20120313 goldandsilverforecastupdate (1)

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20120313 goldandsilverforecastupdate (1)

  1. 1. March 13, 2012 METALS AND MINING SECTOR UPDATECOMMODITY PRICE FORECAST UPDATE AND Sector: METALS AND MININGCORRESPONDING TARGET ADJUSTMENTS Analyst: PETER CAMPBELL, P.ENG In this report, we are updating our gold and silver e-mail: peter.campbell@jenningscapital.com price forecasts, including a more bullish outlook on Tel: (416) 304-3963 Fax: (416) 214-0177 the longer-term outlook for both. We last updated our price forecasts in September 2011, since which Analyst: RYAN WALKER, M.SC time prices for both have moved decidedly lower. e-mail: ryan.walker@jenningscapital.com Tel: (416) 304-2194 Fax: (416) 214-0177 Our revised gold and silver forecasts are as follows: US$1,700/oz and US$34/oz for 2012; US$1,900/oz Analyst: STUART MCDOUGALL, B.SC and US$38/oz for 2013; US$2,000/oz and US$40/oz e-mail: stuart.mcdougall@jenningscapital.com for 2014; US$1,900/oz and US$38/oz for 2015; and Tel: (416) 304-2176 Fax: (416) 214-0177 US$1,300/oz and US$26/oz for 2016 onward. Associate: GREG DOYLE In the first section of the report, we take a macro e-mail: greg.doyle@jenningscapital.com outlook on gold and provide supporting quantitative Tel: (416) 304-2171 Fax: (416) 214-0177 and technical analysis to our forecasts. For silver, we have decided to adopt a simple approach and Associate: SPENCER LANGLEY e-mail: spencer.langley@jenningscapital.com assumed the metal trades at a 50-to-1 ratio to gold, Tel: (416) 304-3894 Fax: (416) 214-0177 noting that the average has approximated 60-to-1 over the last decade, but has regressed to 46-to-1 Strategist: DAVID BEASLEY, CFA, CMT since 2011. e-mail: david.beasley@jenningscapital.com Tel: (416) 304-0600 Fax: (416) 214-0177 In the case of our equity analysis, our price revisions have had favourable impacts on several names we cover. A summary of our revised 12-month targets is COVERAGE TICKER RECOMMEND TARGET provided in the right-hand table and expanded upon Apogee Silver Ltd. RW TSXV:APE SPEC BUY $1.25 in Appendix A. Atacama Pacific Gold Corp. RW TSXV:ATM SPEC BUY $9.50 Carpathian Gold Inc. SM/GD TSX:CPN SPEC BUY $1.50 Where applicable, we have adjusted our models for Centamin Plc. SM/GD TSX:CEE BUY $3.00 recent company or project updates and inflationary Eco Oro Minerals Corp. SM/GD TSX:EOM UNDER REVIEW UNDER REVIEW First Majestic Silver Corp. SM/GD TSX:FR BUY $30.00 factors on our cost assumptions. We have also Goldgroup Mining Inc. RW TSX:GGA SPEC BUY $4.00 adopted a more conservative approach to our in situ Guyana Goldfields Inc. SM/GD TSX:GUY SPEC BUY $11.50 valuations for resources, given the market Levon Resources Ltd. SM/GD TSX:LVN SPEC BUY $3.00 Minefinders Corporation Ltd. SM/GD TSX:MFL TENDER TO OFFER TENDER TO OFFER depreciation seen for nearly all companies in recent Minera IRL Ltd. SM/GD TSX:IRL RESTRICTED RESTRICTED months. Descriptions are provided for each affected New Gold Inc. SM/GD TSX:NGD BUY $18.50 Pershimco Resources Inc. RW TSXV:PRO SPEC BUY $2.00 company and, where applicable, any changes to our Probe Mines Ltd. PC/SL TSXV:PRB SPEC BUY $4.75 valuation. Rio Novo Gold Inc. RW TSX:RN SPEC BUY $2.00 Sandspring Resources Ltd. SM/GD TSXV:SSP SPEC BUY $5.75 At this point, we are leaving Eco Oro Minerals Scorpio Gold Corp. SM/GD TSXV:SGN SPEC BUY $1.75 SEMAFO Inc. SM/GD TSX:SMF BUY $11.50 Corp. (TSX-EOM; formerly Greystar Resources Inc.) SilverCrest Mines Inc. SM/GD TSXV:SVL SPEC BUY $6.50 UNDER REVIEW. We remain RESTRICTED on Sulliden Gold Corp. RW TSX:SUE SPEC BUY $4.75 Minera IRL Ltd. (TSX-IRL) and maintain our Timmins Gold Corp. SM/GD TSX:TMM SPEC BUY $4.50 Trelawney Mining & Exploration Ltd. PC/SL TSXV:TRR SPEC BUY $4.00 TENDER TO OFFER recommendation for Volta Resources Inc. SM/GD TSX:VTR SPEC BUY $5.00 Minefinders Corporation Ltd. (TSX-MFL). Please see important disclosures on pages 28 and 29.
  2. 2. 2TABLE OF CONTENTSGOLD PRICE FORECAST 3COMPANY UPDATES Apogee Silver Ltd. 8 Atacama Pacific Gold Corp. 9 Carpathian Gold Inc. 10 Centamin Plc. 11 First Majestic Silver Corp. 12 Goldgroup Mining Inc. 13 Guyana Goldfields Inc. 14 Levon Resources Ltd. 15 New Gold Inc. 16 Pershimco Resources Inc. 17 Probe Mines Ltd. 18 Rio Novo Gold Inc. 19 Scorpio Gold Corp. 20 SEMAFO Inc. 21 SilverCrest Mines Inc. 22 Sulliden Gold Corp. 23 Timmins Gold Corp. 24 Trelawney Mining & Exploration Ltd. 25 Volta Resources Inc. 26APPENDIX A: REVISED PRICE DECK & VALUATION METRICS 27DISCLOSURES 29The information contained in this report was obtained from sources we believe to be reliable. We do not represent that such information is accurate orcomplete and it should not be relied on as such. Any opinions expressed herein reflect our judgment at this date and are subject to change. JenningsCapital Inc. and/or employees from time to time may hold shares, options or warrants on any issue included in this report and may buy or sell suchsecurities. This report is not to be construed as an offer to sell or solicitation to buy securities. Member – CIPF. Jennings Capital (USA) Inc. is amember of SIPC.
  3. 3. 3GOLD PRICE FORECASTSPREAMBLEThough we have not endeavoured to build a complete global macroeconomic model for the price of gold,we believe that there are two primary concepts we can rely upon to provide reasonable forecasts for thepurpose of our equity valuation models. The first is the positive relationship between the growth of the USdollar money supply and gold priced in US dollars, while the second is the long-term technical trend andsupport levels for the commodity as a trading vehicle.1) The gold price and US$ money supply (M1)Intuitively, since gold is denominated in US dollars, an increase in the money stock is dilutive and thusshould be offset by an increase in the price of the asset. Although the velocity of money has beendeclining over the past several years and excess bank reserves have climbed, we believe that the goldmarket may nevertheless ‘price in’ increases in the money supply, much like equities discount the impactof exogenous events before they are realized in the operating results. Therefore, we see M1 as therelevant measure of the monetary base and an important determinant of the gold price.Exhibit 1: Size of US Money Stock and the Price of Gold are Highly CorrelatedExhibit 2: Gold has followed the Growth of the US Money SupplySource: Bloomberg, Jennings Capital Inc.The information contained in this report was obtained from sources we believe to be reliable. We do not represent that such information is accurate orcomplete and it should not be relied on as such. Any opinions expressed herein reflect our judgment at this date and are subject to change. JenningsCapital Inc. and/or employees from time to time may hold shares, options or warrants on any issue included in this report and may buy or sell suchsecurities. This report is not to be construed as an offer to sell or solicitation to buy securities. Member – CIPF. Jennings Capital (USA) Inc. is amember of SIPC.
  4. 4. 4Accepting then that the price of gold is largely driven by the changes in the money supply, we considerthe drivers of the size of monetary base to infer its trend and influence on gold. That being the case, webelieve that prevailing weakness in the macroeconomic environment should lead to further growth in theUS monetary base under the scenarios presented in Exhibit 3 below.Exhibit 3: Monetary and Fiscal Stimulus Should Lead to Higher Gold PricesWith that in mind, we look at US economic growth and budget deficit forecasts as indicators of likelyfuture expansion in the monetary supply and, correspondingly, the price of gold. Growth in GDP for theG10 nations over the next three years is expected to be well below 2%, while US GDP growth was just1.7% in 2011 and is only estimated to increase to 2.20% in 20121. In the case of deficit and debtforecasts, we cite the current US Congressional Budget Office projections, which expects annualoperating budget deficits of US$0.5-US$1.1 trillion and total debt of US$18.25 trillion by 20212 (76.7% ofprojected GDP). Given these trends and considering the relationships between these factors and theprice of gold, we believe it reasonable to view gold as being in a secular bull market.Next, we review trend analysis to form our actual price projections.2) Trend Analysis and ForecastsIn 2002, gold ended a 20-year bottoming process, when it broke out of a multi-year resistance zone ofUS$330/oz. We cite this year as the first uptrend movement and, accordingly, use it as our starting pointto establish long-term trend and regression lines for forecasting short-, medium and long-term priceassumptions.1 Bloomberg survey data2 Congressional Budget Office: Budget and Economic Outlook 2011-2021The information contained in this report was obtained from sources we believe to be reliable. We do not represent that such information is accurate orcomplete and it should not be relied on as such. Any opinions expressed herein reflect our judgment at this date and are subject to change. JenningsCapital Inc. and/or employees from time to time may hold shares, options or warrants on any issue included in this report and may buy or sell suchsecurities. This report is not to be construed as an offer to sell or solicitation to buy securities. Member – CIPF. Jennings Capital (USA) Inc. is amember of SIPC.
  5. 5. 5Exhibit 4: Price Chart Basis for Long-Run Trend AnalysisSource: Bloomberg, Jennings Capital Inc.FORECASTSShort Term (2012): US$1,700/ozAlthough gold has clearly held a strong uptrend since 2008, we believe the unresolved global debt crisiswill continue to foster volatility in the gold price over the remainder of 2012. Prices are likely to retest thelower trading range, before making new highs, with the volatility being centered on a key 2011 level ofUS$1,700/oz. This is the average of the upper and lower bounds, as well as the average closing price forthe year-to-date. That said, we see potential for a return to strength in Q3, owing to seasonality andtrading cycles.The information contained in this report was obtained from sources we believe to be reliable. We do not represent that such information is accurate orcomplete and it should not be relied on as such. Any opinions expressed herein reflect our judgment at this date and are subject to change. JenningsCapital Inc. and/or employees from time to time may hold shares, options or warrants on any issue included in this report and may buy or sell suchsecurities. This report is not to be construed as an offer to sell or solicitation to buy securities. Member – CIPF. Jennings Capital (USA) Inc. is amember of SIPC.
  6. 6. 6Exhibit 5: Uptrend Channel Intact – Expect Volatility but Average Price ~US$1,700/oz Range of short term volatility scenariosSource: Bloomberg, Jennings Capital Inc.Medium Term (2013 – 2015): US$1,900/oz; US$2,000/oz; US$1,900/ozReferring to Exhibit 4, one sees multiple trend lines and their intersection with future time periods.Generally speaking, as a trend progresses and begins to fade, the price should break nearby trend linesand test lower levels of support over time. The projected trend lines on spot gold provide a likely path forthe price to take over the next 10+ years of the secular bull market.For 2013 – 2015, we see good support on the steepest trend line for gold breaking above US$1,900/oz in2013. For simplicity, we assume an annual average price of US$1,900/oz for 2013, rising to US$2,000/ozfor 2014, before returning to the regression line, at US$1,900/oz, by 2015. Given the steep positivetrajectories of these trends, we believe these medium term forecasts could prove conservative.Similarly, although we have multiple trend projections well above our long-run assumption over the yearsfollowing 2015, we introduce our long run price beginning in 2016 as discussed below.Long Term (2016 Onward): US$1,300/ozReferring to Exhibit 4 once gain, a long-term projection for gold can be made from the trend lines formedby connecting gold’s inflection point in 2005 with its major correction in 2008. The trend suggests a rangeof US$1,400-US$1,500/oz in 2016, however, looking further out, the lowest trend channel from the end ofthe bear market points to an average of US$1,300/oz at the start of 2021.In Exhibit 6 below, we provide a bar chart that shows multiple long-term trend lines that further supportthe case for a price of US$1,300/oz or higher. The lowest trend starts near the end of the bear market,prior to the breakout, and arrives at US$1,300/oz in 2016. The next projection starts with the beginning ofthe bull market in 2005 and arrives at US$1,500/oz in 2016. Finally, the 5-year moving average, whichhas contained the downside volatility over the course of the bull market, is currently at the US$1,400/ozlevel. As a final case, we also cite the three-year trailing daily average, which was US$1,300/oz, as ofMarch 1. Therefore, we believe that US$1,300/oz is an appropriate long-term price, with the upsidescenarios offsetting the forecast risk.The information contained in this report was obtained from sources we believe to be reliable. We do not represent that such information is accurate orcomplete and it should not be relied on as such. Any opinions expressed herein reflect our judgment at this date and are subject to change. JenningsCapital Inc. and/or employees from time to time may hold shares, options or warrants on any issue included in this report and may buy or sell suchsecurities. This report is not to be construed as an offer to sell or solicitation to buy securities. Member – CIPF. Jennings Capital (USA) Inc. is amember of SIPC.
  7. 7. 7Exhibit 6: Annual Gold Price Range (20 years) – Several Levels of Long-Run Support AboveUS$1,300/ozSource: BloombergCONCLUSIONOur technical analysis suggests that 2012 will be marked by further volatility, capping our near-termforecast at US$1,700/oz. Starting in 2013, our analysis forecasts a continuation of the uptrend intosustainable prices of US$1,900/oz and US$2,000/oz for the following three years. Our long-term annualaverage represents the low end of our projections, at US$1,300/oz.The information contained in this report was obtained from sources we believe to be reliable. We do not represent that such information is accurate orcomplete and it should not be relied on as such. Any opinions expressed herein reflect our judgment at this date and are subject to change. JenningsCapital Inc. and/or employees from time to time may hold shares, options or warrants on any issue included in this report and may buy or sell suchsecurities. This report is not to be construed as an offer to sell or solicitation to buy securities. Member – CIPF. Jennings Capital (USA) Inc. is amember of SIPC.
  8. 8. 8 Recommendation: SPECULATIVE BUY Revised 12-Month Target: C$1.25APOGEE SILVER LTD. 2 Risk Rating: ABOVE AVERAGE(TSXV-APE C$0.165) Analyst: Ryan WalkerApogee Silver Ltd. is a Canadian-based junior exploration and development company focused on the100%-owned Pulacayo-Paca Ag-Pb-Zn project in Bolivia. The project centres on the formerly producingPulacayo deposit - historically Bolivia’s second largest silver mine, which produced some 678mm ozsilver, 200,000 tons zinc and 200,000 tons lead between 1883 and 1959. In May, Apogee was granted anenvironmental licence allowing underground exploration and trial mining of up to 200 tpd at Pulacayo.Contained silver nearly doubled; overlying oxides yet to come: In mid-October 2011, Apogeeupdated Pulacayo’s resource estimate with Indicated resources totalling 5.96mm tonnes at 153.14 g/t Ag,0.91% Pb and 2.04% Zn (29.3mm oz Ag, 119.6mm lbs Pb & 268mm lbs Zn), and 5.42mm tonnes ofInferred resources at 150.61 g/t Ag, 0.83% Pb and 2.07% Zn (26.2mm oz Ag, 99.2mm lbs Pb & 247mmlbs Zn). The new estimate represents a 76% increase in total contained silver (at 71% higher grade) froman October 2009 estimate. The deposit remains open, with historic workings extending over a strikelength of ~2.7 km and to a depth of ~1 km. To date, Apogee has systematically drilled along just ~1.3 kmof the known strike extent and to a vertical depth of ~550 metres.Oxide potential: In late January, Apogee reported results from the first 21 drill holes to test overlyingoxide Ag-Pb-Zn mineralization at Pulacayo. In all, the holes delivered a weighted average grade of 86.8g/t Ag over an average core length of 5.96 metres. APE envisages the oxide mineralization as potentiallyamenable to lower cost open-pit mining and heap-leach recovery. Metallurgical test work has indicatedsilver dissolution of 77%-81%. Assay results from another 24 holes are pending, with a resource estimateexpected by June 2012.In the boardroom, Stan Bharti, Marilia Bento and Maurice Colson recently resigned from the board;Bharti remains a strategic advisor to the board and Bento as VP Corporate Development and boardadvisor. Mr. Chantal Lavoie, currently CEO of Crocodile Gold, has been appointed to the board. Thechanges are aimed at reducing the number of non-independent directors.We reiterate our SPECULATIVE BUY recommendation and C$1.25/share target price. We continueto value APE shares on a blended EV/oz and conceptual DCF basis. Under the EV/oz case, we ascribeUS$2.50/oz of silver to APE’s existing silver resources (and assumed 25% near-term resource growth),with US$0.01/lb for contained lead and zinc resources, to arrive at a valuation of C$0.98/share. We haveupdated our conceptual DCF model of Pulacayo to include our new metal price deck and determined thenet present value (at a 5% discount) to be C$1.74/share, net of 15% increases in both capex and opexassumptions. Averaging the two methodologies, we arrive at a rounded target price of C$1.25/share.Potential Share Price Catalysts: Underground mining development and limited custom toll milling – Q4/11 NI 43-101 resource estimate including overlying oxide mineralization – H1/12 Results of a Feasibility study for larger-scale mining – H2/12 Commissioning of the Pulacayo pilot concentrator and tailings storage facility – Q4/12The information contained in this report was obtained from sources we believe to be reliable. We do not represent that such information is accurate orcomplete and it should not be relied on as such. Any opinions expressed herein reflect our judgment at this date and are subject to change. JenningsCapital Inc. and/or employees from time to time may hold shares, options or warrants on any issue included in this report and may buy or sell suchsecurities. This report is not to be construed as an offer to sell or solicitation to buy securities. Member – CIPF. Jennings Capital (USA) Inc. is amember of SIPC.
  9. 9. 9 Recommendation: SPECULATIVE BUY Revised 12-Month Target: C$9.50ATACAMA PACIFIC GOLD CORP.2 Risk Rating: ABOVE AVERAGE(TSXV-ATM C$3.61) Analyst: Ryan WalkerAtacama Pacific Gold Corp. is a Canadian-based junior precious metals exploration and developmentcompany focused on exploring the 100%-owned Cerro Maricunga oxide-associated gold deposit innorthern Chile’s prolific Maricunga Mineral Belt. The property is situated 20 km south of the La Copiasilver-gold mine and 30 km northwest of the Lobo Marte project, both owned by Kinross Gold (TSX-K;Not Rated).Large and growing oxide gold resource in Chilean mining country: Cerro Maricunga hosts Indicatedresources of 92.8mm tonnes at 0.54 g/t gold (1.62mm oz), with another 116.7mm tonnes at 0.52 g/t(1.95mm oz) classified as Inferred resources. The resource is contained in the Lynx, Phoenix and Cruxzones, which all remain open at depth. The Lynx zone is limited to the northwest by a volcanic complex,as is the Crux zone to the southeast. In all, oxide-associated gold mineralization has been traced overmore than 2.5 km of strike, widths of up to 400 metres, and to depths exceeding 500 metres.Heap leachable with quick leach kinetics: Cerro Maricunga’s fine-grained gold mineralization isassociated with black-banded quartz veining and finely disseminated iron oxides hosted by intrusivesubvolcanics and related breccias emplaced along a north-westerly striking structure. Recent columntests confirm previous results, indicating gold recoveries of 77% to 86% at un-optimized, but moderateto low sodium cyanide consumption (<1 kg/t). The tests also indicated little drop off in gold recovery ata coarser crush size (80% at 19 mm versus 77% at 100 mm), and decreased sodium cyanideconsumption at increased crush size, implying the potential for improved project economics.Grade boost? ATM also notes that a pair of recent diamond drill holes that twinned earlier reverse-circulation holes returned 21% and 40% higher grades over similar intervals. It is important to note thatexisting resources employ ~77% reverse-circulation drill results. A modest increase in deposit-wide gradefrom the current 0.53 g/t results in a dramatic boost to our conceptual project 5%NAV estimate at theproposed 50,000-90,000 tonne per day processing rate.We maintain our SPECULATIVE BUY rating and target price of C$9.50/share. With the depositremaining open to expansion and definitive economic studies not yet available to aid in development of arobust cash flow model, we currently value ATM shares on a blended EV/oz and conceptual DCF basis.We value Cerro Maricunga’s existing 3.65mm oz total resource (and assume the ultimate delineation of5mm ounces) at US$100/oz. We also include ATM’s cash (net of a planned US$24mm 2012 drillprogram). We have also incorporated our new metal price deck into our conceptual model of CerroMaricunga’s cash flows and determined the NPV5% to be C$9.42/share, net of 10% increases in ourcapex and opex assumptions. We average the above two methodologies to arrive at a rounded targetprice of C$9.50/share.Potential Share Price Catalysts: Further results from metallurgical test work – throughout 2012 Results of a Preliminary Economic Assessment – Q2/12 Results from ongoing 42,000-metre drill program – through Q2/12 NI 43-101 resource estimate – Q3/12The information contained in this report was obtained from sources we believe to be reliable. We do not represent that such information is accurate orcomplete and it should not be relied on as such. Any opinions expressed herein reflect our judgment at this date and are subject to change. JenningsCapital Inc. and/or employees from time to time may hold shares, options or warrants on any issue included in this report and may buy or sell suchsecurities. This report is not to be construed as an offer to sell or solicitation to buy securities. Member – CIPF. Jennings Capital (USA) Inc. is amember of SIPC.
  10. 10. 10 Recommendation: SPECULATIVE BUY 12-Month Target: C$1.50CARPATHIAN GOLD INC.2,3 Risk Rating: ABOVE AVERAGE(TSX-CPN C$0.49) Analyst: Stuart McDougallCarpathian Gold Inc. is an emerging junior gold producer, exploration and development company. TheCompany’s two principal assets are Riacho dos Machados (RDM), in Brazil, and Rovina Valley, inRomania.In April 2011, Carpathian announced a positive feasibility study on RDM, confirming its potential toproduce an average of 93,400 oz per year, at a cash cost of US$558/oz. The Company has sincesecured the necessary permits and project funding to initiate development activities, with productionscheduled to begin in mid-2013.Proven and Probable Reserves of 21.0 million tonnes grading 1.24 g/t gold are sufficient to supportoperations for eight years, giving management considerable time to test for mineralized extensions alongstrike and to test the project’s potential to eventually support an underground operation.Rovina Valley currently hosts total resources of 370.7 million tonnes averaging 0.59 g/t gold and 0.18%copper, for nearly 7.0 million oz contained gold and 1.44 billion lbs contained copper. Resources arespread among three proximal porphyry bodies that a March 2010 Preliminary Economic Assessmentconcluded could support annual production of nearly 200,000 oz gold and 50 million lbs copper over 19years.Drilling has since focused on the Ciresata underground deposit, given that the estimated resources forthat deposit were all categorized as Inferred material and hence, ineligible for inclusion in a PrefeasibilityStudy currently underway. Reported results have not only added to the Company’s confidence levels,they have also extended the deposit nearly 300 metres deeper, intersecting up to 716 metres averaging1.14 g/t gold and 0.16% copper in the deposit’s core.We are maintaining our SPECULATIVE BUY recommendation and target price of C$1.50/share.Benefits arising from our higher gold price assumptions, particularly our increased long-term price, wereoffset by equity dilution related to a recent bought deal financing and modeling adjustments for RDM andRovina Valley, both for cost inflation and timeline adjustments. Jennings Capital Inc. acted as an agent inthe financing. Discount US$ Million US$/Share US$/Share Riacho dos Machados 5.0% $334 $0.56 Unadjusted NAV $1.28 Rovina Valley 8.0% $500 $0.84 Target Multiple 1.00x Corporate 5.0% ($78) ($0.13) Unadjusted Valuation $1.28 Unadjusted NAV $756 $1.28 Adjustments $0.18 Est. Cash & Equivalents (Dec. 31/11) $90 $0.15 Total Valuation $1.46 Est. Options & Warrants (Dec. 31/11) $18 $0.03 USD:CAD 1.00 Adjusted NAV $864 $1.46 Current Share Price C$0.49 12‐Month Target C$1.50 P/Adjusted NAV 0.34x Implied Return 206%The information contained in this report was obtained from sources we believe to be reliable. We do not represent that such information is accurate orcomplete and it should not be relied on as such. Any opinions expressed herein reflect our judgment at this date and are subject to change. JenningsCapital Inc. and/or employees from time to time may hold shares, options or warrants on any issue included in this report and may buy or sell suchsecurities. This report is not to be construed as an offer to sell or solicitation to buy securities. Member – CIPF. Jennings Capital (USA) Inc. is amember of SIPC.
  11. 11. 11 Recommendation: BUY 12-Month Target: C$3.00 Previous 12-Month Target: C$3.25CENTAMIN PLC.3 Risk Rating: ABOVE AVERAGE(TSX-CEE C$1.34) Analyst: Stuart McDougallCentamin Plc. is a mid-tier gold production, exploration and development company focused on EastAfrica. The Company’s flagship operation is the Sukari open-pit gold mine in Egypt. A recent acquisitionprovides blue-sky exploration in the prospective Tigray region of northern Ethiopia.In 2011, Centamin produced over 200,000 oz, at a cash cost of US$556/oz. Management has guided forproduction of 250,000 oz in 2012, at a relatively flat cash cost of US$550/oz. We expect production togrow to nearly 350,000 oz in 2013, while cash costs decline to an estimated US$480/oz, reflecting theexpected completion of the Stage IV mill expansion in mid-year and greater contributions from the higher-grading underground mine. Among the key unique investment highlights we like about the story are: Long mine life – Reserves of 9.1 million oz are sufficient to support planned production rates for 25 years, providing a solid platform for expansion elsewhere in Egypt or other regions of Africa; Strong growth profile – We see annual production rates doubling by 2013, when the Phase IV mill expansion comes on stream, with only a 12% increase in cash costs, providing considerable margin growth from current price levels; and Exploration upside – Sukari itself has room to grow, particularly at depth, and the surrounding regional targets still remain largely untested. Furthermore, the Company recently extended its portfolio to the prospective Tigray province of northern Ethiopia by taking over Sheba Exploration Plc.Despite recent events at Sukari, for which we have adjusted our model, we remain of the view that CEEprovides good value for investors with a longer-term view, particularly at the currently depressed pricelevels. The Company’s large reserve base, anti-hedging policy and strong balance sheet all bode well forpushing Sukari’s annual production beyond 500,000 oz, even if the goal line has been pushed backbecause of geopolitical and labour events over the past year. We are also encouraged by management’sprompt attention to the current labour unrest, but are cognizant of the further uncertainty it adds to thestory.That said, we are maintaining our BUY recommendation, but are reducing our target toC$3.00/share from C$3.25/share. Our higher gold price assumptions were essentially offset byincreased cost assumptions for Sukari, extending the development timeline for the Stage IV expansionand reducing our multiple to 1.25x from 1.75x. Discount US$ Million US$/Share US$/Share Sukari 5.0% $2,297 $2.08 Unadjusted NAV $2.32 Exploration Upside In Situ $268 $0.24 Target Multiple 1.25x Unadjusted NAV $2,565 $2.32 Unadjusted Valuation $2.90 Cash & Equivalents (Dec. 31/11) $195 $0.18 Adjustments $0.19 Options & Warrants (Dec. 31/11) $20 $0.02 Total Valuation $3.09 Adjusted NAV $2,779 $2.51 USD:CAD 1.00 Current Share Price C$1.34 12‐Month Target C$3.00 P/Adjusted NAV 0.53x Implied Return 124%The information contained in this report was obtained from sources we believe to be reliable. We do not represent that such information is accurate orcomplete and it should not be relied on as such. Any opinions expressed herein reflect our judgment at this date and are subject to change. JenningsCapital Inc. and/or employees from time to time may hold shares, options or warrants on any issue included in this report and may buy or sell suchsecurities. This report is not to be construed as an offer to sell or solicitation to buy securities. Member – CIPF. Jennings Capital (USA) Inc. is amember of SIPC.
  12. 12. 12 Recommendation: BUY Revised 12-Month Target: C$30.00 Previous 12-Month Target: C$23.50FIRST MAJESTIC SILVER CORP.3 Risk Rating: ABOVE AVERAGE(TSX-FR C$18.38) Analyst: Stuart McDougallFirst Majestic Silver Corp. is a mid-tier silver production, development, and exploration companyfocused on Mexico. The Company operates three mines, La Encantada, La Parrilla, and San Martin,and is quickly advancing the Del Toro project to production. A fifth project, La Luz, is an historicproducer, putting it an advanced stage of exploration and the next in line for development. First Majesticowns all of its projects outright and follows a non-hedging policy, providing investors with full exposure tosilver prices.In 2011, First Majestic produced 7.2 million oz silver, at an average total cash cost of US$8.24/oz silver,net of credits. This marked the eighth consecutive year of expanded production and translated into a146% increase in annual cash flow, to US$1.55/share. Production is expected to increase again in 2012,to between 8.2 and 8.7 million oz silver, and further still in 2013 and 2014, with management projectingannual production of 16.0 million oz by 2014. A recent decision to expand Del Toro to 4,000 tonnes perday should continue the upward trend into 2015.In January, we toured three of the Company’s operations and were considerably impressed with each. Infact, if not for some lingering relics, we would be hard-pressed to cite any as being historic producers. Inshort, we commend management’s efforts to modernize and expand the operations and fully expect near-term expansion of the Company’s reserves and resources of 286.2 million oz, in addition to the notedproduction growth.In summary, we continue to view First Majestic as one of the best and purest silver plays, providingoperating cash flow, near-term production growth and longer-term exploration upside. These positiveattributes, in turn, are backed by a solid balance sheet, with cash of US$91 million, working capital ofUS$110 million and debt of US$15 million as of December 31.We continue to recommend purchase as a BUY and are raising our target to C$30.00/share fromC$23.50/share, reflecting our revised price deck, net of adjustments to our in situ valuations to reflect thegeneral pullback in the space. That said, based on our recent site visit, we see considerable upsidearising from pending mine plan and resource updates scheduled for completion in 2012. Discount US$ Million US$/Share US$/Share La Encantada 5.0% $625 $5.71 Unadjusted NAV $14.45 La Parrilla 5.0% $471 $4.30 Target Multiple 2.00x San Martin 5.0% $236 $2.15 Unadjusted Valuation $28.90 Del Toro 5.0% $217 $1.98 Adjustments $1.21 La Luz In Situ $164 $1.50 Total Valuation $30.11 Corporate 5.0% ($131) ($1.19) USD:CAD 1.00 Unadjusted NAV $1,582 $14.45 Cash & Equivalents (Dec. 31/11) $91 $0.83 Options & Warrants (Dec. 31/11) $41 $0.37 Adjusted NAV $1,715 $15.66 Current Share Price C$18.38 12‐Month Target C$30.00 P/Adjusted NAV 1.17x Implied Return 63%The information contained in this report was obtained from sources we believe to be reliable. We do not represent that such information is accurate orcomplete and it should not be relied on as such. Any opinions expressed herein reflect our judgment at this date and are subject to change. JenningsCapital Inc. and/or employees from time to time may hold shares, options or warrants on any issue included in this report and may buy or sell suchsecurities. This report is not to be construed as an offer to sell or solicitation to buy securities. Member – CIPF. Jennings Capital (USA) Inc. is amember of SIPC.
  13. 13. 13 Recommendation: SPECULATIVE BUY Revised 12-Month Target: C$4.00 Previous 12-Month Target: C$3.75GOLDGROUP MINING INC.2,3 Risk Rating: ABOVE AVERAGE(TSX-GGA C$1.15) Analyst: Ryan WalkerGoldgroup Mining Inc. is a junior gold exploration and development company focused on advancing intoproduction the 100%-owned flagship Caballo Blanco project in Mexico. Goldgroup also owns 50% of theSan Jose de Gracia gold project and 100% of the small producing Cerro Colorado gold mine in Mexico.We have updated our model to reflect our new price deck, and pushed out the start date of production atCaballo Blanco to the beginning of Q3/13 from late Q4/12 to reflect increased uncertainty on permittiming following recent negative media comments by the Governor of Veracruz, Mexico. We have alsoreduced our NAV multiple to 1.0x from 1.25x previously to reflect general multiple contraction and theabovementioned increase uncertainty of permit timing.We continue to model the proposed Caballo Blanco run-of-mine operation as a more standard crush andagglomerate operation as we await the results of large-scale column tests on run-of-mine sized material.We expect these metallurgical test results to be included as part of a Preliminary EconomicAssessment later this quarter. We continue to see excellent exploration upside at both Caballo Blancoand the San Jose de Gracia project elsewhere in Mexico. We continue to value the latter on an in situbasis, as we expect a substantial drilling effort will be required to fully appreciate that deposit.Plans for 2012 call for 30,000 m of drilling focussed in and around the La Paila zone (home to existingresources at Caballo Blanco), with 10,000 of those metres dedicated to satellite targets in the Northernzone.We continue to recommend purchase of Goldgroup Mining shares as a SPECULATIVE BUY andincrease our target to C$4.00/share from C$3.75/share. Discount US$ Million US$/Share US$/Share Cerro Colorado 5% $62 $0.44 Unadjusted NAV $3.52 Caballo Blanco 5% $445 $3.14 Target Multiple 1.00x San José de Gracia in situ $56 $0.39 Unadjusted Valuation $3.52 Corporate 5% ($64) ($0.45) Adjustments $0.37 Unadjusted NAV $498 $3.52 Total Valuation $3.89 Cash, ITM Options & Warrants $52 $0.37 USD:CAD 1.00 Adjusted NAV $550 $3.89 C$3.89 Current Share Price C$1.15 Target C$4.00 P/Adjusted NAV 0.30x Implied Return 248%The information contained in this report was obtained from sources we believe to be reliable. We do not represent that such information is accurate orcomplete and it should not be relied on as such. Any opinions expressed herein reflect our judgment at this date and are subject to change. JenningsCapital Inc. and/or employees from time to time may hold shares, options or warrants on any issue included in this report and may buy or sell suchsecurities. This report is not to be construed as an offer to sell or solicitation to buy securities. Member – CIPF. Jennings Capital (USA) Inc. is amember of SIPC.
  14. 14. 14 Recommendation: SPECULATIVE BUY Revised 12-Month Target: C$11.50 Previous 12-Month Target: C$18.00GUYANA GOLDFIELDS INC.3 Risk Rating: ABOVE AVERAGE(TSX-GUY C$4.83) Analyst: Stuart McDougallGuyana Goldfields Inc. is a junior gold exploration and development company set to become Guyana’snext major producer, focused entirely on developing its advanced Aurora and nearby Aranka projects inthe country’s Cuyuni greenstone belt.In February, Guyana released a positive feasibility study on the Aurora project, confirming its amenabilityto combined open pit and underground mining techniques. At the base-case gold price assumption ofUS$1,300/oz, the project generated an after-tax NPV of US$432 million and an IRR of 12.7%, orUS$1,164 million and 23.6%, at a gold price of US$1,775/oz. Development activities are scheduled tobegin in H2/12, followed by open-pit production in mid-2014. In the meantime, management is reviewingseveral optimization opportunities, such as the use of contract miners and alternative power sources.Subsequent to the study’s release, GUY announced a new discovery at Aranka. The so-called N1prospect was discovered five kilometres northwest of the Sulphur Rose deposit, where total resources of14.2 million tonnes grading 1.21 g/t gold, for 567,000 oz contained gold, have been outlined. Highlightsfrom the first two holes included 20.0 metres grading 4.35 g/t gold, including 3.0 metres at 6.42 g/t and1.0 metres grading 53.22 g/t.Two rigs are still testing the zone’s extension along strike, with a third now being mobilized to facilitate theprogram. At this point, the zone measures 400 metres along strike and over 100 metres vertically,averaging 14.4 metres in estimated true-thickness, putting it a comparable size factor to Sulphur Rose.Moreover, mineralization is said to be similar between the two, and several similar-sized anomalies areknown to occur along the estimated 10-kilometre long corridor.We are maintaining our SPECULATIVE BUY recommendation, but are reducing our target toC$11.50/share from C$18.00/share. The reduction reflects a lower multiple and modeling updates forhigher-than-expected costs and lower underground grades noted in the feasibility study.` Discount C$ Million C$/Share C$/Share Aurora 5.0% $754 $8.35 Unadjusted NAV $8.64 Aranka In Situ $57 $0.63 Target Multiple 1.25x Corporate 5.0% ($30) ($0.34) Unadjusted Valuation $10.80 Unadjusted NAV $780 $8.64 Adjustments $0.78 Cash & Equivalents (Feb. 29/12) $29 $0.32 Total Valuation $11.58 Options & Warrants (Feb. 29/12) $42 $0.46 USD:CAD n/a Adjusted NAV $851 $9.42 Current Share Price C$4.83 12‐Month Target C$11.50 P/Adjusted NAV 0.51x Implied Return 138%The information contained in this report was obtained from sources we believe to be reliable. We do not represent that such information is accurate orcomplete and it should not be relied on as such. Any opinions expressed herein reflect our judgment at this date and are subject to change. JenningsCapital Inc. and/or employees from time to time may hold shares, options or warrants on any issue included in this report and may buy or sell suchsecurities. This report is not to be construed as an offer to sell or solicitation to buy securities. Member – CIPF. Jennings Capital (USA) Inc. is amember of SIPC.
  15. 15. 15 Recommendation: SPECULATIVE BUY 12-Month Target: C$3.00LEVON RESOURCES LTD.2 Risk Rating: ABOVE AVERAGE(TSXV-LVN C$0.84) Analyst: Stuart McDougallLevon Resources Ltd. is a junior development company focused on expanding and advancing itsCordero silver-gold-zinc-lead project in Chihuahua State, northern Mexico. The Company holds 100%interests in nearly all of the 20,000 hectares encompassing the project, except for a small 15-hectareblock, though negotiations with the underlying landholder are underway.In June 2011, Levon announced an independent maiden resource estimate for the Pozo de Plata,Cordero Flesic Dome and Cordero Porphyry. Applying a net smelter return cut-off value ofUS$15/tonne, Independent Mining Consultants Inc. estimated total resources at 236.2 million tonnesaveraging 34.5 g/t silver, 0.05 g/t gold, 0.75% zinc and 0.63% lead, for a contained 262.3 million oz silver,560,000 oz gold, 3.9 billion lbs zinc and 2.4 billion lbs lead. Two-thirds is categorized as an IndicatedResource and the remainder as an Inferred Resource, providing good confidence levels in the overallresource. The deposit also remains open for expansion with further drilling, and this objective, along withupgrading the existing resource and testing five other intrusive centres, is the current focus of a Phase 4,130,000-metre drill program. Permits for some of the targets are still pending, but are expected in the nexttwo months.More recently, in January, Levon released a positive Preliminary Economic Assessment for a proposedopen-pit, conventional milling and flotation operation at Cordero. Consultants M3 Engineering &Technology estimated the base-case NPV at US$422.4 million, discounted at 5%, or US$293.5 million,discounted at 7%. The metal prices assumed in the calculation were: US$25.15/oz silver; US$1,385/ozgold; US$0.91/lb zinc; and US$0.96/lb lead, against initial capex of US$646.8 million and unit operatingcosts of US$13.82/tonne processed. Estimated recoveries and throughput rates put the project’ averageannual production potential at 131 million oz silver, 190,000 oz gold, 1,373 million lbs zinc and 1,033 lbslead, over 15 years.We continue to value Levon on a metal-multiple basis, using US$2.50/oz of silver in the ground,based on the NI 43-101 resource estimate at an NSR cut-off of US$15/tonne. Accordingly, ourtarget of C$3.00/share remains unchanged, though we would note that drilling is ongoing with tworigs turning and third on its way. Drilling is limited to existing roads, but an application for an expandedenvironmental permit has been submitted to cover all planned drill results. Discount C$ Million C$/Share C$/Share Codero In Situ $656 $3.05 Unadjusted NAV $3.05 Unadjusted NAV $656 $3.05 Target Multiple 1.00x Est. Cash & Equivalents (Dec. 31/11) n/a n/a Unadjusted Valuation $3.05 Est. Options & Warrants (Dec. 31/11) n/a n/a Adjustments $0.00 Adjusted NAV $656 $3.05 Total Valuation $3.05 USD:CAD n/a Current Share Price C$0.84 12‐Month Target C$3.00 P/Adjusted NAV 0.28x Implied Return 257%The information contained in this report was obtained from sources we believe to be reliable. We do not represent that such information is accurate orcomplete and it should not be relied on as such. Any opinions expressed herein reflect our judgment at this date and are subject to change. JenningsCapital Inc. and/or employees from time to time may hold shares, options or warrants on any issue included in this report and may buy or sell suchsecurities. This report is not to be construed as an offer to sell or solicitation to buy securities. Member – CIPF. Jennings Capital (USA) Inc. is amember of SIPC.
  16. 16. 16 Recommendation: BUY 12-Month Target: C$18.50NEW GOLD INC.3 Risk Rating: ABOVE AVERAGE(TSX-NGD C$10.06) Analyst: Stuart McDougallNew Gold Inc. is a growing mid-tier gold producer with three operating mines in Australia, Brazil andMexico. The Company also produces appreciable by-product silver and copper, and is quickly advancingthe New Afton underground copper-gold-silver deposit in British Columbia, where commercialoperations are scheduled to begin in mid-year. NGD also owns a 30% interest in the El Morro copper-gold project in Chile and a 100%-interest in the earlier-staged Blackwater gold project in central BritishColumbia.In 2011, NGD produced over 387,000 oz gold, at a total cash cost of US$446/oz sold, net of by-productcredits from sales of 2.0 million oz silver and 15.3 million lbs copper. Production is expected to increaseto 405,000-445,000 oz gold in 2012, whereas total cash costs are forecast to decline to US$410-US$430/oz, net of credits from 1.9-2.1 million oz silver and 42-49 million lbs copper (valued at US$30/ozand US$3.50/lb). We expect gold and copper production to expand even further in 2013, reflecting a fullyear’s worth of commercial production at New Afton.In our view, New Gold remains a go-to name in the mid-tier space for its exceptional track record, solidoperating performance and growing production profile. The El Morro and Blackwater developmentprojects are icing on the cake, with the latter expected to vault the Company to nearly 1.0 million oz ofannual gold production by 2017. Furthermore, based on our modelling and metal price assumptions, NewGold should be able to achieve that milestone with little need for further equity dilution, if any.We are maintaining our BUY recommendation and target of C$18.50/share, based on thecontinued use of a 1.75x multiple to our unadjusted NAV, plus cash and options/warrants at par.Against our higher price deck, we have updated our model for various factors, including Q4/11 financialsand year-end reserve and resource updates, particularly the expansion of Blackwater since our lastupdate in September 2011. Discount US$ Million US$/Share US$/Share Mesquite 5.0% $972 $2.03 Unadjusted NAV $10.00 Cerro San Pedro 5.0% $819 $1.71 Target Multiple 1.75x Peak Mines 5.0% $501 $1.04 Unadjusted Valuation $17.50 New Afton 5.0% $1,087 $2.27 Adjustments $0.89 El Morro 5.0% $688 $1.43 Total Valuation $18.39 Blackwater In Situ $1,184 $2.47 USD:CAD 1.00 Corporate 5.0% ($453) ($0.94) Unadjusted NAV $4,798 $10.00 Cash & Equivalents (Dec. 31/11) $310 $0.65 Options & Warrants (Dec. 31/11) $117 $0.24 Adjusted NAV $5,225 $10.89 Current Share Price C$10.06 12‐Month Target C$18.50 P/Adjusted NAV 0.92x Implied Return 84%The information contained in this report was obtained from sources we believe to be reliable. We do not represent that such information is accurate orcomplete and it should not be relied on as such. Any opinions expressed herein reflect our judgment at this date and are subject to change. JenningsCapital Inc. and/or employees from time to time may hold shares, options or warrants on any issue included in this report and may buy or sell suchsecurities. This report is not to be construed as an offer to sell or solicitation to buy securities. Member – CIPF. Jennings Capital (USA) Inc. is amember of SIPC.
  17. 17. 17 Recommendation: SPECULATIVE BUY Revised 12-Month Target: C$2.00PERSHIMCO RESOURCES INC.2,3 Risk Rating: ABOVE AVERAGE(TSXV-PRO C$1.40) Analyst: Ryan WalkerPershimco Resources Inc. is a junior gold exploration company focused on the 100%-owned flagshipCerro Quema gold-copper project in Panama. Pershimco also owns the Courville gold project nearVal-dOr, Québec, where Osisko Mining Corp. (TSX-OSK; Not Rated) can earn an initial 51% interest byfunding US$20mm of exploration over five years, and increase that to 70% for another US$19mm overtwo subsequent years, or by completing a feasibility study.Cerro Quema hosts existing Indicated oxide gold resources totalling 7.2mm tonnes grading 1.1 g/t gold(256k oz) in the La Pava deposit. The company is currently drilling on the nearby Quema target to bring ahistoric resource there into NI 43-101 compliance. The company has also been successfully extendingoutwards oxide gold mineralization in both areas. Recent drilling south of the main La Pava targetrecently returned highlight holes PRH11021, which cut 45 m of 2.01 g/t gold and hole PRH11022, whichencountered 43 m at 2.08 g/t gold; both intervals begin at surface. Deeper drilling has also encounteredencouraging underlying copper-gold sulphide mineralization. We continue to see excellent explorationpotential at Cerro Quema, with efforts to date focussed on the western 4-km portion of the 17-km-longCerro Quema gold-copper trend, which hosts the La Pava and Quema deposits, and the La Pava Norte,Filo Chontal, Mesita, and Cerro Idalda targets. Importantly, the favourable alteration that hosts thesedeposits and targets extends east from Quema for approximately 8 km.Valuation: We continue to value Pershimco’s shares on an EV/oz gold basis, with the existing La PavaIndicated resource (256,000 oz) and historic Quema resource (104,000 oz) valued at US$150/oz. In all,we assume Pershimco will be successful in demonstrating the potential for a total of at least 2mm ouncesof oxide gold in the relative near term; we value those additional potential ounces at US$150/oz to arriveat a target price of C$2.00/share. We ascribe a premium per-oz valuation relative to the comps to reflectthe potential for low capex and opex owing to Cerro Quema’s at-surface oxide gold mineralization,substantial exploration potential (beyond the abovementioned 2mm oz), ease of access to the project,and pre-existing permitting (up to 5,000 tpd). We do not currently include any value for copper-goldsulphide mineralization immediately below the oxide gold resources. We have also incorporatedPershimco’s recently completed C$30mm bought deal financing and the associated dilution. JenningsCapital Inc. acted as an agent in that financing.We continue to recommend purchase of Pershimco Resources shares as a SPECULATIVE BUYand maintain our C$2.00/share target price.The information contained in this report was obtained from sources we believe to be reliable. We do not represent that such information is accurate orcomplete and it should not be relied on as such. Any opinions expressed herein reflect our judgment at this date and are subject to change. JenningsCapital Inc. and/or employees from time to time may hold shares, options or warrants on any issue included in this report and may buy or sell suchsecurities. This report is not to be construed as an offer to sell or solicitation to buy securities. Member – CIPF. Jennings Capital (USA) Inc. is amember of SIPC.
  18. 18. 18 Revised Recommendation: SPECULATIVE BUY 12-Month Target: C$4.75PROBE MINES LIMITED2,3 Risk Rating: ABOVE AVERAGE(TSXV-PRB $1.77) Analyst: Peter CampbellProbe Mines Limited is a Canadian-based junior exploration company whose main asset is the BordenLake gold discovery located near Chapleau, Ontario. The deposit remains open along strike and atdepth. The Company has a significant land package that is highly prospective for look-alike deposits.Probe has two other assets that could potentially be liquidated to help fund activities at Borden Lake: TheBlack Creek chromite deposit and a 5% NSR on a portion of Agnico Eagle’s (TSX-AEM; Not Rated)Goldex Mine.Probe Mines is one of our 2012 Top Picks for three reasons: Our gold comps for Exploration & Development companies are trading at an EV/oz of US$62, as compared to Probe, which is currently trading at US$23/oz. This alone ought to be compelling enough to qualify it as a Top Pick. We believe Probe’s resource is a “premium-quality” resource that ought to demand a premium valuation: Borden Lake is located in a politically safe and mining friendly jurisdiction (Chapleau, Ontario); and Borden Lake is well situated, just 9 km from Chapleau and 1 km off Hwy 101.In March 2012, we expect Probe to deliver an updated resource estimate on its Borden Lake deposit. TheCompany reports that the deposit remains open in all directions. With step-out and infill drilling completedin 2011, we believe that Probe is set to deliver up to 2 million more ounces at Borden Lake, bringingthe total resource up to approximately 6 million ounces. The potential for a significant increase in the totalresource size further underscores the valuation gap identified above.Perhaps more significantly, we believe there is a reasonable expectation for another significant discoveryon the project. The deposit at Borden Lake consists of a broad zone of mineralization that lies within apackage of Temiskaming-age metasediments. Gold there is found within a stratigraphic horizon referredto as the Borden Lake Horizon. Pyrite, and somewhat surprisingly pyrrhotite, is associated with the goldmineralization. In the Borden Lake Horizon, the Borden Lake gold deposit appears as a weak AEManomaly (“Airborne Electro-Magnetic”) largely due to the associated pyrite and pyrrhotite. The belt isinterpreted to have been folded along a northwest-southeast axis with the Borden Lake deposit situatedalong the southern limb. Probe’s land position covers the southern limb, large portions of the northernlimb and the all-important “nose” or “hinge” of the fold axis. AEM anomalies, similar in response to thosefound coincident with the Borden Lake deposit, have been detected along the northern limb andespecially in the fold-hinge area. We believe that further discoveries are waiting to be made in theBorden Lake horizon, especially in the fold-hinge area. While assays from initial drilling in the fold hingearea did not deliver a new discovery, we are very encouraged by the confluence of geology, structure andgeophysics and believe this to be one of the best untested geological targets we have ever seenWe continue to value Probe using an in situ valuation of US$100 EV/oz for Borden Lake based on3.05 million oz of NI 43-101 Indicated and Inferred Resources at a 0.50 g/t Au cut-off. We continueto include cash in our valuation because we believe additional exploration spending is likely to beaccretive to our valuation. Probe spent approximately US$4 million to delineate 4 million oz (at a0.30 g/t Au cut-off), or approximately US$1/oz. We have discounted Cash, Options and Warrants at8%, for a value of C$0.58 per fully diluted share. Accordingly, we have maintained our 12-monthtarget price for Probe Mines of C$4.75/share, SPECULATIVE BUY recommendation, and ABOVEAVERAGE risk rating.The information contained in this report was obtained from sources we believe to be reliable. We do not represent that such information is accurate orcomplete and it should not be relied on as such. Any opinions expressed herein reflect our judgment at this date and are subject to change. JenningsCapital Inc. and/or employees from time to time may hold shares, options or warrants on any issue included in this report and may buy or sell suchsecurities. This report is not to be construed as an offer to sell or solicitation to buy securities. Member – CIPF. Jennings Capital (USA) Inc. is amember of SIPC.
  19. 19. 19 Recommendation: SPECULATIVE BUY Revised 12-Month Target: C$2.00RIO NOVO GOLD INC. Risk Rating: ABOVE AVERAGE(TSX-RN C$0.65) Analyst: Ryan WalkerRio Novo Gold Inc. is a junior gold exploration and development company focused on the 100%-ownedAlmas and Guarantã gold projects in Brazil. The Company also owns the Toldafira gold project inColombia.Almas: Rio Novo expects to deliver a Preliminary Economic Assessment at Almas in March 2012.In November 2011, the Company restarted work toward a Feasibility Study following drilling success atthe Vira Saia target ~4 km north of the existing Paiol Pit. Recent infill drilling (21 holes) there yielded aweighted average grade of 1.31 g/t gold over an average interval of 13.5 m. By comparison, the nearbyPaiol deposit hosts potentially open-pittable Measured and Indicated resources totalling 13.9mm tonnesat 0.98 g/t gold (437,989 oz). So far, Rio Novo has completed 187 diamond drill holes (for +25,000 m) atVira Saia to outline mineralization over 650 m of strike, with vein widths of up to 30 m, and to depthsexceeding 200m. RN notes that initial metallurgical test work on Vira Saia samples suggests goldrecovery similar to those at Paiol under the same proposed gravity/carbon-in-leach process flow sheet.RN was awarded a Licenca de Instalacao (Construction License) at Almas Late last year. It allows forconstruction, subject to approval of engineering design documents, archaeological inspection, fauna andflora rescue plans, and other environmental preconditions, which will be addressed in the FeasibilityStudy due in Q3/12. It also allows RN to apply to the Departamento Nacional de Producao Mineral(DNPM) for reinstatement of the mining concession for the Paiol mine.Toldafira: To date, some 3,314 samples have been collected from surface and some 14 km ofunderground workings at Toldafira. The results outline both high-grade sheeted vein zones andstockworks over a 650m-by-700m area. The project is home to Inferred resources of 12.4mm tonnes at2.38 g/t gold (949k oz). RN plans an initial 3,000-metre drill program in H1/12, pending permitting,followed by a planned 5,000-metre follow-up program later in the year in anticipation of an updatedresource estimate in H2/12.We maintain our SPECULATIVE BUY recommendation and C$2.00/share target price. We haveincorporated our updated metal price deck into our conceptual DCF analysis of the Almas project, yieldinga NPV5% of $0.75/share, net of a 25% increase in our capex assumption and 15% increase in opexassumptions. We also include US$100/oz for existing NI 43-101 ounces at Almas (~380k totalunderground ounces), Guarantã (369k total oz), and Toldafira (~950k oz inferred) for a total of ~$170mm,or C$1.23/share. To that we add half of the company’s cash of US$28mm, or C$0.10/share, to arrive at atarget price of C$2.00/share.The information contained in this report was obtained from sources we believe to be reliable. We do not represent that such information is accurate orcomplete and it should not be relied on as such. Any opinions expressed herein reflect our judgment at this date and are subject to change. JenningsCapital Inc. and/or employees from time to time may hold shares, options or warrants on any issue included in this report and may buy or sell suchsecurities. This report is not to be construed as an offer to sell or solicitation to buy securities. Member – CIPF. Jennings Capital (USA) Inc. is amember of SIPC.
  20. 20. 20 Recommendation: SPECULATIVE BUY 12-Month Target: C$1.75SCORPIO GOLD CORP.2,3 Risk Rating: ABOVE AVERAGE(TSXV-SGN C$1.03) Analyst: Stuart McDougallScorpio Gold Corp. is an emerging junior gold producer, involved in the acquisition and development ofgold properties in North America. The Company’s principal asset is the historic Mineral Ridge, a fullypermitted open-pit, heap-leach gold mine located in Nevada.In June 2010, SGN announced the first ever NI 43-101 compliant resource on Mineral Ridge and hassince extended the two main zones beyond the pit limits in two follow-up phases of drilling. Measuredand Indicated Resources were estimated at 4.70 million tons grading 0.047 oz/ton gold, for 221,000 ozcontained gold. An additional 3.79 million tons grading 0.036 oz/ton gold was categorized as an InferredResource, providing another 136,000 oz contained gold.In August 2010, SGN awarded a crushing contract for re-stacking the leach pad with old material. Aproject debt facility was secured two months later, followed by a contract mining agreement in May 2011.The debt facility has since been restructured under more favourable terms and whittled down to underC$6.0 million, with expectations for full repayment in mid-2012.Reactivation of the leach pad began in February 2011, followed by the first shipment of loaded carbon toan outside refiner in late April. The first sale of doré occurred in late June, and regular shipments and full-scale mining rates are now underway. Management expects to declare commercial operations as ofJanuary 1, 2012 and produce approximately 60,000 oz in 2012, rising to approximately 80,000 oz in2013. Over the same period, cash costs are projected to fall from US$680/oz to approximatelyUS$630/oz, providing good potential for beats to our own estimates.Beyond rebuilding and restarting the mine, SGN has been carrying out an aggressive explorationprogram, in preparation for an upcoming reserve and resource update. We continue to conservativelylook for an additional 250,000 oz from that update, noting that actual mining grades to date have beennearly twice the resource grade.We are maintaining our SPECULATIVE BUY recommendation and target of C$1.75/share. Owing toMineral Ridge’s relatively short mine life, which is itself a reflection of current resources and permittingrestrictions on the existing pad, our higher long-term gold price assumption has no affect on our valuation.That being said, the Company has already begun base-line studies in anticipation of continuedexploration success and eventual expansion of the mine life, offering further upside from our valuation.Otherwise, we have increased our multiple to 1.25x from 1.00x in order to account for re-rating potentialas the company enters commercial operations, offset by the application of more conservative in-situmultiples to resources and anticipated resources, similar to the way we are treating other companiesunder coverage.` Discount C$ Million C$/Share C$/Share Mineral Ridge 5.0% $131 $1.01 Unadjusted NAV $1.31 Exploration Upside In Situ $39 $0.30 Target Multiple 1.25x Unadjusted NAV $169 $1.31 Unadjusted Valuation $1.64 Est. Cash & Equivalents (Dec. 31/11) $12 $0.09 Adjustments $0.18 Est. Options & Warrants (Dec. 31/11) $11 $0.09 Total Valuation $1.82 Adjusted NAV $193 $1.49 USD:CAD n/a Current Share Price C$1.03 12‐Month Target C$1.75 P/Adjusted NAV 0.69x Implied Return 70%The information contained in this report was obtained from sources we believe to be reliable. We do not represent that such information is accurate orcomplete and it should not be relied on as such. Any opinions expressed herein reflect our judgment at this date and are subject to change. JenningsCapital Inc. and/or employees from time to time may hold shares, options or warrants on any issue included in this report and may buy or sell suchsecurities. This report is not to be construed as an offer to sell or solicitation to buy securities. Member – CIPF. Jennings Capital (USA) Inc. is amember of SIPC.
  21. 21. 21 Recommendation: BUY Revised 12-Month Target: C$11.50 Previous 12-Month Target: C$15.00SEMAFO INC.3 Risk Rating: ABOVE AVERAGE(TSX-SMF C$5.98) Analyst: Stuart McDougallSEMAFO Inc. is a mid-tier gold production, exploration and development company focused on WestAfrica. The Company currently operates a mine in each of Burkina Faso, Niger, and Guinea.In 2011, SMF produced 250,100 oz gold from its three mines, including 187,800 oz from the flagshipMana mine, in Burkina Faso. Cash costs are scheduled for release with year-end financial estimates onMarch 14. Management had advised for US$595-US$645/oz in 2011, prompting us to maintain ourexpectations for US$647/oz in the final quarter. For 2012, production is expected to remain flat, withguidance for between 235,000 and 260,000 oz, but cash costs are forecast to rise considerably, toUS$700-US$750/oz, partly reflecting inflationary pressures on fuel and consumables. We have adjustedour model accordingly.On the exploration front, SMF has budgeted US$45 million for 2012, of which US$36 million has beenallocated for Mana. The remainder will be split between the Samira Hill and Kiniero mines, in Niger andGuinea, respectively, and represents a meaningful increase from 2011 expenditures.Going forward, SMF expects to install a new crushing and milling facility at the Mana mine by H2/14.Although details are still being ironed out, the plan is to erect a facility with capacity to treat 6,000 tonnesper day from the Fobiri-Fofina-Yaho deposits, thus potentially increasing total mine output by 120,000 ozper year.We are maintaining our BUY recommendation and lowering our target to C$11.50/share fromC$15.00/share, reflecting our new price deck, net of modeling adjustments for guidance, a reduction ofour multiple and more conservative in-situ valuations for resources. Discount US$ Million US$/Share US$/Share Mana 5.0% $1,415 $5.01 Unadjusted NAV $6.06 Samira Hill 5.0% $256 $0.91 Target Multiple 1.75x Kiniero 5.0% $172 $0.61 Unadjusted Valuation $10.61 Corporate 5.0% ($131) ($0.46) Adjustments $0.86 Unadjusted NAV $1,712 $6.06 Total Valuation $11.47 Est. Cash & Equivalents (Dec. 31/11) $244 $0.86 USD:CAD 1.00 Est. Options & Warrants (Dec. 31/11) $0 $0.00 GoviEx Interest  $19 $0.07 Adjusted NAV $1,975 $6.99 Current Share Price C$5.98 12‐Month Target C$11.50 P/Adjusted NAV 0.86x Implied Return 92%The information contained in this report was obtained from sources we believe to be reliable. We do not represent that such information is accurate orcomplete and it should not be relied on as such. Any opinions expressed herein reflect our judgment at this date and are subject to change. JenningsCapital Inc. and/or employees from time to time may hold shares, options or warrants on any issue included in this report and may buy or sell suchsecurities. This report is not to be construed as an offer to sell or solicitation to buy securities. Member – CIPF. Jennings Capital (USA) Inc. is amember of SIPC.
  22. 22. 22 Recommendation: SPECULATIVE BUY Revised 12-Month Target: C$6.50 Previous 12-Month Target: C$5.00SILVERCREST MINES INC.2,3 Risk Rating: ABOVE AVERAGE(TSXV-SVL C$2.62) Analyst: Stuart McDougallSilverCrest Mines is a newly emerging, well-financed junior gold and silver producer focused on Mexico.The Company operates the high-grade Santa Elena heap-leach mine in Sonora State and is advancingtwo other projects, the satellite Cruz de Mayo silver deposit and the standalone La Joya silver-copper-gold skarn discovery in Durango State.Recently, SilverCrest announced an initial resource estimate for La Joya, incorporating 5,753 metres ofits own drilling completed since the early 2011 acquisition, as well as an independently verified historicdatabase, for 21,473 metres in all. Inferred Resources were estimated at 57.94 million tonnes grading28.0 g/t silver, 0.18g/t gold, and 0.21% copper, for a contained 51.3 million oz silver, 270.3 million lbcopper and 333,400 oz gold.SilverCrest has already completed 14 of a planned 80-hole, Phase II drill program, with assays results onthe first ten holes expected shortly. The initial holes were collared north of the known zone, while drillroads are developed to its south, in preparation for the arrival of two more rigs. Notably, surface samplingand mapping, along with core logging of historic holes, suggest good potential for the projected southernextension.SilverCrest has also begun an underground development program at Santa Elena, as part of a proposedswitch to a larger milling operation. Combined with the development of Cruz de Mayo, the Companyexpects the development program to push annual production rates to over 5.0 million oz silver-equivalentby the end of 2013 (assuming a 55:1 Ag-Au ratio). Capex is estimated at US$84 million, including a 25%contingency, and cash costs are projected at US$9.70/oz silver-equivalent over the life-of-mine.Going forward, we expect SVL to release Q4/11 financial results by month’s end, followed by an updatedmine plan and resource estimate for Santa Elena in Q2/12 and an updated resource update for La Joya inH2/12. In the meantime, we expect a steady flow of drill results from both projects, noting that six to tenplanned deep holes at Santa Elena are scheduled for inclusion in the next reserve and resource update.SVL is our TOP PICK, given its excellent transition to producer status, strong growth potential atSanta Elena and blue-sky upside at La Joya. We are maintaining our SPECULATIVE BUYrecommendation and raising our target to C$6.50/share from C$5.00/share, reflecting our new pricedeck, net of minor modeling adjustments and less aggressive in-situ resource valuations.` Discount US$ Million US$/Share US$/Share Santa Elena 5.0% $244 $2.46 Unadjusted NAV $4.78 Cruz de Mayo In Situ $54 $0.54 Target Multiple 1.25x La Joya In Situ $188 $1.90 Unadjusted Valuation $6.00 Corporate 5.0% ($12) ($0.12) Adjustments $0.43 Unadjusted NAV $474 $4.78 Total Valuation $6.43 Est. Cash & Equivalents (Dec. 31/11) $30 $0.30 USD:CAD 1.00 Est. Options & Warrants (Dec. 31/11) $13 $0.13 Adjusted NAV $516 $5.21 Current Share Price C$2.62 12‐Month Target C$6.50 P/Adjusted NAV 0.50x Implied Return 148%The information contained in this report was obtained from sources we believe to be reliable. We do not represent that such information is accurate orcomplete and it should not be relied on as such. Any opinions expressed herein reflect our judgment at this date and are subject to change. JenningsCapital Inc. and/or employees from time to time may hold shares, options or warrants on any issue included in this report and may buy or sell suchsecurities. This report is not to be construed as an offer to sell or solicitation to buy securities. Member – CIPF. Jennings Capital (USA) Inc. is amember of SIPC.
  23. 23. 23 Recommendation: SPECULATIVE BUY Revised 12-Month Target: C$4.75 Previous 12-Month Target: C$4.50SULLIDEN GOLD CORP. 2,3 Risk Rating: ABOVE AVERAGE(TSX-SUE C$1.42) Analyst: Ryan WalkerSulliden Gold Corporation Ltd. is a junior gold exploration and development company focused onexploring and advancing into production the 100%-owned Shahuindo gold-silver project in northern Peru.Substantial Exploration Upside: Sulliden is in the midst of a 70,000-metre drill program at Shahuindowhere oxide resources total 2.2 million ounces gold and 30.3 million oz silver. Drilling continues in andaround the existing resource, and in the North Corridor - a large geochemical and geophysical anomalysome 2 km to the north. Limited drilling there returned a highlight oxide intersection of 53.8 metresgrading 0.85 g/t gold and 71.4 g/t silver earlier this year. Multiple additional nearby targets remainvirtually undrilled. The deposit’s underlying sulphides have also emerged as an important explorationtarget, delivering an updated Inferred resource totalling 1.2 million ounces of gold and 36 million ouncesof silver, based on limited drilling. Deeper drilling to gain a better understanding of the sulphides isongoing as part of the 2012 drill program.Looking ahead, an updated resource estimate based on all drilling to the end of 2011 and an associatedFeasibility Study solely focused on Shahuindo’s oxides are expected during Q2/12. Submission of theproject’s Environmental Impact Assessment is expected during H2/12. Drill plans in 2012 call forcontinued drilling on the 3.8-km-long Central Corridor (home to existing resources), which remains openin all directions. Drilling will also focus on several adjacent targets, including the 1.6-km North-West and800-metre South-East extension geochemical and geophysical targets. Drilling will also continue in theNorth Corridor.We continue to recommend purchase of Sulliden Gold shares as a SPECULATIVE BUY andincrease our target share price to C$4.75/share from C$4.50/share. Our target price now reflects theapplication of a 1.25x NAV multiple versus 1.50x previously to account for general multiple contractionand recent social unrest surrounding the Minas Congas project, also in the district. We have alsoincorporated our new price deck, and increased our Shahuindo capex assumption by 15% and opexassumptions by 5%.` Discount C$ Million C$/Share C$/Share Shahuindo 5% $840 $2.95 Unadjusted NAV $3.53 Shahuindo Sulphides In Situ $166 $0.58 Target Multiple 1.25x Unadjusted NAV $1,006 $3.53 Unadjusted Valuation $4.41 Cash $73 $0.25 Adjustments $0.32 ITM Options & Warrants $20 $0.07 Total Valuation $4.73 Adjusted NAV $1,099 $3.85 USD:CAD 1.01 Current Share Price $1.42 12‐Month Target $4.75 P/Adjusted NAV 0.37x Implied Return 235%The information contained in this report was obtained from sources we believe to be reliable. We do not represent that such information is accurate orcomplete and it should not be relied on as such. Any opinions expressed herein reflect our judgment at this date and are subject to change. JenningsCapital Inc. and/or employees from time to time may hold shares, options or warrants on any issue included in this report and may buy or sell suchsecurities. This report is not to be construed as an offer to sell or solicitation to buy securities. Member – CIPF. Jennings Capital (USA) Inc. is amember of SIPC.
  24. 24. 24 Recommendation: SPECULATIVE BUY Revised 12-Month Target: C$4.50 Previous 12-Month Target: C$4.25TIMMINS GOLD CORP.3 Risk Rating: ABOVE AVERAGE(TSX-TMM C$2.60) Analyst: Stuart McDougallTimmins Gold Corp. is a junior gold producer, explorer and developer focused on Mexico. TheCompany’s flagship asset, San Francisco, in Sonora State, began heap-leach production in December2008, followed by commercial operations in April 2010.In November 2011, Timmins announced the completion of an updated mine plan and productionschedule, whereby daily crushing rates would be pushed to 32,000 tonnes from 18,000 tonnes.Accordingly, annual production rates are expected to increase to 131,000 oz per year over the 2012-2016period, at an average cash cost of US$633/oz. Capital costs for the expansion are projected at US$28million, with US$19.0 million budgeted for 2012 and US$3.0 million in each of the following three years.The new mine plan is based on a September 2011 reserve and resource update for the San Franciscoand nearby La Chicharra deposits. Combined Proven and Probable Reserves were estimated at 72.39million tonnes grading 0.57 g/t gold, for 1.33 million oz contained gold, representing an increase of500,000 oz gold, net of depletion. Importantly, Inferred Resources increased nearly five-fold to 73.7million tonnes grading 0.42 g/t gold, for 1.0 million oz contained gold, offering excellent potential forexpanding the mine life with further drilling.Going forward, TMM plans to release another reserve and resource by the end of Q1/12. The update isincorporating over 100,000 metres of drilling completed between July and December, the results forwhich were excluded from the current estimate.We have updated our model for the new mine plan, our new price deck and recently announced Q4/11operational results.The effect of the increased metal prices was partially offset by upward adjustments in our capital andoperating costs in conjunction with the expansion.We are maintaining our SPECULTIVE BUY recommendation and raising our target to C$4.50/sharefrom C$4.25/share, reflecting our new price deck and the increased production projections, net ofincreases in our capital and operating cost assumptions relative to our last update. We have also reducedour multiple to recognize the fact that our model now incorporates some of the noted upside. Discount US$ Million US$/Share US$/Share San Francisco 5.0% $420 $2.82 Unadjusted NAV $3.49 Exploration Upside In Situ $101 $0.67 Target Multiple 1.25x Unadjusted NAV $521 $3.49 Unadjusted Valuation $4.36 Est. Cash & Equivalents (Dec. 31/11) $12 $0.08 Adjustments $0.18 Est. Options & Warrants (Dec. 31/11) $14 $0.10 Total Valuation $4.54 Adjusted NAV $547 $3.67 USD:CAD 1.00 Current Share Price C$2.60 12‐Month Target C$4.50 P/Adjusted NAV 0.71x Implied Return 73%The information contained in this report was obtained from sources we believe to be reliable. We do not represent that such information is accurate orcomplete and it should not be relied on as such. Any opinions expressed herein reflect our judgment at this date and are subject to change. JenningsCapital Inc. and/or employees from time to time may hold shares, options or warrants on any issue included in this report and may buy or sell suchsecurities. This report is not to be construed as an offer to sell or solicitation to buy securities. Member – CIPF. Jennings Capital (USA) Inc. is amember of SIPC.

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