Canaccord Wealth Management Morning Coffee Article

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Canaccord Wealth Management Morning Coffee Article

  1. 1. Thursday June 14, 2012S&P/TSX Composite +0.57 11497.87 CANADADow Jones -77.42 12496.38S&P 500 -9.30 1314.88 The S&P/TSX Composite pared early losses on Wednesday, as gains fromNASDAQ -24.46 2818.61 gold and base metals miners offset energy losses spurred by soft U.S. retailS&P/TSX Venture -25.82 1243.88 data and worries about Europe’s debt crisis ahead of this weekend’s criticalPhiladelphia SOX -3.95 369.79 Greek elections.Crude Oil (US$/brrl) -0.75 82.57 Discount retailer Dollarama (DOL) announced a better-than-expectedGas (US$/mmbtu) -0.04 2.20 profit, along with plans to gradually introduce higher-priced items thisCopper (US$/lb) -0.02 3.32 summer including some as high as $3!Gold (US$/oz) +5.20 1619.00Nickel (US$/lb) -0.06 7.76 According to the Globe and Mail, Air Canada (AC.B) is shifting itsPalladium (US$/oz) -6.50 618.50 strategy for launching a discount operation, focusing on locating a newPlatinum (US$/oz) +13.88 1468.63 low-cost international carrier in Vancouver in a bid to tap into the potentialSilver (US$/oz) -0.07 28.90 of Asian destinations.Uranium (US$/lb) +0.50 51.00Canadian Dollar -0.0026 0.9716 Torex Gold (TXG) announced a new gold discovery south of the Balsas30 Year Canada -0.02 2.351 River at its Media Luna target on its Morelos gold project in Mexico. Gold30 Year U.S. -0.05 2.719 Reach Resources (GRV) was up sharply after the company announcedVolatility Index (VIX) +2.180 24.27 that it had completed drilling on two holes at their Ootsa property located near the Huckleberry Mine in central B.C. Urastar Gold (URS) rallied on drilling results for its reverse circulation drill program on the El JabaliThis Week in Bacon… property in Mexico, including several intercepts of near surface high-grade gold. Just when we thought fast food news could not get any more Late Tuesday, Enerplus (ERF) announced it will cut its monthly dividend exciting, Burger King announced in half, noting that despite its operational success year-to-date, commodity that it will be offering a bacon prices have weakened and resulted in lower forecast cash flows.sundae throughout the U.S. this summer.The dessert — a 510-calorie monstrosity UNITED STATESfeaturing both a whole strip of bacon and Stocks were slightly lower on Wednesday, as investors braced for news outbacon crumbles atop a fudge and caramel of Europe, while domestic retail sales slipped for the second consecutivesundae — was released in April in Nashville month in May, the first string of declines in nearly two years.to reasonable fanfare, but will now receive awide release as part of Burger King’s JP Morgan (JPM) sparked a rally in financials, as CEO Jamie Dimon saidexpanded summer menu. This move the bank will probably seek to claw back pay from executives responsiblecoincides with the world’s second-largest for $2 billion in trading losses.hamburger chain’s new strategy to rebrand Dell (DELL) boosted tech stocks after the personal-computer maker’sitself, changing its tagline from “Have It CEO told analysts the company would look to reduce expenses by moreYour Way” to “Taste Is King.” than $2 billion during the next three years.The cold treat, which boasts 8 grams of fat Scotts Miracle-Gro (SMG) declined after saying it will come up short ofand 61 grams of sugar, is described in the its prior fiscal-year forecast as sales growth momentum at its biggest U.S.release as a “sweet and savoury dessert retail partners has fallen off.featuring rich and creamy vanilla soft serve,drizzled with chocolate fudge, caramel and A123 Systems (AONE) gave back sharp gains made on Tuesday, when thetopped with bacon crumbles, complete with a maker of batteries for electric cars said it’s introducing a “breakthrough”thick-cut, hardwood smoked bacon garnish.” lithium ion power cell, dubbed Nanophosphate EXT.This publication is a general market commentary and does not constitute a research report. Any reference to a research reportor a recommendation is not intended to represent the whole report and is not itself a research report or recommendation. Thiscommentary is for informational purposes only and does not contain investment advice. This publication may be wholly orpartially based on industry rumour, gossip and innuendo and as such is not to be relied upon as investment advice.
  2. 2. – Canadian and U.S. Comments for Thursday June 14, 2012 2ECON 101CANADIAN Data Today: This morning, Capacity Utilization Rate (Q1) is expected to remain at 80.5%, while the NewHousing Price Index (Apr) should rise by 0.3%, steady with the previous month.U.S. Data Today: This morning, the Current Account Balance (Q1) is expected to fall to -$132.1 billion from -$124.1billion the previous month. The Consumer Price Index (May) is expected to fall by 0.2%, after coming in flat the previousmonth, while CPI Ex-Food & Energy (May) should rise by 0.2%, after also gaining 0.2% previously. Initial Jobless Claims(Jun 9) are expected to fall to 375K from 377K the previous week, while Continuing Claims (Jun 2) should fall to 3,270Kfrom 3,293K before that.ECON 201In the U.S., the Producer Price Index (May) fell by 1.0%, after losing 0.2% the previous month, while PPI Ex-Food &Energy (May) increased by 0.2%, after also gaining 0.2% previously.Advance Retail Sales (May) fell by 0.2%, after gaining 0.1% the previous month, while Retail Sales Less Autos (May) fell by0.4%, after gaining 0.1% previously. Finally, Business Inventories (Apr) increased by 0.4%, after gaining 0.3% previously.MARKET MOVERSTechnical Indicators: TSX TSX VENTURE NYSE AMEX NASDAQ Advancing Issues 472 (34%) 314 (28%) 987 (31%) 559 (39%) 753 (30%) Declining Issues 719 (52%) 414 (36%) 2,142 (67%) 813 (57%) 1,693 (67%) Unchanged Issues 192 (14%) 410 (36%) 69 (2%) 44 (3%) 97 (4%) Total Issues 1,383 1,138 3,198 1,416 2,543 New Highs 26 6 44 6 36 New Lows 168 67 50 23 61 Up Volume (000s) 87,418 30,697 638,373 207,710 341,907 Down Volume (000s) 123,833 49,857 2,102,915 164,105 932,438 Unchanged Volume (000s) 13,177 30,674 24,596 2,891 11,175 Total Volume (000s) 2,244,284 1,112,278 27,658,838 3,747,061 12,855,200 Source: Yahoo! FinanceNotable 52-Week Highs:C.A. Bancorp Inc. BKP $ 2.97 Intertape Polymer Group ITP $ 7.30Crombie REIT CRR.UN $ 14.70 Corvus Gold Inc. KOR $ 1.08Dollarama Inc. DOL $ 61.23 Opta Minerals Inc OPM $ 2.72Emera Inc. EMA.PR.C $ 24.98 Primaris Retail REIT PMZ.UN $ 23.48Franco-Nevada Corp. FNV $ 49.02 SIR Royalty Income Fund SRV.UN $ 12.15HSE Integrated HSL $ 1.80 Valener Inc. VNR.PR.A $ 25.35Notable 52-Week Lows:Arsenal Energy AEI $ 0.48 Bellatrix Exploration BXE $ 2.96AEterna Zentaris (D) AEZ $ 0.40 American Bonanza Gold Mining BZA $ 0.27Diversified Alpha Fund II AFT.UN $ 8.86 Celtic Exploration CLT $ 11.02Bell Aliant BA $ 25.01 Canadian Natural Resources CNQ $ 27.16Canadian Banc BK.WT $ 0.02 Cequence Energy CQE $ 0.92Bioniche Life Sciences BNC $ 0.32 Curis Resources Ltd. CUV $ 0.59Bonavista Energy Corp. BNP $ 14.23 Canadian World Fund CWF $ 3.05BioteQ Environmental Techn. BQE $ 0.13 Dundee Energy DEN $ 0.35This publication is a general market commentary and does not constitute a research report. Any reference to a research reportor a recommendation is not intended to represent the whole report and is not itself a research report or recommendation. Thiscommentary is for informational purposes only and does not contain investment advice. This publication may be wholly orpartially based on industry rumour, gossip and innuendo and as such is not to be relied upon as investment advice.
  3. 3. – Canadian and U.S. Comments for Thursday June 14, 2012 3Duluth Metals DM $ 1.75 Open Range Energy ONR $ 0.97EMC Metals EMC $ 0.06 Pace Oil and Gas Ltd. PCE $ 2.82Equal Energy Ltd. EQU $ 2.68 Precision Drilling PD $ 7.25Enerplus Corp. ERF $ 12.90 Paramount Resources POU $ 23.81Guide Exploration GO $ 1.45 Quest Rare Minerals Ltd. QRM $ 1.49Argosy Energy GSY $ 0.33 Reitmans (Canada) RET.A $ 12.76Horizons GMP Jr. Oil & Gas ETF HJE $ 2.70 Shoreline Energy Corp. SEQ $ 3.93Legacy Oil + Gas LEG $ 6.29 Shaw Communications SJR.B $ 18.93Marret High Yield Strategies MHY.UN $ 9.61 Thompson Creek Metals Co. TCM $ 3.27NovaCopper Inc. NCQ $ 2.05 Trilogy Energy Corp. TET $ 22.35Angle Energy NGL $ 3.57 Transat A.T. TRZ.A $ 3.70NGEx Resources NGQ $ 1.85 Western Lithium USA WLC $ 0.17Norsat International NII $ 0.41 Zargon Oil & Gas Ltd. ZAR $ 8.87Niko Resources NKO $ 21.38 Zincore Metals ZNC $ 0.13NexJ Systems NXJ $ 6.25CANADIAN EQUITIES OF INTERESTListed Alphabetically by SymbolChina Trade SurplusDirt cheap. China’s trade surplus surprisingly widened in May with much stronger exports than expected (15.3% YoY). Thatsaid, Canaccord Genuity Portfolio Strategist Martin Roberge believes the areas of interest are imports (which also bounced back12.7% YoY) because Roberge wants to see if there is a shift towards industrial commodities. Any recovery would signal thatChina’s industrial sector is stabilizing/recovering, thus allowing Canadian equities to play catch-up to their U.S. counterparts.The good news is that imports of industrial metals such as copper recovered last month. As a result, Roberge’s data shows thattotal imports of industrial commodities seem to be turning YoY. However, imports of consumer commodities such as fertilizersand forest products continue to climb. As he said several times in past publications, only when the ratio of industrial-to-consumer commodity imports decisively start rising does he believe that one should favour the S&P/TSX vs. the S&P 500. Lastmonth was encouraging but more is needed. Sticking to the Asia theme, Roberge points to U.S. communication equipment(CEM) stocks as net beneficiaries of strong Asian currencies. Earlier this month he raised the CEM group to overweight basedon his conclusion that the price rout in industry giants Cisco Systems (CSCO) and Qualcomm (QCOM) was a classic case ofinvestors overreacting to lower-than-expected results. Contrary to companies’ lukewarm guidance, his domestic and foreigndemand indicators for telecom equipment paint a positive outlook for H2/12 and this at a time when the group has become dirtcheap.Portfolio StrategyNo way I am going to be left holding the bag! Canaccord Genuity Portfolio Strategist Martin Roberge speculates that this isprobably how private holders of Spanish bonds reacted when they learned Monday that they could be subordinated to the newdebt used for the bailout of Spanish banks. It did not take long for bond yields to spike up with the Greek saga on “fake” CDSsstill fresh in the memory of bond investors. Therefore, the rise in sovereign bond yields this week may have more to do with adebt seniority issue than rising financial stress in the euro zone. This could explain the strong equity market comeback onTuesday. Otherwise, next week’s events and ensuing decisions could have a profound impact on the global economy andfinancial markets over the near and long term. Following the outcome of the elections in Greece, European policymakers will becleared to propose contingency plans to solve the sovereign debt crisis. With this week’s rejection by market participants of thebailout sketch for Spanish banks, authorities are aware that delivering the bare minimum won’t cut it. With Spanish and Italianbond yields north of 6%, the timing could not be better for European policymakers to show the world that they can be proactiveand contain the crisis. Roberge believes a forceful response could then open the door for the ECB to cut rates in July.Air Canada* (AC.B : TSX : $0.99), Net Change: 0.01, % Change: 1.02%, Volume: 551,384Welcome aboard? Air Canada has a new vision for raising Vancouvers profile as an international aviation hub. According toThe Globe and Mail, AC is shifting its strategy for launching a discount operation, focusing on locating a new low-costinternational carrier in Vancouver in a bid to tap into the potential of Asian destinations. AC is planning to start the discountThis publication is a general market commentary and does not constitute a research report. Any reference to a research reportor a recommendation is not intended to represent the whole report and is not itself a research report or recommendation. Thiscommentary is for informational purposes only and does not contain investment advice. This publication may be wholly orpartially based on industry rumour, gossip and innuendo and as such is not to be relied upon as investment advice.
  4. 4. – Canadian and U.S. Comments for Thursday June 14, 2012 4carrier by the spring of 2013, the Air Canada Pilots Association possesses veto power over any new venture but, AC envisagesan ownership structure that would keep its stake at less than 50%, while giving minority stakes to a foreign airline and afinancial player yet to be confirmed. AC would have signed a code-sharing pact with its planned low-cost division to co-operateon flight reservations and baggage handling, but a revised proposal calls for the entity to be effectively independent and havethe flexibility to align with a partner that doesnt necessarily belong to the Star Alliance. Reports say AC has spoken withCathay Pacific, Air China, and International Consolidated Airlines. AC will remain a member of the Star Alliance of airlinesand still handle domestic flights in and out of Vancouver, as well as provide service between Vancouver and the United States,Mexico and the Caribbean.Dollarama* (DOL : TSX : $60.61), Net Change: 3.74, % Change: 6.58%, Volume: 455,390Two-to-threefitty-rama? Dollarama reported another solid quarterly beat on Wednesday, with EPS of $0.56 well ahead ofconsensus of $0.50 and Canaccord Genuity Consumer & Retail Analyst Derek Dleys $0.53 estimate. Same-store salesimproved 8.1%, with both transaction size growth of 3.5% and transaction number growth of 4.5%. Gross margins as apercentage of revenue increased to 36.3%, up 60 bps YoY, while SG&A as a percentage of revenue declined materially to18.5% from 19.7% last year, driven by store labour productivity improvements and top line leverage. The company alsoannounced it will be introducing two new higher price points for non-consumable items of $2.50 and $3.00 in August 2012,although the majority of merchandise will remain priced below $1.00. Dley expects this to be positive for comparable sales andgross margins going forward, noting that when Dollarama first introduced its multiple price point strategy in Q1F10, same-storesales averaged a robust 7.8% over the next 12 months. Dollarama also announced an NCIB authorizing the company torepurchase up to 2.6 million shares or 3.5% of its total outstanding share count. Overall, this was yet another strong quarter forDollarama, the 11th beat in a row, and given Dleys positive view of the new price point introductions, he expects shares tocontinue to perform strongly.Enerplus* (ERF : TSX : $13.01), Net Change: -0.51, % Change: -3.77%, Volume: 1,445,703Could this be the first of many? Shares of Enerplus were soft after the company announced that they would be cutting theirmonthly dividend in half to $0.09. The market was anticipating a cut; however, a 50% cut was much deeper than expected. Thecompany noted that despite their operational success year-to-date, commodity prices have weakened and resulted in lowerforecast cash flows. Their balance sheet is currently strong and they have significant liquidity. The company believes thisreduction will strike a better balance between yield and growth, allowing continued investment into their asset base in a moresustainable manner. The company also reiterated its production growth targets for 2012. The company noted that approximately70% of their forecasted $800-million capital spending in 2012 is weighted to crude oil and natural gas liquids projects.Approximately 40% of this capital is being directed at light crude oil assets in the North Dakota region where production isexpected to double by year end. The company will continue to invest with their partners in the Marcellus shale gas play, whichthey believe is one of the best natural gas plays in North America.Gold Reach Resources* (GRV : TSX-V : $1.19), Net Change: 0.32, % Change: 36.78%, Volume: 689,592Reach for the top. Shares of Gold Reach Resources were up sharply after the company announced that it had completed drillingon two holes at their Ootsa property located near the Huckleberry Mine in central B.C. Hole S12-101 was drilled to a depth of1079 m and hole S12-102 was drilled to a depth of 951 m. Hole S12-101 was drilled 100 metres back from hole S11-100, whichback on Dec 5, 2011 intersected 566.7 metres grading 0.51% copper equivalent back and hole S12-102 stepped out 100 metresin front of hole S11-98 which intersected 571.9 metres grading 0.38% Cu Eq also back on December 5, 2011. GRV presidentDr. Shane Ebert noted, "The Company is extremely pleased with the drilling progress made to date at the Ootsa Project. Theplanned 20,000 metre drill program will continue to step out in several directions and will attempt to outline the extent of thenew West Seel discovery. Holes 101 and 102 both ended in strong alteration containing visible copper and molybdenumsulfides, indicating the zone still remains open at depth. Two drills are currently operating at the project and surface explorationand trenching will commence in a few weeks." Assay results from holes S12-101 and 102 are expected in about three weeks.Guyana Goldfields* (GUY : TSX : $2.36), Net Change: 0.19, % Change: 8.76%, Volume: 894,051Positive update. Investors were jumping into shares of Guyana Goldfields after the company announced that it is on schedule todeliver a revised resource estimate for the Aurora Gold Project by the end of June 2012 and has also made additions to theAurora Bankable Feasibility Study (BFS) Project Team. GUY stated that it is on-track to publish an updated resourceestimate by the end of this month for the Aurora Gold Project, located in Guyana, South America, which will include anadditional 171 drill holes totalling 56,336.52 m completed from May 31, 2011 up to the end of April 30, 2012. ManagementThis publication is a general market commentary and does not constitute a research report. Any reference to a research reportor a recommendation is not intended to represent the whole report and is not itself a research report or recommendation. Thiscommentary is for informational purposes only and does not contain investment advice. This publication may be wholly orpartially based on industry rumour, gossip and innuendo and as such is not to be relied upon as investment advice.
  5. 5. – Canadian and U.S. Comments for Thursday June 14, 2012 5said the revised estimate will update and improve the geological model, upgrade inferred ounces to the measured & indicatedcategories, and provide guidance on depth extensions from previously defined mineralized structures. The Aurora Gold Projectcurrently has 5.71 million ounces in the measured & indicated categories (47.040 million tonnes at a grade of 3.83 g/t) and 1.17million ounces in the inferred category (9.97 million tonnes at a grade of 3.63 g/t). GUY also stated Wednesday that it intends toissue a revised BFS by the end of this year. The revised BFS will eliminate the vertical shaft component of the initial FeasibilityStudy issued earlier this year and will concentrate on mining the deposit from surface to approximately 750 m vertical depthutilizing a ramp. Management believes that the Aurora production timeline can also be significantly shortened.lululemon athletica* (LLL : TSX : $63.69), Net Change: -2.18, % Change: -3.31%, Volume: 120,916lululemon athletica* (LULU : NASDAQ : US$61.92), Net Change: -2.29, % Change: -3.57%, Volume: 3,240,741We Didnt Make Too Much. In a proprietary survey of lululemon.com, Credit Suisse notes that online stock-out rates of theyogawear makers gear highlights demand is still running ahead of supply. Online lululemon is currently out of stock in 970colour/size combinations out of a total of 2,900. Women’s has a 33% stock-out rate compared to men’s 35%. Discountedmerchandise only accounts for 6% of total online apparel offering, 4% in women’s and 13% in men’s. Availability is highlylimited across sale items. The average discount is 32%, 35% in women’s and 25% in men’s. Given the high levels of sell-through, Credit Suisse continues to expect upside to what looks like overly cautious Q2/12 guidance. Recall just last week,lululemon sold off after providing cautious outlook for decelerating comps in Q2/12. Credit Suisse forecast 14%, $285.4million, $0.32 EPS vs. guidance for low double digit comps, $273-278 million sales, $0.28-0.30. Recent inventory build(lululemon’s inventory rose 67.1% Y/Y to $107.7 million in Q1/12 and forward days inventory rose 11 days Y/Y to 75)suggests improving order fill rates is a strategic priority. lululemons Q1/12 earnings climbed 40%, beating analyst and companyexpectations, due to increased inventory levels that helped bolster revenue.Patheon* (PTI : TSX : $2.11), Net Change: 0.23, % Change: 12.23%, Volume: 233,090Whats wrong with being generic? Shares of Patheon jumped after the generic drug maker reported an increase in revenue andgross profit for Q2/12. For the quarter revenue increased to $181.5 million from $170 million in the previous quarter.Commercial manufacturing revenues for the second quarter increased $8.5 million, or 6.1%, to $147 million from $138.5million in the same period last year. The company did report net loss of $0.61 per share; however, the loss was due to a one-time charge related to the company’s decision to close a production facility in Britain. Patheon said it expected to take a $50- to$60-million impairment on the long-term assets in England. Excluding the benefit from a prior-year contract cancellation, grossprofit in the second quarter would have increased by $21 million. The company reported that the increase in gross profit wasprimarily due to higher volumes, lower depreciation expense and lower inventory write-offs, partially offset by the unfavourableimpact associated with replacing the cancelled contract with other production.Red Eagle Mining* (RD : TSX-V : $0.37), Net Change: 0.02, % Change: 5.71%, Volume: 298,700Flying high. Shares of Red Eagle Mining took flight after the junior gold explorer announced an impressive high-gradeintersection of 6.0 m at 31.85 g/t gold (hole SR-042), from the first set of assay results received to date from the phase two drillprogram at the companys San Ramon deposit in the Santa Rosa gold project in Colombia. Management highlighted that the newresults included strong gold mineralization in both core drill holes SR-041 and SR-042. Red Eagles CEO, Ian Slater, stated,"Our drilling at San Ramon continues to deliver high grade intercepts, with todays results confirming the robustness of thedeposit." He added, "Both holes also significantly increased the width of the known gold mineralization and this was just thefirst two holes back out of sixty being drilled this summer." The companys phase two drill program consists of 24 core drillholes of which 19 holes totalling 3,995 m have been completed to date with assays pending on 17 holes. Santa Rosa is located50 km west of AngloGold Ashantis (AU) Gramalote gold deposit (2.5 million ounce M&I resource grading 0.8 g/t gold) and60 km east of Continental Golds (CNL) Buritica gold deposit (630,000 ounce M&I resource grading 17.8 g/t gold).Talison Lithium* (TLH : TSX : $3.34), Net Change: -0.03, % Change: -0.89%, Volume: 33,870Signs of strength. One Bay Street brokerage highlighted Wednesday that multiple recent data points from the lithium industry’slargest producers, and certain important end-consumers, suggest underlying strength in the sector. These data points included:i) Results from SQM (SQM), the world’s largest producer, that reflect a tight supply/demand environment; ii) Price increasesby Rockwood Lithium (ROC), also one of the world’s largest producers, suggest market price for lithium carbonate nowapproximately $7,000/tonne; and iii) Statistics that suggest hybrid electric vehicles continue to gain share in the globalautomotive market. Also on Wednesday, Talison Lithium, the world’s largest pure-play lithium producer, said it’s studying debtfunding for a proposed plant in Western Australia that may cost as much $250 million. Talisons CEO, Peter Oliver, stated thatThis publication is a general market commentary and does not constitute a research report. Any reference to a research reportor a recommendation is not intended to represent the whole report and is not itself a research report or recommendation. Thiscommentary is for informational purposes only and does not contain investment advice. This publication may be wholly orpartially based on industry rumour, gossip and innuendo and as such is not to be relied upon as investment advice.
  6. 6. – Canadian and U.S. Comments for Thursday June 14, 2012 6the proposed plant would produce 20,000 metric tonnes of lithium carbonate a year, allowing Talison to widen its customerbase. “We have quite a substantial cash balance at the moment, we’re generating good cash and we’re out at the momentlooking at debt to fund the rest,” Oliver said. Talison, which produces 32% of the world’s supply of lithium, announced lastweek that it has completed an expansion at its flagship Greenbushes mining operation that has doubled its outputcapacity. Analysts at U.S.-based brokerage Dahlman Rose & Co. recently stated that demand for lithium may double by 2020 to300,000 tonnes a year largely because of increasing use in hybrid-electric vehicles and consumer electronics.Torex Gold Resources* (TXG : TSX : $1.95), Net Change: -0.04, % Change: -2.01%, Volume: 2,827,803Take me to the river. Torex Gold announced a new gold discovery south of the Balsas River at its Media Luna target on itsMorelos gold project in Mexico. The first five holes drilled into the Media Luna target were reported, with intervals that include6.13 g/t gold, 58.7 g/t silver, and 2.40% copper over 4.8 m in hole ML-01, and 4.27 g/t gold, 9.0 g/t silver and 0.78% copperover 4.4 m in hole ML-02, along with 6.56 g/t gold, 10 g/t silver and 1.15% copper over 7.1 m in hole ML-08. The company’sMedia Luna target, located adjacent to regional faults, was identified using aeromagnetics, surface geochemistry and geologicalmapping. The area is characterized by a structurally complex sequence of Morelos Formation (marble and limestone) andMezcala Formation (shale and sandstone) within a geological setting broadly similar to the Guajes-El Limon deposit, located tothe north of the Balsas River. The El Limon stock borders the sedimentary package at the north end of the Media Luna prospectand dips to the south-southwest beneath the sedimentary rocks. As presently modeled, the prospect area is defined by a sharpand intense magnetic high with dimensions of approximately 3 km x 1 km. Fred Stanford, President & CEO of Torex stated “Todate we have only tested 900 meters of the strike length of this three km long by one km wide magnetic anomaly. At this earlystage of the discovery, it is very encouraging to see the consistency of the gold mineralization, and the high silver and coppervalues over a significant strike length and thickness.”Urastar Gold* (URS : TSX-V : $0.25), Net Change: 0.02, % Change: 6.52%, Volume: 361,977YOU’RE A STAR? Urastar Gold released results for its reverse circulation (RC) drill program on the El Jabali property inMexico, including several intercepts of near surface high-grade gold. The highlight holes include: LJB-12-03: 59 m grading1.462 g/t Au from 7.6 to 67.1 m, including 24 m at 3.324 g/t Au from 13.7 to 38.1 m and 112.8 m grading 0.432 g/t Au andfrom 0 to 112.8 m; and LJB-12-04: 13.7 m grading 1.173 g/t Au from 19.8 to 33.5 m and 53.3 m grading 0.396 g/t Au and from4.6 to 57.9 m. The program was designed to test for extension of the La Dura gold mineralization, north of the open pit (LJB-12-03) and south on the El Jabali Mine Trend (LJB-12-04). The El Jabali Gold project is located in the prolific Sierra MadreGold Belt approximately 7 km from Alamos Golds (AGI) flagship Mulatos Gold Mine and only 1.5 km from Urastars LaJuliana project. Urastar completed an 805 m reverse circulation drill program in May 2012 with a total of 10 drill holes, two ofwhich were abandoned and twinned in order to reach the target depth. According to the press release, difficult ground conditionsprevented half of the drill holes from reaching their target depth, however only two of the eight holes failed to intersectsignificant gold mineralization. President Adrian Robertson commented, “The results weve had in the Mulatos area, both at ElJabali and La Juliana, demonstrate the presence of high grade, near surface gold mineralization at both of these properties. Ibelieve these results coupled with our close proximity to both Alamos Gold and Agnico-Eagles (AEM) Mulatos operationspresent an excellent opportunity for Urastar shareholders.”U.S. EQUITIES OF INTERESTListed Alphabetically by SymbolCaseys General (CASY : NASDAQ : US$52.18), Net Change: -7.73, % Change: -12.90%, Volume: 2,236,668Yee-hawwww! Shares of Caseys General Stores plunged after it posted fourth-quarter earnings that missed expectations asmargins on gasoline sales narrowed. The convenience store operator said that it earned $23.1 million, or $0.60 per share, for thequarter that ended April 30. Thats up from $22.8 million, or $0.60 per share, last year. Revenue increased 13% to $1.75 billion.Analysts on average were expecting $0.67 per share on revenue of $1.74 billion. For the fiscal year, Caseys earned $116.8million, or $3.04 per share, versus $94.6 million, or $2.22 per share, in the prior. Its annual revenue increased to $7.00 billionfrom $5.64 billion. Commenting on the results, CEO Robert Myers said, "In the fourth quarter, the gas margin was down nearly$0.02 per gallon from the same period a year ago, which reduced basic earnings per share by approximately $0.12." The declinewas partially offset with strong sales and margin gains inside its stores. Grocery and other merchandise sales at stores open atleast a year rose 8.5% during the quarter, while prepared food and fountain same-store sales jumped 16.8%. Meanwhile, CaseysThis publication is a general market commentary and does not constitute a research report. Any reference to a research reportor a recommendation is not intended to represent the whole report and is not itself a research report or recommendation. Thiscommentary is for informational purposes only and does not contain investment advice. This publication may be wholly orpartially based on industry rumour, gossip and innuendo and as such is not to be relied upon as investment advice.
  7. 7. – Canadian and U.S. Comments for Thursday June 14, 2012 7has converted approximately 175 stores to 24-hour operations and another 100 are slated to go to around-the-clock operationsby October 31 of this year. The retailer has seen 20-30% sales lifts in locations with extended hours.CBS (CBS : NYSE : US$31.41), Net Change: -1.05, % Change: -3.23%, Volume: 8,530,492Walt Disney (DIS : NYSE : US$46.23), Net Change: -0.15, % Change: -0.32%, Volume: 6,919,633Commercial break. CBS’s namesake network and Walt Disney’s ABC on Tuesday completed their ad-sales negotiations for thecoming TV season, winning higher ad rates in what is proving to be a lacklustre market. CBS wrapped up roughly $2.70 billionin ad commitments, only slightly above last years $2.65 billion haul, according to the Wall Street Journal. The top-ratednetwork sold less of its ad inventory in the upfront, but at higher prices with increases of around 10%. The broadcaster sold 2 to3% less primetime inventory at the upfronts than it did last year, in line with analyst predictions for all broadcasters, the sourcesaid. Disney’s ABC hiked rates from 6% to 8%, reaching about $2.5 billion in upfront commitments (virtually unchanged fromlast year). CBS has been ranked as the no.1 network for years, with hits including “NCIS” and “The Big Bang Theory,” and hasless work to do than other networks to freshen its lineup. This season, ABC rolled out two new dramas, while CBS added fourmore.Dell (DELL : NASDAQ : US$12.28), Net Change: 0.31, % Change: 2.55%, Volume: 41,141,486Cash is king...Shares of Dell popped after the company initiated a $0.08/share quarterly dividend with payout to beginin Q3F13. This amounts to $0.32/share annually (or $568 million) and implies a 2.7% dividend yield based on Tuesday’s close.Dell’s move comes as the company has been attempting to remake its business model in the face of soft sales of personalcomputers. It has attempted to boost both revenue and profits by acquiring higher-margin businesses, including data storage,security and networking technologies. Given that Dell has generated over $2.9 billion in free cash flow over the last 12 monthsand ended Q1F13 with $17.2 billion in cash and investments, Credit Suisse believes the company has more than sufficientmeans to fund the dividend. Dell also noted plans to increase its target range for capital distributions to shareholders to 20-35%of free cash flow (27.5% at the midpoint) from 10-30% (20% at the midpoint). Credit Suisse expects the market to view thismove favorably in the near-term as it reduces the risk of a large M&A transaction.Global Payments (GPN : NYSE : US$40.48), Net Change: -1.71, % Change: -4.05%, Volume: 1,892,670Too l33t to b34t. Global Payments said a recent data breach put no more than 1.5 million credit card numbers at risk, and thatthe incident is now “contained.” Its not clear whether the attackers actually accessed or copied the merchant data stored on theserver, CEO Paul Garcia said. In a statement updating its investigation of the breach first reported in March, the paymentsprocessing company said that the compromised card data was limited to “Track 2” data, which includes account numbers andcard expiration dates, not names and social insurance numbers. Affected individuals will be offered free credit monitoringservices and identity protection insurance of $1 million. The three U.S. major credit reporting agencies have also been advisedabout the incident. Following the incident, some of the credit card brands removed Global Payments from their lists of serviceproviders compliant with the payment card industry data security standard. The company has hired an independent securityassessor to review its security procedures and plans to reapply for certification once that audit is complete. It expects to providemore information about the financial impact of the data breach and the status of the investigation on its year-end earnings callon July 26.Johnson & Johnson (JNJ : NYSE : US$64.45), Net Change: 1.37, % Change: 2.17%, Volume: 97,916,453Good for the bones, ja! Johnson & Johnson expects to complete its $19.7-billion purchase of Swiss medical device makerSynthes today and says the deal will slightly boost company profit this year, rather than being a moderate drag on earnings aspreviously expected. Synthes makes a wide variety of medical devices, from metal disks that fit into spinal cords to plates usedto fuse broken bones together. For J&J, the orthopaedic market has been called an important growth driver and Synthes alreadydoes a substantial business in key emerging markets like Russia, China and India. To receive approval from both U.S. andEuropean regulators, J&J agreed to divest its DePuy Orthopaedics subsidiary to Biomet. The company said that the largest inthe company’s history and will give it a line of profitable tools and materials used in trauma surgery and should boost 2012earnings by $0.03-0.05 a share. Industry analysts, on average, had expected J&Js full-year earnings to rise about 2% this year to$5.12 per share. The company expects the acquisition to boost 2013 earnings, excluding special items, by $0.10-0.15 cents pershare.JPMorgan Chase (JPM : NYSE : US$34.28), Net Change: 0.51, % Change: 1.50%, Volume: 70,336,417Please speak into the recorder. JPMorgan Chase CEO testified before a U.S. Senate Banking Committee regarding the recentThis publication is a general market commentary and does not constitute a research report. Any reference to a research reportor a recommendation is not intended to represent the whole report and is not itself a research report or recommendation. Thiscommentary is for informational purposes only and does not contain investment advice. This publication may be wholly orpartially based on industry rumour, gossip and innuendo and as such is not to be relied upon as investment advice.
  8. 8. – Canadian and U.S. Comments for Thursday June 14, 2012 8trading losses of the company’s Chief Investment Office (CIO). Dimon said he was “dead wrong” when he dismissed mediareports regarding potential losses at the office as a “tempest in a teapot” several months ago. Dimon called the losses an isolatedissue, admitting that the bank took on too much risk, although the trades were put in place to reduce the bank’s overall risk.Losses were originally speculated to be in the $2-billion range initially, a number that has since climbed to $3 billion (or more).In his testimony, Dimon said that he still expects the bank’s current quarter to be profitable and that the losses are under control.When asked if the bank’s compensation created incentive for traders to take on additional risk, Dimon said he did not believethe compensation model posed that risk and suggested that there will be clawbacks on some of the traders’ compensation. Hebelieves, “Traders did not have the requisite understanding of the risks they took,” and that they thought, “Losses were the resultof anomalous and temporary market movements, and therefore were likely to reverse themselves.”Regeneron (REGN : NASDAQ : US$111.88), Net Change: -15.97, % Change: -12.49%, Volume: 4,353,254Eye spy competition. Shares of Regeneron Pharmaceuticals slumped after a smaller rival company reported positive clinicaltrial results for an eye drug that might eventually compete with Regenerons Eylea. Privately-held Ophthotech is studying itsdrug Fovista as a treatment for "wet" age-related macular degeneration (AMD), a common cause of blindness among theelderly. Regenerons drug Eylea and Swiss drugmaker Roches Lucentis drug are used to treat the same condition. Ophthotechsaid Wednesday that in a mid-stage clinical trial, patients who were treated with a combination of Fovista and Lucentis had agreater improvement in their vision than patients who were injected with Lucentis alone. As a result, it plans to speed up late-stage development of Fovista, but the drug must go through larger and longer trials before it is approved. There is a question ofhow the company will finance its next step. Roche, Regeneron, or another company can help pay for further study. If Regeneronsteps in, Ophthotech would likely test its drug in combination with Eylea, an analyst speculates. Eylea is the first drug approvedfor "wet" AMD since Lucentis in 2006. Annual sales of Eylea have been surprisingly strong after its approval by the Food andDrug Administration in November, leading investors to believe that the drug is on its way to becoming a blockbuster product.Regeneron says it expects $500-550 million in revenue from the drug in 2012.Scotts Miracle-Gro (SMG : NYSE : US$40.21), Net Change: -2.84, % Change: -6.60%, Volume: 8,713,829Wilting. Shares of Scotts Miracle-Gro got pummelled after the company said it would fall short of its full-year outlook, asdemand for its potting soil and plant seeds failed to take off during the peak gardening season. Sales at its largest retail partnersin the U.S. grew 3% year to date, down from an 8% growth recorded entering May. The lawn and garden products maker, whichtraditionally benefits from the gardening season in mid- to late-May, said sales did not meet expectations. It had earlier forecastsales to grow 6-8% and adjusted earnings of $2.65-2.85 per share for fiscal 2012. The company attributed the recent challengesto a slowing of consumer demand following a strong and early start to the lawn care season in its fiscal second quarter, whenconsumer purchases were up 20%. Additionally, Scotts indicated poor weather and challenging economic conditions to have animpact on its European business. The company expects gross margins to be lower than estimates, hurt by unfavorable productmix, unplanned distribution costs and reduced leverage of fixed costs. That said, Scotts said it plans to update its full-yearforecast when it reports its third-quarter results in August.Verizon Communications (VZ : NYSE : US$42.99), Net Change: 0.05, % Change: 0.12%, Volume: 10,995,242What’s on the horizon? Verizon has launched its long-awaited family share plans that Canaccord Genuity TelecommunicationsAnalyst Greg Miller believes appear to be designed to help consumers optimize their purchasing of wireless services in additionto an attempt to minimize pressures on voice average revenues per user (ARPU) that remain in the state of decline. AlthoughMiller says that it is still too early to assess the ultimate impact to postpaid ARPU from the newly launched family data shareplans, he would be not surprised to see some level of negative repricing, at least initially. With lower incremental monthlybilling than existing plans, the new family data share plans will likely increase the take-rate on smartphone and tablet devices.Miller believes benefits from higher adoption will more than offset any adverse reprice effect in this category over time. Whilefamilies save some money when upgrading, Verizon will also realize higher revenue with the smartphone, a clear win-win forboth. In certain cases, the total monthly charge would even be lower with an upgrade to a smartphone when converted to thenew family data share plan.Wal-Mart (WMT : NYSE : US$67.07), Net Change: -0.65, % Change: -0.96%, Volume: 9,969,729Vite Vite! Wal-Mart’s efforts to acquire Latin American assets from Carrefour are slowing as the French retailer focuses onturning around its European business, said people familiar with the matter. Wal-Mart has pressed Carrefour to sell stores inColombia and Brazil, said the source. Carrefour’s Colombian unit generated 1.69 billion euros ($2.11 billion) in sales last year.Wal-Mart is targeting stores overseas as revenue abroad climbs at 10 times the pace of U.S. sales. Doug McMillon, head ofThis publication is a general market commentary and does not constitute a research report. Any reference to a research reportor a recommendation is not intended to represent the whole report and is not itself a research report or recommendation. Thiscommentary is for informational purposes only and does not contain investment advice. This publication may be wholly orpartially based on industry rumour, gossip and innuendo and as such is not to be relied upon as investment advice.
  9. 9. – Canadian and U.S. Comments for Thursday June 14, 2012 9Wal-Mart’s international business, said last month the retailer is open to purchases in Japan and Latin America, and signalledthat Colombia could be a possible site of expansion. Wal-Mart and Carrefour have held on-and-off negotiations for more thantwo years, with U.S. retailer initiating many of the talks, said one of the people. After some conversations this year, Carrefourhas slowed the pace of talks as it deals with deteriorating conditions in Europe, according to the source. While Wal-Martremains interested in the operations, no deal is imminent, said two of these people.COFFEE BEANS– A typical lunch at a high-end New York steakhouse for nine people might run $1,000 or so, but when Warren Buffett is theguest of honour the price can rise to $3.46 million. That is how much an as-yet unknown bidder paid in the annual onlinecharity auction for the right to lunch with the “Oracle of Omaha” and seven friends at the Smith & Wollensky steakhouse inManhattan. (Reuters)– A Ku Klux Klan chapter’s request to “adopt” a stretch of road in Georgia was rejected by state authorities on Tuesday, settingup a possible court fight over the right of the white supremacist group to participate in the highway clean-up program. Underadopt-a-highway initiatives in Georgia and other U.S. states, groups volunteer to pick up trash and plant trees along thehighway. Road signs are typically installed to recognize the organizations’ efforts. Georgia cited public safety concerns indenying the Union County Klan’s application to participate in the program. (Reuters)– Lobbing F-bombs and other curses across the leafy streets of Middleborough, Massachusetts is now an offense punishable bya $20 ticket. The ordinance does not specify which curses are banned, and police can decide whether to ticket offenders.(Reuters)THE LAST DROP: In Greece, the unemployment rate has risen to 22%. The solution to the problem was to raise taxes on therich, according to the Greek President Barack Obamopolis. – Jay Leno* Canaccord Genuity and its affiliated companies may have a Corporate Finance or other relationship with the company andmay trade in any of the Designated Investments mentioned herein either for their own account or the accounts of theircustomers, 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 coveragecontained in the Morning Coffee.This publication is a general market commentary and does not constitute a research report. Any reference to a research reportor a recommendation is not intended to represent the whole report and is not itself a research report or recommendation. Thiscommentary is for informational purposes only and does not contain investment advice. This publication may be wholly orpartially based on industry rumour, gossip and innuendo and as such is not to be relied upon as investment advice.

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