest extensions to the Roberto deposit.

The Eastmine mine is an asset waiting to be developed. Rising or stable gold prices and potential infrastructure development should motivate a serious examination of redeveloping the Eastmain mine and exploring the sector all the more when one puts into context MSV‘s (Campbell) situation back in late nineties.

Valuation and Price Target

Lemieux’s 2008 forecast price for gold is US$850/oz, US$950/oz for 2009 and US$900/oz in 2010. He further adds “in the backdrop of the market’s insecurity in regards to the American economy, Gold is a “valeur refuge” and thus our long term gold price forecast remains at US$800/oz.”

Clearwater Project



Lemieux provides a modelled projection of Clearwater’s potential earnings and cash flows using the above metal price but cautions that “In the spirit of sections 2.3 (3) and 3.4 (e) of NI 43-101, this economic analysis is preliminary in nature as it includes inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves and there is no certainty that the results of this economic analysis will be realized.” He estimates that the “The gold-bearing veins, which assay up to 497 g/t gold over 2m, are indicative of a mineralization system of likely 0.5 million oz. at the Eau Claire deposit.” He models an initial scenario where an open pit mine would first be constructed and followed by an underground camp. “The 450 West Zone with a minimum of the three (JQ, P and R) veins in an area of 400m x 50m could suggest a surface exploration target in the range of 300,000 to 500,000t modeled with a grade of 0.15 to 0.25 oz./t Au providing 50,000 to 100,000 oz Au. This material would be processed at the Goldcorp Eleonore future mill where road infrastructure would provide access for transportation (less than 200km). Our assessment is that a 400,000t material could be mined selectively at surface with a reasonable stripping ratio.” Lemieux estimates underground operations to begin in 2012. In addition, he writes “The first full year of production of an initial open pit has been modeled for year-end 2009 and from 2010 to 2012 with underground operations. This stage II expansion to underground development (to 1,200 tpd) could be expected to be completed by 2012 with a capital investment of $40 million. We believe that the Clearwater project has the potential to generate a NAV of $36 million at a 10% DCF or $0.50 per fully diluted share. However this value does not take into account the exploration potential at depth. We estimate a range of potential value is thus between $30 million and $120 million.”

Eastmain Mine

“The Eastmain mine in the context of rising price of gold could be valued at a premium. Indeed 250,000 oz. with a $75/oz. expected value suggests a NAV of $18.75 million. Considering that infrastructure such as a road may be completed eventually for the longer term development of the Otish Mountains sector (diamonds and uranium) and the upper hydroelectric complexes (Brisay, La Forge), we believe the Eastmain mine & Ruby Hill projects can be conservatively be valued at $25 million. Note that the historical expenditure (mine development) is approximately $40 million and further exploration work could increase the resource base of this project that is geologically comparable to the past producing main zone of Detour Lake deposit in Ontario (9.1 Mt @ 4.98 g/t Au.).”

Lemieux assigns a conservative value of $20 million for the rest of Eastmain’s properties in the Eleonore area. He says” The exploration targets values by range total approximately 250,000 oz. Au. At an expected value of a $50/oz this provides a value of $12.5 million for the Reservoir and Eleonore South projects.”



Lemieux’s target price is based on assessing exploration potential and cash flow and a discounted (10%) NAV using his metal price forecasts. Lastly, he adds “The Eau Claire and Eastmain gold deposits provide Eastmain with significant leverage to gold prices, while other properties provide excellent potential for a second discovery.

Investment Risks

Without limitations, some of the risks include reserves and resource risk, development risks, permitting risks, off-take agreements, commodity price risks, geo-political risks, exchange rates, weather related impacts etc.

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Buy, Sell or Hold Bannerman Resources (BAN:TSX)

On February 12th /08 Haywood Securites analyst Eric Zaunscherb initiated coverage on Bannerman Resources.



Company Profile

Bannerman Resources Limited is an emerging international uranium producer with operating projects in Namibia and Botswana and licences in Australia. The Company’s major focus is on exploring and developing uranium projects in Namibia and Botswana.

Event

In a note entitled “Better’n Scorin’ a Century, Mate!” Zaunscherb explains the reasons behind his Sector Outperform Rating and $4.50 target.

Takeaways From The Event

Zaunscherb’s comments on Uranium -

“As the world continues to focus on reducing greenhouse gas emissions, the nuclear industry renaissance builds. An increasing number of former opponents to the industry have recanted and lined up in support. Spot uranium prices responded over the last few years exploding to a high of US$136 per pound in June 2007 before correcting to the US$80 per pound level. Realism has set in amongst uranium equities but we are entering a phase in the market wherein companies holding quality uranium projects with scale in accommodative jurisdictions will step to the forefront.”



Bannerman is currently advancing its massive Goanikontes uranium project in Namibia, which lies immediately south of Rio Tinto's Rossing uranium mine. Both projects are located 25km inland to the east from the major coastal town of Swakopmund. Good quality roads provide easy all-year access to site. At Goanikontes, Bannerman has so far reported an interim resource of 72 million pounds of U3O8 in all categories with a resource update expected in June. The company is targeting a bankable feasibility study for year end. In September 2007, Bannerman released the results of a scoping study on the Goanikontes Anomaly A that indicated that with an extrapolated resource of 100 million pounds, the project should generate cash flows of between US$96 million to US$156 million per annum from production of 6.9 to 8.8m/lbs of U3O8 per annum at “cash costs of US$27 to US$30 per pound, updated to US$23 to US$26 in January 2008.” Zaunscherb feels that the “Goanikontes project embodies excellent exploration upside and hosts a number of key opportunities for operational optimization.” Principal among these are the “incorporation of self production of acid and radiometric sorting.” With regards to management, Zaunscherb thinks they are “highly competent and continue to meet their milestones in a challenging industry environment.” Additonally, according to Zaunscherb, “Namibia is an excellent host for mining investment with a vested interest in continuing to encourage uranium mining.”

The conclusions of the scoping study produced by IMO and Coffey Mining from September 2007 and the update from the January 2008 include:

-Ongoing drilling is indicating considerable upside to the initial resource based
on extensions along strike and to depth, possibly to 100 million pounds U3O8,

-Study base case modelling is predicated on the realization of an extrapolated resource of 100 million pounds U3O8,

-The existence of a higher grade core suggests production at a 300 ppm grade in early
years,

-Based on the extrapolated resource, the study targets a base case production rate of 15 million tonnes per annum which corresponds to peak U3O8 production of 8.9 million
pounds per annum,

-Mineralization at Goanikontes is similar to material being mined and processed at the
nearby Rössing uranium mine,

-90% leach recoveries should be attainable and that acid consumption of 26 kilograms per tonne ore may be over-estimated given studies were undertaken on RC chips as opposed to eventual ore,

-Processing options include dry communition using High Pressure Grinding Rolls (HPGR)
or conventional single stage crushing followed by a Semi-Autogenous / Ball Mill (SAB)
circuit,

-Total updated capital costs (+/-30%) range from US$430 million for the HPGR option to
US$467 million for the SAB option,

-Updated operating costs (+/-30%) range from US$22.79 per pound for the HPGR option
to US$25.73 per pound for the SAB option,

-Opportunities exist to reduce operating costs via radiometric sorting, self-production of acid and reduced acid consumption, and

-A bankable feasibility study could be completed by the end of 2008 leading to permitting, financing and construction in time for commissioning early 2011 and full production by year end.

-Zaunscherb models a High Pressure Grinding Rolls (HPGR) processing option (as he considers this the most likely option) and assumes that “Bannerman’s partner will participate at 20% although the partner may elect to be diluted down to a gross royalty.” Furthermore, he assumes “60% project leverage at 8% although offtake agreements may reduce this rate.” He also models a “lower head grade reflecting the recent resource update and a lower metallurgical recovery rate (85% vs. 89%) based on the reported presence of refractory betafite, which [h]e believe[s] has not as yet been sufficiently addressed although an ongoing challenge at Rössing. [His] processing cost reflects acid consumption of 30 kilograms per tonne, perhaps too conservative given more recent albeit limited leach testing suggesting acid consumption of 26 kilograms per tonne; management targets 20 kilograms per tonne. He see[s] production commencing in late 2011 (beginning fiscal 2012) ramping up to peak uranium production of 6.8 million pounds in fiscal 2013. [He] employ[s] a lower strip ratio and mining cost reflecting a larger pit than previously modelled with commensurately larger equipment and lower costs. The 7% discount rate, in [his] opinion, adequately reflects Namibian sovereign risk and the technical risk associated with a project at the scoping study stage. [H]e ha[s] factored in a total of $174 million in equity financings at an average of $3.00 per share in order to provide the necessary equity to finance Goanikontes into production.

Catalysts

Zaunscherb expects “the current phase of drilling on Goanikontes to end in March with drills moving to test the new Rössingberg and Ombuga South targets. With a resource update expected in the second quarter of 2008 and a bankable feasibility study aimed for year end, Bannerman has a number of tickets in its drum that could propel its stock price. Management is also aiming to begin production at Goanikontes A in early 2011follwoed by full production by year end.

Zaunscherb writes “Based on our site visit and recent drilling, we are confident in the considerable growth potential in the Goanikontes A resource, in the ongoing success of additional property exploration and in the eventual construction of a significant uranium mine at Goanikontes.”

Valuation and Price Target

“A discounted cash flow analysis of the Goanikontes A uranium mine disoucnted at 7% yields a value of $498 million.” Throw in some exploration credit of $25 million (to reflect exploration potential on the Welwitschia EPL, the Swakop River EPL, the Botswana concessions and the Australian project) and this would generate “a project NAV of $523 million or $3.92/share.” Bannerman currently trades at 0.5x P/NAV and applying a conservative P/NAV multiples of 1.1x supports Zaunscherb’s 12 month target price of $4.50.

“Based on corporate and project P/NAV, P/CF and EV/EBITDA multiples, Bannerman is trading very attractively relative to peers.”

With regard to Uranium pricing, Zaunscherb uses a long term spot price of US$45/lb.

Investment Risks

Without limitations, some of the risks include reserves and resource risk, development risks, permitting risks, off-take agreements, commodity price risks, geo-politcal risks, exchange rates, weather related impacts etc.

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Video - Warren Buffett in Toronto, Canada on February 7, 2008

Video - Warren Buffett in Toronto, Canada on February 7th, 2008 for the Canadian launch of Business Wire -- a corporate news release service.

Buy, Sell or Hold Labrador Iron Mines (LIR:TSX)

On February 6th /08 Canaccord Adams analyst Gary Lampard initiated coverage on Labrador Iron Mines Holdings Ltd.

Company Profile

Labrador Iron Mines Holdings Ltd. plans to re-activate the Schefferville iron ore project in north-western Labrador, Canada. The project includes eight separate deposits which contain historical resources of 91 million tonnes of hematite ore. Processing requirements are minimal, and transportation infrastructure is largely in place. The company expects first production in 2009.

Event

In a note entitled “Initiating with a BUY; Low capital cost and historically proven iron ore” Lampard explains the reasons behind his Buy Rating and C$7.00 target.

Takeaways From The Event

Lampard forecasts “seaborne iron ore prices to increase 35% over the next two years, and recognize[s] risks balanced to the upside from these forecasts. Chinese iron ore imports remain strong, and Australian and Brazilian production costs continue to appreciate with their currencies and with widespread mining cost inflation. The mining majors’ confidence in the continued strength of the iron ore market is obvious as they continue to re-invest profits back into expanded capacity, at greatly increased capital costs, and we expect Labrador Iron Mines to be in production with iron ore prices at still elevated levels. We expect payback of initial capital within the first full year of production.”

The company needs C$30 million in capital investment to achieve 2.8 million tpa of lump and fines product by 2012, with a further C$30 million then needed to maintain that production. The infrastructure is mostly in place, with access to an existing deep water port and rail line translating to low capital start-up costs. Lampard believes “Expansion is probable beyond 2.8 million tpa.”

Although the 100% owned Schefferville project is awaiting a NI 43-101 resource definition, it has been previously mined. In its IPO prospectus, Labrador Iron Mines outlined a resource estimate of 85-89 million tonnes (exclusive of 3-4 million tonnes on adjacent claims), based on “estimates made by IOCC in 1982 and published in their Direct-Shipping Ore Reserve Book of 1983. SNC Lavelin reviewed these estimates as part of an October 2007 Technical Report, and presents them as historic estimates.” Based on history, the company expects average ore grades of 56-58% iron to be achieved. According to Lampard, “the 1954-1982 operating history of The Iron Ore Company of Canada lends confidence to historical resource estimates of some 91 million tonnes of ore, and to the acceptability of the product.”

The Schefferville project is located on the Labrador Trough, in Newfoundland and Labrador, but close to the Quebec town of Schefferville. The project comprises a number of hematite iron ore deposits stretching within a 65-kilometre radius of Schefferville. The company holds 29 Mineral Rights Licences, issued by the government of Newfoundland and Labrador.

The company’s capital intensity of US$22 per annual tonne of lump and fines ore is the lowest of a range of projects, Lampard has reviewed.

Valuation and Price Target

Lampard calculates Labrador Iron Mines’ NPV at a 10% discount rate to be C$6.81. He says “Given the virtual absence of financing risk, we believe a 10% discount rate adequately captures permitting, construction and operating assumptions risk. With successful project implementation, we would eventually lower our discount rate to 8%. For comparison, our NPV8 valuation would be C$7.46.”

Looking at Lampard’s NPV 10% of C$6.81, sensitivities are as follows:

“Iron ore price received +/- 10%; our NPV10 would be up 24% to C$8.44, or down
24% to C$5.18.

Unit production cost -/+ 10%; our NPV10 would be up 14% to C$7.75, or down 14% to C$5.88.

C$/US$ exchange rate -/+ 10%; our NPV10 would be up 7% to C$7.30, or down 6% to C$6.37.

Capex +10%; our NPV10 would be down 2% to C$6.64, and our minimum cash balance forecast would be C$26 million at June 2009.

Capex +20%; our NPV10 would be down 5% to C$6.47, and our minimum cash balance forecast would be C$25 million at June 2009.

A one-year delay to production and CAPEX spend; our NPV10 would be down about 19% to C$5.53.”

Investment Risks

Without limitations, some of the risks include reserves and resource risk, development risks, permitting risks, off-take agreements, commodity price risks, exchange rates, weather related impacts etc.

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Video - Josef Schachter at the 2008 World Outlook Financial Conference

Video - Josef Schachter at the 2008 World Outlook Financial Conference, held in Vancouver, BC on February 1st. Josef Schachter, CFA, CMA, is the principal of Schachter Asset Management Inc. He has over 35 years of experience in oil and gas investment management. Previously, from 1991 to 1996 Mr. Schachter was with Richardson Greenshields where he was a Director, Chief Market Strategist and a member of its investment policy committee. Josef is a regular commentator on BNN, CBC Newsworld's Business News as well as various radio shows.





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Buy, Sell or Hold Genco Resources (GGC:TSX)

On February 5th /08 Haywood Securities analyst Andrew Kaip released an update on Genco Resources.



Company Profile

Genco Resources Ltd. (GGC:TSX) is a publically traded profitable junior silver mining company. Genco's core assets are multiple mining sites including the La Guitarra Mine located in the companies wholly-owned Temascaltepec Mining District of central Mexico. This district is part of the Sierra Madre silver and gold Metallogenic Province that has historically produced some of the world's most exceptional mines. La Guitarra Mine produces precious metals from a classic epithermal vein system, part of a mineralized corridor which extends 15 kilometers in length and averages 4 kilometers in width, the corridor includes exceptionally high "bonanza" grades and multiple bulk tonnage targets. Genco is committed to both enhancing shareholder value and fully reealizing the vast potential of the Temascaltepec Mining District to create one of the preimier Silver Mining Companies in the World.

Event

In a note entitled “Genco Solidifies Ownership, Eliminates Royalty” Kaip explains the reasons behind his Sector Outperform Rating and $7.30 target.

Takeaways From The Event

On February 4th, 2008, Genco announced that it had entered into an agreement to purchase from Industrias Peñoles, S.A.B. de C.V. mining concessions covering approximately 354 hectares in the Temascaltepec Mining District of Mexico State, Mexico and an associated sliding scale net smelter royalty (which, at the current metal prices, is 3.5%). These mining concessions were previously leased from Peñoles. The total consideration to be paid for the concessions and royalty is US$1,400,000 consisting of US$1,000,000 in cash and 134,648 common shares. The issuance of the shares is subject to regulatory approval.

This announcement is inline with the company’s vision of transforming itself into a mid tier producer through organic growth at the company’s Temascaltepec project in the prolific Sierra Madre Occidental Belt in Mexico. Having already expanded its reserves and resource base to 107 million ounces of silver and 930,000 ounces of gold through extensive exploration and drilling (which began in mid 2006), Kaip sees “continued resource growth… …given the number of historical vein occurrences identified and the lack of modern exploration to evaluate them.” The company also embarked on a “feasibility study to grow production from 0.5 million ounces of silver and 5,000 ounces of gold per annum by increasing underground production and exploring the potential to exploit the lower envelopes of veins through open pit mining and heap leach processing.”

Kaip’s investment thesis estimates is rooted in the company’s growing production though underground milling operations to 1,500 tonnes/day from the current 180 tonne/day level and introduction of a 2,500 tonne/day open pit heap leach operation. He models “mineable reserves of 100 million ounces of silver and 922,000 ounces of gold and annual production ramping up to 12 million ounces of silver and 65,000 ounces of gold in 2011, over a 12.5 year mine life.”

Valuation and Price Target

Purchase of the net smelter royalty (3.5% at current metal prices) increased Kaip’s NAV 5% by US$23.3 million to US$367 million. However, offsetting these gains, he also revised his equity issuance assumptions and now models 15.6 million shares of project dilution at $4.00/sahre compared to his previous estimate of 11.1 million shares at $5.55/share.

He maintains his 12 month target price of $7.30/sahre based on a 1.2x multiple of his after tax corporate project NAV 5% of US$366.9 million, or US$6.28/share on a fully project financed basis.

Buy, Sell or Hold Orezone Resources (OZN:TSX)

On February 1st /08 Canaccord Adams analyst Nicholas Campbell initiated coverage on Orezone Resources.



Company Profile

Orezone is focused on exploration and development in Burkina Faso and Niger. Orezone has completed the acquisition of the remaining 60% interest in the Essakane gold project in Burkina Faso. The company is now focused on financing and developing the Essakane gold project. Orezone is also actively exploring the Bondi, Sega and Bomboré gold projects, in Burkina Faso. In Niger, exploration on the Kossa gold target, a geologic target similar to Essakane, has yielded initial encouraging results. In addition to its gold exploration program in Niger, Orezone will begin exploration of uranium permits
in 2008, likely leading to a spin out of its uranium assets in the future.

Event

In a note entitled “An emerging Producer; Advancing the Largest Gold Project in Burkina Faso” Campbell explains the reasons behind his Speculative Buy recommendation – and C$2.20 target.

Takeaways From The Event

With Orezone’s acquisition of Gold Fields’ 60% interest in the Essakane project finally complete, the company has secured 2 lenders (UniCredit Group and the Standard Bank of South Africa) to arrange US$250 million in project debt. Keep in mind that a majority portion of the equity dilution associated with the acquisition and development of the Essakane project has already been incurred. According to Campbell, “The Gold Fields’ deal was a company changer for Orezone and the new company now possesses characteristics that should attract a great deal of attention over the next twelve months.”

Noting that gold equities with growing production profiles are recipients of higher valuations, prior to the Gold Fields’ acquisition, Orezone’s 40% interest in the Essakane project was estimated to peak at 133,000 oz/yr. After acquiring Gold Fields’ 60% interest in the Essakane project, Orezone’s expected production in 2010 should be 300,000 oz/yr. “This pro forma annual production is prior to contributions from the Sega, Bondi or Bomboré projects.”

While Orezone now has full control over the development at Essakane project, it does not have the same depth of personnel as Gold Fields’ and no sources of cash flow to finance the development. To address the issue of personnel, Orezone has obtained Louis Gignac as Project Executive, Essakane Project. Mr. Gignac is well known in the gold mining industry for his role as President and CEO of Cambior Inc., prior to its acquisition by IAMGOLD Corporation (IMG : TSX).” In addition to the US$250 million in project debt
Financing, Orezone will have to provide roughly US$100 million in equity. In his valuation, Campbell assumes “that the company raises C$80 million at a price of C$1.40 per share to meet its equity component and provide a working capital cushion.”

The company is now the owner of the largest gold project in Burkina Faso, which when developed will be the largest gold operation in the country. In conjunction, the company is also actively exploring and developing the Sega Bondi and Bomboré projects in Burkina Faso. With almost 6 million ounces of combined resource in Burkina Faso, the company is likely to “draw attention for its sizable resource base and significant production profile in a relatively stable West African country,” as the gold mining industry is further developed. According to Campbell, the “financial requirements to acquire and develop the Essakane project have put downward pressure on the share price of Orezone; however, as the company advances the Essakane project and grows its resource base through exploration, the share price should begin to reflect the improved qualities of the new company.”

Valuation and Price Target

Campbell bases his C$2.20/share target price on his “5% discounted NPV (using $1000/oz gold price forecast) of the Essakane project, plus the in situ valuation for Orezone’s other resources.” Using Canaccord Adams’ gold price forecasts, Campbell estimates a “5%-discounted NAV of US$699.6 million or C$1.84 per share (C$1.11:US$1.00). Using their peak gold price of US$1,000 per ounce, he estimates a 5%-discounted NAV of US$1,071.0 million or C$2.42 per share (US$1.05:C$1.00).” Given the risks associated with developing the Essakane project, Campbell applies a 0.9x multiple to his peak gold NAVPS of c$2.42, which translates to c$2.30/share.

Investment Risks

Without limitations, some of the risks include political risk in Burkina Faso and the Niger, development risks, commodity price risks, exchange rates, weather related impacts etc.

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Don Coxe Conference Call & Video

Don Coxe - Global Portfolio Strategist with BMO Financial Group - Conference Call



For Mr. Coxe's February 1, 2008 Institutional and Client Call Click Here

Check out this video from January 3rd, 2008 where Don Coxe, Don Drummond (Senior Vice President and Chief Economist at TD Bank Financial Group) and Nick Barisheff (Bullion Management Group) give their outlook for 2008 at the Empire Club in Toronto, Canada (Register For Free) Video is approximately 28 minutes long.