Exploring James Bay II
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January 18, 2012 Exploring James Bay II Industry Report - Mining An Emerging Mining Camp Well Positioned With the Plan Nord Adventure Gold Inc. Midland Exploration Inc. AGE-V: $0.36 MD-V: $1.36 Rating: Buy (S) Rating: Buy (S) Target price: $1.20 Target price: $2.75 Azimut Exploration Inc. Stornoway Diamond Corp. AZM-V: $0.90 SWY-T: $1.08 Rating: Buy (S) Rating: Buy Target price: $1.40 Target price: $3.40 Balmoral Resources Ltd. Virginia Mines Inc. BAR-V: $0.98 VGQ-T: $9.00 Rating: Buy (S) Rating: Top Pick Target price: $1.50 Target price: $17.00 Eastmain Resources Inc. ER-T: $1.13 Rating: Buy (S) Target price: $2.80 Éric Lemieux, MSc, P.Geo. Mining Analyst 819 472-8037 [email protected] Exploring James Bay II – An Emerging Mining Camp Industry Report – Mining Exploring James Bay II – An Emerging Mining Camp Well Positioned With the Plan Nord Page Investment Thesis.................................................................................................................................................................. 2 Management and Tight Share Structure: The Keys ............................................................................................................. 5 Metal Prices Trends and Fundamentals ............................................................................................................................... 7 What’s New? Recent Developments in Northern Quebec.................................................................................................... 8 Northern Quebec: An Emerging Frontier to Benefit from the Plan Nord .............................................................................. 8 Adventure Gold Inc. (AGE-V) .............................................................................................................................................. 17 Azimut Exploration Inc. (AZM-V) ......................................................................................................................................... 26 Balmoral Resources Ltd. (BAR-V)....................................................................................................................................... 33 Eastmain Resources Inc. (ER-T)......................................................................................................................................... 41 Midland Exploration Inc. (MD-V).......................................................................................................................................... 53 Stornoway Diamond Corp. (SWY-T)................................................................................................................................... 61 Virginia Mines Inc. (VGQ-T) ................................................................................................................................................ 81 Appendix I – Risks ............................................................................................................................................................... 95 Appendix II – Comparable Companies ............................................................................................................................... 96 Property Descriptions Appendix III – Adventure Gold............................................................................................................................................. 97 Appendix IV – Azimut Exploration..................................................................................................................................... 109 Appendix V – Balmoral Resources.................................................................................................................................... 116 Appendix VI – Eastmain Resources.................................................................................................................................. 124 Appendix VII – Midland Exploration .................................................................................................................................. 131 Appendix VIII – Stornoway Diamond................................................................................................................................. 145 Appendix IX – Virginia Mines............................................................................................................................................. 153 Appendix X – Important Disclosures ................................................................................................................................. 166 1 Éric Lemieux, MSc, P. Geo. Mining Analyst 819 472-8037 [email protected] January 18, 2012 Exploring James Bay II – An Emerging Mining Camp Investment Thesis Quality Exploration We are initiating coverage on seven small-cap exploration companies operating in the Plays in an Emerging James Bay and Northern Quebec areas. These companies have undeveloped or developing Region assets and meet our criteria of quality management, strong pipeline of projects, dynamic exploration programs and district-scale land positions. Their market capitalizations range from $22M to $284M. We believe that these companies have considerable potential, both in the short and long- term. Our view is that they have solid exploration projects in different types of geological environments within the general James Bay and Northern Quebec areas. See Exhibit 1 for a summary of the companies covered in this report. Exhibit 1 - Coverage Summary Company Ticker Price Mkt. Cap. Rating 1-Yr. Target 1-Yr. ROR Adventure Gold Inc. AGE-V $0.36 $22 M Buy (S) $1.20 233% Azimut Exploration Inc. AZM-V $0.90 $33 M Buy (S) $1.40 56% Balmoral Resources Ltd. BAR-V $0.98 $65 M Buy (S) $1.50 53% Eastmain Resources Inc. ER-T $1.13 $110 M Buy (S) $2.80 148% Midland Exploration Inc. MD-V $1.36 $35 M Buy (S) $2.75 102% Stornoway Diamond Corp. SWY-T $1.08 $128 M Buy $3.40 215% Virginia Mines Inc. VGQ-T $9.00 $284 M Top Pick $17.00 89% Note: T - TSX; V - TSXV. All pricing as of January 16, 2012. Source: Thomson ONE; LBS. Adventure Gold Inc. We rate Adventure Gold a Speculative Buy with a one-year share price target of $1.20, based on our NAV estimation of $83.6M, implying a 233% return. Our valuation is supported by the assessment of Adventure’s portfolio of properties and its diversified land holdings. We highlight the following: Adventure is a pure-play exploration company focused on discovering high quality gold deposits in the Abitibi Greenstone Belt in northwest Quebec and northeast Ontario. Its portfolio includes gold projects in Val-d’Or, Rouyn-Noranda, Timmins, as well as projects along the Casa Berardi-Cameron and Sunday/Detour Lake Gold Breaks – all proven environments with strong potential for new gold discoveries and where exploration costs are low. Emerging as a focused gold explorer and project generator. Several properties are adjacent to known deposits: Lake Shore Gold – Timmins, Agnico Eagle – Goldex, Richmont – Beaufor, Aurizon – Casa Berardi, Metanor – Bachelor Lake, North American Palladium - Vezza & Discovery. We believe Adventure is a relatively young (listed in 2007), serious and focused mineral exploration company in the central Abitibi greenstone belt of Quebec and explores in areas with demonstrated exploration and mining potential. We believe Adventure’s business model is based on solid, active and well thought exploration within proven, relatively accessible mining districts of the Abitibi. Adventure Gold has astutely accumulated land positions within the Val d’Or, Rouyn, Casa-Berardi, Detour and Timmins gold camps. 2 Éric Lemieux, MSc, P. Geo. Mining Analyst 819 472-8037 [email protected] January 18, 2012 Exploring James Bay II – An Emerging Mining Camp Azimut We rate Azimut Exploration a Speculative Buy with a one-year share price target of $1.40, Exploration Inc. based largely on our NAV estimation of $59.1M, implying a 56% return. Our valuation is supported by the assessment of Azimut’s portfolio of properties, its blue-sky potential and project generation capability. We highlight the following: Azimut is a key holder of properties in Northern Quebec. We believe its important land position in the Nunavik puts the company in an advantageous position and should benefit from any discovery within a new potential polymetallic mineral belt. The company’s business model is based on innovative exploration and generation of district-scale projects. Azimut’s growth strategy focuses on i) regional-scale mineral potential modeling, targeting potential underexplored polymetallic belts, ii) quality partnership development at an early stage and iii) discovery and delineation of gold, silver, copper, rare- earth elements (REE), uranium, chrome and nickel deposits in Quebec. Balmoral We rate Balmoral Resources a Speculative Buy with a one-year share price target of $1.50, Resources Ltd. based on our NAV estimation of $129.6M, implying a 53% return. Our valuation is supported by the assessment of Balmoral’s portfolio of properties, its strategic land positioning and assertive exploration programs. We highlight the following: Balmoral is a junior gold exploration and development company with six projects in advanced and early stages, located along the Sunday/Detour Lake trend in northwestern Quebec. We believe the Fenelon, La Martinière, Detour East, and Grasset properties and others assembled by Balmoral since its foundation in 2010 position the company astutely in the emerging Sunday/Detour Lake deformation belt. Balmoral