Emerging Producers Benefiting from Record Metal Prices

The market should reward companies with improving fundamentals. In the metals and mining industry this include those initiating or increasing unhedged production of metals at current record prices. These companies should have financial flexibility for furthering exploration, advancing projects or making acquisitions. Additionally, they may have reduced risk exposure and consequently greater upside. This is an update of companies included in our special report Cash Flow is Key to Quality in 2008.

The corporate presentations of these companies may be studied via the following links. We believe the combination of rich media corporate presentations with our commentary may assist investors in making better decisions aligned with their own risk preferences, return requirements, and investment horizons.

• Acadian Mining Corporation
• Etruscan Resources Inc.
• NovaGold Resources Inc.
• Mercator Minerals Ltd.
• Minefinders Corporation Ltd.

Acadian Mining Corporation

Acadian Mining Corporation (ADAIF.PK) has a growing portfolio of gold properties, and recently started production at its zinc-lead Scotia Mine, in politically stable Nova Scotia, which has excellent infrastructure and some of North America’s greatest ice-free harbors. The Scotia Mine is now processing over 2,100 tonnes per day. At US$1.10 zinc and US$1.20 lead, management anticipates C$50 million in revenues and C$25 million pre-tax cash flow in 2008.

Acadian has a reserve of 4.6 million tonnes, less than half the resource, which is adequate for a seven to eight year mine life. The resource has a strike length of only four kilometers, representing only a fraction of existing claims covering similar host rock over a 50 kilometer strike length. These holdings represent 30% of Acadian’s 54,000 hectares of mineral claims in Nova Scotia.

Acadian also has a gold resource of 1.5 million ounces contained in four deposits which are open to expansion. They control 32,000 hectares which are prospective for similar style gold deposits. Management is pursuing a central processing strategy which contemplates a 2,500 tpd facility producing 125,000 ounces per year. Acadian is considering spinning off its gold projects to allow investors a purer investment opportunity.

Etruscan Resources Inc.

Etruscan Resources Inc. (ETRUF.PK) is a gold exploration company transitioning to producer status. Etruscan has a 20,000 km² land position, the largest of any mining company in West Africa, plus another 9,000 km² in Namibia, and a 54% interest in Etruscan Diamonds Ltd. with 800 km² in South Africa. Etruscan’s Youga Gold project in Burkina Faso is scheduled to reach full production in 2Q08, producing 88,000 ounces of gold per year over a seven-year mine life, which they hope to expand to about 12 years.

Etruscan has established a price protection program to provide at least US$18 million in annual cash flow at a gold price of $629 or below. At $800 an ounce, cash flow is estimated at US$30 million each year. Cash flow should cover overhead and an aggressive exploration program.

Etruscan has a number of projects in its pipeline. They expect to complete a Feasibility Study on their Agbaou project in Côte d’Ivoire by May 2008, adding an additional 100,000 ounces of annual gold production by late 2009. They are advancing several kilometer-wide targets in Mali. Etruscan Diamonds is ramping production to 100,000 m³ per month and nearing completion of a Pre-Feasibility in 1Q08 to go public in the next eight months.

NovaGold Resources Inc.

NovaGold Resources Inc. (NG) is targeting commercial production at its Rock Creek gold project in Nome, Alaska in 2Q08. The mine is scheduled to produce 100,000 ounces of gold, providing US$25 to US$30 million in free cash flow annually at current metal prices. The Rock Creek mine is a significant project dwarfed by NovaGold’s other world-class properties.

NovaGold’s 50-50 partnership with Barrick on Donlin Creek, one of the world’s largest undeveloped gold projects, should be the story for the mining industry in 2008. The in-pit resource is believed to be over 30 million ounces. An updated resource estimate is underway, including drilling from both 2006 and 2007 totaling 150,000 meters. Current exploration is targeting a new discovery at East Acma with drill results exceeding 1,000 gram-meters. A Feasibility Study defining an optimal approach to power for the project is expected by mid-2008.

NovaGold has two other world-class projects; its 50-50 partnership with Teck Cominco on the Galore Creek project in British Columbia, and a 51-49 partnership with Rio Tinto on the Ambler project in the Brooks Range in northern Alaska. We expect Teck Cominco to spend at least US$80 million in 2008 at Galore Creek (Teck is required to spend at least an additional US$140 million to retain its 50% interest) while new approaches are being developed to optimize the project. The Ambler project is one of the world’s largest high grade copper-zinc massive sulfide deposits with significant gold and silver. NovaGold is scheduled to complete an updated resource estimate and preliminary economic assessment on Ambler in 2008.

Mercator Minerals Ltd.

Mercator Minerals Ltd. (MLKFF.PK) is generating cash flow from production of cathode copper at its wholly owned Mineral Park mine near Kingman, Arizona. The mine now produces about one million pounds of cathode copper per month, generating approximately US$2.2 million in free cash flow per month. Mercator is proceeding with construction of a 50,000 tpd mill in two phases for production of copper, molybdenum, and silver in concentrates by mid -2008.

This first phase of construction of the mill facility, at 25,000 tpd, is fully funded and production is unhedged. At metal prices of US$3.00 copper, US$25 molybdenum, and US$7.50 silver, in the first year of production they anticipate generating cash flow of US$144.5 million. The Company will fund the second phase of construction from cash flow and ramp total production to 50,000 tpd by mid-2009.

The Mineral Park mine is the largest molybdenum-copper project under construction in North America. Total estimated production is over one billion pounds of copper, 250 million pounds of molybdenum, and 1.2 million ounces of silver. The project has a 25-year mine life, excellent economics with no royalties, and a strip ratio of only 0.18. Cash costs are estimated at US$0.81 per pound copper equivalent, at US$2.00 per pound copper the molybdenum production is free, or at US$10.00 per pound molybdenum the copper production is free.

Minefinders Corporation Ltd.

Minefinders Corportation Ltd (MFN) is scheduling full commercial production at its Dolores project near Chihuahua, Mexico for mid 2008. They initiated mining in November 2007, and began stockpiling ore, which will be placed on the leach pad for gold-silver production. The project is designed to process 18,000 tpd over a 14-year mine life, recovering 1.69 million ounces of gold and 63.5 million ounces of silver.

Minefinders is updating their reserve model and economic projections at Dolores. An updated resource model was audited in June 2007, with a Measured and Indicated resource of 123.4 million tonnes, containing 3.25 million ounces of gold and 154.8 million ounces of silver. The new reserve should lead to an updated financial model and Feasibility Study to consider constructing a mill which may increase recoveries to about 90% for both gold and silver.

The deposit at Dolores is open to expansion to the north and south. They have encountered high-grade mineralization up to 250 meters below the conceptual pit, which is not included in the current reserve. Minefinders also has a number of exploration projects in a large land package in northern Mexico. With US$26 million in working capital, plus a US$50 million revolving credit facility, Minefinders is comfortably moving to mid-tier producer status.

Disclosure: The author is long ADAIF.PK, ETRUF.PK, NG, and MFN and has no positions in any other stocks mentioned in this report. An affiliate of the author’s employer provides corporate advisory services to ADAIF.PK, ETRUF.PK, NG, MLKKF.PK, and MFN