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1. SURVIVOR 4 March 2009 Wendell Zerb ã Stock exchange notices to companies defaulting on list requirements, have wendell.zerb@canaccordadams.com been on the rise.…
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  • 1. SURVIVOR 4 March 2009 Wendell Zerb • Stock exchange notices to companies defaulting on list requirements, have wendell.zerb@canaccordadams.com been on the rise. Precious metal equities have largely avoided the issue; 1.604.643.7485 however, many others are not so fortunate. We’ve outlined a cross section of companies trying to survive, but which are currently facing delisting. We’ve Eric Zaunscherb also added a list of junior exploration companies that have hit new 52-week eric.zaunscherb@canaccordadams.com lows. 1.604.699.0829 • The Prospectors and Developers convention in Toronto is on this week. For Nicholas Campbell those of us attending, it will likely be the typical four days of survival: nicholas.campbell@canaccordadams.com battling crowds, hospitality suites, promoters, and negative metals price 1.604.643.7027 forecasters… • Adam Melnyk (Research Associate) Exploration updates: adam.melnyk@canaccordadams.com Brilliant Mining Corp. (BMC : TSX-V : C$0.10 | Not rated) 1.604.643.1655 Diamonds North Resources Ltd. (DDN : TSX-V : C$0.12 | Not rated) Exeter Resource Corp. (XRC : TSX-V : C$2.70 | Speculative Buy) Iris Varga (Research Assistant) Mega Uranium Ltd. MGA : TSX : C$0.71 | Not rated) iris.varga@canaccordadams.com UEX Corporation (UEX : TSX : C$0.76 | Not rated) 1.604.643.7412 Uracan Resources Ltd (URC : TSX-V : C$0.22 | Not rated) • Site visit notes: In this issue: Extract Resources Ltd. (XRC : TSX : C$1.75 | Not rated) Market/Commodities Snapshot 2 Foreword 3 Figure 1: Gold price versus average value US$/oz in situ Other News 4 Exploration Updates 120 Current value: US$40.06/oz ↓ Brilliant Mining Corp. 6 1000 110 Diamonds North Resources Ltd. 7 Exeter Resource Corp. 8 100 900 Mega Uranium Ltd. 10 90 UEX Corporation 11 800 80 Uracan Resources Ltd. 13 Average Value US$/oz in si tu Gol d Price (US$) Site Visit Notes 70 700 Extract Resources Ltd. 14 60 600 50 Drill Bitz 20 Uranium In Situ 21 40 500 Gold In Situ 23 30 Research Universe 24 20 400 Ink Spots 25 19-Jul-07 2-Aug-07 16-Aug-07 30-Aug-07 13-Sep-07 27-Sep-07 11-Oct-07 25-Oct-07 8-Nov-07 22-Nov-07 6-Dec-07 20-Dec-07 3-Jan-08 17-Jan-08 31-Jan-08 14-Feb-08 28-Feb-08 13-Mar-08 27-Mar-08 10-Apr-08 24-Apr-08 8-May-08 22-May-08 5-Jun-08 19-Jun-08 3-Jul-08 17-Jul-08 31-Jul-08 14-Aug-08 28-Aug-08 11-Sep-08 25-Sep-08 9-Oct-08 23-Oct-08 6-Nov-08 20-Nov-08 4-Dec-08 18-Dec-08 9-Jan-09 23-Jan-09 5-Feb-09 20-Feb-09 Index 27 Disclosures 28 Average Value US$/oz in situ Gold Price C$:US$ 0.78 Ag:Au ratio 72:1 Source: Capital IQ, Thomson ONE, Canaccord Adams Canaccord Adams is the global capital markets group of Canaccord Capital Inc. (CCI : TSX|AIM) The recommendations and opinions expressed in this Investment Research accurately reflect the Investment Analyst’s personal, independent and objective views about any and all the Designated Investments and Relevant Issuers discussed herein. For important information, please see the Important Disclosures section in the appendix of this document or visit or visit http://www.canaccordadams.com/research/Disclosure.htm.
  • 2. Junior Mining Weekly | 2 4 March 2009 Figure 2: Junior market/commodities snapshot In Situ Value % Change TSX Venture Daily Volume for the week EV/attrib. lb eq. or Mkt. cap/oz or lb eq. Feb 27/09 YTD WoW of Feb 23-27/09 Date Volume CA GOLD In Situ (US$/oz) 40.06 25.2% -2.0% Monday 23-Feb-09 139,486,704 CA SILVER In Situ (US$/oz) 0.80 9.6% -12.1% Tuesday 24-Feb-09 153,504,084 CA URANIUM In Situ (US$/lb) 1.64 -14.6% 5.8% Wednesday 25-Feb-09 133,300,937 Feb 27/09 YTD WoW Thursday 26-Feb-09 126,332,368 CA COPPER In Situ (cents Cdn/lb) 1.29 26.5% -4.4% Friday 27-Feb-09 131,476,468 CA NICKEL In Situ (cents Cdn/lb) 4.40 -19.0% -15.5% CA ZINC In Situ (cents Cdn/lb) 1.24 86.2% -6.1% Total 544,613,857 CA MOLY In Situ (cents Cdn/lb) 3.45 -27.7% -5.5% Average. Daily Volume 108,922,771 Value % Change S&P/TSX Venture Composite Index Volume and Value Index Feb 27/09 YTD WoW Jan/07-Feb 27/09 S&P/TSX Venture Composite Index 862 8.1% -3.5% S&P/TSX Composite Index 8,123 -9.6% 2.2% S&P/TSX Global Gold Index 309 -1.1% -9.6% 370 3,200 S&P/TSX Diversified Metals & Mining 276 14.7% 5.3% (SPDR) Streettracks Gold Trust 75 0.0% 0.0% 2,800 IShares Comex Gold Trust 93 6.9% -5.3% AMEX Gold Bugs 289 -4.5% -6.9% 295 2,400 TSX Ve nture Vo lu m e (M ) S& P/TSX Ve n ture In de x S&P/TSX Venture Composite Index 2,000 Selected companies Price Av Day Val 220 Highly active by value (Feb 23-27/09) Symbol Feb 27/09 C$ 000 1,600 Goldsource Mines Inc. GXS $2.16 1,280 Ongoing drilling; new coal intercept. 1,200 Andina Minerals Inc. ADM $1.70 630 145 Positive media exposure. 800 Fortuna Silver Mines Inc. FVI $1.04 430 Consolidation in the silver space. Acquiring Continuum Resources Ltd. 400 70 (CNU : TSX-V). Jan -07 F e b-07 M a r-07 Ap r-07 M ay-07 Jun -07 A ug-07 Se p-07 O ct-07 N o v-07 D e c-07 F e b-08 M a r-08 Ap r-08 M ay-08 Jun -08 A ug-08 Se p-08 O ct-08 N o v-08 D e c-08 F e b-09 Canplats Resources Corp. CPQ $1.98 410 TSX-Venture Daily Trading Volume S&P/TSX Venture Index Positive media coverage. CA commodity price and currency forecasts Value % Change 2008E 2009E 2010E Long Term Feb 27/09 YTD WoW Aluminum US$/lb 1.17 0.70 0.80 1.00 0.59 -13.2% 1.7% Copper US$/lb 3.16 1.50 2.00 2.00 1.55 12.3% 9.9% Nickel US$/lb 9.59 5.00 6.00 7.75 4.50 -14.4% 5.4% Zinc US$/lb 0.86 0.63 0.70 0.80 0.50 -7.4% 2.0% Lead US$/lb 0.95 0.50 0.50 0.50 0.47 2.2% 2.2% Uranium US$/lb 63.55 60.00 65.00 70.00 45.00 -15.1% -4.3% Molybdenum US$/lb 30.28 13.50 15.00 12.50 9.25 -25.3% -5.1% Cobalt US$/lb 38.84 15.00 15.00 12.50 12.00 -31.4% -10.6% Gold US$/oz 873.00 975.00 900.00 750.00 952.00 10.6% -3.7% Silver US$/oz 14.99 13.50 13.75 14.00 13.11 16.1% -9.5% Platinum US$/oz 1578.46 1050.00 1200.00 1200.00 1073.50 14.9% -0.8% Palladium US$/oz 351.95 250.00 300.00 300.00 196.00 4.8% -8.8% C$/US$ 0.94 0.85 0.90 0.90 0.78 -4.0% -1.8% A$/US$ 0.85 0.70 0.75 0.80 0.64 -8.6% -1.0% US$/Euro 1.47 1.40 1.34 1.30 1.27 -9.5% -1.2% Rand/US$ 8.27 9.50 9.00 8.00 10.10 8.2% 0.0% WoW (week over week) The CA commodity price (base metals) and currency forecasts – updated values published January 12, 2009. In Situs: The basket of companies might vary quarterly. Silver In Situ first published on September 22, 2008. CA - Canaccord Adams. Past performance is not indicative of future results. Source: Thomson ONE, Bloomberg, TSX Venture Exchange, Canaccord Adams estimates
  • 3. Junior Mining Weekly | 3 4 March 2009 SURVIVOR According to the Globe and Mail (February 25, 2009), the New York Stock Exchange is considering relaxing a rule that requires shares to trade above a dollar. Currently, a NYSE-listed company’s shares cannot remain below US$1.00 for over 30 consecutive days. If that happens, the company gets six months to prove to the NYSE it can boost its stock price. Already, on January 23, 2009, the exchange temporarily decreased its required market capitalization threshold to US$15 million from US$25 million. The minimum market cap was raised to US$25 million from US$15 million in 2004. Roughly 65 companies, or 3% of the NYSE’s 1,950 listed companies, are currently listed on the NYSE website as “non-compliant with NYSE quantitative continued listing standards.” Included on this list are mining companies Lundin Mining (LMC : NYSE) and Coeur d’Alene Mines (CDE : NYSE). In Figures 3 and 4 we list the mining and exploration companies on the TSX and TSX Venture exchanges that have been similarly delisted or suspended. Figure 3: Delistings on S&P/TSX and S&P/TSX Venture Exchange between December 1, 2008 and January 28, 2009 Company Name Symbol Delist Date 1 Delta Exploration Inc. DEV 4-Feb-09 2 Golden Oasis Exploration Corp GOT 2-Feb-09 3 Aranka Gold Inc. ARK 29-Jan-09 4 Pinewood Resources Ltd. PNW 13-Jan-09 5 Winchester Minerals And Gold Exploration Ltd WMG 13-Jan-09 6 Patricia Mining Corp. PAT 17-Dec-08 7 Oromin Explorations Ltd. OLE 16-Dec-08 8 Fusion Resources Limited FNS 19-Feb-09 9 GLR Resources Inc. GRS 7-Jan-09 10 Gateway Gold Corp. GTQ 23-Dec-08 11 Campbell Resources Inc. CCH 19-Dec-08 Source: www.tsx.com, Canaccord Adams Figure 4: Suspensions on S&P/TSX and S&P/TSX Venture Exchange between December 1, 2008 and January 28, 2009 Company Name Symbol 1 Pine Valley Mining Corporation PVM 2 Tahera Diamond Corporation TAH 3 Big Bar Resources Corporation BBK 4 Emerald Isle Resources Inc. EIR 5 Great Gold Mines N.L. GGM 6 Gulfside Minerals Ltd. GMG 7 Kansai Mining Corporation KAN 8 Majestic Gold Corp. MJS 9 Neo Alliance Minerals Inc. NAM 10 Pacific Imperial Mines Inc. PPM 11 Superior Canadian Resources Inc. CAD 12 Vega Gold Ltd. VGG 13 Vostok Minerals Inc. VOS 14 West Hawk Development Corp. WHD Source: www.tsx.com, Canaccord Adams
  • 4. Junior Mining Weekly | 4 4 March 2009 Other news • As expected, HudBay and Lundin agreed to officially terminate their proposed merger last week. As a result, Lundin disclosed last week that it was not in compliance with its tangible net worth covenant at year-end on its existing five-year credit facility. However, Lundin has received a temporary covenant waiver valid until June 2009 as the parties negotiate the restructuring of the facility. The company has US$267 million drawn on this credit line and had only US$170 million of cash at year-end. In exchange for the temporary covenant waiver from the banks, Lundin has agreed to make no further drawdowns on the facility, an increase in the rate to 4.5% + libor (from 1.5%), restrictions on cash distributions and asset sales, and the inclusion of its interest in Tenke as collateral. If the facility cannot be restructured, the US$267 million drawn line becomes callable by the lenders. HudBay is also currently not without its issues, as a proxy battle is underway for control of the company between current management and SRM Global, a Monaco based hedge fund. Current HudBay management claims that SRM and its nominated slate of directors has no strategy for long-term value creation and its nominees for HudBay's board do not have the requisite mining industry experience to maximize shareholder value. The current management views this as a hostile takeover with SRM paying no premium to HudBay's current share price. HudBay's current management, should it win the proxy battle, would continue to focus on long term growth, both organically and through acquisitions and would retain HudBay's strong balance sheet, with cash of US$686 million, or $4.48/share. The current management has also proposed new corporate governance requirements, including requiring a shareholder vote before any equity issue resulting in more than 25% dilution to shareholders and minimum share ownership requirements for management. According to SRM, HudBay's board of directors decided to insist on a shareholder vote, that HudBay CEO Allen Palmiere acted on his own and the board did not rein him in. Also, according to SRM, GMP (HudBay's financial advisor for the proposed merger) advised HudBay the day before the deal was announced that using current metals prices and exchange rates, HudBay's NAV was 70-95% more than that of Lundin (range based on valuing Lundin with and without its interest in Tenke) and, as such, not equal as per the share exchange ratio. Also, SRM asserts that HudBay did not disclose to GMP material facts known to HudBay about the financial position of Lundin. At this point, SRM has not indicated how its proposed slate of directors would act, but the consensus view is that this new management would distribute a significant portion of HudBay’s cash balance to shareholders. SRM has stated that it expects to have no control over the management, other than its interest as an 11% shareholder. A vote on the matter is scheduled for March 25, 2009. • Last week, Canaccord Adams precious metals analyst Steven Butler revised his outlook on gold prices, As gold passed through our previous $950/oz peak target price (for equity target price setting), we remained confident in the bullish view on gold. As such, we raised our peak gold price by a further $150/oz to $1,100/oz gold. Given the leverage to gold, our equity target prices increased by approximately 20%. Our official 2009 earnings and cash flow estimates also reflect a bump in gold price to $975/oz from $900. Although gold may be in a bubble, the bubble is still being blown up. Overall global financial market conditions remain weak and we believe
  • 5. Junior Mining Weekly | 5 4 March 2009 the safe haven flight to gold can continue. Credit risk, while lower than most recent highs, is as high as the first peak last March which coincided with the collapse of Bear Stearns; but, gold is still lower than the US$1,003/oz peak set one year ago. While inflation has not yet registered in near-term expectations, we ultimately believe that inflation and general devaluation of paper currencies will be the result of the concerted monetary and fiscal policies to reflate the global economy. Investment demand as demonstrated by the abrupt rise in SPDR gold trust holdings. Already year-to-date, this trust has added over 228 tonnes of gold for an annualized increase of over 1,700 tonnes in this trust alone. The record-setting level of investment demand is more than offsetting the slackening levels of fabrication demand, lower de-hedging demand and potentially higher scrap supply at these high prices. • The International Convention, Trade Show & Investors Exchange – PDAC – is Figure 5: PDAC 2009 ongoing in Toronto at the Metro Toronto Convention Centre, between March 1-4, 2009. In 2008, there were just over 20,000 convention registrants as well as 587 companies exhibiting. • At the Prospectors and Developers Association of Canada Conference, held in Source: www.pdac.ca Toronto this week, Dr. Jose Serrano Delgado, Ecuador's Sub-Secretary of Mines, announced that the suspension on mining activities in Ecuador that has been in place since April, 2008 has been lifted. According to Dr. Delgado, concession holders will soon receive letters formally allowing the resumption of work from the Ministry of Mines and Petroleum. Companies with projects in Ecuador include Kinross (K : TSX), IAMGold (IMG : TSX), Corriente Resources (CTQ : TSX), Dynasty Metals and Mining (DMM : TSX), International Minerals (IMZ : TSX), and Cornerstone Capital Resources (CGP : TSX-V).
  • 6. Junior Mining Weekly | 6 4 March 2009 EXPLORATION UPDATE BRILLIANT MINING CORP. (BMC : TSX-V : C$0.10 | NOT RATED) Figure 6: BMC : TSX-V Figure 7: BMC : TSX-V Shares o/s (M): 73.0 Past 12-months – purchased: $96,683 Shares fd (M): 79.9 Past 12-months – sold: 300,000 Working Cap. (M): $0.1 Market Cap. (M): C$7.3 Since Dec. 24, 2008 - acquisitions or dispositions: NIL Co. Website: www.brilliantmining.com Source: Company reports, StockCharts.com Source: INK Research Brilliant Mining is a Vancouver-based company focused on the exploration for and production of nickel. The company owns a 25% interest in the producing Lanfranchi nickel mine in Western Australia and wholly owns the Michikamau Ni-Cu-Co- PGE exploration property in central Labrador. The company melds strong Canadian management in the form of Chairman John Robins, President Mike Sieb, and CEO John Williamson with exceptional Australian engineering in the form of hands- on directors Leigh Junk and Ian Junk. The company recently announced plans to sell its interest in the Lanfranchi mine: • Brilliant has entered into an agreement to sell its indirect interest in the producing Lanfranchi nickel mine in Western Australia to majority owner Panoramic Resources (PAN : ASX : A$0.81 | Not rated). In consideration, Brilliant would retain C$6 million in working capital, receive 12 million shares in Panoramic and receive 3 million share purchase warrants exercisable in Panoramic common shares at A$1.50 to December 31, 2012. Brilliant shareholders will receive their proportional share of Panoramic securities, thus maintaining exposure to the Lanfranchi mine subject to a six-month hold period. Brilliant management was motivated to strike this deal with Panoramic in order to avoid dilution in this difficult equity market stemming from operational funding obligations. • Brilliant recently reported record nickel production for the three months ended December 31, 2008. The mine had produced 115,064 tonnes of ore at 2.45% nickel for 6.2 million pounds of nickel in concentrate. These figures represented year-over-year increases of 84% and 74% in ore mined and metal in concentrate, respectively. Unit payable cash costs, net of copper credits, amounted to US$3.65 per pound in the quarter. The Lanfranchi mine hosts measured and indicated resources of 3.7 million tonnes grading 2.57% nickel plus 1.6 million tonnes inferred grading 1.84% nickel for a global resource of 276.3 million pounds of nickel. • It is unfortunate the conditions have backed Brilliant into this particular corner. The project offers excellent exploration potential in down-plunge extensions of the producing channels. In addition, the Northern Tramways Dome area boasts significant evidence in support of the discovery of an overturned portion of the critical ultramafic/basalt target contact on the northern margin of the area. Two high-priority nickel channels in the projected overturned position of the Winner-Schmitz and Helmut-Deacon channels had been identified. An analyst has not visited the properties held by Brilliant Mining Corp. Investment risks The Lanfranchi Mine is located in Western Australia in an area of extensive historical production, thus sovereign-related risks are minimal. The primary risks associated with investment in Brilliant Mining Corp. are those of metal prices and exchange rates. The commercialization risks associated with new mineral exploration and development are high, thus, investment in the shares of Brilliant Mining Corp. is for risk accounts only.
  • 7. Junior Mining Weekly | 7 4 March 2009 DIAMONDS NORTH RESOURCES LTD. (DDN : TSX-V : C$0.12 | NOT RATED) Figure 8: DDN : TSX-V Figure 9: DDN : TSX-V Past 12-months – purchased: $153,629 Shares o/s (M): 75.2 Past 12-months – sold: $84,950 Shares fd (M): 86.3 Working Cap. (M): $5.0 Since Jan. 20, 2009 - acquisitions: 3,000 shares @ $0.28 Market Cap. (M): $9.0 Since Jan. 20, 2009 - dispositions: NIL Co. Website: www.diamondsnorthresources.com Source: Company reports, StockCharts.com Source: INK Research Diamonds North Resources is a mineral exploration company targeting diamonds in Canada’s far north. The company is led by Mark Kolebaba (President and CEO), a former exploration head for the BHP and Dia Met joint venture at Ekati. Its principal asset is its 100%-owned Amaruk diamond project (Tuktu target) in the Pelly Bay region of Nunavut. The main area of the Amaruk project spans more than 80 kilometres east to west and is within approximately 30 kilometres of tidewater. • Last week the company released disappointing mini-bulk sample results from its Amaruk property in northern Canada. An estimated 21.63 tonnes of kimberlite was collected from the Tuktu-1, 2 and 3 kimberlite and an additional estimated 14.49 tonnes of kimberlite was collected from Qavvik-4, 5 and 6 kimberlites last summer. Results of Dense Media Separation (DMS), and final diamond-picking suggest these kimberlite bodies are not likely to host a material population of macro stones, considerably reducing the economic potential of these particular pipes. The largest stones recovered from the mini-bulk samples that remained on the 1.18 mm sieve weighed in at 0.04 carats. The company has estimated the grades of the Tuktu and Qavvik kimberlite samples are inferred to be less than 0.1 ct per tonne. No further work is planned on these kimberlite bodies. • The company has identified over 500 airborne magnetic anomalies defined by abundant, high-quality indicator minerals and
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