How to Value Gold and Silver Mining Stocks Don Durrett Copyright 11/21/2011

1 Introduction  The End Result: A Rating  Using a Checklist: A Systematic Approach  Difficulty: Not Knowing How  Starting Point: Collecting Data

 Growth Potential  Pipeline of Projects 2 (1) Properties / Ownership  Flagship Property 2 Million Oz. (gold) / 50 Million Oz. (silver) 2 Million Oz. (gold) / 50 Million Oz. (silver)  Checklist: Ounces, Grade, Cash Costs, Location Ounces, Grade, Cash Costs, Location Exploration Program, Potential Size Exploration Program, Potential Size Company Plans for the Property Company Plans for the Property  Ownership Percentage Percentage

(2) People / Management Team (2) People / Management Team 3  Experience, Reputation, Track Record  Investor Friendly, Management Ownership  Research the CEO

(3) Share Structure (3) Share Structure 4  Share Structure Outstanding Shares (Common Stock) Outstanding Shares (Common Stock) Fully Diluted Shares (add Warrants and Options) Fully Diluted Shares (add Warrants and Options)  Highly Diluted Should be Avoided More than 250 million Fully Diluted More than 250 million Fully Diluted  Investors Reward Tight Structures Each Share has More Value Each Share has More Value  Tight Share Structures are Ideal Less than 100 million Fully Diluted Less than 100 million Fully Diluted

(4) Location (4) Location 5  Mining Friendly Canada, Mexico, Australia, Brazil, Colombia, Indonesia, Sweden, Finland, Canada, Mexico, Australia, Brazil, Colombia, Indonesia, Sweden, Finland, Guyana, Philippines, USA (Idaho and Nevada) Guyana, Philippines, USA (Idaho and Nevada)  Infrastructure in Place Near an Existing Mine Near an Existing Mine  Political / Environmental Risk Nationalization, Royalties, Taxes, Permitting, Native Issues, Floods, Worker Relations, Litigation Nationalization, Royalties, Taxes, Permitting, Native Issues, Floods, Worker Relations, Litigation

(5) Projected Growth (5) Projected Growth 6  Analyzing Upside Potential Production Growth and Resource Growth Production Growth and Resource Growth  Sometimes Companies Give Guidance Sometimes You have to Forecast Growth Sometimes You have to Forecast Growth  Growth is What Creates Upside Potential Companies are Valued on Three Things: Production Oz., Resource Oz., and the Price of Gold/Silver Companies are Valued on Three Things: Production Oz., Resource Oz., and the Price of Gold/Silver  Several Factors Can Hurt Valuation Hedging, High Costs, Perceived Political Risk, Financial Weakness, Permit Issues, Flooding, Mining Accidents, Taxation Hedging, High Costs, Perceived Political Risk, Financial Weakness, Permit Issues, Flooding, Mining Accidents, Taxation

(6) Good Buzz / Good Chart (6) Good Buzz / Good Chart 7  Always Check the Stock Chart How does it Look? Is it Trending Up or Down? How does it Look? Is it Trending Up or Down? Does the Stock Price Rise Consistently with the Gold Price? Does the Stock Price Rise Consistently with the Gold Price? How does it Compare to its Peer Group? How does it Compare to its Peer Group?  Are Other People Buying It? What are People saying on Blogs? What are People saying on Blogs?  Is this a Good Entry Point? Is the Stock at a High? Is the Stock at a High? Is there a Trend Line? Is there a Trend Line? Has there been a Parabolic Move? Has there been a Parabolic Move? Did you Miss the Move? Is the Value Gone? Did you Miss the Move? Is the Value Gone?

(7) Cost Structure / Profitability (7) Cost Structure / Profitability 8  Ideally you Want a Low Cost Structure Divide their Cash Cost (per oz) by the Gold Price Divide their Cash Cost (per oz) by the Gold Price Below 1/3 is a Low Cost Structure, Above 2/3 is a High Structure Below 1/3 is a Low Cost Structure, Above 2/3 is a High Structure Most Stocks Fall Somewhere in Between Most Stocks Fall Somewhere in Between  Hidden Costs Affect Profitability Debt Service Debt Service Exploration Programs / Expansion Exploration Programs / Expansion Compensation Programs / Options Compensation Programs / Options  You can Project Profitability into the Future This is Where Investors Make their Money This is Where Investors Make their Money Use your Instincts/Gut to Decide Future Profitability Use your Instincts/Gut to Decide Future Profitability

(8) Cash / Debt (8) Cash / Debt 9  Cash is King in the Mining Business Cash allows Internal Financing of Exploration and Growth Cash allows Internal Financing of Exploration and Growth Dilution is our Enemy (and cash prevents dilution). Dilution is our Enemy (and cash prevents dilution). Increasing Cash is our Friend Increasing Cash is our Friend  Debt is Not Always a Problem Using Debt to Build a Mine is Normal Using Debt to Build a Mine is Normal Debt can be Paid Back Quickly Debt can be Paid Back Quickly The Key is the Debt Burden The Key is the Debt Burden  Beware of the Burn Rate and Dilution Exploration Companies have No Cash Flow Exploration Companies have No Cash Flow Companies Issue Shares and Warrants to Raise Cash Companies Issue Shares and Warrants to Raise Cash

(9) Low Future Valuation (9) Low Future Valuation 10  Use a Simple Formula Fully Diluted Market Cap / Future Reserves Fully Diluted Market Cap / Future Reserves For Gold < $50 Per Oz. For Silver < $2 Per Oz. For Gold < $50 Per Oz. For Silver < $2 Per Oz. At Some Point in the Future, Reserves will Get Revalued Higher At Some Point in the Future, Reserves will Get Revalued Higher  The Average Value is About $125 Per Oz. Strong Majors can be Valued Above $750 Per Oz. Strong Majors can be Valued Above $750 Per Oz. Strong Mid-Tiers can be Valued Above $500 Per Oz. Strong Mid-Tiers can be Valued Above $500 Per Oz. Strong Juniors can be Valued Above $250 Per Oz. Strong Juniors can be Valued Above $250 Per Oz.  Finding Low Future Valuations is Easy What is More Difficult is Identifying the Red Flags What is More Difficult is Identifying the Red Flags Which Companies Have Low Future Valuations and No Red Flags? Which Companies Have Low Future Valuations and No Red Flags? As You Analyze Companies, You Will Find Your Favorites As You Analyze Companies, You Will Find Your Favorites

(10) High Rating (10) High Rating 11  Based on Theoretical Market Cap Growth Future Reserves x Future Gold Price ($2000) x 20% = Future Market Cap Future Reserves x Future Gold Price ($2000) x 20% = Future Market Cap Future Market Cap / Current Market Cap = Theoretical Market Cap Growth Future Market Cap / Current Market Cap = Theoretical Market Cap Growth This Theoretical Market Cap Growth can be Impacted by Other Factors This Theoretical Market Cap Growth can be Impacted by Other Factors  Rating Chart 1.0 – Lowest Rating 1.0 – Lowest Rating 1.5 – Potential 2 Bagger 1.5 – Potential 2 Bagger 2.0 – Potential 3 Bagger 2.0 – Potential 3 Bagger 2.5 – Likely 3 Bagger 2.5 – Likely 3 Bagger 3.0 – Potential 5 Bagger 3.0 – Potential 5 Bagger 3.5 – Likely 5 Bagger 3.5 – Likely 5 Bagger 4.0 – Potential 10 Bagger 4.0 – Potential 10 Bagger 4.5 – Likely 7-8 Bagger 4.5 – Likely 7-8 Bagger 5.0 – Likely 10 Bagger 5.0 – Likely 10 Bagger

High Rating – Example High Rating – Example 12  Canadian Zinc Current Market Cap Fully Diluted: $168 Million Current Market Cap Fully Diluted: $168 Million Projected Future Reserves: 80 Million Oz. Projected Future Reserves: 80 Million Oz. Projected Price of Silver: $100 Projected Price of Silver: $100  Calculations 80,000,000 oz. X $100 X 20% = $1.6 Billion (Projected Future Market Cap) 80,000,000 oz. X $100 X 20% = $1.6 Billion (Projected Future Market Cap) ($1.6 Billion - $168 Million) / $168 Million = 850% (Theoretical Growth) ($1.6 Billion - $168 Million) / $168 Million = 850% (Theoretical Growth)  Analysis In Theory, Canadian Zinc Could be a 4 Rating. However, I Gave it a 3.5 Rating Because Production Growth will Lag Reserves, and they Only Have One Mine and No Other Projects. In Theory, Canadian Zinc Could be a 4 Rating. However, I Gave it a 3.5 Rating Because Production Growth will Lag Reserves, and they Only Have One Mine and No Other Projects.

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