Analyst Ideas of the Week Two exciting stories to watch in 2017

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1 Week of January 2, 2017 Analyst Ideas of the Week Two exciting stories to watch in 2017 Sid Rajeev, B.Tech, MBA, CFA Head of Research Fortune Minerals Limited (TSX: FT) Cobalt prices had a strong run last year. Since we initiated coverage on Fortune Minerals on October 12, 2016, the price of cobalt has increased by 15% to US$14.92 per lb. The year-end price reflected a 36% YOY increase. The following chart shows cobalt prices since 2005.

2 2 As mentioned in our initiating report, we consider cobalt a highly overlooked commodity by investors. We expect the strong demand for cobalt in rechargeable batteries will continue to be the key demand driver of cobalt going forward. Another key factor that is expected to drive prices is the growing concerns over cobalt ore supplies from the Democratic Republic of the Congo ( DRC ). The DRC is the world s largest cobalt supplier, and currently produces over 50% of the global supply. We believe these growing concerns will play a critical role in consumers decisions on where to source their cobalt supplies from, which gives projects such as Fortune s NICO a very strong advantage based on its location in a stable and safe jurisdiction. Fortune s NICO project, located in Canada s Northwest Territories ( NWT ), is an advanced development stage polymetallic project with cobalt and gold as the primary metals, and bismuth co-production, as well as copper as a minor by-product. Two feasibility studies have been completed on the NICO project. The project has all key permits in place, including environmental assessment ( EA ) approvals, to commence construction. Management is currently evaluating financing options and off-take for the products it plans to produce.

3 The project is estimated to produce 1,615 tonnes per year, or 1.9% of the global refined production. There is only one other advanced stage cobalt project in the U.S. and Canada, which is the Idaho Cobalt Project ( ICP ) owned by ecobalt Solutions Inc (TSX: ECS). The following table shows a comparison of the key parameters, as presented in our initiating report. The table indicates that NICO is a much larger project than the ICP, and therefore, annual production and initial CAPEX estimates are much higher. 3

4 4 ecobalt Solutions Fortune Minerals Project Idaho Cobalt Project NICO Project Location Idaho, USA NWT, Canada Capital Spent $110M $120M Status PEA in 2015 FS in 2014 Type Undergound Open pit Mine Life 12.5 years 20 years M&I Inferred Resources 0.55% Co and % Cu and 58 Koz 0.53 gpt Au % Co and % Cu and gpt Au Reserves % Co, gpt Au, % Bi & % Cu CAPEX US$147M $589M Throughput 800 tpd / 36 tpd 4,650 tpd / 180 tpd Annual Production (Co) 2.77 Mlbs (1,500 tons) of Co 3.56 Mlbs / 1,615 tonnes Annual Production (Cu) 4.53 Mlbs Cu 0.58 Mlbs / 264 tonnes Annual Production (Au) 3.6 Koz gold 41.4 koz Annual Production (Bi) 3.86 Mlbs / 1,749 tonnes LOM Production (Co) Mlbs Co Mlbs LOM Production (Cu) Mlbs Cu Mlbs LOM Production (Au) 47 Koz gold 814 koz LOM Production (Bi) Mlbs Cash cost net of by products US$4.94 per lb Co negative $5.19 per lb Co Price of Cobalt contained in Cobalt Sulfate Heptahydrate (per lb) US$19.5 US$19.04 Cu price (per lb) US$2.6 US$2.38 Au price US$1,200 US$1,350 Bi Price (per lb) $12.64 Exchange rate 0.88 After-tax IRR 24.07% 15.1% After-tax NPV 8.5% 7% Enterprise Value $77M $46.3M M&I Resources Proved and Probable Reserves Cobalt Equiv. lbs (Mlbs) EV / Co lbs $1.57 $0.22

5 We believe the unique combination of gold and cobalt make NICO a very attractive investment opportunity for both mining and technology related project financiers. The company recently added a few high profile members to its team, which demonstrates management s positive outlook and intent to aggressively advance the NICO project to production. Management is currently evaluating financing options and off-take for the products it plans to produce. We have a BUY rating with a fair value estimate of $0.85 per share (Risk 5). Shoal Games Ltd. (TSXV: SGW) Shoal launched its second product / app, Garfield Bingo last month. Google Play indicates 5k 10k downloads so far with a current user rating of 4 out of 5. We expect Garfield s brand name and its global following to enable the company to attract a large user-base at significantly lower costs. Shoal s first bingo app, Trophy Bingo, has had over 0.60 million downloads, and has generated over $0.50 million in revenues since its launch. The company expects to launch Garfield Bingo China in early 2017, by partnering with a local distribution company. China is a major market for mobile gaming. As an example of the potential for a Garfield game in China - in December 2015, Animoca Brands (ASX: AB1) launched a localised version of their popular mobile game, Garfield Chef, in China through Xiaomi the number one smart phone manufacturer in China. The app has had 7 million downloads since its launch. In September 2016, the company announced that it has entered into a licensing arrangement with a private London (UK) based company called Rooplay Inc. According to the company, Rooplay has developed an innovative cloud-based gaming / educational platform for children. Although details were not disclosed, the company has stated that Rooplay will eventually offer thousands of curated games, developed in house and licensed from third parties. According to management, Rooplay will be the first platform of its kind to offer personalized and child-led educational experiences. It will be run on a subscription based, recurring revenue business model. We believe that Rooplay not only allows Shoal to expand its product portfolio, but also the opportunity to diversify outside the niche bingo market, which is currently dominated by two leaders Bingo Blitz and Bingo Bash. Rooplay s target market is significantly larger than the approximately $150 million annual bingo gaming market. 5

6 Rooplay is expected to be launched in Q We consider this as very positive for the company as the diversification approach significantly increases the company s probability of success a strategy used by most of the companies in the space. The company has a line of credit and loan arrangement with its Chairman, Tarrnie Williams, and another major shareholder, for up to $5 million. We expect the company to use this facility to fund development costs and G&A expenses for the next 3 to 6 months. We have a BUY rating with a fair value estimate of $1.50 per share (Risk 5). The upcoming launch of Rooplay and Garfield Bingo s recent release, we believe, make Shoal a very exciting story for speculative investors. 6

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