Canaccord Mar 10 09

Tuesday March 10, 2009
S&P/TSX Composite -24.53 7566.94 CANADA
Dow Jones -79.89 6547.05
The S&P/TSX Composite was slightly lower Monday with most sectors
S&P 500 -6.85 676.53
depressed, save for energy companies, as bank and materials shares traded
NASDAQ -25.21 1268.64
lower. Oil rose above US$47 a barrel after renewed buying on speculation
S&P/TSX Venture -14.93 814.19
OPEC may cut output again at its Sunday meeting. OPEC Secretary-
Philadelphia SOX -4.54 190.47
General Abdullah al-Badri said the 12-member producer group would
Crude Oil (US$/brrl) +1.55 47.07
consider reducing output again at the meeting as it tries to counter
Gas (US$/mmbtu) -0.08 3.87
downward pressure on oil prices from falling demand.
Copper (US$/lb) -0.04 1.64
Gold (US$/oz) -24.70 918.00 Canadian Royalties (CZZ) said it may not have enough cash to meet
Nickel (US$/lb) +0.01 4.43 interest obligations of its debentures through to 2015 if current market
Palladium (US$/oz) -7.75 197.75
conditions prevail, and that it is looking to renegotiate the terms of its
Platinum (US$/oz) -11.00 1060.50
debentures to ease pressure.
Silver (US$/oz) -0.39 12.99
CF Industries Holdings (CF) has rejected Agrium (AGU) US$3.04
Uranium (US$/lb) -1.25 43.75
billion unsolicited bid as “grossly inadequate” and sweetened its own offer
Canadian Dollar -0.0077 0.7693
to buy rival fertilizer maker Terra Industries (TRA).
30 Year Canada +0.03 3.642
30 Year U.S. +0.04 3.592 Housing starts fell by a greater than expected 12.3% in February, marking
Volatility Index (VIX) 0.35 49.68 a sixth consecutive monthly decline and their lowest level since June 2000,
as the domestic economy struggles through a major downturn.

UNITED STATES
“Do You Take Booze?
Stocks fluctuated as Bank of America’s (BAC) advance and oil’s rally to
Troubled Hungarian a two-month high were offset by Warren Buffett’s warning that the
winemaker Integralt economy “has fallen off a cliff.” Bank of America surged after a person
Borgazdasag, based in familiar with the matter said it will sell debt backed by the Federal Deposit
the Eger winegrowing Insurance Corp. Wells Fargo & Co. (WFC) also jumped higher after
region, is offering to pay Buffett told CNBC that business at the fourth-largest U.S. bank in last
its suppliers with wine, three years looks “better than ever.”
instead of cash, vintner
Merck & Co. (MRK) weighed on the Dow after agreeing to buy
Jozsef Tarsoly told local
Schering-Plough (SGP) for $41.1 billion. The buyout would make Merck
media on Friday.
the second-biggest U.S. drugmaker and give it full rights to cholesterol
The winemaker, which is pills Zetia and Vytorin and experimental treatments for blood clots, asthma
the legal successor of Egervin, has offered to and schizophrenia.
make good on some 300 million forint ($1.57
General Electric (GE) climbed after its finance arm hired five banks to
million) in liabilities to 440 suppliers with an
manage a bond sale under the U.S. government’s Temporary Liquidity
in-kind contribution of wine, calculated at a
Guarantee Program.
price of 252 forint ($1.32) per litre for white
General Motors (GM) traded higher on news the automaker reached a
wine, 288 forint for red and 312 forint for the
tentative agreement with the Canadian Auto Workers union that will
region’s famous “Bull’s Blood.”
provide “huge” savings while it restructures amid declining sales and a
About 100 of the suppliers – who fear they
global recession.
may get neither money nor wine if Integralt
Stem-cell companies including Geron (GERN) and StemCells (STEM)
Borgazdasag goes under liquidation – have
rallied after Harold Varmus, co-chair of a science advisory group to the
agreed to the exchange, Tarsoly said.
President, said Barack Obama will reverse the U.S. Government’s ban on
funding stem-cell research.
This publication is a general market commentary and does not constitute a research report. Any reference to a research report
or a recommendation is not intended to represent the whole report and is not itself a research report or recommendation. This
commentary is for informational purposes only and does not contain investment advice. This publication may be wholly or
partially based on industry rumour, gossip and innuendo and as such is not to be relied upon as investment advice.

– Canadian and U.S. Comments for Tuesday March 10, 2009 2

ECON 101
CANADIAN Data Today: No scheduled releases.

U.S. Data Today: This morning, Wholesale Inventories (Jan) are expected to fall by 1.0%, after losing 1.4% the previous
month, while ABC Consumer Confidence (Mar 8) should come in at -49, steady with the previous month.

MARKET MOVERS
Technical Indicators:
TSX TSX-V NYSE NASDAQ AMEX
Advancers 523 410 885 785 151
Decliners 945 465 2216 1935 327
Net -422 -55 -1331 -1150 -176

Notable 52-Week Highs:
Yeah, no.

Notable 52-Week Lows:
Arbor Memorial Services ABO.B $ 17.20 First Capital Realty FCR $ 14.11
AutoCanada Income Fund ACQ.UN $ 1.14 FT/Highland Floating Rate FHT.UN $ 1.80
ARC Energy Trust AET.UN $ 11.41 Forbes Medi-Tech FMI $ 0.12
ATS Automation Tooling Systems ATA $ 2.74 FP Newspapers Income Fund FP.UN $ 3.53
Brompton Advantaged VIP AV.UN $ 5.74 Forbes Energy Services FRB $ 0.41
Bombardier BBD.B $ 2.22 FirstService Corp. FSV $ 9.50
Big 8 Split BIG.A $ 9.17 Finning International FTT $ 10.10
Ballard Power Systems BLD $ 1.14 US Financial 15 Split Corp. FTU $ 0.32
Bradmer Pharmaceuticals BMR $ 0.13 UBS Global Allocation Trust GAT.UN $ 3.23
Brick Group Income Fund BRK.UN $ 1.17 Gildan Activewear GIL $ 7.35
Copernican World Banks CBK.UN $ 0.92 Sentry Select Glb Infrastruct. GLS.UN $ 3.49
Canada Bread Co. CBY $ 30.50 Great-West Lifeco GWO $ 11.21
Canfor CFP $ 4.47 Harvest Energy Trust HTE.UN $ 3.87
Calfrac Well Services CFW $ 6.60 Harry Winston Diamond HW $ 2.19
Canfor Pulp Income Fund CFX.UN $ 1.42 Industrial Alliance Ins & Fin IAG $ 13.75
Citadel HYTES Fund CHF.UN $ 5.15 INDEXPLUS Income Fund IDX.UN $ 6.01
SCITI Trust II CIT.UN $ 5.18 Inspiration Mining ISM $ 0.43
Clarke CKI $ 1.26 Intertape Polymer Group ITP $ 0.45
Celestica CLS $ 3.36 Laurentian Bank of Canada LB $ 23.90
CIBC CM $ 36.51 Life & Banc Split Corp. LBS $ 2.01
COMPASS Income Fund CMZ.UN $ 6.30 Canadian Life Companies Split LFE $ 1.40
Cardiome Pharma COM $ 3.30 Linamar LNR $ 2.38
Contrans Income Fund CSS.UN $ 4.20 Lifeco Split Corp. LSC $ 3.89
Canadian Western Bank CWB $ 7.52 Magellan Aerospace MAL $ 0.22
Consumers Waterheater Fund CWI.UN $ 6.11 MDN Inc. MDN $ 0.45
CanWel Building Materials CWX.UN $ 1.08 Manulife Financial MFC $ 9.02
Cymbria CYB $ 9.50 Magna International MG.A $ 25.44
The Data Group Income Fund DGI.UN $ 2.87 MINT Income Fund MID.UN $ 5.21
Dividend Growth Split Corp. DGS $ 1.91 Morguard MRC $ 13.75
Dorel Industries DII.B $ 15.01 MSP Maxxum Trust MXT.UN $ 3.01
diversiTrust Energy Income Fd DTN.UN $ 2.44 Newalta NAL $ 2.62
diversiTrust Income+ Fund DTP.UN $ 5.28 Northwater Top 75 Inc Tr PLUS NTP.UN $ 0.76
Eveready EIS $ 1.95 Onex Corporation OCX $ 12.86
EPCOR Power EP.UN $ 12.90 Orleans Energy OEX $ 1.40
Energy Split Corp. ES $ 2.30 OPTI Canada OPC $ 0.65
Essential Energy Services ESN.UN $ 0.65 Pacific Energy Resources PFE $ 0.01



Phoenix Technology Income PHX.UN $ 4.70 Shermag SMG $ 0.01
Pembina Pipeline Income Fund PIF.UN $ 11.68 Spectra Energy Canada SPT.B $ 14.97
Paramount Energy Trust PMT.UN $ 2.59 Sustainable Production Energy SPU.UN $ 2.96
Primaris Retail REIT PMZ.UN $ 8.10 Scott’s REIT SRQ.UN $ 3.24
Power Corp of Canada POW $ 14.70 Fincl Svcs Income STREAMS STR.E $ 9.75
Polyair Inter Pack PPK $ 0.01 Sceptre Investment Counsel SZ $ 3.49
Pro-Vest Growth & Income PRG.UN $ 5.28 TELUS T $ 30.63
Public Storage Cdn. Properties PUB $ 13.25 Taiga Building Products TBL $ 0.05
Power Financial PWF $ 14.66 Transcontinental TCL.A $ 5.42
Penn West Energy Trust PWT.UN $ 8.82 Top 10 Canadian Financial TCT.UN $ 7.27
QLT QLT $ 1.74 Technicoil TEC $ 0.22
Rogers Communications RCI.B $ 25.40 TransForce TFI $ 2.78
Rock Energy RE $ 0.53 Tembec TMB $ 0.65
RioCan Real Estate Investment REI.UN $ 11.23 Tax Optimized Return Trust TO.A $ 2.76
Richards Packaging Income Fund RPI.UN $ 2.40 True Energy Trust TUI.UN $ 0.48
Rogers Sugar Income Fund RSI.UN $ 2.84 Utility Corp. UTC.C $ 14.22
Royal Host REIT RYL.UN $ 2.06 Brompton VIP Income Fund VIP.UN $ 5.24
SCITI ROCS Trust SCI.UN $ 3.25 Wescast Industries WCS.A $ 0.70
Stoneham Drilling Trust SDG.UN $ 0.96 West Fraser Timber Co. WFT $ 22.25
SCITI Trust SIN.UN $ 5.41 Wajax Income Fund WJX.UN $ 10.95
Stella-Jones SJ $ 12.75 Westport Innovations WPT $ 3.89
Sun Life Financial SLF $ 14.97 Western Canadian Coal WTN $ 0.41

CANADIAN EQUITIES OF INTEREST
Listed Alphabetically by Symbol

Gold Futures April 2009 (GOLDC : NYMEX : US$918.00), Net Change: -24.70, % Change: -2.62%
We're in good company. Despite yesterday's sell off, the safe haven flight to gold continues. According to the Wall Street
Journal, some of smartest institutional money, those who anticipated troubles for the housing and financial sectors, have been
buying gold. Names like Eton Park Capital Management LP, Greenlight Capital Inc., Hayman Advisors LP, Paulson & Co.,
Blue Ridge Capital Holdings LLC and Highfields Capital Management LP have been recent buyers of gold exchange-traded
funds, such as the SPDR Gold Shares ETF (GLD). Gold is being seen as the best defence against the general devaluation of
paper currencies and inflation that will be the result of the concerted monetary and fiscal policies to reflate the global economy.
Gold looks set to test support back at the US$880-905 area.

Oil Futures April 2009 (OILC : NYMEX : US$47.07), Net Change: 1.55, % Change: 3.41%
May I have this waltz? Oil continued to move higher on Monday. Crude oil has gained nearly 35% from its December lows. It
is widely anticipated that OPEC will announce another reduction in production at its meeting on Sunday, March 15 in Vienna.
According to media reports, OPEC's Secretary General Abdalla Salem El Badri said the cartel's compliance with reductions
totalling 4.2 million stands at around 80-85%. At the time of this writing, Saudi Arabia, the world's top oil exporter and OPEC's
most influential member had yet to voice its position ahead of this weekend's meeting. Saudi Arabia said in January it would
produce below its official OPEC quota and do whatever was necessary to bring the market back into balance. Venezuela and
Libya have said there is too much crude in the market and a further supply curb may be needed. Meantime, Iran, Angola and
Ecuador see no need to cut output again. Based on the past several OPEC meetings, selling “Big Oil” on the OPEC news has
been correct trade.

Global Economy
Take slow deep breaths, close your eyes for a few minutes and imagine you’re on a beach without a worry in the world. Feel
the clean fresh air flowing through your body as it washes away any stress and worry. Now read this: The World Bank
predicted on Sunday that the global economy and volume of global trade would both shrink for this year, the first time this has
occurred since World War II. In late January, the International Monetary Fund reduced its estimate for global growth this year
to just 0.5%, the lowest level in more than 60 years. The World Bank forecast appears to be the first major forecast calling for a



contraction of the global economy. In its new report, prepared for a meeting next week of finance ministers from the 20
industrialized and large developing countries, the bank warned that the financial disruptions are all but certain to overwhelm the
ability of institutions like it and the International Monetary Fund to provide a buffer. The bank said that developing countries,
many of which had been growing rapidly in recent years, were being devastated by plunging exports, falling commodity prices,
declining foreign investment and vanishing credit. Breath in, breath out. Breath in, breath out.

Dividends – and the People Who Love Them
Measure twice, cut one. Yesterday, Capital One (COF), one of the largest credit card companies, cut its dividend by 87% in an
effort to preserve capital amid the ongoing economic downturn. This follows Wells Fargo’s (WFC) decision on Friday to
reduce its dividend by 85% and General Electric’s (GE) decision in late February to cut its dividend by more than two-thirds.
According to a Wall Street Journal article, half of the S&P 500’s total dividends come from just 28 companies, and with Wells
Fargo’s decision to cut its dividend, none of the top dividend payers are financial services companies. Wells Fargo had the third-
largest dividend in the index behind AT&T (T) and ExxonMobil (XOM). The financial sector now accounts for just 11% of
index dividends, down from the 2006 peak of 30%. Of all the major U.S. life insurers, only MetLife (MET) has not reduced
their dividends. According to Bloomberg data, over the past 12 months in Canada, six of the top 10 dividend/distribution paying
companies/trusts (in total dollar value) were financial companies; the other four were energy companies. The only one of the top
ten to cut a distribution so far has been Canadian Oil Sands (COS.UN). We highlight that yesterday one Bay Street analyst
suggested that the Canadian Banks should consider reducing their dividends. On Friday, a different analyst highlighted that only
one of Canada’s big four insurance companies had a payout ratio which was less than 100% – Great-West Life (GWO).

Agrium* (AGU : TSX : $42.25), Net Change: 1.97, % Change: 4.89%, Volume: 1,357,425
CF Industries (CF : NYSE : US$61.56), Net Change: 0.97, % Change: 1.60%, Volume: 4,663,359
Terra Industries* (TRA : NYSE : US$25.17), Net Change: -0.94, % Change: -3.60%, Volume: 3,895,027
We haven’t seen this much rejection since the chess club asked the cheerleaders out on dates. The high stakes game of
fertilizer continued Monday, with U.S. fertilizer maker CF Industries announcing that its board has reaffirmed its intention to
buy Terra Industries and has also rejected an unsolicited bid from rival Agrium. CF’s board of directors announced yesterday
morning that they have rejected Agrium’s offer for the company, calling it “grossly inadequate”. Furthermore, CF has increased
its bid for Terra to U$27.50 and modified its share ratio from 0.4235 to a range of 0.4129 to 0.4539. The company has also
announced it will bypass a potential CF shareholder vote by issuing participating preferred stock versus common stock. Also
Monday, Terra’s board of directors announced that it has again rejected CF’s proposed acquisition, stating that it does not
enhance value for Terra’s shareholders. Additionally, the board noted that Agrium’s offer for CF is conditional on the
termination of the CF bid for Terra and, as a result, CF’s offer is illusory and creating significant uncertainty for Terra
shareholders. Last month, Agrium launched an unsolicited offer to buy U.S. rival CF for US$3.6 billion in cash and stock, in a
move to expand its presence in the nitrogen and phosphate fertilizer markets. The bid was conditioned on CF dropping its
hostile offer for competitor Terra, which Terra has rejected - twice. CF said it believes that Agrium’s proposal is a transparent
attempt to interfere with CF’s proposed bid for Terra.

Bank of Montreal (BMO : TSX : $26.95), Net Change: -0.53, % Change: -1.93%, Volume: 2,236,298
American Intl. Group (AIG : NYSE : $0.35), Net Change: 0.00, % Change: 0.00%, Volume: 10,906,700
“Headed for a disaster of biblical proportions....Human sacrifice, dogs and cats living together... mass hysteria!” – Ghost
Busters. Apparently, AIG got its last round of financing from the U.S. Government on the back of scaring the heck out of U.S.
legislators by saying that the company’s collapse could cripple money-market funds, force European banks to raise capital,
cause competing life insurers to fail, and wipe out the taxpayers stake in the firm. According to a 21-page draft presentation
obtained by Bloomberg the collapse of AIG would be “catastrophic” and worse than Lehman Brothers’. Well, don’t worry, Dr.
Venkman got the girl, the Stay-Puff Marshmallow Man was destroyed, AIG got its dough, and BMO got paid. Over the
weekend it was reported that the government bailout directly benefited at least two-dozen U.S. and foreign financial institutions,
including the Bank of Montreal. BMO was part of very prestigious company including Goldman Sachs (GS), Merrill Lynch,
and some big European Banks.

Cinch Energy* (CNH : TSX : $0.52), Net Change: 0.06, % Change: 13.04%, Volume: 135,650
Easy does it. Shares of Cinch were in the green yesterday following the release of its year-end results and reserves late last
week. The company reported production and earnings substantially in line with Canaccord Adams’ estimates, but the company
beat our estimate for cash flow due to lower G&A and interest costs, somewhat offset by lower realized commodity prices in the



fourth quarter. All of Cinch’s reserves growth in 2008 was through the drill bit. Proved reserves increased 20% to 5.3 mmboe
and proved plus probable reserves increased 17% to 7.3 mmboe. Finding, development and acquisition (FD&A) costs were
relatively flat year over year. FD&A costs were $21.25, down 3% on a proved basis, and $19.11, down 4% on a proved plus
probable basis. Canaccord Adams Senior Energy Analyst Richard Wyman highlighted that the past year was a watershed period
for Cinch. The company has enjoyed five successive quarters of production growth, a trend that is likely to continue at least for
the first half of 2009. Depending on the pace and character of drilling results, the Montney potential remains a substantially
untapped resource, but given the drilling success of other operators around Cinch’s land, the acreage is very prospective. In
2009, the company has near-term catalysts with two vertical well completions in the Montney formation in the first half of the
year, drilling of the company’s first horizontal Montney test this summer and the drilling of another Wabamun well later in the
year. Cinch has a capital budget of $15 million for 2009, only about $4 million of which is committed in the first half of the
year. In light of the current uncertain economic environment, Cinch plans to act prudently and will adjust capital spending plans
if business conditions continue to be weak.

EPCOR Power L.P.* (EP.UN : TSX : $13.44), Net Change: -1.20, % Change: -8.20%, Volume: 144,739
Distribution cut cometh? EPCOR Power reported fourth quarter recurring distributable cash flow of $0.59 per unit versus $0.63
last year and cash flow before maintenance capex of $0.65 per unit versus $0.71 last year. Cash flow in the fourth quarter was
about $0.05 lower than expectations, primarily as a result of a $2.4 million ($0.05 per unit) expense for the allowance of a
doubtful account at the Morris facility. For the full year, the partnership generated recurring distributable cash flow of $2.27 per
unit versus $2.63 last year. Management also updated their guidance for 2009. EPCOR expects distributable cash flow to be
below the $2.52 cash distributions. Canaccord Adams Pipeline & Power Utilities Analyst Bob Hastings says given the outlook
for 2009 and 2010 distributable cash flow below the distribution level, the probability of a distribution cut at EPCOR has
increased. EPCOR Power LP owns interests in 26 generating stations with a total installed capacity of 1,502 MW.

Suncor Energy* (SU : TSX : $30.29), Net Change: 2.94, % Change: 10.75%, Volume: 10,401,147
“How do rumours get started? They’re started by the jealous people and they get mad about somethin’ they had, and
somebody else is holdin.’” – Timex Social Club. Takeover rumours had Suncor outperforming the rest of the oil and gas group
on Monday. Canaccord Adams Oil & Gas Analyst Terry Peters has said for sometime that the current market environment has
increased the likelihood that M&A activity will return to focus over the coming year. Major oil companies have come through
the recent period of high energy prices flush with cash, while reinvestment in the core business has lagged. Share performance,
which has been bolstered by share buybacks and high earnings, will increasingly need to be driven by underlying growth in
production and reserves. Unfortunately, new growth opportunities are often found in high-risk areas of the world, and in areas
where competition from state energy companies is intense. One region that would appear to offer the capacity for meaningful
reserve and production growth in a reasonably stable fiscal environment is...Canada, and in the oil sands in particular. The
market capitalization of large-cap Canadian energy companies has declined by over 50% from their recent peak in July of 2008.
While part of this performance reflects the drop in oil prices, the balance relates to overall equity markets. Peters believes that
major oil companies look beyond the short-term environment, particularly for assets, such as oil sands that have a +40-year
reserve life. There will most likely be several bull market cycles for energy over that time period. Five of the largest Canadian
energy companies that would appear to be vulnerable to an unsolicited offer, include: Suncor, Encana (ECA), Canadian
Natural Resources (CNQ), Talisman Energy (TLM) and Nexen (NXY). Suncor recently reported that production at its oil
sands facility during February averaged approximately 300,000 bpd. Year-to-date oil sands production at the end of February
averaged approximately 279,000 bpd. During January, Suncor averaged approximately 251,000 bpd. The company is targeting
average oil sands production of 300,000 bpd (+5%/-10%) in 2009.

WesternZagros Resources* (WZR : TSX-V : $0.43), Net Change: -0.28, % Change: -39.29%, Volume: 2,997,620
A.k.a. The WeeZeR. WesternZagros announced its fourth-quarter and year-end financial results, reporting a net loss of US$10.1
million for the year. Of greater interest were the drilling results of its first well in Kurdistan, Sarqala-1. Results on the well are
inconclusive at this time. The well was drilled to a total depth of 4,357 metres (not reaching the original estimate of 4,800
metres) and penetrated three zones – the Lower Fars, Jeribe and Euphrates. Numerous indications of oil and gas were present,
with analysis or oil shows indicating light sweet oil of 34-35° API. Wireline equipment encountered wellbore obstruction,
which prevented logging. After drilling through the obstruction, the drilling assembly became stuck in the hole and recovery
attempts have thus far been unsuccessful. Sarqala-1 has been suspended pending evaluations of feasibility and merits of future
drilling options on the well. In the meantime, the drilling rig will be moved to Kurdamir-1, the second well on the block, with
spudding expected in May 2009. The well location is located 30 kilometres northeast of Sarqala-1. Total well depth is planned



at 3,900 metres, and WesternZagros and its partners have incorporated two immediate casing strings into its drilling program in
order to mitigate the risk of similar problems (i.e., overpressure and lost circulation) encountered at Sarqala-1.

U.S. EQUITIES OF INTEREST
Listed Alphabetically by Symbol

Banks and Accounting Regulations
“On your un-mark, get ready, set, go – and estimate those values!” – Overheard at the recent Accounting Olympics. Some
have blamed part of the market crisis on the accountants and their annoying mark-to-market rules, which essentially forces firms
to write down certain assets to their current market value, not carried at their long-term calculated economic value. And back in
October, the American Bankers Association (ABA) asked securities regulators to override recent guidelines from the Financial
Accounting Standards Board (FASB) on mark-to-market accounting. The ABA said banks should be allowed to look to long-
term, economic values. Well, on Thursday mark-to-market will be the subject of a Capital Markets, Insurance, and Government
Sponsored Enterprises Subcommittee hearing in the House Financial Services Committee. As well to be discussed is a proposed
bill that would establish a new Federal Accounting Oversight Board and probably loosen mark-to-market accounting standards.
The board would approve the standards set by the independent Financial Accounting Standards Board. The ABA, which has
been pressing the SEC and Congress to relax mark-to-market accounting rules and asking for a board to oversee FASB,
welcomed the bill. As far as we understand though, that this is only a hearing, and is not a vote on any bill to actually alter the
mark-to-market rules. What if they only get rid of the mark-to-market rules after the market hits bottom? And what if their long-
term economic value is less than the market values at that time? Will they then switch back to mark-to-market to allow them to
ride the increase in asset values higher?

Arch Coal (ACI : NYSE : US$12.55), Net Change: 0.02, % Change: 0.16%, Volume: 6,017,036
Rio Tinto* (RTP : NYSE : US$96.14), Net Change: -6.31, % Change: -6.16%, Volume: 735,733
Does it surprise you that Arch Coal is based in St. Louis? Rio Tinto announced it has entered into an agreement with Arch
Coal to sell its Jacobs Creek mine, located in the Powder River basin in Wyoming for US$761 million. Jacobs Creek produced
40 million tonnes of low sulphur, high energy (8,800 btu) coal in 2008. As this production is consumed in the domestic market,
the prices range between US$13-15/t. As Rio Tinto does not disclose mine-level EBITDA, the following are estimates;
however, Canaccord Adams’ forecast cash costs to be roughly US$10/t, implying a US$3/t margin. This translates into US$120
million, which suggests Arch is paying ~6.3 times EBITDA. On a production basis, the price equates to US$19/t, and on a 2P
reserve basis the price equates to ~US$2/t. It appears as though Rio Tinto has made another asset sale at a premium to its market
carrying value. This deal further de-risks Rio Tinto’s balance sheet, adding, on margin, further flexibility. Canaccord Adams
continues to believe that Rio Tinto will continue to re-rate toward BHP Billiton’s (BHP) trading multiples on a EV/EBITDA
and P/CF basis.

AMR (AMR : NYSE : US$2.74), Net Change: 0.19, % Change: 7.45%, Volume: 13,421,500
Delta Air Lines (DAL : NYSE : US$4.19), Net Change: 0.13, % Change: 3.08%, Volume: 10,651,335
Southwest Airlines (LUV : NYSE : US$5.17), Net Change: 0.04, % Change: 0.78%, Volume: 11,100,279
UAL (UAUA : NASDAQ : US$3.84), Net Change: -0.10, % Change: -2.54%, Volume: 7,589,584
This sector doesn’t even do well when the economy is booming. UBS commented on the airlines yesterday, saying that
February unit revenue, channel checks, and communication from the carriers suggests weaker revenue trends have continued
into March – to which the Morning Coffee think tank says: Duh. UBS has materially lowered their revenue forecast for Q1 and
the year, expecting AMR and UAL to post EPS losses in 2009. The firm expects consensus estimates to fall soon but figures the
market also anticipates this. The airline stocks are trading at around the same level they were back in July, when fuel prices
were at their peak, EPS estimates called for huge losses, and liquidity was a great concern. Although UBS’ estimates are much
better than they were then, cash balances are still uncomfortably low. Also, the firm anticipates announcements of additional
capacity cuts as early as next week. By the way, Ryanair CEO Michael O’Leary admitted that his public musing about starting
to charge passengers for access to the lavatory on flights was merely the latest in a string of publicity stunts. Despite telling
reporters last Thursday that “it’s going to happen,” O’Leary told a tourism conference yesterday that it was technically
impossible and legally difficult.



Amazon.com (AMZN : NASDAQ : US$60.49), Net Change: -1.20, % Change: -1.95%, Volume: 13,527,440
Like so often in the Pacific Northwest, the day starts out nice - only to be replaced with rain in the afternoon. Shares of this
Seattle-based online retail giant opened strongly Monday, only to drift lower into the red as the day went on. Piper Jaffray
upgraded the name on Monday, saying superior customer service will allow the online retailer to take more market share. Their
analysts highlighted that their survey last week of 300 online shoppers shows that satisfaction remains high with Amazon, at
81%. They also believe that online shopping, apart from travel bookings, has stabilized in the first quarter. “We believe the
superior customer experience will mean continued market-share gains, and continued e-commerce innovations such as the
Kindle book reader and the ‘Amazon Remembers’ iPhone application will drive revenues, earnings, and the stock price higher
over the long-term,” Piper wrote. They see the Kindle e-book reader accounting for about 2% of Amazon’s sales this year, and
4% next year. Amazon released the second version of the Kindle two weeks ago.

First Solar* (FSLR : NASDAQ : US$108.36), Net Change: -0.13, % Change: -0.12%, Volume: 2,290,372
Ten times the size of GM. An analyst at Collins Stewart says there has been much debate in the investment community
regarding First Solar’s plans to build a large solar project in Germany. This plan led the thin-film panel maker to reduce its 2009
revenue guidance by $200 million, or 10% and contributed to the 20% decline in the shares in the days following its Q4/08
conference call on February 24. The firm compares the cashflow and operating income from such a project to that of its
traditional business of manufacturing and selling solar modules, believing First Solar will develop the project with the specific
goal of selling it to an insurance company or pension fund. If that path is pursued, Collins Stewart estimates First Solar would
generate a $95 million gain on the project, slightly more profit over a 5-6 quarters span than it would generate by selling the
same modules under its traditional business plan. To be sure, First Solar looks better positioned than its rivals. It has a war chest
of more than $716 million in cash and about $163 million in long-term debt. Comparatively, SunPower (STP) has roughly
$220 million in cash along with long-term and convertible debt. Applied Materials (AMAT), which sells tools to panel makers
and doesn’t make panels itself, posted a loss last quarter as its semiconductor equipment business has suffered from an industry
slowdown.

Fuel Systems* (FSYS : NASDAQ : US$11.59), Net Change: -1.37, % Change: -10.57%, Volume: 1,375,274
In need of energetic investors. Shares of Fuel Systems were running on empty Monday after reporting Q4/08 results and
holding a conference call last Friday afternoon. Canaccord Adams Industrial Growth Analyst John Quealy sees the results as a
negative near term, but longer term positive. While several moving parts weighed on quarterly results, Quealy believes Fuel
Systems is still well positioned for growth opportunities in 2010+. That said, the Street needs to digest the quarter and
management’s outlook, short interest likely remains high (though perhaps not at recent levels of approximately 46% of the float)
and shares likely remain range bound near term given the macro automotive headwinds and back-end loaded estimates. Going
forward, Fuel Systems’ management said it expects further growth-related expenditures related to the integration of DS, the
launching of the U.S. Transportation business and expanding/improving upon the company’s fuel injection systems within the
industrial segment ahead of the 2010 regulatory refresh cycle to weigh on margins in 2009. The company issued 2009
revenue/GM/OM guidance of $330-360 million/25-27%/10-12%, implying full-year EPS of $1.20+. This guidance assumes a
EUR/USD exchange rate of 1.3% and a negative fx revenue headwind of ~12%.
Hewlett-Packard (HPQ : NYSE : US$25.53), Net Change: -1.45, % Change: -5.37%, Volume: 30,490,785
Dell (DELL : NASDAQ : US$8.04), Net Change: -0.33, % Change: -3.94%, Volume: 27,646,317
Microsoft would like to replace Vista: Cancel or Allow? Boutique firm Kaufman Bros. was pounding the computer desk on
technology stocks yesterday, calling Windows 7 a catalyst to PC market. However, they believe the wait for Windows 7 (with a
potential release in Q3 or Q4) could also create a pause ahead of it. So far, the reviews of its beta versions have been positive
with surveys showing IT managers considering upgrading. The key improvements are user friendliness and higher productivity
as well as speed, security, networking, multi-touch interface, and multimedia enhancements. They see Hewlett-Packard to
benefit as the largest player in PCs, as well as Dell as No. 2 player. For Apple (AAPL), Kaufman believes there is potential
headline risk more than anything, but Intel (INTC) Macs can run Windows, too (with evidence showing many switchers doing
this). The firm believes Apple will respond with Mac OS X Snow Leopard, its next-generation operating system with even
better usability, 64-bit processing, better Intel optimization, and better utilization of GPUs, keeping it a step or two ahead of
Windows 7.

McDonald’s (MCD : NYSE : US$52.32), Net Change: 0.20, % Change: 0.38%, Volume: 17,853,882
They’re lovin’ it. Disadvantaged by one less selling day because 2008 was a leap year, McDonald’s still managed to post a
modest 1.4% same-store sales gain in February, although it would have been up a solid 5.4% without the negative calendar



effect. Despite the global economic slowdown, it seems McDonald’s is having no problem selling its McProducts to the masses,
as consumers flock to low-priced options for meals and coffee. U.S. sales were up 2.8%, while European sales decreased 0.2%,
and Asia/Pacific, Middle East and Africa increased 0.7%. “McDonald’s continues to deliver what customers want – everyday
affordable prices and quality menu choices,” management told analysts. “We serve approximately 58 million customers around
the world every day, demonstrating the ongoing appeal of McDonald’s unique combination of convenience, value and variety.”
But McDonald’s remains worried about the impact of commodity prices and a strong U.S. dollar on the company’s margins. If
foreign-exchange rates remain at current levels, currency translation is expected to negatively impact first quarter revenues by at
least $600 million and earnings by $0.07-0.09 per share. First-quarter results will also include an after-tax non-operating gain of
$0.03-0.04 per share resulting from the sale of McDonald’s minority interest in Redbox Automated Retail, which offers DVDs
from kiosks. By the way, McDonald’s and Wal-Mart Stores (WMT) were the only Dow stocks to post gains in 2008.

Mosaic Company* (MOS : NYSE : US$40.35), Net Change: 1.19, % Change: 3.04%, Volume: 7,455,141
Organic!?! Heck, this thing hardly even needs water. Monsanto said Monday that it was closer to releasing what could be the
world’s first drought-tolerant biotech corn by completing regulatory submissions in the U.S. and Canada. The global leader in
development of genetically modified crops said it applied for approval of its new corn with the U.S. Department of Agriculture
and various Canadian agencies. In December, the company made a regulatory submission to the FDA. The development of the
drought-tolerant corn is a collaboration between Monsanto and Germany’s BASF. The companies hope to launch the product in
2012. According to Reuters, Monsanto has said that bringing drought-tolerant crops to market is among its top priorities. “Water
availability, water usage, is one of the key limiting factors when it comes to crop production around the world,” Mark Lawson,
Monsanto’s yield and stress platform lead executive, said in a recent interview. Lawson estimates two-thirds of yield losses
farmers experience are due to drought and stated that 85% of corn acres in the United States are under some degree of drought
stress every year. “As we move forward and look at climate change...drought will become an increasing problem,” Lawson said.
Monsanto is also developing a water-efficient maize for sub-Saharan Africa as part of a public/private project that includes
funding from the Bill and Melinda Gates Foundation. That project started early this year.

National Semiconductor* (NSM : NYSE : US$10.83), Net Change: -0.13, % Change: -1.19%, Volume: 9,382,994
Three times the size of GM. AmTech has previewed National Semi’s Q3 earnings report, scheduled before the Wednesday
open. They expect to hear commentary of more normal customer behaviour in terms of bookings, backlog stabilization and turns
activity, though at lower levels. National Semi, like its peers, is likely shipping below end demand, and has yet to see a
consistent pattern of expedites, rush orders, or high book-to-bill ratios (~1.15). They note smartphone exposure may be less of a
near-term growth driver for the company, as their checks indicate the related semiconductor component orders are being cut at
one of its two major smartphone vendors for the March and June quarters. AmTech would not be surprised if they are
announced on the conference call. In the near-term, they do not expect significant improvement in fundamentals. Still, the firm
continues to argue National Semi is an attractive long-term opportunity due to its better-than-expected margin recovery and
optimal smartphone exposure.

COFFEE BEANS
– The number of Americans three months behind on bankcard payments fell 11% in the fourth quarter of 2008 from a year ago,
while they added less than 2% to their balances during the holiday shopping season. (The Globe and Mail)
– Tim Horton’s (THI) market cap is roughly five times the size of General Motor’s (GM).

THE LAST DROP: According to a new study, people are sleeping less because they’re worried about the economy. I think it
also might have something to do with the fact they’re sleeping under bridges.
– Craig Ferguson

* Canaccord Capital and its affiliated companies may have a Corporate Finance or other relationship with the company and
may trade in any of the Designated Investments mentioned herein either for their own account or the accounts of their
customers, in good faith and in the normal course of market making. The authors have not received, and will not receive,
compensation that is directly based upon or linked to one or more specific Corporate Finance activities, or to coverage
contained in the Morning Coffee.


Canaccord Mar 10 09

Recommended

Recommended

More Related Content

Viewers also liked

Viewers also liked (16)

Similar to Canaccord Mar 10 09

Similar to Canaccord Mar 10 09 (20)

More from Christopher R Anderson

More from Christopher R Anderson (20)

Recently uploaded

Recently uploaded (20)

Canaccord Mar 10 09