Analysts' Ideas of the Week Ross Beaty Backed Junior Announces Improvements

January 27, 2020 www.researchfrc.com Page 2

Mining / Exploration

Company Ticker Current Share FRC Fair Value Date of PR: Name: Symbol Price: Estimate: Lumina Gold TSXV: LUM $0.74 $1.06 Jan-21-2020 Corp.

PR Content FRC Opinion Trade off studies conducted, as part of an Positive – The updated PEA is likely to be upcoming updated Preliminary Economic completed in Q2-2020. We are expecting a Assessment (“PEA”) on the Cangrejos significant improvement in economics, not project in Ecuador, returned promising only based on the recent results, but also results indicating potential for both from an updated resource estimate improvement in recovery rates and completed last year, which showed 10.4 reductions in operating costs. As a result, Moz gold and 1.40 Blbs of copper indicated, the updated PEA will add a carbon-in- and 6.3 Moz gold and 0.79 Blbs copper leach circuit and high pressure grinding inferred. A 2018 PEA had shown an After rolls. Tax – Net Present Value (“AT-NPV) at 5% of US$920 million at US$1,300 per oz gold, and US$528 million at US$1,170 per oz gold.

Company Ticker Current Share FRC Fair Value Date of PR: Name: Symbol Price: Estimate: East Africa TSXV: EAM $0.155 $0.54 Jan-24-2020 Metals Inc.

PR Content FRC Opinion Partner, Tibet Huayu Mining Co. Limited Positive - In exchange for a 70% interest in ("THM" / SHSE:601020 / market the Mato Bula and Da Tambuk deposits, capitalization of $643 million) has THM made a cash payment of US$1.2 informed EAM that site construction million to EAM, and will fully finance and activities will begin in March 2020. develop the two projects (budgeted at US$88 million). A FS on Mato Bula and Da Tambuk is being prepared. Note that EAM retains exploration rights outside of the current resource. We also note that EAM is in a very comfortable position as it has a 30% interest in fully funded projects with near-term production potential.

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Company Ticker Current Share FRC Fair Value Date of PR: Name: Symbol Price: Estimate: Premier Gold TSX: PG $1.57 $3.24 Jan-23-2020 Mines Limited

PR Content FRC Opinion Announced gold production of 67.4 Koz in Negative - Actual production was lower 2019, including 59.9 Koz from the than our 73 Koz estimate. Although Mercedes mine and 7.5 Koz from the production at South Arturo beat our South Arturo mine. estimate (7.5 Koz versus our 5 Koz estimate), Mercedes’ production fell below our estimate (59.9 Koz versus our 68 Koz estimate) due to lower grades. On a positive note, management has provided guidance of 65 – 75 Koz for 2020 production at Mercedes, and indicated that they expect production to improve and costs to decline in 2020. We expect a number of catalysts for the share price this year; key ones being ramp up of production at South Arturo, a Feasibility Study (“FS”) on Cove in 2020, and an updated FS on Greenstone Gold, which has a measured and indicated resource of 7.11 Moz, and an inferred resource of 3.10 Moz.

Company Ticker Current Share FRC Fair Value Date of PR: Name: Symbol Price: Estimate: Kerr Mines Inc. TSX: KER $0.15 $0.40 Jan-23-2020

PR Content FRC Opinion Received approval for its Mine Plan of Positive - This is a very positive Operations / MPO on the Copperstone development as Kerr now has all the mine gold project in Arizona from the U.S. permits required to operate the mine at an Bureau of Land Management. expanded rate of 600 tpd. Kerr is targeting to commence production by Q4-2020. The company is planning to commence a 10,000 m / Phase II drill program. Management is also evaluating potential to lower the initial CAPEX (2018 PFS showed US$23 million) by using floatation.

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Company Ticker Current Share FRC Fair Value Date of PR: Name: Symbol Price: Estimate: UEX TSX: UEX $0.11 $0.45 Jan-20-2020 Corporation

PR Content FRC Opinion Commencing a 15 hole / 1,900 m drill Neutral – The company is currently working program on its West Bear project in on an updated resource estimate on West February 2020. The program’s objective Bear. We are expecting a significant is to identify potential for satellite cobalt- increase in resource estimate as the 2019 nickel deposits. The company is also drill program of 126 holes / 11,413 m is commencing an exploration program on estimated to have expanded the known its Christie Lake project, more specifically strike length from 250 m to 600 m. The the Ōrora North Area, where a strong and project has a high-grade cobalt inferred wide anomaly was identified in a 2019 DC resource of 3.17 Mlbs cobalt (0.37%), and resistivity survey. An electromagnetic 1.93 Mlbs of nickel (0.22%). UEX’s portfolio survey will be initially conducted to refine has a combined indicated resource of 69.8 drill targets. Mlbs, and inferred resource of 28.8 Mlbs. Cameco Corporation (TSX: CCO) is the largest shareholder.

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Company Ticker Current Share FRC Fair Value Date of PR: Name: Symbol Price: Estimate: GR Silver TSXV: GRSL $0.23 $0.98 Jan-20-2020 Mining Ltd.

PR Content FRC Opinion Results from the final three holes of the Positive – We believe the 2019 drill 2019 drill program (eight holes totaling program clearly indicates potential to 1,211 m outside the current resource improve on the February 2019 indicated estimate) at San Marcial returned resource of 36 Moz at an average grade of additional high-grade silver mineralization 147 gpt AgEq, and an inferred resource of and anomalous gold mineralization. 11 Moz at 108 gpt AgEq. Note that this Latest results included 92 gpt silver at estimate includes a shallow, high-grade 28.7 m, including 154 gpt over 13.75 m. open pittable indicated resource of 23 Moz The company is preparing for a 2020 drill AgEq at 239 gpt AgEq. The company is program, which will incorporate a maiden currently conducting due diligence on the underground program, as well as surface recently signed letters of intent related to drilling. land acquisitions adjacent to the San Marcial project. We believe property consolidation shows management’s strong conviction in the area.

Special Situations

Company Ticker Current Share FRC Fair Value Date of PR: Name: Symbol Price: Estimate: Siyata Mobile TSXV: SIM $0.28 $1.14 January 27, Inc. 2020 PR Content FRC Opinion Received a purchase order (“PO”) valued Positive – Since the start of the year, the at $1.1 million by an undisclosed US company has appointed a US VP Sales, a cellular B2B distributor for its Uniden Canada VP Sales, and launched its Uniden UV350. Senior management has noted UV350 in Sweden. We expect numerous that this is the company’s single largest additional POs for the company’s Uniden PO for its Uniden UV350 to date. UV350 in the months ahead.

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Company Ticker Current Share FRC Fair Value Date of PR: Name: Symbol Price: Estimate: FinCanna CSE: CALI $0.10 $0.34 January 23, Capital Corp. 2020 PR Content FRC Opinion Advanced the final tranche of US$0.88 Neutral – We are pleased to see the million to portfolio company QVI Inc. company advance its final tranche to QVI, (“QVI”). In addition, the company has which provides a strong indication that QVI agreed to provide a working capital bridge is achieving its milestone(s). With that said, loan of up to US$0.30 million (6-month it was noted that QVI is still building out its term, 12% interest rate per annum) to 8,300 sq. ft. manufacturing facility (expected transition QVI to full production. completion date undisclosed). In our previous update report on the company, we had expected QVI to be in commercial operation by December 2019. We will provide an update report shortly.

Cannabis

Company Ticker Current Share FRC Fair Value Date of PR: Name: Symbol Price: Estimate: AgraFlora CSE: AGRA $0.09 $0.38 January 23, Organics 2020 International Inc. PR Content FRC Opinion Announced that Farmako GmbH Positive – We see this as an attractive (“Farmako”), the company’s wholly owned opportunity for Farmako to extend its subsidiary, received a Home Office revenue growth. According to Prohibition Controlled Drug License. Farmako is now Partners, United Kingdom’s medicinal fully licensed to pursue medical cannabis cannabis market is expected to reach a trading in the United Kingdom. value of US$1.29 billion by 2024.

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Company Ticker Current Share FRC Fair Value Date of PR: Name: Symbol Price: Estimate: The Yield CSE: BOSS $0.27 $0.45 January 23, Growth Corp. 2020 January 21, 2020 PR Content FRC Opinion Announced that one of its Urban Juve Positive – Through independently verifying products – the Urban Juve (“UJ”) hemp- this statistic, we are pleased to note that the infused lip balm – received over 15,000 UJ hemp-infused lip balm now boasts over consumer reviews and achieved an 24,000 consumer reviews while still average rating of 4.5 / 5 on Ipsy. maintaining an average rating of 4.5 / 5. We are delighted to see the company’s UJ products be so well-received.

The company’s subsidiary (“Flourish”) Neutral – From our understanding, TLS is signed a Letter of Intent (“LOI”) to not a revenue-generating entity. With that purchase a 18% interest in Translational said, we believe that TLS’ medical team is Life Sciences Inc. (“TLS”). The highly experienced. transaction calls for the company to issue 15 million units and shares of Flourish at a deemed cost of $0.75 million. TLS’ mandate is to develop formulations using restricted substances to address certain medical needs (opioid dependence, psychotic illnesses, etc.).

Weekly Cannabis Commentary

As a proxy for performance of the cannabis market, we show the performances of the:

• Horizons Marijuana Life Sciences Index ETF (TSX: HMMJ / “HMMJ”) • Standard & Poor’s/MX International Cannabis Index (“MCAN”) • Standard & Poor’s/TSX Cannabis Index (“XCAN”)

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HMMJ MCAN XCAN Current Current Current $8.95 $200.76 $204.13 Price Price Price 1-Week 1-Week 1-Week -9.60% -8.96% -11.34% Performance Performance Performance 1-Year 1-Year 1-Year -55.05% NM NM Performance Performance Performance Note: MCAN and XCAN was launched on November 18, 2019 and January 20, 2020, respectively. Source: TMX Money, FRC

Over the past week, the HMMJ, MCAN, and XCAN generated a return of -9.60%, - 8.96%, and -11.34%, respectively. Despite an impressive quarterly earnings beat by Organigram, which fuelled a relief rally, the performance cannabis stocks largely reversed this week due to the lack of cannabis-related news. As earnings season kicks off, we outline the following notable earnings dates:

Company Name Expected Earnings Date Aurora Cannabis Inc. February 10 Canopy Growth Corp. February 13 Cronos Group Inc. February 11 Tilray Inc. February 11 Hexo Corp. March 16 CannTrust Holdings Inc. February 4 The Supreme Cannabis Co., Inc. February 12 Source: Earnings Whispers, FRC

This week, we discuss the legalization of cannabis in Mexico and provide an update on the Secure and Fair Enforcement (“SAFE”) Banking Act and the Marijuana Opportunity, Reinvestment, and Expungement (“MORE”) Act.

Cannabis Legalization in Mexico In October 2018, Mexico’s Supreme Court overturned the ban on the recreational use of cannabis, effectively calling upon Mexican lawmakers to regulate the consumption of cannabis. The prohibition of cannabis for recreational purposes is expected to end by April 30, 2020 (which is the deadline to change the country’s cannabis policy).

Our research indicates that the purpose of recreational cannabis legalization in Mexico is to reduce drug-related crimes and boost the country’s economy. In the draft legislation, it was noted that low-income individuals, small farmers, and indigenous people have priority in terms of licensing over foreign cannabis companies. As such, it may be difficult for Canadian cannabis companies to penetrate into Mexico’s cannabis market. Despite Mexico having a population that is nearly four times that of Canada, its market size is expected to be considerably lower (see below). We believe this is due to

Page 9 the large difference in GDP per capita between countries (Mexico has a GDP per capita that is 1/5th that of Canada’s).

• Prohibition Partners estimated Mexico’s cannabis market to be valued at US$1.99 billion by 2028.

• ArcView Market Research and BDS Analytics estimated Canada’s cannabis market to be valued at $5.2 billion by 2024.

We believe the low expected market size of cannabis in Mexico, and expected cannabis laws, will make the Mexican cannabis market unsightly for international cannabis players. Also, it has been reported by numerous news sites that recreational cannabis legalization in Mexico will put pressure on the United States to federally legalize cannabis. In our view, we believe the legalization of cannabis in Mexico will not have a material impact on the federal legalization of cannabis in the United States – we do not see a sound argument as to how the United States would be “pressured” (i.e. we doubt the U.S. Senate would be more inclined to pass the SAFE Banking Act because Mexico legalized recreational cannabis) to federally legalize cannabis simply due to cannabis legalisation in Mexico.

We discuss the federal legalization of cannabis in the United States below.

Cannabis Legalization in the United States With the passage of the MORE Act by the House Judiciary Committee back in November 2019, many speculated that the federal legalization of cannabis could come as early as mid-2020. However, this speculation has largely been tempered due to a predecessor cannabis act, the SAFE Banking Act, being in Senate limbo.

The SAFE Banking Act, which passed the U.S. House in September 2019, received a significant blow by the Senate Banking Committee Chairman Mike Crapo in December 2019, who stated that the SAFE Banking Act does not address a number of key issues and announced his opposition to the bill. On January 16, 2020, it was reported that a coalition of cannabis lobbyists have issued a joint letter urging Senator Crapo to pass the Senate version of the SAFE Banking Act. A definitive timeline for the SAFE Banking Act remains uncertain. At the moment, it seems unlikely that cannabis banking reform will occur in 2020.

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Source: govtrack.us

Without the passage of the SAFE Banking Act, we do not see a scenario where the MORE Act could pass. Readers should be reminded that the SAFE Banking Act looks to simply allow cannabis companies to engage in financial services. The MORE Act, on the other hand, would decriminalize cannabis at the federal level. Although the MORE Act passed the House Judiciary Committee, it has yet to pass the House.

Despite cannabis law reforms unlikely for 2020, numerous states have already legalized cannabis, with many other states to follow suit. Readers can refer to our previous Weekly Cannabis Commentaries for insight on states that are expected to legalize cannabis in 2020.

Cannabis sales for 2019 in the United States are forecasted to be strong – “retail sales of medical and recreational cannabis in the United States are on pace to eclipse US$12 billion by the end of 2019” (Source: Marijuana Business Daily). Considering the current

Page 11 regulatory environment for cannabis in the United States, this is an astronomically high value.

As more states legalize cannabis, our view is not to speculate on whether cannabis will be legalized on the federal level, but rather, when federal legalization will happen. At the moment, we believe the earliest date for the federal legalisation of cannabis is 2021. For example, in a scenario where the Democrats gain control of both the House and Senate after the 2020 U.S. elections, the federal legalisation of cannabis in 2021 is entirely possible. Until then, a currently Republican-controlled Senate is likely to result in gridlock for cannabis-related bills.

Performance of Select Canadian LPs The following shows the performance of select Canadian LPs on a year-to-date (“YTD”) 1-month, 6-month, and 1-year basis.

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Company Name YTD 1-Month 6-Months 1-Year Aphria Inc. -1.69% 3.90% -8.83% -34.63% Aurora Cannabis Inc. -5.70% -0.40% -69.76% -73.65% Canopy Growth Corp. 7.10% 14.74% -35.64% -57.73% Cronos Group Inc. 0.21% 10.89% -48.99% -60.99% Tilray Inc. 13.17% 18.07% -54.33% -77.35% Hexo Corp. -18.90% -13.07% -69.50% -74.76% CannTrust Holdings Inc. 14.52% 25.66% -50.35% -84.94% Organigram Holdings Inc. 13.44% 18.49% -55.47% -51.20% The Supreme Cannabis Co., Inc. -20.31% -15.00% -64.08% -73.85% AVERAGE 0.20% 7.03% -50.77% -65.46% Source: Google

The average YTD, 1-month, 6-month and 1-year returns were 0.20%, 7.03%, - 50.77%, and -65.46%, respectively.

Valuation of Select Canadian LPs The following shows the average Enterprise Value to Revenue (“EV/R”) that cannabis companies are currently trading at. The companies used in the chart below are outlined further below.

Source: S&P Capital IQ, FRC

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Source: S&P Capital IQ, FRC

The average EV/R, as of January 27, 2020, was 13.9x – a decrease from an average EV/R of 16.1x on January 20, 2020. As a number of companies are not EBITDA positive, we have refrained from tracking the average Enterprise Value to EBITDA (“EV/EBITDA”).

In the following, we provide commentary on Canadian retail cannabis pricing.

Canadian Retail Cannabis Pricing

Source: Online Provincial Cannabis Store, FRC

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As expected, the average retail price per gram decreased slightly to $11.56 from $11.59 – a week-over-week decrease of 0.25%. The largest retail price per gram decreases were witnessed in the provinces/territories of British Columbia (of 2.50%) and New Brunswick (of 0.49%). The other provinces/territories had nominal increases/decreases in their retail price per gram. Over the long-term, due to dried cannabis flower being a commodity product and the need to combat the black market for cannabis, we expect retail price per gram to decrease. We provide a discussion on black market retail cannabis pricing below.

As reported by Statistics Canada, the average retail price of illegal dried cannabis flower for Q4-2019 was $5.73 – a year-over-year (“YoY”) decrease of 11%. It would appear that illegal cannabis suppliers are bidding their prices lower in an attempt to capture price-sensitive consumers. Although pricing in the legal market for cannabis remains significantly higher than the black market, we adamantly believe that the illegal market for dried cannabis flower will be stamped out sooner than later.

In the first year of cannabis legalization, being efficient and cost-effective wasn’t a top-of-mind issue. This was largely due to the initial supply shortage of dried cannabis flower – retailers could price cannabis at $12 and still sell out. Now, with amble amounts of dried cannabis flower inventories, a key goal is efficiency. As the Canadian cannabis market moves towards consolidation, we expect the remaining players to be able to significantly lower their cost per gram through economies of scale. In fact, numerous products available for sale legally already undercut the average retail price of illegal dried cannabis flower. A notable example of this is Hexo Corp., who currently sells a 28-gram product in Quebec cannabis stores for $125.70 ($4.49 per gram).

However, we do not reiterate the same view in regard to cannabis edibles. Currently, we believe the THC limit of 10 mg for edibles and the retail price per package of approximately $10 is too high. Through looking at illicit online sites, we found packages with a THC content of 100 mg selling at the same price point. With that said, we believe a primary concern regarding the edibles market is providing enough supply to satisfy high consumer demand – addressing the black market for cannabis edibles is a secondary concern.

The below chart shows Canadian retail dried cannabis flower pricing since we began price coverage.

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Source: FRC, Online Provincial Cannabis Store

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