Commodities Price Changes: Slowdown In Global Economy, US$ Driving Adjustment

Transcription

1 Base Metals and Bulk Commodities David Charles, CFA / (514) dcharles@dundeecapitalmarkets.com Patrick Racicot, CFA / (514) pracicot@dundeecapitalmarkets.com October 8, 2014 Joseph Gallucci, MBA / (514) jgallucci@dundeecapitalmarkets.com Sean Bracken / (514) sbracken@dundeecapitalmarkets.com Commodities Price Changes: Slowdown In Global Economy, US$ Driving Adjustment 1) We are updating our commodity price forecast by marking-to-market our short-term forecast, adjusting medium term prices and leaving our long-term view unchanged at this time. The most meaningful changes were for hard coking coal prices, copper, zinc and molybdenum in The recent strength of the US$ is the key driver for the adjustment to our base metals prices following the summer slowdown in the global economy. As for bulk commodities, we believe they need a reduction in supply before they can rebound. We maintain our rationale as to why we believe Base Metal stocks are poised to rebound from recent lows before finally outperforming in next months (see our rationale starting on page 4). New DCM Base Metals and Bulk Commodity Price Forecast Annual Quarterly Sources: Dundee Capital Markets 2) We present the new target prices for our DCM base metals universe. Our new target prices for the larger producers are still based on anticipated 2015E EV/EBITDA multiples roughly ranging from 6x to 8x. We are also downgrading TCK.B from Buy to Neutral. See the total impact on our EBITDA, EPS, CFPS and NAV estimates for our coverage universe on page 2 and 3. Our preferred equities (risk/reward) include; Capstone Mining (Top Pick) Trevali Mining (Top Pick) First Quantum Minerals Hudbay Minerals (We are restricted on Lundin Mining) Please see Disclosures and Disclaimers at the end of this report. A division of Dundee Securities Ltd. Dundee Capital Markets is a registered trademark of Dundee Corporation, used under license.

2 Base Metals Stocks are cheap, relative to TSX EV-EBITDA multiples are in-line with bottom of cycle last year In an environment where the outlook for the global economy and base metal prices are wobbling, valuations are under pressure. Valuation is cheap but in-line with bottom of cycle. We believe mining stocks will see valuation multiples expand and the sector will outperform the S&P TSX index in Valuation Metrics Now vs Bottom Current (Oct 2014) Sector Bottom (July 2013) EV/EBTIDA P/E P/NAV EV/EBTIDA P/E P/NAV (NTM) (NTM) (NTM) (NTM) TSE Metals & Mining 6.3x 11.5x 0.63x 5.8x 11.1x 0.67x S&P/TSX 8.2x 14.5x n/a 8.1x 14.8x n/a Discount 77% 79% n/a 72% 75% n/a Sources: FactSet Consensus, Dundee Capital Markets Changes to DCM Earnings and Cashflow Estimates Post-Commodity Price Update (alphabetical order) Name Major Producers Symbol Source: Dundee Capital Markets EBITDA ($M) EPS CFPS NAV 2014 % 2015 % 2014 % 2015 % 2014 % 2015 % ($/sh) % First Quantum FM-T $1,645 (3%) $2,876 (8%) $0.96 (5%) $1.61 (14%) $2.10 (2%) $3.73 (7%) $25.80 (1%) Teck Resources TCK.B $2,372 (3%) $2,812 (20%) $0.78 (9%) $1.08 (39%) $2.73 (3%) $3.05 (18%) $35.58 (4%) Producers Atico Mining ATY-T $8 (5%) $14 (18%) $0.01 (21%) $0.04 (37%) $0.07 (5%) $0.09 (18%) $0.78 (3%) Capstone Mining CS-T $239 14% $299 (10%) $ % $0.37 (14%) $ % $0.54 (9%) $4.83 (0%) Copper Mountain CUM-T $73 (2%) $105 (11%) $0.23 (3%) $0.33 (17%) $0.66 (1%) $0.95 (10%) $2.33 (4%) Hudbay Minerals HBM-T $114 2% $489 (4%) $ % $1.00 (8%) $0.44 3% $2.00 (4%) $13.91 (1%) Ivernia Inc. IVW-T $19 (3%) $71 0% $0.01 (8%) $0.05 0% $0.02 (3%) $0.06 0% $0.36 (0%) Katanga Mining KAT-T $181 (1%) $433 (7%) $0.02 (4%) $0.13 (9%) $0.07 (1%) $0.15 (7%) $0.75 (1%) Largo Resources LGO-T $22 0% $75 0% ($0.00) (18%) $0.02 (15%) $0.01 (15%) $0.03 (15%) $0.36 (0%) Lundin Mining LUN-T $507 34% $1,270 53% $ % Restricted $ % $ % $ % $7.85 (3%) Nevsun Resources NSU-T $254 (1%) $231 (8%) $0.30 (1%) $0.28 (7%) $0.76 (1%) $0.70 (7%) $4.33 (1%) Taseko Mines TKO-T $110 (2%) $197 (9%) $0.12 (3%) $0.49 (9%) $0.37 (1%) $0.69 (6%) $3.96 (1%) Thompson Creek TCM-T $262 (7%) $245 (11%) $0.19 (27%) $0.06 (69%) $0.72 (9%) $0.75 (14%) $3.85 (5%) Trevali Mining TV-T $20 3% $96 9% ($0.00) (41%) $ % $0.03 9% $ % $1.93 1% DUNDEE CAPITAL MARKETS Page 2

3 DCM Base Metals and Bulk Commodities Updated Ratings and Recommendations NEW PREVIOUS Price MCap Implied NAV Price Target Implied NAV Target Name Symbol Rating Target Rating Target Analyst 6-Oct-14 (US$M) Return ($/sh) /NAV /NAV EBITDA EPS return ($/sh) /NAV BASE METALS - Major Producers First Quantum FM-T C$21.03 $11,394 BUY -- $ % C$ x 1.09x US$2,876 $1.61 BUY $ % $ x DC Teck Resources TCK.B C$19.84 $11,596 NEUTRAL $ % C$ x 0.67x $2,812 $1.08 BUY $ % $ x DC Major Producers Average 0.69x 0.88x 0.97x BASE METALS - Producers Atico Mining ATY- C$0.71 $77 BUY -- $ % C$ x 1.29x US$14 $0.04 BUY $ % $ x DC Capstone Mining CS-T C$2.16 $781 BUY -- $ % C$ x 0.88x US$299 $0.37 BUY $ % $ x JG Copper Mountain CUM-T C$2.23 $239 NEUTRAL -- $ % C$ x 1.20x US$105 $0.33 NEUTRAL $ % $ x JG Hudbay Minerals HBM-T C$9.16 $2,145 BUY -- $ % C$ x 0.93x US$489 $1.00 BUY $ % $ x DC Ivernia Inc. IVW-T C$0.10 $72 BUY -- $ % C$ x 0.84x US$71 $0.05 BUY $ % $ x JG Katanga Mining KAT-T C$0.40 $678 NEUTRAL -- $ % C$ x 0.53x US$433 $0.13 NEUTRAL $0.40 1% $ x DC Largo Resources LGO-T C$0.27 $382 BUY -- $ % C$ x 1.25x US$75 $0.02 BUY $ % $ x JG Lundin Mining LUN-T C$5.33 $3,478 BUY -- $ % C$ x 1.02x Restricted US$1,270 $1.02 BUY $ % $ x DC Nevsun Resources NSU-T C$4.07 $768 BUY -- $ % C$ x 1.39x US$231 $0.28 BUY $ % $ x JG Taseko Mines TKO-T C$1.91 $437 BUY -- $ % C$ x 0.88x $197 $0.49 BUY $ % $ x JG Thompson Creek TCM-T C$2.37 $457 BUY -- $ % C$ x 0.91x $245 $0.06 BUY $ % $ x DC Trevali Mining TV-T C$1.18 $348 BUY -- $ % C$ x 1.04x $96 $0.15 BUY $ % $ x JG Producers Average 0.65x 1.01x 1.04x BASE METALS - Developers Canadian Zinc CZN-T C$0.24 $57 BUY -- $ % C$ x 0.93x NM NM BUY $ % $ x JG Candente Copper DNT-T C$0.16 $17 SELL -- $ (3%) C$ x 0.06x NM NM SELL $0.15 (3%) $ x DC Curis Resources CUV-T C$0.83 $68 TENDER -- $ % C$ x 0.32x NA NA TENDER $ % $ x JG Excelsior Mining MIN-T C$0.26 $31 BUY -- $ % C$ x 0.33x $0.0 NM BUY $ % $ x JG Heron Resources HER-T C$0.14 $54 BUY -- $ % C$ x 0.60x $0.0 $0.00 BUY $ % $ x JG Ivanhoe Mines IVN-T C$1.07 $779 BUY -- $ % C$ x 0.69x NM NM BUY $ % $ x DC Marengo Mining MRN-T C$0.01 $33 NEUTRAL -- NA NA C$ x NM NM NM NEUTRAL NA $0.21 JG Nevada Copper NCU-T C$1.64 $144 BUY -- $ % C$ x 0.79x $0.0 ($0.62) BUY $ % $ x JG NGEx Resources NGQ-T C$1.73 $324 BUY -- $ % C$ x 1.01x ($20.0) ($0.11) BUY $3.40 $3.37 DC Quaterra Resources QTA-T C$0.06 $13 NEUTRAL -- $ % C$ x 0.39x $0.0 $0.00 NEUTRAL $ % $ x JG Rathdowney ResourcesRTH-T C$0.25 $28 NEUTRAL -- NA NA C$ x NM NM NM NEUTRAL NA $0.36 JG Reservoir Minerals* RMC-T C$4.12 $214 BUY -- NA NA NA NM NM $0.0 $0.00 BUY NA NA DC Zazu Metals ZAZ-T C$0.47 $20 NEUTRAL -- NA NA C$ x NM NM NM NEUTRAL NA $2.80 JG Copper Developers Average 0.21x 0.51x 0.43x AGGREGATES Zinc Developers Average 0.38x 0.76x 0.76x Polaris Minerals PLS-T C$1.99 $163 BUY -- $ % C$ x 1.23x $10 $0.05 BUY $ % $ x DC COAL Coalspur Mines CPT-T C$0.04 $24 NEUTRAL -- $ % C$ x 0.09x NM NM NEUTRAL $ % $ x DC Xinergy Ltd XRG-T C$0.22 $11 UR UR UR UR UR UR UR UR UR UR UR DC *Ideas of Interest: Dundee Capital Markets has not initiated formal continuing cov erage of Idea of Interest companies. All opinions and estimates contained in an Idea of Interest report are subject to change w ithout notice and are prov ided in good faith but w ithout the legal responsibility that w ould accompany formal continuous research cov erage. Source: Dundee Capital Markets DUNDEE CAPITAL MARKETS Page 3

4 Adjusting our Metal prices following period of US$ strength - Zn/Co forecasts up, but rest flat to down We are updating our commodity price forecasts by marking-to-market our short term forecast, leaving our long term view unchanged. Forecast LT 2011A 2012A 2013A Copper US$/lb Change - (0.6%) (4.5%) Zinc US$/lb % 11.4% Lead US$/lb (0.4%) Nickel US$/lb (4.6%) (2.0%) Cobalt US$/lb % 5.5% Molybdenum US$/lb (6.0%) (7.7%) (7.7%) HCC US$/t (1.9%) (17.7%) (16.7%) RB Thermal US$/t (4.6%) (9.6%) (10.0%) Sources: Dundee Capital Markets Global Growth vs. Commodity Prices Global Growth could be revised down further Global growth below 4% is a major headwind for commodities; IMF forecasts 2014/2015 growth of 3.3%/3.8%. If slowdown persist, 2015 forecast could be revised down further. Source: IMF, Federal Reserve and DCM Economics. US $ Strength has dominated TSX Diversified Metals & Mining (commodity) performance This chart shows the impact of 3 factors on the 12-month percent change of the TSX Diversified Metals & Mining Index, namely the US dollar, the cost/profitability and the global demand factors. We can see that the US dollar (in blue) has been the most influential factor in recent period. Source: Thomson Reuters Datastream, WSJ, DCM Economics. DUNDEE CAPITAL MARKETS Page 4

5 Relative Performance Ratio of TSX Metals & Mining Sub Index OVER the S&P/TSX - bouncing along bottom! The ratio of the TSX M+M vs. the S&P/TSX is still well below its 10 year trend line. But the ratio looks set to break out of a 3-yr. downtrend Ratio of "TSX Mining Index" over S&P/TSX (last 10 years) 10 year trend line TSX Capped Dvr Mtl&Mng / S&P/TSX Linear (TSX Capped Dvr Mtl&Mng / S&P/TSX) Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Sources: FactSet, Dundee Capital Markets Metals & Mining Sub-Index performance enters into the "improving" zone - Beginning of a rotation into Base Metals? Using Bloomberg's Relative Rotation metric we show that the Base Metals universe (BM, in blue) has recently moved from the "Lagging" to the "Improving" zone of sector performance. Leading or outperformance is next. We believe the M+M index is likely to benefit from a sector rotation away from Energy (STENRS, in yellow) Sources: Bloomberg, Dundee Capital Markets DUNDEE CAPITAL MARKETS Page 5

6 Global Economy (PMI) Chugging Along- Chinese economy stabilized, US economy looks to be strengthening US and Japanese economies are expanding again. The Chinese economy has stabilized but the Eurozone appears to be stagnating. Chinese GDP appears to be growing at 7.5% Y/Y, as skepticism remains. Mini- Stimulus packages seem to be partially off-setting weakness in the construction sector and worries over shadow banking defaults. Risks: Geopolitical uncertainty in Ukraine, Middle East, HK. Sources: Bloomberg, Dundee Capital Markets Base Metal Prices - Zinc and Nickel up, Copper prices flat (just like Chinese economy), Bulk commodities down From the bottom in July 2013, Base metal prices are generally flat or up, led by nickel and zinc. Nickel-Zinc responds to supply curtailments (new Indonesian regulations and closure of western mines). Copper back testing support around $3/lb due to worries over Chinese economy, collateralized financing deals and strong US$. Outlook for Chinese growth not a surprise but recent economic weakness and US$ strength has negatively impacted sentiment. HCC and Iron ore markets needs to deal with oversupply Curtailments needed soon. Sources: FactSet, Dundee Capital Markets Commodities performance over 1 year Copper (LME Cash $/t) Zinc (LME Cash $/t) Lead (LME Cash $/t) Nickel (LME Cash $/t) 07-Oct Nov Jan Mar Apr Jun Jul Sep-14 Prices Change Base Metals US$/tonne US$/lb 1M 3M 1Y 25.8 Ni 22.6 Zn LME Nickel $16,860 $7.65 (10.6% ) (10.8% ) 22.1% LME Zinc $2,266 $1.03 (3.9% ) 3.7% 19.6% LME Molybdenum $24,030 $10.90 (17.1% ) (19.9% ) 19.1% LME Cobalt $31,500 $14.29 (3.1% ) 3.6% 18.9% LME Aluminum $1,950 $0.88 (6.3% ) 3.5% 7.2% 1.1 Pb -6.2 Cu LME Lead $2,070 $0.94 (8.5% ) (4.1% ) (1.1%) LME Copper $6,710 $3.04 (4.5% ) (3.2% ) (7.5%) LME Tin $20,502 $9.30 (6.1% ) (7.7% ) (10.9%) % DUNDEE CAPITAL MARKETS Page 6

7 LME Inventories- Total Inventories declining, led by zinc and copper, looks like we will have to wait for Nickel Total LME Inventories rolled over in late 2013, but rose in August. With copper and zinc inventories down 63% and 23% each over the last 12 months, total base metals inventories (ex-aluminum) are back down to 2010 levels. Nickel inventories are still high (up 54% over the last 12 months), but are expected to peak in Chinese NPI production finally fell 110,000 tonnes in August. As laterite stockpiles are used up, expect NPI production to fall further. This will help send nickel market into deficit. Inventories Change Base Metals tonnes 1W chg 1M 3M 1Y 2Y LME Nickel 347,970 8, % 13.8% 53.8% 184.2% LME Lead 225, % 16.6% (6.7%) (17.8% ) LME Aluminum 4,634,225-37,275 (3.8% ) (8.3% ) (14.1%) (8.6% ) LME Zinc 752,050-1, % 12.4% (22.6%) (22.8% ) LME Tin 9, (27.8% ) (17.0% ) (31.2%) (22.9% ) LME Copper* 269,245 2, % 6.2% (63.0%) (38.5% ) *Copper inventory includes LME, COMEX and Shanghai Sources: Bloomberg, Dundee Capital Markets Need US$ to weaken Medium term - US monetary reflation coming to an end and Europe, Japan, China easing. This should support the US$. But with US$ at 6-year high could be ripe for a short term technical correction Sources: Federal Reserve, FactSet, DCM Economics. DUNDEE CAPITAL MARKETS Page 7

8 Lower Energy Prices A Positive For Base Metals Miners Oil prices have weakened recently despite uncertainties in the Middle East and Ukraine. Weaker energy (oil futures in contango) prices would be a positive for miners. Sources: FactSet is All About Supply-Zinc and Nickel ahead of copper Copper mine shutdowns and supply disruptions (Escondia, Grasberg) have led to smaller surpluses or larger deficits. The great copper surplus in 2014 never happened. Toromocho and Caserones start-up slowerthan-expected. Sierra Gorda just started shipping (one quarter late, impacting molybdenum). Zinc doing better as shutdowns have already occurred will be a key year for zinc; Century mine closure biggest catalyst. Sources: Teck, Ministry of Commerce and Industry, CEIC Generate. Mining margins-set to increase in Q3; mining stocks have room to catch-up Based on consensus estimates, EBITDA margins should bottom in Q2/2014 and increase in Q3. This could be the bottom for the cycle in terms of EBITDA. This will add fundamental support for higher share prices. Sources: FactSet Consensus, Dundee Capital Markets DUNDEE CAPITAL MARKETS Page 8

9 DCM Base Metals and Bulk Commodities Updated Ratings and Recommendations Major Producers Teck Resources TCK.B First Quantum FM Producers Atico Mining ATY Capstone Mining CS Copper Mountain CUM Ivernia Inc. IVW Katanga Mining KAT Largo Resources LGO Lundin Mining LUN Nevsun Resources NSU We are lowering our rating from BUY to NEUTRAL and are lowering our target to $24.00/sh (from $29.00) using a 7.0x EV/EBITDA multiple to our 2015 EBITDA of $2.8B (down from $3.5B mainly due to lower HCC forecasts). We are reiterating our BUY rating but are lowering our target to $28.00/sh (from $30.00) using a 7.4x EV/EBITDA multiple to our 2015 EBITDA of $2.9B (down from $3.1B mainly due to lower copper and nickel forecasts). We are reiterating our BUY rating and target price of $1.00/share based on a 6.5x EV/EBITDA multiple to our 2016E EBITDA of $19M (no change). We are reiterating our BUY and TOP PICK rating but are lowering our target to $4.25/sh (from $4.50) using a 6.0x EV/EBITDA multiple to our 2015E EBITDA of $299M (down from $330M). We are reiterating our NEUTRAL rating but are lowering our target to $2.80/sh (from $3.00) using a 6.0x EV/EBITDA multiple to our 2015E EBITDA of $105M (down from $117M). We are reiterating our BUY rating and target price of $0.30/share based on a 0.8x multiple to our NAV of $0.36/sh (no change). We are reiterating our NEUTRAL rating and target price to $0.40/sh based on a 0.5x multiple to our NAV of $0.75/share. We are reiterating our BUY rating and target price of $0.45/share based on an 8.0x EV/EBITDA multiple to our 2015E EBITDA of $75M (no change). Restricted We are reiterating our BUY rating and $6.00/share target based on a 3.9x EV/EBITDA multiple to our 2015E EBITDA of $231M (down from $251M). Taseko Mines TKO Thompson Creek TCM Trevali Mining TV Developers Cadente Copper DNT Canadian Zinc CZN Excelsior Mining MIN Heron Resources HER Ivanhoe Mines IVN Marengo Mining MRN Nevada Copper NCU We are reiterating our BUY rating but are lowering our target to $3.50/sh (from $3.75) using a 5.1x EV/EBITDA multiple to our 2015E EBITDA of $197M (down from $216M). We are reiterating our BUY rating but are lowering our target price to $3.50/sh using a 6.1x EV/EBITDA multiple to our 2015E EBITDA of $245M (down from $277M mainly due to lower copper and molybdenum prices). We are reiterating our BUY and TOP PICK rating on TV with a $2.00/share based on a 6.4x multiple to our 2015E EBITDA of $96M (up from $87M). We are reiterating our SELL rating but are lowering our target to $0.15/sh based on a 0.05x multiple to our NAV of $2.33/sh. We are reiterating our BUY rating and target of $0.75/share based on a ~0.9x multiple to our NAV of $0.81/share (no change). We are reiterating our BUY rating and target price of $1.00/share based on a 0.3x multiple to our NAV of $3.04/sh (no change). We are reiterating our BUY rating and target price of $0.30/share based on a 0.6x multiple to our NAV of $0.50/sh (no change). We are reiterating our BUY rating and target price of $2.50/share based on a 0.7x multiple to our NAV of $3.63/sh (no change). We are reiterating our NEUTRAL rating with no target price. We are reiterating our BUY rating and target price of $5.25/share based on a 0.8x multiple to our NAV of $6.68/sh (down from $6.71). DUNDEE CAPITAL MARKETS Page 9

10 NGEx Resources NGQ Quaterra Res. QTA Rathdowney Res. RTH Zazu Metals ZAZ Source: Dundee Capital Markets We reiterate our BUY rating and target price of $3.40/sh based on an EV/lbs approach (using $0.025/lb of copper equivalent resources) as it is still too early to reliably value the project using NPV. We are reiterating our NEUTRAL rating and target price of $0.15/share based on a 0.4x multiple to our NAV of $0.39/sh (down from $0.52/sh). We are reiterating our NEUTRAL rating with no target price. We are reiterating our NEUTRAL rating with no target price. Coals & Aggregates Coalspur Mines We are reiterating our NEUTRAL rating and target of C$0.10/sh based on a 0.4x multiple to our NAV of CPT C$0.38/share (no change). Polaris Minerals PLS We reiterate our BUY rating and target of C$3.00/sh based on a 1.2x multiple to our NAV of C$2.44/sh (no change). DUNDEE CAPITAL MARKETS Page 10

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Presentations do not include disclosures that are specific to analysts and specific to companies under coverage. Please refer to formal published research reports for company specific disclosures and analyst specific disclosures for companies under coverage. Please refer to formal published research reports for valuation methodologies used in determining target prices for companies under coverage. Idea of Interest: Dundee Capital Markets has not initiated formal continuing coverage of Idea of Interest companies. Dundee Capital Markets from time to time publishes reports on Idea of Interest securities for which it does not and may not choose to provide formal continuous research coverage. All opinions and estimates contained in an Idea of Interest report are subject to change without notice and are provided in good faith but without the legal responsibility that would accompany formal continuous research coverage. The companies may have recommendations and risk ratings as per our regular rating system and may have target prices, see Explanation of Recommendations and Risk Ratings for details. Any recommendations, ratings, target prices and/or comments expire 30 days from the published date, and once expired should no longer be relied upon as DUNDEE CAPITAL MARKETS Page 12

13 no assurance can be given as to the accuracy or relevance going forward. Dundee does not accept any obligation to update, modify or amend any Idea of Interest report or to otherwise notify a recipient of an Idea of Interest report in the event that any estimates, opinions and recommendations contained in such report change or subsequently become inaccurate. Dundee clients should consult their investment advisor as to the appropriateness of an investment in the securities mentioned. IIROC Rule 3400 Disclosures and/or FCA COBS Disclosures: A link is provided in all research reports delivered by electronic means to disclosures required under IIROC Rule Disclosures required under IIROC Rule 3400 for sector research reports covering six or more issuers can be found on the Dundee Capital Markets website at in the Research Section. Other Services means the participation of Dundee in any institutional non-brokered private placement exceeding $5 million. Where Dundee Capital Markets and its affiliates collectively beneficially own 1% or more (or for the purpose of FCA disclosure 5% or more) of any class of the issuer s equity securities, our calculations will exclude managed positions that are controlled, but not beneficially owned by Dundee Capital Markets. Explanation of Recommendations and Risk Ratings Dundee target: represents the price target as required under IIROC Rule Valuation methodologies used in determining the price target(s) for the issuer(s) mentioned in this research report are contained in current and/or prior research. Dundee target N/A: a price target and/or NAV is not available if the analyst deems there are limited financial metrics upon which to base a reasonable valuation. Recommendations: BUY: Total returns expected to be materially better than the overall market with higher return expectations needed for more risky securities. NEUTRAL: Total returns expected to be in line with the overall market. SELL: Total returns expected to be materially lower than the overall market. TENDER: The analyst recommends tendering shares to a formal tender offer. UNDER REVIEW: The analyst will place the rating and/or target price Under Review when there is a significant material event with further information pending; and/or when the analyst determines it is necessary to await adequate information that could potentially lead to a re-evaluation of the rating, target price or forecast; and/or when coverage of a particular security is transferred from one analyst to another to give the new analyst time to reconfirm the rating, target price or forecast. Risk Ratings: risk assessment is defined as Medium, High, Speculative or Venture. Medium: securities with reasonable liquidity and volatility similar to the market. High: securities with poor liquidity or high volatility. Speculative: where the company's business and/or financial risk is high and is difficult to value. Venture: an early stage company where the business and/or financial risk is high, and there are limited financial metrics upon which to base a reasonable valuation. Investors should not deem the risk ratings to be a comprehensive account of all of the risks of a security. Investors are directed to read Dundee Capital Markets Research reports that contain a discussion of risks which is not meant to be a comprehensive account of all the risks. Investors are directed to read issuer filings which contain a discussion of risk factors specific to the company s business. Medium and High Risk Ratings Methodology: Medium and High risk ratings are derived using a predetermined methodology based on liquidity and volatility. Analysts will have the discretion to raise but not lower the risk rating if it is deemed a higher risk rating is warranted. Risk in relation to forecasted price volatility is only one method of assessing the risk of a security and actual risk ratings could differ. Securities with poor liquidity or high volatility are considered to be High risk. Liquidity and volatility are measured using the following methodology: a) Price Test: All securities with a price <= $3.00 per share are considered high risk for the purpose of this test. b) Liquidity Test: This is a two-tiered calculation that looks at the market capitalization and trading volumes of a company. Smaller capitalization stocks (<$300MM) are assumed to have less liquidity, and are, therefore, more subject to price volatility. In order to avoid discriminating against smaller cap equities that have higher trading volumes, the risk rating will consider 12 month average trading volumes and if a company has traded >70% of its total shares outstanding it will be considered a liquid stock for the purpose of this test. c) Volatility Test: In this two step process, a stock s volatility and beta are compared against the diversified equity benchmark. Canadian equities are compared against the TSX while U.S. equities are compared against the S&P 500. Generally, if the volatility of a stock is 20% greater than its benchmark and the beta of the stock is higher than its sector beta, then the security will be considered a high risk security. Otherwise, the security will be deemed to be a medium risk security. Periodically, the equity risk ratings will be compared to downside risk metrics such as Value at Risk and Semi-Variance and appropriate adjustments may be made. All models used for assessing risk incorporate some element of subjectivity. SECURITY ABBREVIATIONS: NVS (non-voting shares); RVS (restricted voting shares); RS (restricted shares); SVS (subordinate voting shares). DUNDEE CAPITAL MARKETS Page 13

14 Dundee Capital Markets Equity Research Ratings 77% 72% 66% % of companies covered by Dundee Capital Markets in each rating category 55% 44% 33% 40% 25% % of companies within each rating category for which Dundee Capital Markets has provided investment banking services for a fee in the past 12 months. 22% 11% 0% 17% 3% 0% Buy Neutral Sell As at September 30, 2014 Source: Dundee Capital Markets DUNDEE CAPITAL MARKETS Page 14