initiating coverage - typepad...at 0.94 g/t au: 425,000 gold ounces, inferred mineral resources:...

CHU: TSX-V $0.065 Recommendation: Speculative Buy Target Price: $0.25 Risk Rating: Speculative

Equity Research Initiating Coverage

Hendrik Visagie, BSc, MBA 416-588-7014 [email protected] David Leng, P.Geol. (Associate) 416-361-3493 [email protected]

Member: Toronto Stock Exchange • Investment Industry Regulatory Organization of Canada • Canadian Investor Protection Fund

INITIATING COVERAGE

Channel Resources Ltd: A Potential Gold Producer with Big Resource Growth Potential We are initiating coverage on Channel Resources Ltd., a Canadian company focused on the development and eventual production of gold in Burkina Faso, with a SPECULATIVE BUY recommendation and a target price of $0.25/share. Our target represents a 280% upside to current price of $0.065/share. A key assumption to our valuation is that equity markets improve. We suggest that as Channel continues to define more gold Resources, especially oxide hosted gold, we expect to see a further upside to the stock. We therefore recommend purchase of the stock. Reasons to Own this Stock

Channel Resources Ltd. is developing the Tanlouka property which is a 79 Km² concession situated on the Markoye Shear zone in prolific gold producing Burkina Faso. We recommend Channel Resources based on the following: Low Cost Entry into West African Gold - Based on our conceptual model, CHU has the potential to be a mid-term gold producer in 2018, with production of 120,000 oz/year. Significant Increase In Resource Expected – The maiden Resource (Indicated and Inferred) estimate at Mankarga 5 Deposit is 1.2 M oz Au. The cost of discovery was $5/oz Au. The Mankarga 5 Deposit is open along strike and to depth. Follow-up drilling is required to determine continuity with other mineralized zones. Other Targets Resource - In addition to Mankarga, Tanlouka has the potential to host other large gold deposits similar to Mankarga 5 at Manesse and Tanwaka. Geochemistry and historical drilling has defined the potential to define further Resources. We believe that exploration could eventually define over 3 M oz Au and may eventually rival the neighbouring Bombore deposit. Potential To Improve The Project Economics – Our model indicates that the project is economic being developed as a Gravity/ CIL Project and is economic under our assumption despite the high initial Capex. If resources increase as we expect, the project economics could improve significantly through increasing the mine life. In addition, a larger Resource would likely facilitate the mine to be developed initially as a heap leach and eventually as a gravity/CIL Project. The lower Capex for the Heap Leach would reduce the initial funding Requirements. Exploration Upside – Besides the defined targets on the Tanlouka permit, CHU has a number of exploration targets—Manesse and Tanwaka. Good Team— The Exploration team has been successful in defining a large gold Resource. Good Jurisdiction— Burkina Faso has an excellent environment to develop new mines. Birimian geology is highly productive, the domestic workforce is cost competitive, and oxide deposits with good metallurgy can be for the most part can be mined at low strip ratio. In addition the country wants jobs and allows for expedited permitting.

CHANNEL RESOURCES LTD.

Price (12/04/2012) $0.065 Basic S/O (M) 119.3 FD S/O (M) 139.1 Mkt Cap (M) $7.76 Cash (M) as at June 2012 $2.4 Net Debt Nil Enterprise Value (M) $6.46

Company Profile: Channel Resources is exploring for gold in Burkina Faso. The company’s flagship is the Tanlouka gold project which hosts the Mankarga 5 deposit.

Management and Directors:

Colin McAleenan, P.Geo.— Chairman, President & Chief Executive Officer

Cyrus Ameli—Senior Vice President, Director

John H. Adams, P.Geo.— Project Manager

Richard Schroeder, CA—Director

Archibald J. Nesbitt, LLB— Director

Jean-Marc Lulin, Ph.D. —Director

Richard P. Schutte, Ph.D.— Director

Stephen Rea, MBA— Director

Ms. Christina Yip, BBA, CMA—Chief Financial Officer and Corporate Secretary

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Channel Resources Ltd.: Initiating Coverage 04/12/2012

TABLE OF CONTENTS

CAPITAL STRUCTURE ................................................................................................................................................................. 3

RECENT NEWS .......................................................................................................................................................................... 3

KEY SHAREHOLDERS.................................................................................................................................................................. 3

MANAGEMENT AND DIRECTORS ............................................................................................................................................... 4

TANLOUKA PROJECT ................................................................................................................................................................. 5

VALUATION: MODELING ........................................................................................................................................................ 15

VALUATION: DISCUSSION ....................................................................................................................................................... 18

RECOMMENDATIONS ............................................................................................................................................................. 19

RISKS ...................................................................................................................................................................................... 20

APPENDIX I: VALUATION TABLES ............................................................................................................................................. 21

APPENDIX II: GEOLOGY OF BURKINA FASO............................................................................................................................... 23

APPENDIX III: GOLD IN WEST AFRICA ....................................................................................................................................... 24

APPENDIX IV: GOLD ................................................................................................................................................................ 26

GLOSSARY OF ABBREVIATIONS ................................................................................................................................................ 29

IMPORTANT DISCLAIMERS ...................................................................................................................................................... 30

CONTACT ................................................................................................................................................................................ 32

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CAPITAL STRUCTURE

Shares Outstanding 119.35 M

Stock Options 8.03 M

Warrants 11.73 M

Shares Fully Diluted 139.11 M

RECENT NEWS

November 21/2012: CHU reported that a soil sampling survey at the Tanwaka exploration target on the Tanlouka Gold Project has outlined major new gold anomalies that, together with other exploration activities undertaken to-date, shows signatures that are approximately twice the size of those that led to the discovery of the Mankarga 5 deposit. The Tanwaka zone is located ~10 km north of the Mankarga Zone along a 12 km long anomalous trend. A

soil-sampling program was conducted on a 9 km² grid with lines 100 m apart and 25 m sample intervals. A total of 4,280 samples, including check samples, were analyzed for gold. September 4,2012: CHU announced that it has filed a National Instrument 43-101 compliant technical report (the "Report”) on the Mankarga 5 maiden resource estimate for the Tanlouka project in Burkina Faso, West Africa (“Tanlouka”). As previously announced by the Company on July 19, 2012, the Report identifies Indicated Mineral Resources of 14.1 M tonnes at 0.94 g/t Au for 425,000 oz Au and Inferred Mineral Resources of 29.1 M tonnes at 0.78 g/t Au for 729,000 oz Au. August 31, 2012: CHU reported on assay results from an exploratory 2,100 metre drilling program on the Mankarga 1 area at the Tanlouka Gold Project (“Tanlouka”) in Burkina Faso, West Africa. Channel designed this drilling program with two main objectives: (1) to determine the spatial orientation of high-grade structures discovered in 2010/2011 reverse circulation (‘RC”) drill holes on the Mankarga 1 target; and (2) to test the area south of Mankarga 1 (“Mankarga 1-South”) for extensions of the Mankarga 5 structure into that area. July 19, 2012: CHU announced a maiden Mineral Resource Estimate for the Mankarga 5 deposit at its Tanlouka gold project (the “Tanlouka Project”), located in Burkina Faso, West Africa. Indicated Mineral Resources: 14.1 M Tonnes at 0.94 g/t Au: 425,000 Gold Ounces, Inferred Mineral Resources: 29.1 M Tonnes at 0.78 g/t Au: 729,000 Gold Ounces. The Company engaged AMEC Americas Ltd. (“AMEC”) to conduct a mineral resource estimate in accordance with National Instrument 43-101 standards (the “Mineral Resource Estimate”) on the Mankarga 5 deposit based on 71 core drill holes and 58 reverse circulation (“RC”) drill holes for a total of 22,536 metres drilled since June of 2010.

Source: Company filings

KEY SHAREHOLDERS

RBC Asset Management ~3.35% Humboldt Capital ~0.25% Board & Management ~8.0%

Source: Thomson ONE and Bloomberg

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MANAGEMENT & DIRECTORS

Colin McAleenan, P.Geo. Chairman, President & Chief Executive Officer Mr. McAleenan is an experienced mining executive and is registered as a professional geoscientist in the Association of Professional Engineers and Geoscientists of British Columbia and has been president of Channel since 2007. He has worked with major and junior companies alike both in exploration and mining operations in precious metals, base metals and uranium on four continents over his 29 year career in the industry. Over the past fifteen years he has led private and public companies in raising over $60 M for exploration and development and has been central to the discovery and definition of over 10 M ounces of gold. Cyrus Ameli, Senior Vice President & Director Mr. Ameli is a business professional with over fifteen years experience in corporate management, marketing and finance. His areas of expertise include financial management and administration, corporate communications, public and investor relations. Previously, Mr. Ameli was Vice President of Communications and Corporate Secretary for Mundoro Mining Inc. He has also provided consulting services to a wide variety of private and publicly traded companies in the areas of communications, marketing and community relations, and has spoken frequently at conferences and symposia on corporate disclosure standards and communications management. Mr. Ameli holds a Bachelor of Commerce degree from Concordia University . John H. Adams, P.Geo. Project Manager Mr. Adams is an exploration geologist and registered as a professional geoscientist with the Association of Professional Geoscientists of Ontario. His more than 35 years of experience includes experience in Africa, North and Central America, Jamaica, Iran, Indonesia and China. He has served as project manager and senior geologist for many companies and also for Government of Canada Agencies. This includes management of exploration programs for gold and precious metals, base metals and uranium. He is also a member of the Canadian Institute of Mining and Metallurgy (1981), the Geological Association of Canada, the Association of Applied Geochemists (1984) and the Prospectors and Developers Association of Canada (1981). Richard Schroeder, CA Director Mr. Schroeder is a Chartered Accountant who was a partner of Ernst & Young LLP for six years until his retirement in 2011, and for the previous 15 years was a partner of Ellis Foster, Chartered Accountants until their merger with Ernst and Young in 2005. He received his Bachelor of Science degree from the University of British Columbia in 1976 and his Chartered Accountants designation from the Institute of Chartered Accountants of British Columbia in 1981. Mr. Schroeder has over thirty five years of experience advising multinational public companies focusing on the mining and financial services sectors. He also serves on the board of directors of Lions Gate Metals Inc. and is the CFO for New Hana Mining. Archibald J. Nesbitt, LLB Director Mr. Nesbitt has a Bachelor of Laws Degree from the University of Western Ontario (1976) and a Bachelor of Commerce (Honours) Degree from Queen's University (1973). He has been an active member of the Law Society of Alberta since 1978. Mr. Nesbitt has been a founding member or senior officer and director of a number of internationally active publicly traded mining companies. Mr. Nesbitt has been active in the mining industry since 1969 and holds directorships in several public mining and oil and gas companies, including Golden Band Resources Ltd., Carmen Energy Inc., and Marksman Energy Inc. Jean-Marc Lulin, Ph.D. Director Dr. Lulin is a senior mining executive with 26 years of experience in North America, Africa and Europe. Since June 2003, as President, CEO and Director of Azimut Exploration Inc., ("Azimut") he has developed and implemented a mineral potential targeting methodology that Azimut has successfully implemented throughout Quebec. Dr. Lulin was a previous President, COO and Director of Channel (1996-2001) and also the Company's Vice President for West Africa (1995-1996). He is a Director and Vice President Strategic Planning at the Quebec Mineral Exploration Association and holds a Doctorate in Economic Geology from Université d'Orléans (1984), a Diploma of Advanced Studies in Mineral and Energy Resources (1981), a Master's degree in Applied Geology (1980) and a License in Earth Sciences (1979) from the Université de Paris VI, France. Richard P. Schutte, Ph.D. Director Dr. Schutte earned a Ph.D. in Inorganic Chemistry from the University of British Columbia in 1995. He has developed a strong background in advanced chemical processing and applications, until 2011 as a plant manager for a major international industrial gases and engineering company. Dr. Schutte has extensive expertise and hands-on experience in the process, quality control and sales aspects of the commercial production of specialty gases and metals, as well as in the recovery and sale of lithium carbonate from recycled lithium ion batteries. Based in Edmonton, Alberta, Dr. Schutte has also gained first-hand knowledge and familiarity with standards and regulations applicable to complex chemical processing facilities in Alberta and British Columbia. Stephen Rea, MBA Director Mr. Rea is an investment banking professional with more than 10 years experience in capital markets, with a focus on natural resources, energy and technology sectors. Until 2011 he was Vice President of NCP Northland Capital Partners' Asia Banking Division. Previously Mr. Rea held roles at Canadian investment banking firms including Gateway Securities Inc. and has led or been involved in financial advisory roles and with securing and executing a broad range of investment banking and M&A transactions. Mr. Rea holds an MBA from the Kellogg School of Management. Until 2012 he was VP Corporate Development and President of Selwyn Resources, currently with a royalty financing company - Waterton Global Resource Management.

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TANLOUKA GOLD PROJECT

Tanlouka Overview The Tanlouka Gold Project (“Tanlouka”) is located ~100 km south east of Burkina Faso’s capital city, Ouagadougou. The Tanlouka permit covers ~79 km2 and is accessed by a combination of paved and all-weather laterite roads from Ouagadougou. Channel’s exploration office is located in the village of Mogtedo, 15 km north of Tanlouka.

Tanlouka Geology

The lithologies underlying the Tanlouka permit are representative of what is typically seen with gold mineralization in the Birimian. The sequence of metamorphosed sediments and bimodal volcanics has been intruded by a suite of variably composed (ultramafic to granodioritic) intrusives.

Tanlouka is located on the eastern margin of the Markoye Fault (see Exhibit 1), which is a crustal scale feature that has played a dominant role in controlling gold mineralization over several hundred kilometers within Burkina Faso. The Markoye Fault itself and secondary splays off of the Markoye have provided pathways for a number of gold mineralizing events. Several of Burkina Faso’s largest gold resources are situated along the Markoye Fault - IAMGOLD’s Essakane deposit (5.1 m ounces), Volta’s Kiaka deposit (5.0 m ounces), Orezone’s Bombore deposit (5.2 m ounces). Bombore is located ~10 km northwest of Tanlouka and Kiaka is located on the eastern margin of the Markoye Fault, 25 km southwest of Tanlouka.

Exhibit 2 – Portions of the intrusive suite at Tanlouka have weathered positively and are some of the only outcrops present on the entire Tanlouka permit.

Source: Pope & Company Limited Research

Exhibit 1 – The Tanlouka Gold Project is located on the Markoye Shear Zone which is a crustal scale feature that hosts some of Burkina Faso’s largest gold deposits. Tanlouka’s closest neighbours are two of Burkina Faso’s largest undeveloped gold deposits - Volta’s Kiaka and Orezone’s Bombore. Source: Company Report

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Mankarga 5 – The 1st Million Ounces

Gold mineralization at Mankarga 5 is associated with a shear zone, quartz-vein array hosted environment which is quite common in Birimian rocks throughout West Africa. The Mankarga 5 gold resource is hosted in both oxide (238,000 oz or 20.6%) and sulphide (916,000 oz or 79.4%) domains.

Exhibit 3– Mankarga 5 Mineral Resource Estimate. Source: Company Report

Exhibit 4– The Mankarga 5 resource estimate was calculated based on 131 drill holes (22,404 m) over a strike length of 2,300 m strike length (1,400 NE to 900 SW). Mankarga 5 remains open along strike 045 and down-dip. Source: Company Report

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Mankarga 5 mineralization (see Exhibit 6) strikes ~030-040° and dips ~70-80° to the northwest. Gold mineralization at Mankarga 5 is hosted in multiple discrete zones, which required the development of a nomenclature, ie. Z1, Z2, etc, to refer to specific zones of mineralization (See Exhibit 7). The Mankarga resource hosts a total of 19 zones – two main (Z1 and Z2) and seventeen parallel FW and HW structures. The Z1 and Z2 zones of mineralization are the primary Mankarga 5 resource blocks. These blocks hold all of the Indicated resource ounces and nearly 80% of the total Mankarga 5 resource. Rock situated between Mankarga 5’s mineralized structures is weakly mineralized and has a background grade of ~0.2 g/t Au which has the potential to minimize dilution.

The number of discrete zones at Mankarga 5 demonstrate the deposit’s complexity. While this is not as much of a concern when considering an open-pit mining scenario, an improved understanding of both structural and geological controls would greatly benefit current exploration and future development. This is best illustrated when considering an apparent grade enrichment along boundaries between lithologies. Should this be a dominant control on gold distribution, a refined understanding on such controls would assist drilling.

Exhibit 5– Drill campaigns carried out on the Tanlouka Permit. The Mankarga 5 resource estimate is based on drilling from “Phase 1”, “Phase 2” and “Phase 3” only. Source: Company Report

Exhibit 6– Gold mineralization at Mankarga 5 is hosted along a northeast trend in multiple distinct hangingwall and footwall zones. The surface expression of drill defined mineralization at Mankarga 5 mineralization exhibited a high degree of correlation with the northeast trending gold-in-soil anomaly. The generalized lithological package (volcanic-sedimentary sequence in proximity to an intrusive) is frequently encountered at gold deposits in Burkina Faso. Source: Company Report

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Drilling has identified higher grade zones of mineralization within the Mankarga 5 resource. Located in the southwest portion of the Mankarga resource and named “Z1HG”, a high grade zone of gold mineralization has been traced over several hundred meters and yields several grams per tonne of grade.

This type of mineralization could potentially support underground mining, given the widths, grades and strike length encountered to date. Detailed follow-up drilling would be required to determine underground potential, however, mineralized zones at Mankarga 5 have been intersected at depths exceeding 250 m.

Exhibit 8– Drill core from TAN11-DD-001 and TAN11-DD-002 host gold mineralization in both oxide (background) and sulphide (foreground).


Exhibit 7– The cross section of Mankarga 5 section 650 NE shows mineralization dipping northwest at ~70-80°. The various blocks of mineralization depicted (Z1H1, Z1, Z2H3, etc) are the discreet zones of mineralization. The Mankarga 5 resource hosts a total of 19 zones – two main (Z1 and Z2) and seventeen parallel FW and HW structures . Source: Company Report

Exhibit 9– An extensive orpaillage gallery reveals the steeply dipping orientation of Mankarga mineralization.


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Tanlouka Gold Project - Resource Upside for Mankarga 5 and Overall Exploration Potential

Mankarga 5 was discovered in 2010 when two holes - T2010-7 and T2010-8, (see Exhibit 17) drilled a regional gold-in-soil anomaly and intersected 48 m @ 1.17 g/t Au and 40 m @ 1.37 g/t Au, respectively. These two holes were separated by ~250 m of strike length and are considered the Mankarga 5 discovery holes. In less than two years, Mankarga 5 progressed from a discovery to a gold resource of 1.152 m ounces. Mankarga 5 mineralization is open

along strike (045 ) and down-dip, with lenses of mineralization extending well beyond the current resource shell. Based on local grid coordinates, the Mankarga 5 resource shell has a surface expression of 2,300 m strike length from 1,400 NE to 900 SW (see Exhibit 4).

A systematic program of in-fill and step-out drilling along strike 045° at Mankarga 5 would not only increase drilling density and improve resource classifications, but potentially confirm extensions of mineralization along trend and down-dip. Mineralization within the Tanlouka permit is characterized by two distinctive and repeating trends (045° and 160°) that closely mirror those of the “P11 to KT” and “P11 to P16” trends present at nearby Bombore. While the Mankarga 5 trend has been the most intensely drilled to date, the Manesse and Tanwaka

targets located to the north remain undrilled. Both Manesse and Tanwaka are similar to Mankarga 5 in many respects. Taking into account the similarities in strike length, orientation and the presumed structural and geological setting – we believe there is potential to find at least two repetitions of Mankarga 5 at Manesse and Tanwaka.

The bottom of the Mankarga 5 pit shell in the southwest is 100 m shallower than the northeast due to a combination of low drilling density and lack of deeper drilling. Mineralization in the south west region of Mankarga 5 is continuous along strike and down dip below the pit shell. A higher density of drilling and holes aimed to depth have the potential to extend the pit bottom further down dip – adding to the mineral resource.

The vast majority of exploration (drilling, geochemical surveys, etc) at Tanlouka has been focused on the southern one-sixth of the permit. Manesse and Tanwaka have been covered by reconnaissance scale geochemical surveys, but detailed (50 m by 20 m) surveys were completed in late 2012 (see Exhibit 12). The surveys for Manesse and Tanwaka comprise 4,800 and 3,600 samples, respectively. Results from these surveys will play a role in determining future drilling campaigns. Within the southern one-sixth of the Tanlouka permit, areas outside of Mankarga 5 have to date had limited exploration carried out. Mankarga 1 trends at 160° and is nearly the mirror image of Mankarga 5 in footprint and reversed orientation. Mankarga 1 has had little drilling completed to date, but hole T2010-10 intersected 38 m grading 3.09 g/t Au. The regional gold-in-soil geochemical anomaly has a similar footprint to that of Mankarga 5 and is interpreted to sit on the margins of the central granodiorite intrusive in the same manner as Mankarga 5.

Exhibit 10– An oblique view (looking northwest) of Mankarga 5 mineralization and the conceptual pit shell. Note that blocks of mineralization extend on strike at

045 and down-dip, well outside the pitshell. Blocks of mineralization not within the red coloured Whittle pitshell were not included in the resource estimate. Future drilling could define extensions of mineralization and consequently has a potential to further expand the Mankarga 5 resource. Source: Company Report

Exhibit 11– Initial soil surveys completed were carried out on a 500 m by 100 m grid which provided coarse resolution of mineralization. Detailed soil surveys (50 m by 20 m) were completed in 2012 over Manesse and Tanwaka to compliment the Mankarga 5 survey and provide better definition for target selection. Higher density sampling provides enhanced resolution of mineralization at Tanwaka and Manesse. Source: Company Report

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Exhibit 13 (Left): Gold-in-soil anomalies reflect buried gold mineralization at the Tanlouka permit. Mineralization at Mankarga 5 is defined by a northeast trending anomaly over a strike length of ~2,500 m. Mankarga 5 remains open along strike and down dip. This trend led to the discovery of Mankarga 5 and drilling successfully defined a resource of 1.2 m ounces. Manesse and Tanwaka (5 and 10 km north, respectively) are gold-in-soil anomalies that are similar in size and orientation to that of Mankarga 5. We believe that drilling is required at both Manesse and Tanwaka. Source: Modified from Company Report

Exhibit 14 (Right): The Bombore deposit is characterized by two distinct trends that are mirrored at Tanlouka, to the East. Source: Modified from Orezone (ORE: TSX) Company Report

Exhibit 12– The detailed soil survey over Tanwaka replicates the trends seen in the 1996 reconnaissance survey. The C1 and C2 trends at Tanwaka are strikingly similar in orientation to the Mankarga 1 and Mankarga 5 trends. The most extensive gold values are largely confined to the intersection of the C1 and C2 trends, as might be expected in this structural setting. The gold-in-soil anomalies correlate well with bedrock features – a clear demonstration of the efficacy of soil geochemistry. It is important to note that the gold-in-soil anomalies have a footprint and trend orientation that closely mirrors Mankarga 5. Source: Company Report

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Mankarga 2, 3 and 4 are all located south of Mankarga 1 and Mankarga 5 (see exhibit 17). Mankarga 2, -3 and -4 are located in what is potentially a fold nose, assuming that Mankarga 1 and -5 are the respective limbs flanking the central granodiorite intrusive. Chargeability and resistivity anomalies which coincide with orpaillage sites have resulted in limited drilling.

The western third of the Tanlouka permit (see Exhibit 13) has not been tested by any exploration to date. Large areas of the western third are on strike from known zones of mineralization, which bodes well for the potential of defining new areas of mineralization.

Exhibit 16 – A detailed soil geo-chemical survey was completed over Mankarga 5 in 2010, in order to provide a clearer picture of bur-ied mineralization. The 1996 his-toric survey was completed on 500 m by 100 m spacing, which is far too coarse to provide drill target-ing. The detailed survey was de-signed on a 50 m by 20 m spacing, which is sufficient to base a drill campaign on. The detailed survey confirmed the orientation and footprint of the historical survey

but with higher resolution. Source: Company Report

Exhibit 15 – Regional scale geochemical surveys in the 1990s were instrumental in defining mineralization at Bombore and Tanlouka. The two dominant trend directions at Bombore are mirrored within the Tanlouka permit. Source: Modified from Company Report

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Exhibit 17– Mankarga 5 was discovered in 2010 with holes T2010-7 and -8. Note that both the gold-in-soil and chargeability-resistivity anomalies closely follow orpaillage activity. The orpailleurs follow gold bearing mineralization which is why their presence can provide information to augment exploration. Source: Company Report

Exhibit 19– Close of up of core interval 158.3-159.0 m in hole TAN11-DD-002 on Mankarga 5 cross section 450NE, which graded 7.92 g/t Au. Note the strong deformation and alteration, which are associated with mineralization. Pyrrhotite is the dominant sulphide species observed in drill core, while lesser amounts of arsenopyrite and chalcopyrite were also observed.


Exhibit 18– The results of a high resolution airborne Magnetics survey indicate a structural trend that corresponds with gold mineralization at Mankarga 5. The defined trends (north east and north west) are nearly orthogonal and mirror the gold-in-soil anomalies. The dominant deposit scale northeast trend mirrors the regional scale trend of the Markoye Fault. The interpreted (geophysical) and empirical (geochemical) trends show good correlation and appear to wrap around or mantle the central granodiorite intrusive.

Source: Company Report

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Fox Creek Mineral Brine Overview The Fox Creek Mineral Brine Project (“Fox Creek”) is located ~200 km north west of Edmonton in central Alberta. Fox Creek is comprised of four contiguous permits which covers over 36,000 hectares. Fox Creek is being viewed as a potential near-term producer for a number of different mineral products. Fox Creek oil field brines are enriched in a number of commodities (potash, lithium, borates, bromine, etc) which have the potential to be extracted and could represent a significant revenue stream. A number of companies in North America (Chemetall, Albemarle, etc) currently produce a variety of products from near surface brines. The Fox Creek Project is well situated with regards to infrastructure. A paved highway runs through the Fox Creek Project adjacent to a rail yard. An operational gas plant services the over 100 gas wells that have been drilled. Brine that is currently being produced is treated as waste and reinjected down the gas wells. Established recovery technology used extensively in industry has not yet been applied to Fox Creek. Channel is nearing completion of process testing and engineering flowsheet design for the Fox Creek Project. A member of Channel’s management team, Dr. Richard Schutte, has industry experience relating to recovery of metals such as lithium. Dr. Schutte’s familiarity with this facet of the industry could play a defining role in advancing the Fox Creek Project – whether through development of a processing facility or the wholesale vending of Fox Creek. Fox Creek is not a core holding of CHU. An NI 43-101 compliant Resource Estimate was completed for the Fox Creek Project in March of 2012 (see Exhibit 21). The Resource Estimate lists the total in situ volume of brine is 4.1 b m3 with a baseline recoverable volume of 47.7 m m3 and potential for up to 671.5 m m3.

Exhibit 20– Location of Fox Creek Project. Source: Company Technical Report

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Exhibit 21– Total In-Place Inferred Resource Estimate (based on total in situ 4.1 b m3 of brine). Source: Company Report

Exhibit 22– Recoverable Resource and Recoverable End Product. Source: Company Report

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VALUATION: MODELING Conceptual Model For Valuation Other than Mineral Resource reports, Channel has not commissioned a PEA or PFS on the Mankarga 5 Resource. In order to get an idea of the potential value of the property we have constructed a theoretical model based on the data used to calculate the Whittle Pit in the Resource Report. In order to get an estimate of capital requirements we based our estimate of capital costs on like projects for a CIL leach plant in West Africa. In the Technical Report, the Resource for the Mankarga 5 deposit was calculated assuming a gold price of $1,465/oz, the metallurgy for the saprolite (oxide) gold in heap leach and sulfide gold recovered in gravity CIL leach plant. The mining costs are $1.54/t for ore and waste and the stripping ratio is 2.12 to 1. Processing cost for the saprolite ore in a heap leach is $3.91/t and for the sulfide ore in the gravity/CIL plant is $8.52/t. G&A costs are $1.39/t. As it stands, Mankarga 5 has 1.154 M oz Au of which 21% is oxide and 79% is sulphide ore.

In the Report, the Resource was calculated at an average cut-off grade of 0.26 g/t Au for the combined oxide and sulphide ores, the stripping ratio was 2.12 tonnes of waste per tonne of ore. The Report assumes that the oxide ore will be processed in a heap leach and the sulphide ore will be processed in gravity/CIL plant. We believe that there is too little oxide resource at this point to model. We have based our model on all the ore being processed in gravity/CIL plant. As a result, of the higher capital for the CIL plant, we have increased the cut-off grade to 0.4 g/t and this yields a Resource (Indicated and Inferred) of 1,083,000 oz (0.91 g/t) Au. In determining the mill feed we assume a 10% dilution of the Resource at 0.4 g/t cut-off and the diluting material had a grade of 0.2 g/t and we assumed a 14% ore loss in mining. As a result, the mill feed would 35 M t grading 0.85 g/t and the strip ratio would be 2.85 tonnes of waste per tonne of ore.

Exhibit 23– Mankarga 5 Re-sources.


Exhibit 24– Grade tonnage curve for Mankarga 5.

Source: Company Report and Pope & Company Limited Re-search

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The metallurgy indicates that the gold can be recovered by heap leach plant or by gravity CIL Plant. In order to develop some metrics on which to help with valuation, we have created a model to treat all the ore both oxide and sulphide in a gravity CIL plant and have assumed the operating parameters for the sulphide ore. In Case 1 (“base case”) we have assumed the plant will process 5 M t/y of ore annually and the initial capital cost would be $280 M which includes $20 M for drilling and studies. Production would begin in 2018 and Mankarga 5 will be mined out in 7 years. We believe that drilling will prove out significantly more gold Resources. In Case 2, we have doubled the reserves and extend the mine life to 14 years. In Case 3 we extended the mine life to 21 years by adding a 3rd deposit. The metrics for the 3 cases are summarized below.

Model Results are for 100% of the project and do not account for the Government’s 10% interest in the project.

Exhibit 25– Metallurgical test work.


Exhibit 26— Comparison of model assumptions.

Source: Pope & Company Lim-ited Research

Exhibit 27— Summary of valua-tions and sensitivity analysis.

Source: Pope & Company Lim-ited Research

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Our base case indicates that although the current resource appears economic, the initial Capex is high relative to the 7 year mine life. Cases 2 and 3 indicate that further Resources will enhance the project economics considerably and increase the efficiency of capital employed.

We note that the historical cost to define the Resource (Indicated and Inferred) was about $5/oz. Channel has a number of targets defined by past drilling and geochemistry, which require shallow drilling and have potential to add one to two times the current Resource by spending less than $20 M on drilling. In addition, we believe the Resource would contain over 20% oxide hosted gold. With the increased amount of oxide gold, there is likely potential for a low cost heap leach operation.

Exhibit 28– 7 year sensitivity based on mining out Mankarga 5 as the resource currently stands.


Exhibit 29– 14 year sensitivity based on mining out Mankarga 5 (x 2) as the resource currently stands.


Exhibit 30– 21 year sensitivity based on mining out Mankarga 5 (x 3) as the resource currently stands.


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VALUATION: DISCUSSION We are initiating coverage on Channel Resources Ltd. with a SPECULATIVE BUY recommendation and a $0.25/share target price. In our valuation, while we have developed a model which indicates the potential of the property, the model has not been used to calculate the target price for the recommendation. We believe the project without a PEA or PFS on which to base an analysis is fraught with risk on the assumptions. On the other hand we believe that the model indicates that the project is viable and with increased resourced is an attractive investment. In addition, the Company at the current price of $0.065 per share requires too much equity financing to determine any realistic value. As a result, we will use comparables of gold project developers in West Africa to establish our price target. We have valued the Tanlouka Project for 3 scenarios, 7 Years, 14 Years and 21 Years. We believe the 7 Year case indicates that the project is viable but the mine life is too short for the size of capital invested. The other two cases indicate the value added if the property is drilled up to its potential, which will reflect the near term updated gold Resource expected before the end of the years and will be mined in a 10 year period. We have calculated the difference in the NPV to determine the incremental value of the additional gold production. The resulting unlevered after-tax cashflows are discounted using an 8% rate. In the table below, the NPV@8% of the Project is reduced to 90% to reflect the government’s 10% ownership in the project. We have assumed the Canadian and US dollars are

at parity.

Mankarga 5 Project: Our base case incorporates the Resource Estimate and a number of assumptions used in calculating the Resource contained in the August 2012 Technical Report filed on Sedar and the capital for the project was estimated by proxy from other projects in West Africa. Details of the base case are found in the section of this report entitled Conceptual Model for valuation. Manesse Project: Case 2 makes the assumption that Manesse has the potential to be a second Mankarga 5 deposit. Manesse has the same attributes as Mankarga 5, except the mill and infrastructure are in place and we with a small capital expenditure we continue operations for a further 5 years. Tanwaka Project: Case 3 illustrates the effect of adding another Mankarga 5 project to Case 2. In all, Case 3 assumes a 21 year life for the Tanlouka Project. Other Exploration: We believe that there is potential past the potential 3 M oz resource estimated in Case 3. This potential could occur at one or all deposits on the property. At this stage we simply note the potential exists and give no value to this mineralization. Other Projects: Fox Creek Mineral Brine Project. The property is located in Alberta and is focused on recovering a number of minerals from oil field brines. While the project appears to have potential, we are not in a position to value the project properly. As a result we have assigned a nominal value of $1M to the project.

Exhibit 31– After Tax NPV @ 8% for 3 cases.


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RECOMMENDATIONS The following table compares the value of the gold resource for a 20 gold development Companies in West Africa. We believe that West African gold plays are undervalued and we believe that the gold exploration plays will return to favour once the current financial problems in US and Europe stabilize. We note that average value of gold in the ground for developing companies in West Africa is $37.29 ounce and Channel Resource is valued at $6.42 per ounce. Based on our view of the upside for the property tempered by the need to finance ongoing exploration and the low share price, we believe the value of the gold in the ground should be at least $25/oz or a little over half the average of the group. Recommendation Our resource model indicates that Channel’s current Resource has attractive economics. Our assessment of the geology and geochemistry of the Tanlouka property indicates that there is good potential to increase the current resource by multiples. Past exploration cost indicates the cost to increase the Resource another million ounces would be ~$5-6 M. We believe that the property has potential to increase its oxide resource significantly and a larger oxide resource would lead to a more favourable financing situation for Channel. At $25/oz, Channel would have an enterprise value of $28.8 M less current cash estimated at $1.3 M. The enterprise value per share would be $0.25/share. This price is only $0.02/share above the 1 year high. At a current share price of $0.065/share, our one year target of $0.25/share represents a 280% increase in the stock value. We therefore recommend purchase of the stock.

Exhibit 32– Comparable developers as at November 30/2012. Source: Pope & Company Limited Research ; (*) not included in averages

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RISKS

We have a ‘Speculative’ risk rating for Channel Resources Ltd.

Start-up and operating risk: There is a significant risk that the exploration, development and completion of the Tanlouka Project could be delayed due to circumstances beyond CHU’s control. Setbacks could include delays in securing financing or in construction or commissioning.

Liquidity and financing: Development of the Tanlouka Project will require significant capital and there is no assurance that CHU will be able to obtain sufficient financing at favourable rates. CHU may be unable to invest capital for its development and exploration programs, take advantage of business opportunities or respond to competitive pressures.

Gold Prices: The Company’s future profitability is directly related to the number of ounces of gold sold and the price of gold. Gold prices have historically been volatile and are primarily affected by global monetary stability as well as supply and demand.

Foreign exchange: Once in production, CHU will be subject to foreign exchange risks because revenues will be received in US dollars while operating costs will be in part local currency. Fluctuations in exchange rates can significantly impact earnings and cash flows.

Licences and permits. Development of the mine requires permits. Permitting is always a risk regardless of jurisdiction.

Country Risk. We have based our analysis on the current fiscal environment and historical country risk. In the world of change, economic nationalism and change in political system is a risk.

We believe that risk for West Africa is largely misunderstood due to lack of familiarity with the region. Compared to other well-known mining jurisdictions such as South America, we believe the profile of West Africa is comparable or lower in risk. In recent months, the global mining industry has seen political and civil unrest, resource nationalization, and rampant tax increases. Certain areas of the African continent have hosted mining for decades and other areas are relatively new to mining. We believe that Randgold (GOLD: NYSE) has successfully managed and mitigated risk and translated this into company growth. Randgold’s growth in the last 10 years has outpaced many other mining companies. As part of their risk management, Randgold has developed a system of measuring several parameters and assigning a country a rank, or ‘grade’. Randgold’s key factors are geological opportunity, economic and fiscal regime, political stability, and infrastructure. Each of these factors is divided into several criteria so that an overall rank or grade is based on 25+ factors. We note that within the African context, West Africa, particularly Mali, Ivory Coast, Ghana and Burkina Faso are given the best ranks of “A” or “B”. This favours comparably to other well known mining jurisdictions within Africa that scored lower due to higher risk.

Exhibit 33: Randgold Resources African country risk ranking.

Source: Randgold 2011 Annual Report

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APPENDIX I: VALUATION TABLES

22


23


APPENDIX II: GEOLOGY OF BURKINA FASO

Burkina Faso is part of the West African Craton, which is comprised of Archean to Paleoproterozoic age basement which is buried under an extensive sedimentary package that covers a wide age range (Neoproterozoic to present). The ancient basement has exposure in two shields and sedimentary units filled in three primary basins (Volta, Taoud-eni and Tindouf). Birimian greenstone belts are a dominant portion of the West African Craton. Greenstone belts typically are present as narrow, linear features comprised of volcanic-sedimentary sequences. Late stage, variably composed intrusives are quite extensive. Birimian rocks have been separated into an Upper and Lower sequence. The Upper sequence comprises ultramafic (basalt) and clastic sediments. The Lower sequence comprises fine grained sediments (greywacke and argillite) and clastic volcanics. Burkina Faso’s major gold deposits are proximal to areas of deformation and contacts between the Upper and Lower sequences. Late stage intrusives of variable composition are widespread throughout Burkina Faso. These intrusives have been classified as two distinct types. Birimian rocks correlate with the Eburnean orogeny with an age of ~2.1 Ga. Most of Burkina Faso is covered by Birimian rocks that have been metamorphosed to greenschist facies. The dominant structures are two north to northeast trending shear zones – the Houndé Shear Zone in the west and the Markoye Shear Zone in the east. Birimian greenstone belts are divided into groups based on their orientations - the north to northeast trending belts (Tenkodogo, Boromo, Houndé, Banfora, etc). Two belts (Hounde and Boromo) merge in the north and change orien-tation, to east-west, to form the arcuate Djibo and Goren belts.

Exhibit 34: Gold Deposits in Burkina

Faso.


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APPENDIX III: GOLD IN WEST AFRICA

Gold deposits in West Africa are generally comprised of an upper oxidized (or oxide) cap where a laterite (or duricrust) layer may be present, a transitional layer and a lower sulphide zone. Gold mineralization can occur in any or all of these layers. The amount of gold introduced to an area is essentially dependent on the mineralizing event and geological setting.

Laterite or Duricrust is a layer of chemical precipitation (induration) that is on or near the surface. While not always present, these layers can range from centimeters to meters in thickness. Laterite or duricrust is not as widespread as oxide layers, but is important for mining as it has a much higher specific gravity and frequently hosts gold mineralization.

Saprolitic layers are formed in situ through prolonged periods of surficial bedrock weathering. In order to develop thick saprolitic layers, there must be low topographic relief to limit erosion, prolonged periods of quiet tectonism and suitable climatic conditions. Oxide layers are widespread throughout West Africa and have variable depths (0-200) metres, but are typically 60-100 metres deep. The depth of oxide layers is largely determined by underlying geology and topography.

Rocks that have undergone periods of intense deformation or have higher porosities create conditions that allow for a deeper weathering profile. Most minerals are destroyed during the weathering process and only resistant phases remain behind. Lateral dispersion of gold mineralization within the oxide layer frequently occurs, depending on the amount of water table fluctuation or groundwater migration.

The unique physical and chemical properties of oxide layers are amenable to low-cost mining. Oxides are much softer than fresh bedrock, resulting in a lower work index and reduced power consumption during processing. Depending on the nature of the gold mineralization, oxides are amenable to heap leaching and/or cyanide leaching. Many mines in West Africa are mining oxides, which respond predictably to standard processing procedures and are associated with very high metallurgical recoveries. It is common practice in West Africa to calculate resources/reserves using very low cut-off grades (~0.3 to 0.5 g/t).

Transitional layers are commonly confined to a range of 0-20 metres in thickness. The transitional layer defines the boundary between the lower limits of the weathering profile and the unweathered or ‘fresh’ bedrock. The transitional layer is marked by a gradation from the oxide layer into fresh bedrock, often accompanied by fragments of partially oxidized fragments of bedrock.

Sulphide zones are generally hosted within unweathered bedrock. Zones of sulphide mineralization can extend to several hundred metres depth and remain open. Numerous deposits in West Africa have sizeable gold resources/reserves hosted in sulphides. Deeper sulphide zones are generally mined underground and often after oxide production has been exhausted. There are numerous sulphide species associated with gold mineralization, but typically dominated by pyrite, pyrrhotite and arsenopyrite.

Unweathered bedrock hosted sulphide zones are generally much harder than either transitional or oxide layers, as their constituent minerals have not been destroyed by weathering. As a result, a higher work index and increased power consumption are seen during processing. Sulphide plants are common at mines throughout West Africa when production shifts from oxide to sulphide zones.

Gold deposition within West Africa is controlled by a number of physical and chemical parameters. Mineralizing events have a number of components related to chemistry (pH, time, temperature, etc) that control gold deposition. The geological setting also plays a role in controlling gold deposition. Deposits associated with shear zones are subject to a number of elements (deformation, favourable lithologies, presence of deep seated faults, etc) which provide the physical setting and controls for a mineralizing event to take place. Gold deposits within West Africa are spatially associated with large (crustal-scale) and subordinate (splays, etc) structures.

Exhibit A: Oxide mineralization is frequently variable in colour which reflects the primary lithology. Note the plastic behaviour displayed within drill core. The soft nature of oxides means a lower work index and power consumption in relation to harder fresh rock.

Source: Pope & Company Limited

Exhibit B: An excavated trench shows the transition from duricrust into deeper saprolite. Note the preservation of relict primary features within the saprolite. Metallurgical recoveries are typically quite good, given that weathering destroys nearly all gangue minerals. Source: Pope & Company Limited

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Generalized Geological Overview West Africa hosts a number of Birimian greenstone belts which share geological similarities (i.e. volcanic-sedimentary sequences) with other Archean greenstone belts (Canada, Australia, etc) around the world. The majority of multi-million ounce gold deposits in West Africa are shear-hosted vein deposits within Birimian greenstone belts.

Exploration in West Africa

Due to the extensive oxide layer throughout much of West Africa, outcrop exposure is generally poor. Geophysical and geochemical surveys are widely used in order to see buried geology and zones of mineralization. Geophysical surveys are used to measure differences in gravity, magnetic fields, etc., in order to define lithological changes, presence of certain sulphides, etc.

In a general sense, geochemical surveys are used to quantify changes in bedrock geology. Most soil surveys analyze for gold in tandem with other known pathfinder elements such as arsenic, antimony, etc. Coinciding patterns are typically indicative of a buried feature and can be used to filter out spurious anomalies. Consideration must be given to any geochemical surveys, given that transported material may give rise to false anomalies.

Exhibit D: A typical soil sample is taken following survey protocols to ensure proper quality control. The survey design will dictate sampling depth, density, size, etc. Soil surveys provide a low-cost method of screening large areas in advance of more expensive drilling. Source: Pope & Company Limited

Exhibit E: Large “cathedral” or smaller “mushroom” type termite mounds are often sampled as a proxy for deeper sampling. Combining soil and termite sampling can be done in areas of in situ and transported media. Source: Pope & Company Limited

S

Exhibit C: Drill holes from a site visit in West Africa display the change from oxide into transitional and deeper sulphide zone. Oxide-transitional-sulphide boundaries are frequently gradational and variable in thickness. Source: Pope & Company Limited

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APPENDIX IV: GOLD

Gold Price Forecast

In our analysis of gold properties we are using $1,600/oz Au as our base case price. This is more aggressive than forecasts used by many of the big banks and Feasibility Studies which use 3-year trailing averages (currently - $1,419/oz Au). The average gold price this year to date has been $1,661/oz Au.

We believe the higher long term gold price is justified by:

Limited supply growth due to impediments to new production and declining grades of old produc-tion;

Increased financial investment;

Central Banks, especially China, increasing rather than divesting their gold holdings.

Gold Fields Commentary on Gold Mine Supply

A recent presentation by Gold Fields (GFI: NYSE) made some interesting points on mine supply. Firstly the major gold producers have had difficulties increasing their production. Between 2006-2011, gold production declined despite higher gold prices.

Operating unit costs of gold production are increasing while gold grades are decreasing. The all-in costs for gold production are significantly higher than the headline cash costs of production especially for greenfields opera-tions.

We believe that while global financial instability has resulted in increased gold investment by central banks, in ETFs and gold hoarding, we believe that the changing role of China in gold consumption, fabrication, and Central Bank purchases are of greatest significance. We believe that China plans to promote the Yuan to becoming an international currency and possibly a Reserve Currency.

Gold Supply & Demand (T) 2008 2009 2010 2011 2012F 2013F

Mine Production: 2,429 2,611 2,740 2,818 2,900 2,960

Old Scrap: 1,350 1,735 1,719 1,661 1,750 1,600

Net Official Sales: 235 34 -77 -455 -400 -300

Fabrication Total: 3,027 2,517 2,784 2,760 2,585 2,720

Carat Jewelry 2,304 1,814 2,017 1,973 1,850 1,950

Official Coins 192 234 213 246 185 200

Other 531 469 554 541 550 570

Bar Hoarding: 621 498 882 1,209 1,250 1,000

Physical Surplus: 366 1,365 716 56 415 540

Net hedging: 357 234 108 -6 0 0

Investment in ETFs: 321 617 368 162

Implied Other (Di)nvestment: -312 514 240 -100 415 540

Price- pm fix, $/oz 872 972 1,225 1,585 1,650 1,600

Exhibit F: Gold price – spot vs. expecta-tion Source: Bloomberg

Exhibit G: Gold Supply and Demand by Year Source: Gold Fields Annual Report, 2012

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Gold Supply

Mine Supply

Despite the spectacular rise in the price of gold since 2002, mine supply has not increased as rapidly as one expected. Barriers to production such as permitting, lack of infrastructure, and constraints on manpower, along with economic nationalism, have tempered new investment.

Cost of production has been increasing due to higher capital costs, lower ore grades and increased operating costs, particularly with regards to energy and power costs.

Old Scrap

High prices resulted initially in an influx of old scrap, however it appears scrap additions to the mar-ket have levelled off.

Net Official Sales

Between March 2000 and December 2011, Central Banks divested 2,232.9 M t Au, becoming major suppliers of gold to the market. Since 2007 however, Central Banks have shifted from being net sell-ers to net buyers of gold. This is a net change of 690 t of gold, from official sales of 235 t in 2008 to buying of 455 t in 2011. China’s Central Bank was the biggest sovereign buyer of gold. If China is to become a reserve currency, we expect that China will increase its gold reserves significantly from current levels.

Since 2004, ETFs have inventoried nearly 2,500 t Au.

Rank Country/Entity Tonnes % of Reserves

1 United States 8,133.5 75.1

2 Germany 3,395.5 71.9

3 IMF 2,814.0

4 Italy 2,451.8 71.3

5 France 2,435.4 71.6

6 China 1,054.1 1.6

7 Switzerland 1,040.1 14.2

8 Russia 918.0 9.2

9 Japan 765.2 3.1

10 Netherlands 612.5 60.2

11 India 557.7 9.8

12 ECB 502.1 32

13 Taiwan 422.7 5.6

14 Portugal 382.5 89.9

15 Venezuela 365.8 74.8

16 Saudi Arabia 322.9 2.7

17 United Kingdom 310.3 15.9

18 Lebanon 286.8 30

19 Spain 281.6 27.6

20 Austria 280.0 55.6

Total 27,332.5

* Source: World Gold Council from IMF figures

World Official Gold Holdings

International Financial Statistics, August 2012

Exhibit H: World Official Gold Holdings Source: World Gold Council from IMF Figures

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Exhibit I: Total Global Gold ETF Holdings (ETFs and similar products, including closed-end gold funds) by Quarter. Source: World Gold Council

Exhibit J: Change in Gold Reserves, March 2000 to December 2011 Source: World Gold Council (Quarterly Gold and FX Reserves Q4 2011); Erb & Harvey, Gold 2012

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GLOSSARY OF ABBREVIATIONS ~ Approximately

B Billion

km Kilometers

m Meters

M Million

oz Ounces

t Tonnes

tpa Tonnes per year

tpd Tonnes per day

30


IMPORTANT DISCLAIMERS Company Specific Disclosures 1. A long position in the securities of the subject company is held by the research analysts, by a member of the research analyst’s household, or in an account over which the research analysts has discretion or control. 2. Pope & Company Limited may have a position in the securities mentioned herein and may make purchases and/or sales of these securities from time to time in the open market or otherwise. At time of issue of this report, Pope & Company Limited held in the aggregate less than 1% of the outstanding shares (of any class of equity securities) of this issuer. 3. This research report refers to Channel Resources Common shares. 4. A Pope & Company Limited employee has visited Tanlouka site and compensation was in the form of travel by truck to and from the site. Stock Ratings SPECULATIVE BUY: The stock is expected to provide a total return in excess of 20% over the current trading price over the next 12 months; however, there is material event risk associated with the investment. BUY: The stock s expected to provide a total return in excess of 15% over the current trading price over the next 12 months. HOLD: The stock is expected to provide a total return of 0% to 15% over the current trading price over the next 12 months. SELL: The stock is expected to provide a negative total return over the next 12 months. Risk Ratings Low/Average Risk: Stocks with less volatility than the market as a whole, with solid balance sheets and dependable earnings. Above Average Risk: Stocks with more volatility than the market. Financial leverage is considerable but not threatening, earnings are more erratic or other quality concerns regarding accounting, management track record, and similar issues. Speculative: Stocks of unproven companies or ones with very high financial leverage, suspicious accounting, or with other significant quality concerns. A speculative risk rating implies at least the possibility of financial distress leading to a restructuring. Research Dissemination Policy Pope & Company Limited makes its research products available in electronic and/or printed formats and simultaneously distributes them to its institutional clients who are entitled to receive them. Research Reports are distributed by email. Analyst Certification Each analyst of Pope & Company Limited whose name appears on this research report hereby certifies that (i) the recommendations and opinions expressed in the research report accurately reflect the research analyst's personal views about any and all of the securities or issuers discussed herein that are within the analyst’s coverage universe and (ii) no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the provision of specific recommendations or views expressed by the research analyst in the research report.

Disclaimer

This report is produced entirely by Pope & Company Limited Although the information contained in this report has been obtained from sources that Pope & Company Limited believes to be reliable, we do not guarantee its accuracy, and as such, the information may be incomplete or condensed. All opinions, estimates and other information included in this report constitute our judgment as of the date hereof and are subject to change without notice. Pope & Company Limited will furnish upon request publicly available information on which this report is based. In respect of the distribution of this report in Canada Pope & Company Limited accepts responsibility for its contents. To make further inquiry related to this report, Canadian residents should contact their Pope & Company Limited representative. To effect any transaction, Canadian residents should contact their Pope & Company Limited Investment advisor.

Copyright

This report may not be reproduced in whole or in part, further distributed, published or referred to in any manner whatsoever, nor may the information, opinions or conclusions contained in it be referred to without in each case the prior express written consent of Pope & Company Limited.

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NOTES

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Pope & Company Limited (“Pope”) is a full service independent investment dealer founded in 1962 by Joseph Pope. Pope has, throughout its history, offered diverse services including acting as a primary dealer of the Bank of Canada. Through its growing Capital Markets division, the firm continues to provide innovative ideas to its institutional client base. With a focus on natural resource and commodity sector investments, Pope has a proven track record of identi-fying undervalued opportunities. Pope is a member of the Investment Industry Regulatory Organization of Canada (IIROC) and The Canadian Investor Protection Fund (CIPF).

POPE & COMPANY LIMITED CONTACTS

Office Pope & Company Limited 40 University Avenue, Suite 420 Toronto, Ontario, Canada M5J1T1 Tel: 416-593-5535 Fax: 416-593-5099 www.popecompany.com Francis M. Pope (President & CEO) 416-593-5537 D’Arcy Mackenzie (CFO) 416-593-5541 Adam Kretschmann (Compliance) 416-593-5535 Anita Ristic (Accounting) 416-593-5540 Deirdra Brown (Executive Assistant) 416-361-3298 Institutional Equity Sales Dan Weir (Head of Sales) 416-588-6139 Alex Pope 416-588-1347 Adriana Braczek, MBA 416-588-7237 Institutional Equity Trading Gord Baker (Head of Trading) 416-588-3873 Bill Owens 416-588-6419 Mining Equity Research Hendrik Visagie, MBA (Analyst) 416-588-7014 David M. Leng, P.Geol. (Associate) 416-361-3493

initiating coverage - typepad...at 0.94 g/t au: 425,000 gold ounces, inferred mineral resources:...

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