Canada Research Mining & Natural Resources Research Published by Raymond ... some of the best balance ... Raymond James Ltd. When analyzing our covered base metals producers, we …

Canada Research Published by Raymond James Ltd.

Please read domestic and foreign disclosure/risk information beginning on page 26 and Analyst Certification on page 27. Raymond James Ltd. | 2100 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2

Mining & Natural Resources May 28, 2013

Industry Comment - ChangesAlex Terentiew MBA, P.Geo | 416.777.4912 | [email protected] Ross Yakovlev CA, MBA (Associate) | 416.777.7144 | [email protected]

Mining & Natural Resources - Looking For Quality Amid the Sell-Off Caught In a Sell-Off. As a result of the recent downturn in sentiment towards the mining sector, some high-quality base

metals producers have seen their stocks caught in the sell-off avalanche and “buried” along with some of their inferior peers, in our view. Picking up stocks post-sell-off may be a daunting task, primarily because most of them look cheap – some of them for a reason, and some of them punished unfairly, we would argue. As such, we believe that “cheap” should never be the sole characteristic underpinning an investment case for a stock.

In this Comment we analyze our covered base metals producers from several angles (by looking at such metrics as implied and break-even copper price, all-in cash costs, operating margins, cash flow yields, and liquidity requirements), put them through sensitivity tests of prolonged low-commodity prices, and propose cost-cutting scenarios.

We reiterate Capstone and First Quantum as the go-to names in our covered base metals producer universe.

Capstone tops our sensitivity test rankings, and also delivers a peer leading operating cash flow yield and considerable near-term production and earnings upside that, we believe, could lead to considerable stock price appreciation. The removal of the “prospective acquirer” overhang should further help to improve the company’s valuation.

First Quantum: While falling short on the rankings due to the inclusion of our long-term project suspension scenario, FM boasts the third lowest implied copper price, all-in costs and break-even copper price when its current project pipeline is assumed to proceed (we see this as likely), with additional upside possible should a reduced capital cost estimate for Cobre Panama be announced in 2–4 months. The company also has peer-leading operating margins, some of the best balance sheet liquidity, and a management team that has a better track record than most, if not all, of its peers.

HudBay: HudBay has the least operational flexibility in the group as it is in the middle of building two of its projects and ramping up another, and will likely need to raise additional capital in 2014, although we do not see this as a material obstacle for the company. Although HudBay has the lowest near-term operating and free cash flow yields, we see both metrics improving substantially by 2015, potentially resulting in a top one or two position in the years after Constancia starts up.

Teck: While Teck ranked second in the overall rankings, we note that it benefits largely from scenarios where its long-term projects are not built. As such, we see decisions on whether or not to proceed with the long-term capital-intensive oil and copper projects as the key to the future quality of Teck’s balance sheet and its ability to preserve its dividend.

Lundin: Stable quality asset base but lack of sizable growth and catalysts should prevent the company from breaking through a trading range.

Company Ticker(s) Current Target Price Div. Total Suitability Rating Primary Secondary Price Old New Yield Return Old New Old NewBase Metals & Minerals Capstone Mining Corp. CS-TSX C$2.26 C$4.00 C$4.00 0% 77% HR HR OP2 OP2First Quantum Minerals Ltd. FM-TSX FQM.LSE-LSE C$18.71 C$24.00 C$24.00 0% 28% HR HR OP2 OP2HudBay Minerals, Inc. HBM-TSX HBM-NYSE C$8.13 C$11.50 C$11.50 3% 41% HR HR OP2 OP2Lundin Mining Corporation LUN-TSX C$4.37 C$5.50 C$5.50 0% 26% HR HR MP3 MP3Teck Resources Limited TCK.B-TSX TCK-NYSE C$28.09 C$38.00 C$37.00 3% 32% AG AG OP2 OP2 Note: Target prices are for a 6-12 month period; TR - Total Return, G - Growth, AG - Aggressive Growth, HR - High Risk, VR - Venture Risk; SB1 - Strong Buy, OP2 - Outperform, MP3 - Market Perform, UP4 - Underperform, UR - Under Review, R - Restricted.

Raymond James Ltd.

Canada Research | Page 2 of 31 Mining & Natural Resources

Raymond James Ltd. | 2100 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2

Announcing Our Sensitivity Test Winner

As a result of the recent downturn in sentiment towards the mining sector, some high-quality base metals producers have seen their stocks caught in the sell-off avalanche and “buried” along with some of their inferior peers, in our view. Picking up stocks post-sell-off may be a daunting task, primarily because most of them look cheap – some of them for a reason, and some of them punished unfairly, we would argue. As such, we believe that “cheap” should never be the sole characteristic underpinning an investment case for a stock.

In this Comment we analyze our covered base metals producers from several angles, put them through sensitivity tests of a prolonged low-commodity price environment, and propose cost-cutting scenarios. In the end, our sensitivity test winner is Capstone, which along with First Quantum, stand out the most to us due to several of their key attributes:

Robust balance sheets, capable of withstanding extended periods of commodity price volatility;

Sweeping growth profile transformations, which serve both as a prelude to near-term earnings expansion and a means for these companies to fill key sector voids that have recently been vacated by their peers;

Compelling valuation and attractive risk/reward trade-off; and,

Clear near-term potential catalysts that could unlock more value.

Although FM did not do well in our relative rankings, on an absolute basis, we still see a company coming off of a transformational acquisition of Inmet, with peer-leading operating margins and long-term growth profile, some of the best balance sheet liquidity, and a management team that has a better track record than most, if not all, of its peers.

As such, we reiterate our Outperform ratings on both CS and FM and we see these two companies as our go-to names in our covered base metals producer universe.

Capstone tops our sensitivity test rankings, and also delivers a peer leading operating cash flow yield and considerable near-term production and earnings upside that, we believe, could lead to considerable stock price appreciation. The removal of the “prospective acquirer” overhang following its announcement to acquire Pinto Valley earlier this month should further help to improve the company’s valuation. Rating – Outperform.

First Quantum fell short on the rankings due to the inclusion of our long-term project suspension scenario, although it boasts the third-lowest implied copper price, all-in costs and breakeven copper price when its current project pipeline is assumed to proceed, with additional upside possible should the company announce a reduced capital cost estimate for Cobre Panama in 2–4 months. The company also has peer- leading operating margins, some of the best balance sheet liquidity, and a management team that has a better track record than most, if not all, of its peers. Rating – Outperform.

HudBay: HudBay has the least operational flexibility in the group as it is in the middle of building two of its projects and ramping up another, and will likely need to raise additional capital in 2014, although we do not see this as a material obstacle for the company. Rating – Outperform.

Teck: We see the decisions on whether or not to proceed with the long-term capital-intensive oil and copper projects as the key to the future quality of Teck’s balance sheet and its ability to preserve its dividend. Rating – Outperform.

Lundin: Stable quality asset base but lack of sizeable growth and catalysts should prevent the company from breaking through a trading range. Rating – Market Perform.

Mining & Natural Resources Canada Research | Page 3 of 31


Establishing Our Sensitivity Test Metrics

2013 has so far been painful for the mining sector. Key base metals (copper, nickel, zinc, and lead) are down 11% YTD on average (Exhibit 1), with copper, the best performer (relatively) in the group, down only 8% YTD. At the same time, our covered base metal producers are down 15% on average, with Capstone being the “strongest” performer (down only 6% YTD), and Teck – the weakest (down 22% YTD).

Exhibit 1: Year-to-Date % Change (as at May-24-13)

-26%-17%

-13%-11%-11%

-8%-7%

-6%11%

-22%-19%

-15%-15%

-6%-15%

-40% -30% -20% -10% - 10% 20%

SilverGold

NickelZinc

LeadCopper

CoalMolybdenum

Cobalt

TCK.B-THBM-TLUN-TFM-TCS-T

Prod Avg

Source: Capital IQ, Raymond James Ltd.

When analyzing our covered base metals producers, we looked at the following characteristics:

Implied copper price in each firm’s valuation;

A company’s ability to meet its project funding requirements and scheduled debt maturities;

Break-even copper price that each company needs to meet its project funding requirements and all of its outstanding obligations, including end-of-life asset retirement expenditures; and,

Impact of long-term project cancelations as a means of preserving balance sheets (refer to individual company sections for further details).

In the end, we rank each company across all of the metrics and highlight our key findings. Note that our base case analyses are based on the following commodity price estimates (Exhibit 2).



Exhibit 2: RJL Commodity Price Estimates 2010A 2011A 2012A 2013E 2014E 2015E 2016E 2017E LT* Spot

Copper ($/lb) $3.47 $4.01 $3.61 $3.59 $3.75 $4.00 $3.75 $3.50 $3.00 $3.30Zinc ($/lb) $1.00 $0.99 $0.88 $0.94 $1.15 $1.30 $1.23 $1.17 $1.10 $0.82Nickel ($/lb) $10.05 $10.39 $7.95 $7.77 $8.25 $8.50 $8.50 $8.50 $8.50 $6.75Lead ($/lb) $0.99 $1.09 $0.94 $1.01 $1.15 $1.25 $1.15 $1.05 $0.95 $0.90Cobalt ($/lb) $10.00 $16.02 $13.08 $11.90 $13.00 $14.00 $13.33 $12.67 $12.00 $12.50Molybdenum ($/lb) $15.80 $15.43 $12.62 $11.68 $13.00 $14.00 $13.67 $13.33 $13.00 $10.75Hard Coking Coal ($/t) $241 $289 $210 $174 $196 $200 $200 $200 $200 $150

Gold ($/oz) $1,227 $1,571 $1,669 $1,540 $1,625 $1,600 $1,450 $1,350 $1,200 $1,350Silver ($/oz) $20.34 $35.36 $31.16 $27.50 $30.00 $30.00 $27.50 $26.00 $23.00 $22.00Platinum ($/oz) $1,611 $1,723 $1,552 $1,652 $1,850 $1,900 $1,800 $1,700 $1,600 $1,450Palladium ($/oz) $527 $734 $645 $773 $925 $950 $850 $750 $800 $700

* - Long-term prices begin from 2018 onwards. Source: Bloomberg, Raymond James Ltd.

Covered Stocks Price In Spot

We estimate that stocks in our covered base metal producer universe are trading at an implied copper price that approximates spot ($3.26/lb Cu vs. $3.25/lb Cu, Exhibit 3). We view this valuation as conservative, especially considering that most of the commodity futures are currently in backwardation, but, not surprising, given the recent negative market sentiment towards the mining sector. HudBay’s and Capstone’s valuations look particularly compelling using this metric, with both stocks trading at ~14%-16% below Cu spot and ~7%-9% below our long-term copper price estimate of $3.00/lb.

While it is not surprising to see both Teck and First Quantum trade at a premium to their covered base metal producing peers due to their superior market cap size, liquidity, and diversification, Teck looks particularly expensive here (on a relative basis), with implied copper price above $4.00/lb, which is in large part due to weak coking coal spot rates (currently $140-$150/t, down 13%-19% from the 2Q13 benchmark price of $172/t and down 25%-30% from our long-term estimate of $200/t).

Exhibit 3: HudBay’s Valuation is the Most Compelling in the Group Implied Copper Price ($/lb Cu)1 CS2 FM3 HBM4 LUN5 TCK6 AverageImplied Copper Price (other metals at RJL deck) $2.67 $2.92 $2.59 $2.93 $2.88 $2.80Implied Copper Price (other metals at spot) $2.73 $3.10 $2.78 $3.31 $4.37 $3.26Implied Copper Price (RJL deck, LT projects not built) $3.15 $3.38 $2.43 $2.93 $3.11 $3.00Implied Copper Price (Spot, LT projects not built) $3.19 $3.65 $2.63 $3.30 $5.55 $3.66RankingsImplied Copper Price (other metals at RJL deck) 2 4 1 5 3Implied Copper Price (other metals at spot) 1 3 2 4 5Implied Copper Price (RJL deck, LT projects not built) 4 5 1 2 3Implied Copper Price (Spot, LT projects not built) 2 4 1 3 5Overall Ranking - Implied Copper Price 2 4 1 3 4

Note 1: Implied Copper Price is the price at which fully diluted NAVPS estimate equals current share priceNote 2: Assumed Santo Domingo & Kutcho put on hold (attr. maintenance spend: Santo Domingo = $20/yr, Kutcho = $2/yr)Note 3: Assumed Cobre Panama & Haquira put on hold (attr. maintenance spend: Cobre Panama = $40/yr, Haquira = $10/yr)Note 4: Assumed Constancia CapEx is pushed forward without start-up delayNote 5: No material changes from base case given lack of key long-term projects

Spot Prices Assumed: Cu = $3.25/lb, Zn = $0.82/lb, Ni = $6.75/lb, Pb = $0.90/lb, Mo = $10.75/lb, Co = $12.50/lb, Au = $1,350/oz, Ag = $22.00/oz, Pt = $1,450/oz, Pd = $700/oz, HCC = $150/t

Note 6: Assumed Oil (Frontier & Fort Hills) & Cu Projects (Relincho, Galore Creek, QB2) put on hold (attr. maintenance spend: Frontier = Fort Hills = Relincho = QB2 = $20/yr each, Galore Creek = $5/yr)Source: Raymond James Ltd.



Cheap is Only Half the Story – “Show Me the Money”

In the wake of weak commodity prices and project CapEx escalations, we argue that a cheap valuation is not a sufficient enough reason to own a stock. Companies should also have a robust cost structure and sufficient financial resources to keep their mines in operations and bring their development projects on-line. With financing being harder to come by, we believe investors should shift their focus towards companies with strong balance sheets and better margins, which would allow these companies to justify their valuation upside at current levels.

Looking at the operating asset quality and the balance sheet size, the trio of First Quantum, Capstone, and Lundin stand out, with all but Lundin spotting an attractive production growth profile (Exhibits 4 and 5). All three companies have a stable and highly-profitable operating asset base, sufficient cash, investments, and available debt financing to finance ongoing and, in the case of FM and CS, expanding operations, while at the same time avoiding running out of money, even if commodities stay at their current depressed levels, in our view.

Exhibit 4: Production Growth Profile – Base Case (Long-Term Projects Included)

0100200300400500600700800900

1,0001,1001,2001,300

2008

A

2009

A

2010

A

2011

A

2012

A

2013

E

2014

E

2015

E

2016

E

2017

E

2018

E

2019

E

2020

E

Copp

er P

rodu

ctio

n (k

t)

FM HBM LUN CS TCK

0100200300400500600700800900

1,0001,1001,2001,300

2008

A

2009

A

2010

A

2011

A

2012

A

2013

E

2014

E

2015

E

2016

E

2017

E

2018

E

2019

E

2020

E

Copp

er E

quiv

alen

t Pr

oduc

tion

(kt)

FM HBM LUN CS TCK

Source: Raymond James Ltd.

Exhibit 5: Production Growth Profile – Assumed Suspension of Long-Term Projects

0

100

200

300

400

500

600

700

800

900

1,000

2008

A

2009

A

2010

A

2011

A

2012

A

2013

E

2014

E

2015

E

2016

E

2017

E

2018

E

2019

E

2020

E

Copp

er P

rodu

ctio

n (k

t)

FM HBM LUN CS TCK

0

100

200

300

400

500

600

700

800

900

1,000

2008

A

2009

A

2010

A

2011

A

2012

A

2013

E

2014

E

2015

E

2016

E

2017

E

2018

E

2019

E

2020

E

Copp

er E

quiv

alen

t Pr

oduc

tion

(kt)

FM HBM LUN CS TCK




Exhibit 6: First Quantum has the Best Operating Margin Among its Covered Peers

Note 1: Operating Margin = (Revenue - Cost of Goods Sold - Depreciation - SG&A - Exploration - Other Operating Expenses) / RevenueNote 2: For Lundin and Teck, Operating Margin was adjusted to incorporate attributable share of Tenke and Fort Hills operations, respectively.Note 3: For First Quantum, we adjusted Operating Margin for gain on sale of Congo assets to ENRC (one-time item)

-10%

0%

10%

20%

30%

40%

50%

2012A 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

Ope

ratin

g M

argi

n (%

)

Operating Margin at RJL Deck

CS FM HBM LUN TCK

-10%

0%

10%

20%

30%

40%

50%

2012A 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

Ope

ratin

g M

argi

n (%

)

Operating Margin at Spot

CS FM HBM LUN TCK


All-in Costs – Important for Long-Term Viability

Other costs must not be overlooked. While operating costs are undoubtedly important and are the cost metric that typically get the most attention, we believe that the impact of royalties, taxes and capital costs are often overlooked, and yet are critically important to each company’s cash-generating abilities. We have therefore calculated all-in costs (operating and capital costs, royalties, taxes, exploration and development and SG&A) for each company, and present them on a copper-equivalent basis (Exhibit 7). As cash costs for a copper mine cannot be directly compared to those for a nickel or a zinc mine, it is our opinion that by converting all of a company’s production to pounds of payable copper, using our metal price forecasts (Exhibit 2), we can eliminate, or significantly reduce, the differences between each mine within a company. Teck’s coal division is excluded from our analysis. Using this methodology, and converting by-product metals to Cu-Eq, we believe that a more accurate and realistic estimate is derived of the costs to produce a pound of metal.

While our LOM all-in cost average for the group is $2.47/lb (Exhibit 8), we estimate that over the next 10 years, a period during which the projects under consideration are built and consume capital, the value is $2.79/lb. We use this 10-year period number as the basis for our long-term copper price of $3.00/lb, as we believe the long-term cost estimate does not adequately capture the costs associated with developing new projects and expanding others, as mines get depleted and encounter lower grades.

A $0.39/lb Cu-Eq impact. In general, for the base metal mines under research coverage at Raymond James Ltd., we estimate that taxes, royalties, along with an allocation of corporate level G&A and exploration, add $0.39/lb Cu-Eq to a mine/project’s operating costs. The projects and mines under RJL coverage are ranked below.



Exhibit 7: Estimated Costs by Project

$2.12

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

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($/l

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-Eq)

$2.51

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

Las C

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sSa

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Dom

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Anta

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Cobr

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From an operation stand-point, Teck has the lowest all-in cash costs among its covered base metal producing peers, which is complemented by its coal division, which we view as also having a robust cost structure (LOM, all-in cost per tonne, including all taxes and CapEx, of $139/t). At spot, we estimate all-in cost of $126/t, due to resulting lower taxes. Such efficient operating profile should allow the company to withstand an extended period of weak copper price environment, although continued weaker coal prices and decision on its oil projects would be important catalysts for the stock.

First Quantum comes out with the third-best operating cost profile under our base case and spot price scenarios, with high Zambian taxes partially offsetting its peer-leading operating margins. However, FM’s cost profile has more room to improve, should the company be successful in identifying additional CapEx savings at Cobre Panama.

Exhibit 8: Life of Mine All-In Cash Costs Rankings LOM All-In Cash Costs ($/lb Cu-Eq) CS FM HBM LUN TCK AverageLOM All-In Cash Costs (metals at RJL deck) $2.38 $2.45 $2.53 $2.58 $2.39 $2.47LOM All-In Cash Costs (metals at spot) $2.45 $2.58 $2.62 $2.76 $2.47 $2.58LOM All-In Cash Costs (RJL deck, LT projects not built) $2.73 $2.64 $2.55 $2.58 $2.44 $2.59LOM All-In Cash Costs (Spot, LT projects not built) $2.71 $2.79 $2.63 $2.76 $2.53 $2.68RankingsLOM All-In Cash Costs (metals at RJL deck) 1 3 4 5 2LOM All-In Cash Costs (metals at spot) 1 3 4 5 2LOM All-In Cash Costs (RJL deck, LT projects not built) 5 4 2 3 1LOM All-In Cash Costs (Spot, LT projects not built) 3 5 2 4 1Overall Ranking - LOM All-In Cash Costs 2 4 3 5 1 Source: Raymond James Ltd.



Exhibit 9: Capstone’s OCF and FCF Yields Should Top the Group in 2014

Note 1: Operating Cash Flow Yield = Current Market Cap / Operating Cash Flow Before Working Capital AdjustmentsNote 2: Free Cash Flow Yield = Current Market Cap / (Operating Cash Flow Before Working Capital Adjustments - CapEx).Note 3: For Teck, Operating Cash Flow Yield adjusted to include interest payments on debt and attributable Fort Hills' cash flowNote 4: For Teck, Free Cash Flow Yield adjusted to include attributable Fort Hills' CapEx obligations

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

2012A 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

Ope

ratin

g Ca

sh Fl

ow Y

ield

(%)

Operating CF Yield at Spot

CS FM HBM LUN TCK

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

2012A 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

Free

Cas

h Fl

ow Y

ield

(%)

FCF Yield at Spot

CS FM HBM LUN TCK


Should commodity prices remain weak, we see HudBay and Teck requiring financing over the next several years. For HBM, we target a capital raise in late 2014 or early 2015, allowing the company to complete its Constancia and Lalor projects. While Teck’s liquidity needs appear to be well above its base metal producing peers, the timing and the size of the ultimate capital raise will depend on coking coal spot price (coal division presently accounts for 53% of Teck’s minesite NAV), and its Board’s decision on its long-term oil and copper projects. Note that we assume that publicly traded debt and term loans are repaid on maturity date, while existing credit facilities are extended in perpetuity.

Exhibit 10: TCK and HBM Will Have to Raise Financing, Should Commodity Prices Remain Weak

Note 1: "Cash + Investments" balance impacted by operating/financing/investing cash flows, including CapEx, dividends (where applicable) and public debt & term loan maturities (except for other existing credit facilities, which are extended in perpetuity).Note 2: Teck's liquidity falls to negative ($10.5 bln) by 2020 (not visible on this scale).

-4,000

-3,000

-2,000

-1,000

0

1,000

2,000

3,000

4,000

5,000

6,000

2012A 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

Cash

+ In

vest

men

ts ($

mln

)

Liquidity at RJL Deck

CS FM HBM LUN TCK

-3,000

-2,000

-1,000

0

1,000

2,000

3,000

4,000

5,000

6,000

2012A 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

Cash

+ In

vest

men

ts ($

mln

)

Liquidity at Spot

CS FM HBM LUN TCK

TCK's liquidity falls to negative ($10.5 bln) by 2020E




They Haven’t Built That… Yet

An ability to preserve the balance sheet by delaying or cancelling projects is an important consideration that we believe is sometimes overlooked. Such flexibility varies across the covered base metals producing group with Capstone and Teck on one end of the spectrum (key long-term projects are years away from receiving Board approval), and HudBay on the other end, finding itself in the middle of construction at Constancia that is all but assured to consume its presently strong balance sheet, in our view.

As such, if we assume that all long-term projects are delayed indefinitely and exploration budgets are reduced by 50%, we see a slightly different picture, in which Teck no longer needs to raise material financing, as its capital-intensive oil and copper projects are pushed indefinitely into the future. Under such a scenario, we see HudBay as the only company that would need to raise some capital to finish its Constancia project in 2015.

Exhibit 11: Long-Term Projects Delayed: HudBay Appears to have Limited Flexibility and Will Likely Have to Raise Capital

Note 1: Assumed Santo Domingo & Kutcho put on hold (attr. maintenance spend: Santo Domingo = $20/yr, Kutcho = $2/yr)Note 2: Assumed Cobre Panama & Haquira put on hold (attr. maintenance spend: Cobre Panama = $40/yr, Haquira = $10/yr)Note 3: Assumed Constancia CapEx is back-loadedNote 4: No material changes from base case given lack of key long-term projectsNote 5: Assumed Oil (Frontier & Fort Hills) & Cu Projects (Relincho, Galore Creek, QB2) put on hold (attr. maintenance spend: Frontier = Fort Hills = Relincho = QB2 = $20/yr each, Galore Creek = $5/yr)

Spot Prices Assumed: Cu = $3.25/lb, Zn = $0.82/lb, Ni = $6.75/lb, Pb = $0.90/lb, Mo = $10.75/lb, Co = $12.50/lb, Au = $1,350/oz, Ag = $22.00/oz, Pt = $1,450/oz, Pd = $700/oz, HCC = $150/t

-1,000

1,000

3,000

5,000

7,000

9,000

11,000

13,000

15,000

2012A 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

Cash

+ In

vest

men

ts ($

mln

)

Liquidity at RJL Deck

CS FM HBM LUN TCK

-1,000

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2012A 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

Cash

+ In

vest

men

ts ($

mln

)

Liquidity at Spot

CS FM HBM LUN TCK


Break-Even Copper Price – How Low Can It Go?

HudBay’s apparent need to raise additional financing can also be highlighted by analyzing its break-even copper price, which we calculate as the copper price required for a company to avoid coming back to capital markets. Note that we assume that publicly traded debt and term loans are repaid on maturity date, while existing credit facilities are extended in perpetuity, and accrue asset retirement obligations at 5.25% annual rate, expecting them to be fully covered by the cash balance at the end of the mine life.

Under this analysis, HudBay’s break-even copper price is above $4.00/lb, well above current spot levels, which all but assures, in our view, that the company will have to raise some capital by 2015 (for example, through precious metal stream sales, vendor financing, off-take linked debt, or project stake sale at Constancia). For HBM, we note that high break-even copper price should not necessarily be a cause for alarm, as it is



mainly due to its limited operating cash flows over the next several quarters, as the company ramps up Lalor and completes construction of its Reed and Constancia projects. Additionally, we note that both Teck and HudBay cash flows rely heavily on the performance of other commodities in their portfolio (zinc for HBM and coal and zinc for TCK), which, at current depressed commodity price levels, amplify their respective break-even points for copper price. Teck’s break-even copper price volatility is intensified by current disparity between met coal’s spot rate of $150/t and our present long-term price estimate of $200/t.

Lundin’s balance sheet, on the other hand, appears to be the healthiest and one that is able to withstand the lowest copper prices in the peer group (Exhibit 12). However, we would argue that this comes at the expense of its production growth profile, which we see as the lowest among its base metals producing peers (Exhibits 4 and 5). At the same time, Capstone showcases its balance sheet and operating asset strength, allowing it to withstand a $3.00/lb copper price environment without requiring raising additional capital.

Exhibit 12: Lundin’s Strong Balance Sheet Comes Amid Weaker Production Growth Profile Break-Even Cu Price ($/lb Cu) CS FM HBM LUN TCK AverageBreak-Even Cu Price (other metals at RJL deck) $2.89 $2.95 $4.39 $2.16 $4.52 $3.38Break-Even Cu Price (other metals at spot) $2.95 $3.13 $5.11 $2.53 $6.58 $4.06Break-Even Cu Price (RJL deck, LT projects not built) $2.67 $2.51 $3.85 $2.07 $0.32 $2.28Break-Even Cu Price (Spot, LT projects not built) $2.71 $2.79 $4.54 $2.44 $2.63 $3.02RankingsBreak-Even Cu Price (other metals at RJL deck) 2 3 4 1 5Break-Even Cu Price (other metals at spot) 2 3 4 1 5Break-Even Cu Price (RJL deck, LT projects not built) 4 3 5 2 1Break-Even Cu Price (Spot, LT projects not built) 3 4 5 1 2Overall Ranking - Break-Even Cu Price 2 3 5 1 3Note: Break-even copper price assumes debt and asset retirement obligation pay-out at the end of mine life. Source: Raymond James Ltd.

And the Winner is… Capstone

Capstone not only tops our sensitivity-test rankings (Exhibit 13), but also retains considerable near-term production and earnings upside (Exhibit 4) that, we believe, could lead to considerable stock price appreciation, even if we push out its long-term projects indefinitely (Exhibit 5).

First Quantum, which deservingly trades at a premium to Capstone, possesses many similar characteristics, except on a larger production scale, also making it our top idea in the covered base metals producer universe.

Exhibit 13: Overall Rankings – RJL Estimates Overall Rankings CS FM HBM LUN TCKImplied Copper Price ($/lb Cu) 2 4 1 3 4Break-Even Cu Price ($/lb Cu) 2 3 5 1 3LOM All-In Cash Costs ($/lb Cu-Eq) 2 4 3 5 1Ovarall Ranking 1 5 3 3 2 Source: Raymond James Ltd.



Capstone – Ranking Champion: Emerging mid-tier copper producer post Pinto Valley acquisition, with peer-leading growth to 2014, strong operating asset base and robust cost profile, allowing it to sustain a prolonged period of weak commodity prices, and compelling valuation. Rating – Outperform.

First Quantum – Emerging Copper Pureplay with the Highest Long-Term Growth Profile: Strong pipeline of low-cost, large-scale copper projects that justifies premium valuation vs. its peers. First Quantum, however, fell short on the rankings due to the inclusion of our long-term project suspension scenario; although, if we assume it proceeds with its projects, which we view as likely, its rankings improve. The company also has peer leading operating margins, some of the best balance sheet liquidity, and a management team that has a better track record than most, if not all, of its peers. Rating – Outperform.

HudBay: HBM has the least operational flexibility in the group as it is in the middle of building two of its projects and ramping up another, and will likely need to raise additional capital in 2014, although we do not see this as a material obstacle for the company. Although HudBay has the lowest near-term operating and free cash flow yields, we see both metrics improving substantially by 2015, potentially resulting in a top one or two position in the years after Constancia starts up. Rating – Outperform.

Teck: While Teck ranked second in the overall rankings, we note that it benefits largely from scenarios where its long-term projects are not built. As such, we see decisions on whether or not to proceed with the long-term capital-intensive oil and copper projects as the key to the future quality of Teck’s balance sheet and its ability to preserve its dividend. Rating – Outperform.

Lundin: Stable quality asset base but lack of sizeable growth and catalysts should prevent the company breaking through a trading range. Rating – Market Perform.



Exhibit 14: Base Metals Producer Comps (at RJL Commodity Price Deck)

Covered Base Metals Producers

Company Name Symbol Price Target Stock Target Mkt Cap EV NAVPS P/NAV($) Price Rating Return ($mln) ($mln) 2013E 2014E 2013E 2014E 2013E 2014E ($) (x) Analyst

Capstone Mining Corp. CS C$2.26 $4.00 OP2 77% $855 $1,014 9.9x 4.0x 5.0x 2.4x 5.2x 2.3x $4.93 0.44x ATCopper Mountain Mining Corp. CUM C$1.73 $5.00 OP2 189% $171 $689 12.0x 2.3x 3.1x 1.8x 8.0x 4.4x $6.19 0.28x ALFirst Quantum Minerals Ltd. FM C$18.71 $24.00 OP2 29% $10,762 $13,651 15.7x 13.9x 9.0x 8.8x 8.3x 7.1x $23.79 0.76x ATHudBay Minerals, Inc. HBM C$8.13 $11.50 OP2 44% $1,398 $761 30.0x 21.6x 30.0x 15.1x 7.4x 3.4x $13.01 0.63x ATLundin Mining Corporation LUN C$4.37 $5.50 MP3 26% $2,553 $2,273 13.3x 8.7x 5.7x 5.7x 5.7x 4.3x $5.44 0.78x ATMercator Minerals Ltd. ML C$0.22 $0.75 MP3 249% $68 $187 3.9x 2.7x 3.0x 1.6x 3.6x 2.4x $1.85 0.12x ALNevsun Resources Ltd. NSU C$3.51 $4.50 OP2 32% $699 $784 12.5x 4.3x 7.0x 3.2x 4.5x 1.7x $5.17 0.68x ALTaseko Mines Ltd. TKO C$2.24 $3.70 OP2 65% $428 $545 13.5x 5.3x 5.3x 3.5x 5.4x 3.8x $4.21 0.53x ALTeck Resources Limited TCK.B C$28.09 $37.00 OP2 35% $16,326 $20,914 13.1x 8.6x 5.8x 4.5x 5.8x 4.5x $31.39 0.89x ATTrevali Mining Corporation TV C$0.62 R R R $127 R R R R R R R R R ALAverage 83% 13.8x 7.9x 8.2x 5.2x 6.0x 3.8x 0.62x

Excl ML

AT = Alex Terentiew; AL = Adam Low; R = Restricted

* Annual numbers presented are based on January to December timeframe (i.e. Calendar year). Covered Copper Producers multiples were capped at 30x. FM's EV is calculated on pro-forma basis.

P/E P/CF EV/EBITDA

BASE METALS PRODUCER COMPS

Source: Bloomberg, RJL Research estimates and analysis

24-May-13

Source: Bloomberg, Raymond James Ltd.

Exhibit 15: Base Metals Producer Comps (at Spot)

Covered Base Metals Producers

Company Name Symbol Price Target Stock Target Mkt Cap EV NAVPS P/NAV($) Price Rating Return ($mln) ($mln) 2013E 2014E 2013E 2014E 2013E 2014E ($) (x) Analyst

Capstone Mining Corp. CS C$2.26 $4.00 OP2 77% $855 $1,027 17.0x 6.7x 6.4x 3.3x 7.1x 3.3x $4.75 0.46x ATCopper Mountain Mining Corp. CUM C$1.73 $5.00 OP2 189% $171 $682 30.0x 3.6x 3.8x 2.4x 9.9x 6.0x $5.84 0.30x ALFirst Quantum Minerals Ltd. FM C$18.71 $24.00 OP2 29% $10,762 $13,690 21.2x 26.3x 10.8x 13.0x 10.3x 10.9x $21.46 0.84x ATHudBay Minerals, Inc. HBM C$8.13 $11.50 OP2 44% $1,398 $761 nm nm 30.0x 30.0x 11.9x 7.1x $11.51 0.71x ATLundin Mining Corporation LUN C$4.37 $5.50 MP3 26% $2,553 $2,273 25.0x 18.9x 6.6x 8.8x 8.2x 7.1x $4.17 1.01x ATMercator Minerals Ltd. ML C$0.22 $0.75 MP3 249% $68 $187 9.3x 15.4x 5.5x 3.2x 5.8x 5.1x $1.10 0.20x ALNevsun Resources Ltd. NSU C$3.51 $4.50 OP2 32% $699 $648 12.5x 5.6x 7.0x 3.8x 3.7x 1.7x $4.17 0.84x ALTaseko Mines Ltd. TKO C$2.24 $3.70 OP2 65% $428 $545 30.0x 20.2x 7.9x 6.9x 7.5x 6.8x $3.74 0.60x ALTeck Resources Limited TCK.B C$28.09 $37.00 OP2 35% $16,326 $20,914 19.8x 22.3x 6.9x 6.9x 7.1x 7.5x $13.38 2.10x ATTrevali Mining Corporation TV C$0.62 R R R $127 R R R R R R R R R ALAverage 83% 20.6x 14.9x 9.4x 8.7x 7.9x 6.2x 0.86x

Excl ML

AT = Alex Terentiew; AL = Adam Low; R = Restricted

* Annual numbers presented are based on January to December timeframe (i.e. Calendar year). Covered Copper Producers multiples were capped at 30x. FM's EV is calculated on pro-forma basis.

P/E P/CF EV/EBITDA

BASE METALS PRODUCER COMPS

Source: Bloomberg, RJL Research estimates and analysis

24-May-13

Source: Bloomberg, Raymond James Ltd.



Capstone

Capstone remains one of our two top picks among the covered base metals producers, as it ticks off several key boxes on our attributes list for a high-quality mining name. We view the Pinto Valley mine acquisition as accretive on several metrics for Capstone and transformational in nature, as it should help CS fill a noticeable void in the mid-tier Canadian base metals producer group, following First Quantum’s take-out of Inmet. With the Pinto acquisition putting its strong balance sheet to work, Capstone shed the tag of “prospective acquirer”, and extended its production size and operating footprint to an attractive, yet manageable level.

Key attributes:

Ranking Champion: Capstone earned top honours in our sensitivity test rankings due to its robust operating asset base, unique financing capabilities (arrangement with KORES for Santo Domingo) and compelling valuation. The closing of the Pinto Valley acquisition in 3Q13 should go a long way towards convincing investors that the company is one of the lower-risk, fastest-growing producers in our covered base metals universe.

Peer-Leading Production Growth to 2014: Copper production should increase by 181% to 106 kt Cu in 2014 (from 2012 levels) with the full year of operations at Pinto Valley, putting Capstone’s copper output on par with Lundin’s and ahead of HudBay’s (at least temporary, until HBM’s Constancia project is completed). For comparison, First Quantum, which has the second highest production growth profile between 2012 and 2014, should only grow its copper output by 47% over the same period.

Near-Term Earnings Expansion: Keeping all commodities at spot, we project EPS expansion of 82% to $0.32 in 2014 (vs. adjusted EPS of $0.18 in 2012). Under our current commodity price deck, we project 2014 EPS of $0.55, up 211% from 2012.

Unique Financing Arrangement with KORES: Unlike many of its producing peers that have to finance the long-term projects on their own, Capstone is uniquely positioned to finance the majority of its 70%-owned Santo Domingo project CapEx through its minority partner, Korea Resources Corporation (“KORES”), a South Korean state-owned energy and resources enterprise. Under the terms of the agreement between the two partners, KORES is to arrange financing for 65% of the capital costs for Santo Domingo, based on the CapEx estimates in the bankable feasibility study, which we expect to be released by 2013-end.

Compelling Valuation: Capstone trades at considerable discount to its peers on almost all metrics (P/NAV, P/E, P/CF and EV/EBITDA), both at spot and at RJL commodity price deck (Exhibits 14 and 15). As Capstone closes its deal for Pinto Valley, we expect the valuation overhang due to previous “prospective acquirer” tag to dissipate over the remainder of 2013.

Entering a Mid-Tier Copper Producer Group: The acquisition of Pinto Valley adds a third copper-producing asset to Capstone’s portfolio, putting its annual production starting in 2014 at ~100 kt Cu, which would put it ahead of Taseko and HudBay, and on-par with Lundin and OZ Minerals. Inmet, which was acquired by First Quantum in early 2013, was the only other base metal producer with similar output in 2012 (112 kt Cu). With this acquisition, we see Capstone taking a strong step into the mid-tier base metal producer category, which should help improve its market valuation in the coming couple of years.

Dividend: Capstone presently does not pay a dividend; however, we believe that once the Pinto Valley acquisition and associated feasibility study are completed,



Capstone may introduce a nominal dividend in 2014, and possibly increase it if the Santo Domingo project in Chile experiences any delays.

Exhibit 16: CS’ Copper Production Growth and Cash Profiles

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

0

50

100

150

200

250

300

2012A 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

Cash

Cos

ts ($

/lb

Cu)

Attr

ibut

able

Cu

Prod

uctio

n (k

t)

Cozamin Minto Pinto Valley Kutcho Santo Domingo Cash Costs

0

250

500

750

1,000

1,250

1,500

1,750

2,000

Cash

+ In

vest

men

ts ($

mln

)

Cash Balance (atRJLDeck)

Cash Balance (atSpot)

Cash Balance(no LT projects,at RJL Deck)

Cash Balance(no LT projects,at Spot)

Source: Capstone Mining Corp., Raymond James Ltd.

Assumptions:

KORES raises $1.2 bln in debt (65% of our CapEx estimate for Santo Domingo), with ~$820 mln, or 70% of the funds raised, allocated to Capstone.

Capstone maxes out its existing $200 mln Senior Secured Revolving Corporate Credit Facility ($176 mln available as at 1Q13-end due to a $24 mln letter of credit towards Minto’s reclamation obligations) and a new 2.5-year $200 mln Senior Secured Reducing Revolving Credit Facility. We assumed the latter facility is repaid fully in early 2016 (after 2.5 years), while the original credit facility is extended in perpetuity.

No dividend was considered for the purposes of modeling out future cash flows.

Should Santo Domingo and Kutcho be deferred, annual spending on the projects would not exceed $20 mln/year and $2 mln/year on attributable basis, respectively.

Under the long-term project scenario, exploration budget to be reduced by 50% and capped at $7.5 mln/year.

Exhibit 17: Capstone’s Sensitivity Metrics

Capstone Mining Corp.Other

Metals at RJL Deck

Other Metals at

Spot1

RJL Deck,No LT

Projects2

Spot,No LT

Projects2

Implied Copper Price ($/lb Cu) $2.67 $2.73 $3.15 $3.19Break-Even Cu Price ($/lb Cu) $2.89 $2.95 $2.67 $2.71LOM All-In Cash Costs ($/lb Cu-Eq)3 $2.38 $2.45 $2.73 $2.71

Note 3: Base case - LOM until 2036; No Long Term Projects - LOM until 2026

Note 2: No Long-Term Projects - Assumed Santo Domingo & Kutcho put on hold (attributable maintenance spend: Santo Domingo = $20/yr, Kutcho = $2/yr), exploration budget reduced by 50%.

Note 1: Spot Prices Assumed: Cu = $3.25/lb, Zn = $0.82/lb, Pb = $0.90/lb, Mo = $10.75/lb, Au = $1,350/oz, Ag = $22.00/oz




First Quantum

First Quantum remains one of our two top picks among the covered base metals producers, as its strong pipeline of large-scale, low-cost copper projects gives it a best-in-class long-term growth profile. First Quantum recently completed a transformational acquisition – similarly to Capstone, but on a much larger scale. The addition of the world-class Cobre Panama project should fuel FM’s long-term aspirations of becoming a global copper powerhouse, while Inmet’s three established European-based mines are set to improve FM’s cash flow as the company works on bringing its large-scale development projects into production.

Key Attributes:

Best-in-Class Long-Term Production Growth Profile: With the expansions at Kansanshi and additions of Sentinel and Cobre Panama, we expect FM to grow consolidated copper output at a 17% CAGR to 1Mt+ by 2018E (Exhibit 18), officially overtaking Teck as the largest Canadian-listed copper producer by the end of 2014. On attributable basis, we estimate the copper production growth to be at a 24% CAGR to 0.9Mt+ by 2018E.

Strong Balance Sheet Capable of Financing Growth: With $3.9 bln in cash and investments as at 1Q13-end, $1 bln stream deal proceeds from Franco Nevada still to come, $2.0 bln in operating cash flow over the remainder of 2013 and entire 2014 (or $1.5 bln, using spot prices), and available room on its debt facilities, combine to give the company sufficient room to complete its project pipeline build-out, even if commodity prices remain weak.

Capital Cost Savings at Cobre Panama could further improve FM’s balance sheet. While FM has noted that it expects to provide an update on Cobre Panama within 2–4 months, we believe the company may be targeting a capital cost reduction of $1.5 bln.

Dividend yield is protected by stable operating cash flows, with the potential for increase following Cobre Panama’s completion in 2016, in our view.

Exhibit 18: FM’s Copper Production Growth and Cash Profiles

0.40

0.60

0.80

1.00

1.20

1.40

1.60

0

200

400

600

800

1,000

1,200

2012A 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

Cash

Cos

ts ($

/lb

Cu)

Cons

olid

ated

Cu

Prod

uctio

n (k

t)

Kansanshi Las Cruces Sentinel Cobre PanamaHaquira Guelb Çayeli KevitsaPyhäsalmi Cash Costs

0

2,000

4,000

6,000

8,000

10,000

12,000

Cash

+ In

vest

men

ts ($

mln

)

Cash Balance (atRJL Deck)


Cash Balance(No LT projects,at RJL Deck)

Cash Balance(No LT projects,at Spot)

Source: First Quantum Minerals Ltd., Raymond James Ltd.



Assumptions:

First Quantum maxes out its existing $1,000 mln Kansanshi senior term and revolving facility ($1,000 mln available as at 1Q13-end, $300 mln of which is a term loan) and $2,500 mln acquisition facility ($384 mln available as at 1Q13-end). We assumed the $300 mln term loan is repaid in six equal semi-annual payments between 3Q14 and 1Q17, the acquisition facility is gradually repaid over the coming several years, while the existing $2,350 mln in notes are repaid on maturity dates.

Sentinel, Enterprise and the smelter construction presumed to go ahead. Should Cobre Panama and Haquira be deferred, annual spend on the projects would not exceed $40 mln/year and $10 mln/year on attributable basis, respectively.

Under the long-term project scenario, exploration budget to be reduced by 50% and capped at $42 mln/year, dividend capped at current $0.23/share annual rate (1.2% yield at current levels).

Exhibit 19: First Quantum’s Sensitivity Metrics

First Quantum Minerals Ltd.Other

Metals at RJL Deck

Other Metals at

Spot1

RJL Deck,No LT

Projects2

Spot,No LT

Projects2


Note 3: Base case - LOM until 2055 (model cut-off); No Long Term Projects - LOM until 2048

Note 1: Spot Prices Assumed: Cu = $3.25/lb, Zn = $0.82/lb, Ni = $6.75/lb, Pb = $0.90/lb, Mo = $10.75/lb, Co = $12.50/lb, Au = $1,350/oz, Ag = $22.00/oz, Pt = $1,450/oz, Pd = $700/ozNote 2: No Long-Term Projects - Assumed Cobre Panama & Haquira put on hold (attributable maintenance spend: Cobre Panama = $40/yr, Haquira = $10/yr)




HudBay

HudBay finds itself in a transitional year in 2013, with its copper production set to expand at peer-leading rate between 2013 and 2016. To achieve this growth, however, we expect HudBay will need to raise some capital along the way, although we do not see it as a material concern at the moment. At the end of this transformational year, we see HudBay re-emerging as a multi-mine base metals producer, significantly improving its cash-generating abilities over the next several years.

Key Attributes:

Peer Leading Growth to 2016: We project HudBay’s copper production to grow fivefold between 2013 and 2016 (72% CAGR), as the company brings its Constancia and Reed projects on-line and ramps up its Lalor operations.

Dividend likely to be cut: HudBay reiterated that it expects to cut its September 2013 dividend as a result of breaching its covenants during 4Q12. We continue to see room for HudBay to sustain an annual dividend of $0.04/share (or 0.5%), down from its current annualized rate of $0.20/share (or 2.5%). We expect any dividend cut to be a short-term event, with the full dividend re-introduced in 2015, once Constancia starts up, which would come on top of ramp-ups at Lalor and Reed.

Financing likely required, but not immediately: Assuming commodities stay at spot, we estimate a peak funding gap of ~$250 mln for HudBay starting in late 2014, vs. a peak funding gap of ~$75 mln at our commodity price deck starting in early 2015. With $1.1 bln in cash and investments, $300 mln in upcoming precious metals stream deal proceeds from Silver Wheaton, and $235 mln unused room on its debt facility, HudBay has sufficient capital to continue its development plans for several quarters before it needs to raise capital.

Several financing options are still being considered: Management continues to evaluate a gold stream deal on Constancia (up to $300 mln), mining fleet vendor financing (~$150 mln) or off-take linked funding. In the past, a Constancia project stake sale was also identified as a possible financing alternative.

Exhibit 20: HudBay’s Cu Production is Set to Grow Fivefold Between 2013 and 2016

020406080

100120140160180200

Cu p

rodu

ctio

n (k

t)

777 Lalor Lake Reed CopperConstancia Trout Lake Chisel North

-400

-200

0

200

400

600

800

1,000

1,200

1,400

1,600

2012

A

2013

E

2014

E

2015

E

2016

E

2017

E

2018

E

2019

E

2020

E

Cash

+ In

vest

men

ts ($

mln

)



Cash Balance(No LT projects,at RJL Deck)

Cash Balance(No LT projects,at Spot)

Source: HudBay Minerals, Inc., Raymond James Ltd.



Assumptions:

Constancia and Reed construction presumed to go ahead.

We assumed $500 mln in notes is repaid on maturity date (Oct-01-20).

Under base case, dividend is reduced to $0.04/share annually and increased back to $0.20/share annually post Constancia completion.

Under the long-term project scenario, exploration budget to be reduced by 50% and capped at $24 mln/year.

Exhibit 21: HudBay’s Sensitivity Metrics

HudBay Minerals, Inc.Other

Metals at RJL Deck

Other Metals at

Spot1

RJL Deck,No LT

Projects2

Spot,No LT

Projects2


Note 2: No Long-Term Projects - Assumed Constancia CapEx is back-loadedNote 3: Base case - LOM until 2036; No Long Term Projects - LOM until 2036

Note 1: Spot Prices Assumed: Cu = $3.25/lb, Zn = $0.82/lb, Pb = $0.90/lb, Mo = $10.75/lb, Au = $1,350/oz, Ag = $22.00/oz




Teck

We continue to view Teck as a lower-risk way to play the sector, given its strong balance sheet, cash-flow producing assets with robust cost structures in safe, stable jurisdictions, and longer-term optionality on oil and copper prices. While the company trades at a premium to its covered base metal producing peers, we believe that premium is generally justified, due to its 3.2% annualized dividend yield and stable and diversified near-term production profile from its coal, copper, and zinc operations.

Key Attributes:

Levered to Coal Price Recovery: Coal division remains Teck’s largest operating unit, accounting for 53% of Teck’s minesite NAV and ~43% of its revenues over the next three years. Given its $93/t LOM operating cash costs (or $104/t, after accounting for capitalized deferred stripping), the division should benefit from a recovery in coal prices from current low levels.

We calculate an all-in cost for the coal division of $139/t (all taxes and CapEx included). At spot, we estimate all-in cost of $126/t, due to resulting lower taxes. Should the current low commodity price environment persist ($150/t spot vs. $172/t 2Q13 benchmark vs. $200/t RJL long-term forecast), the division should still remain fairly profitable and cash-flow positive.

Dividend is safe for now, but any changes to it will depend on Teck’s long-term projects. We estimate that Teck’s balance sheet could come under pressure if it decides to go ahead and build all of its long-term projects, which could force the company to reconsider its dividend policy. We presently estimate Fort Hills’ and Frontier’s attributable pre-production CapEx at $2.0 bln and $6.9 bln, respectively, whereas for the three copper projects, we project start-up CapEx of $5.7 bln for Galore Creek ($2.8 bln, or 50% of total, on attributable basis), $6.2 bln for QB2, and $4.6 bln for Relincho.

We believe that should Fort Hills’ operator Suncor decide to postpone the project, which could be followed by similar decision by Teck on Frontier, the company may look to increase its dividend.

Our NAVPS estimate declined by 2% to $31.39 (old: $32.08) and reduced our target price to $37.00 (old: $38.00) on adjustment to royalty calculations at the Red Dog zinc mine as well as capitalized stripping and amortization at the Coal division. We also pushed QB2’s start-up date to 2018 (from 2017), after Teck’s CEO Don Lindsay indicated at a recent investment conference that a Board decision on the project is at least 18 months away.

Exhibit 22: Most of Teck’s copper production growth is long-dated

$0.50

$0.75

$1.00

$1.25

$1.50

$1.75

$2.00

$2.25

$2.50

0

100

200

300

400

500

600

700

800

Cu D

ivis

ion

Cash

Cos

ts ($

/lb

Cu)

Attr

ibut

able

Cu

Prod

uctio

n (t

onne

s)

Antamina Andacollo Highland Valley Galore Creek QB

QB2 Duck Pond Relincho Cash Costs

-15,000

-10,000

-5,000

0

5,000

10,000

15,000

Cash

+ In

vest

men

ts ($

mln

) Cash Balance (at RJL Deck)

Cash Balance (at Spot)

Cash Balance (No LTprojects, at RJL Deck)

Cash Balance (No LTprojects, at Spot)

Cash Balance (No Oilprojects, at RJL Deck)

Cash Balance (No Oilprojects, at Spot)




Assumptions:

We assumed $7,200 mln in notes are repaid on maturity dates, although we note that $3,350 mln of that (or ~47%) is not due until 2035 or after. However, given Teck’s stable operating asset base with cash flow generating capabilities, we believe the company should be capable of refinancing most of that debt in the capital markets.

Should Fort Hills, Frontier, Quebrada Blanca II, and Relincho be deferred, annual spend on the projects would not exceed $40 mln/year on attributable basis. Should Galore Creek be deferred, we estimate an annual attributable spend of $5 mln/year.

Under the long-term project scenario, exploration budget to be reduced by 50% and capped at $46 mln/year.

Exhibit 23: Teck’s Sensitivity Metrics

Teck Resources LimitedOther

Metals at RJL Deck

Other Metals at

Spot1

RJL Deck,No LT

Projects2

Spot,No LT

Projects2


Note 3: Base case - LOM until 2055 (model cut-off); No Long Term Projects - LOM until 2041

Note 2: No Long-Term Projects - Assumed Oil & Cu Projects put on hold (attributable maintenance spend: Frontier = Fort Hills = Relincho = QB2 = $20/yr each, Galore Creek = $5/yr)

Note 1: Spot Prices Assumed: Cu = $3.25/lb, Zn = $0.82/lb, Pb = $0.90/lb, Mo = $10.75/lb, Co = $12.50/lb, Au = $1,350/oz, Ag = $22.00/oz, HCC = $150/t




Lundin

We continue to believe that 2013 is setting up to be a steady-state year for Lundin, lacking any material expansions or high capex requirements, and thus leading us to conclude that the stock should continue to trade in-line with the sector. In the absence of material acquisitions to augment its long-term growth profile, we believe the possibility exists for the company to introduce a dividend in 2H13.

Key Attributes:

Lowest long-term production growth profile: We forecast Lundin’s attributable copper production to grow at 6% CAGR to 2017E, driven almost entirely by its 24% stake in Tenke.

Uncertainty over long-term strategy: It is unclear at this point whether the management is going to make a sizeable acquisition or continue making investments in junior mining companies, and it is likely that concerns of growth through M&A, and associated risks of overpaying, are weighting on the stock, which should prevent it from breaking out beyond our target price of $5.50.

We believe management may implement a dividend in 2H13 if no sizable acquisition is made by that time.

Exhibit 24: Lundin’s Strong Balance Sheet Comes at the Expense of Low Long-Term Growth Profile

0

20

40

60

80

100

120

140

160

2012A 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

Attr

ibut

able

Cu

Prod

uctio

n (k

t)

Neves Corvo Tenke Zinkgruvan Galmoy Aguablanca

0

500

1,000

1,500

2,000

2,500

3,00020

12A

2013

E

2014

E

2015

E

2016

E

2017

E

2018

E

2019

E

2020

E

Cash

+ In

vest

men

ts ($

mln

)



Cash Balance (NoLT projects, at RJLDeck)

Cash Balance (NoLT projects, atSpot)


Assumptions:

Lundin maxes out its existing $350 mln credit facility, which is extended in perpetuity.

Under the long-term project scenario, exploration budget to be reduced by 50% and capped at $22.5 mln/year.

No dividend was considered for the purposes of modeling out future cash flows.



Exhibit 25: Lundin’s Sensitivity Metrics

Lundin Mining CorporationOther

Metals at RJL Deck

Other Metals at

Spot1

RJL Deck,No LT

Projects2

Spot,No LT

Projects2


Note 2: No Long-Term Projects - No material changes from base case given lack of key long-term projectsNote 3: Base case - LOM until 2046; No Long Term Projects - LOM until 2046

Note 1: Spot Prices Assumed: Cu = $3.25/lb, Zn = $0.82/lb, Ni = $6.75/lb, Pb = $0.90/lb, Co = $12.50/lb, Au = $1,350/oz, Ag = $22.00/oz




Capstone Mining Corp. CS-TSX Rating: Outperform Suitability: High RiskCurrent Price (May-24-13) C$2.26 Target Price (6-12 mos) C$4.0052-Week Range C$2.91 - C$1.84 Total Return to Target 77%Market Capitalization (mln) C$855 Dividend/Yield C$0.00/0.0%Shares Outstanding (mln, basic) 378.2 Current Net Debt (mln) -US$48510 Day Avg Daily Volume (000s) 1,045 Enterprise Value (mil.) US$342

EPS 1Q 2Q 3Q 4Q Full Revenue NAVPS P/E P/NAV Mar Jun Sep Dec Year (mln)

2011A US$0.09 US$0.06 US$0.04 US$0.01 US$0.18 US$353 12.6x Old 2012A 0.04 0.03 0.05 0.05 0.18 328 NA

New 2012A 0.04 0.03 0.05 0.05 0.18 328 NA 12.8x NA Old 2013E 0.02A 0.02 0.06 0.12 0.22 466 4.93

New 2013E 0.02A 0.02 0.06 0.12 0.22 466 4.93 10.2x 0.44x Old 2014E 0.14 0.13 0.15 0.13 0.55 916 NA

New 2014E 0.14 0.13 0.15 0.13 0.55 916 NA 4.1x NA

CFPS EBITDA Working Capex Total Production M&I Shares (mln) Capital (mln) (mln) Debt (mln) (Cu Tonnes) Resource (Cu

Mt) Outstanding

(mln, f.d.)

2011A US$0.41 US$179.4 US$533.1 US$(88.2) 5.6 35,244 NA 402.8 Old 2012A 0.30 144.9 562.1 (116.1) 0.0 37,574 NA 395.1

New 2012A 0.30 144.9 562.1 (116.1) 0.0 37,574 NA 395.1 Old 2013E 0.44 193.7 265.4 (107.1) 300.0 56,664 5.5 395.1

New 2013E 0.44 193.7 265.4 (107.1) 300.0 56,664 5.5 395.1 Old 2014E 0.91 434.2 434.4 (173.8) 300.0 105,558 NA 395.1

New 2014E 0.91 434.2 434.4 (173.8) 300.0 105,558 NA 395.1 Source: Raymond James Ltd., Thomson One

First Quantum Minerals Ltd. FM-TSX Rating: Outperform Suitability: High RiskCurrent Price (May-24-13) C$18.71 Target Price (6-12 mos) C$24.0052-Week Range C$24.90 - C$15.12 Total Return to Target 28%Market Capitalization (mln) C$10,762 Dividend/Yield C$0.06/0.3%Shares Outstanding (mln, basic) 575.2 Current Net Debt (mln) US$81910 Day Avg Daily Volume (000s) 2,571 Enterprise Value (mln) US$12,968

EPS 1Q 2Q 3Q 4Q Full Revenue NAVPS P/E P/NAV Mar Jun Sep Dec Year (mln)

2011A US$0.44 US$0.33 US$0.20 US$0.16 US$1.18 US$2,584 15.9x Old 2012A 0.20 0.29 0.23 0.39 1.11 2,950 NA

New 2012A 0.20 0.29 0.23 0.39 1.11 2,950 NA 16.9x NA Old 2013E 0.27A 0.26 0.29 0.33 1.15 3,984 23.78

New 2013E 0.27A 0.26 0.29 0.33 1.15 3,895 23.79 16.3x 0.76x Old 2014E 0.32 0.32 0.32 0.33 1.30 4,452 NA

New 2014E 0.32 0.32 0.32 0.33 1.30 4,325 NA 14.4x NA

CFPS EBITDA Working Capex Total Consolidated M&I Shares (mln) Capital (mln) (mln) Debt (mln) Production

(Cu tonnes)Resource (Cu

Mt) Outstanding

(mln, f.d.)

2011A US$1.85 US$1,273 US$752 US$(1,050) US$63 265,576 NA 480.3 Old 2012A 1.49 1,115 1,389 (1,317) 397 307,115 NA 480.9

New 2012A 1.49 1,115 1,389 (1,317) 397 307,115 NA 480.9 Old 2013E 2.01 1,646 2,978 (2,478) 4,826 395,044 29.2 595.4

New 2013E 2.01 1,646 2,978 (2,478) 4,826 395,044 29.2 595.4 Old 2014E 2.06 1,919 1,492 (3,071) 4,656 421,525 NA 595.4

New 2014E 2.06 1,919 1,492 (3,071) 4,656 421,525 NA 595.4 Source: Raymond James Ltd., Thomson One



HudBay Minerals, Inc. HBM-TSX Rating: Outperform Suitability: High RiskCurrent Price (May-24-13) C$8.13 Target Price (6-12 mos) C$11.5052-Week Range C$12.10 - C$7.36 Total Return to Target 41%Market Capitalization (mln) C$1,398 Dividend/Yield C$0.20/2.5%Shares Outstanding (mln, basic) 172.0 Current Net Debt (mln) -C$63710 Day Avg Daily Volume (000s) 756 Enterprise Value (mln) C$761

EPS 1Q 2Q 3Q 4Q Full Revenues NAVPS P/E P/NAV Mar Jun Sep Dec Year (mln)

2011A C$0.11 C$0.28 C$0.12 C$0.21 C$0.71 C$891 11.4x Old 2012A 0.07 0.05 0.00 0.05 0.17 703 NA

New 2012A 0.07 0.05 0.00 0.05 0.17 703 NA 48.2x NA Old 2013E 0.02A 0.01 0.02 0.03 0.07 551 13.01

New 2013E 0.02A 0.01 0.02 0.03 0.07 551 13.01 109.1x 0.63x Old 2014E 0.09 0.10 0.10 0.09 0.37 723 NA

New 2014E 0.09 0.10 0.10 0.09 0.38 723 NA 21.6x NA

CFPS EBITDA Working Capex Total Production M&I Shares (mln) Capital (mln) (mln) Debt (mln) (Cu tonnes) Resource (Cu

Mt) Outstanding

(mln, f.d.)

2011A C$1.40 C$323.3 C$841.7 C$(241.6) 0.0 54,324 NA 176.0 Old 2012A 0.83 182.1 1,214.3 (510.5) 479.5 39,587 NA 176.0

New 2012A 0.83 182.1 1,214.3 (510.5) 479.5 39,587 NA 176.0 Old 2013E 0.19 102.4 432.2 (1,294.4) 736.5 34,470 3.0 175.9

New 2013E 0.19 102.4 432.2 (1,294.4) 736.5 34,470 3.0 175.9 Old 2014E 0.54 221.7 (33.1) (592.9) 788.0 46,311 NA 175.9

New 2014E 0.54 221.7 (82.5) (592.9) 738.0 46,311 NA 175.9 Source: Raymond James Ltd., Thomson One

Lundin Mining Corporation LUN-TSX Rating: Market Perform Suitability: High RiskCurrent Price (May-24-13) C$4.37 Target Price (6-12 mos) C$5.5052-Week Range C$5.54 - C$3.69 Total Return to Target 26%Market Capitalization (mln) C$2,553 Dividend/Yield C$0.00/0.0%Shares Outstanding (mln, basic) 584.2 Current Net Debt (mln) -US$19910 Day Avg Daily Volume (000s) 2,106 Enterprise Value (mil.) US$2,273

EPS 1Q 2Q 3Q 4Q Full Revenues NAVPS P/E P/NAV Mar Jun Sep Dec Year (mln)

2011A US$0.12 US$0.10 US$0.02 US$0.12 US$0.36 US$784 12.3x Old 2012A 0.10 0.08 0.06 0.08 0.32 721 NA

New 2012A 0.10 0.08 0.06 0.08 0.32 721 NA 13.9x NA Old 2013E 0.07A 0.06 0.07 0.12 0.32 746 5.44

New 2013E 0.07A 0.06 0.07 0.12 0.32 746 5.44 13.8x 0.78x Old 2014E 0.12 0.11 0.13 0.12 0.49 770 NA

New 2014E 0.12 0.11 0.13 0.12 0.49 770 NA 9.0x NA

Cash EBITDA Working Capex Total Production M&I Shares Flow/Share (mln) Capital (mln) (mln) Debt (mln) (Cu tonnes) Resource (Cu

Mt) Outstanding

(mln, f.d.)

2011A US$0.69 US$425.9 US$265.8 US$(232.8) US$29.3 107,400 NA 591.6 Old 2012A 0.64 344.1 288.5 (318.3) 10.0 102,050 NA 593.1

New 2012A 0.64 344.1 288.5 (318.3) 10.0 102,050 NA 593.1 Old 2013E 0.75 399.3 353.4 (274.8) 8.1 111,786 5.0 594.4

New 2013E 0.75 399.3 353.4 (274.8) 8.1 111,786 5.0 594.4 Old 2014E 0.75 534.3 552.2 (255.3) 6.6 109,079 NA 594.4

New 2014E 0.75 534.3 552.2 (255.3) 6.6 109,079 NA 594.4 Source: Raymond James Ltd., Thomson One



Teck Resources Limited TCK.B-TSX Rating: Outperform Suitability: Aggressive Growth

Current Price (May-24-13) C$28.09 Target Price (6-12 mos) Old: C$38.00 New: C$37.0052-Week Range C$38.13 - C$24.10 Total Return to Target 32%Market Capitalization (mln) C$16,326 Dividend/Yield C$0.85/3.0%Shares Outstanding (mln, f.d.) 581.2 Current Net Debt (mln) C$4,39410 Day Avg Daily Volume (000s) 2,177 Enterprise Value (mln) C$20,914

EPS 1Q 2Q 3Q 4Q Full Revenues NAV P/E P/NAV Mar Jun Sep Dec Year (mln)

2011A C$0.77 C$1.13 C$1.34 C$1.10 C$4.34 C$11,514 6.5x Old 2012A 0.95 0.47 0.67 0.61 2.70 10,343 NA

New 2012A 0.95 0.47 0.67 0.61 2.70 10,343 NA 10.2x NA Old 2013E 0.47A 0.35 0.60 0.71 2.13 9,520 32.08

New 2013E 0.47A 0.35 0.60 0.72 2.14 9,520 31.39 13.1x 0.89x Old 2014E 0.68 0.66 0.97 0.96 3.27 10,854 NA

New 2014E 0.68 0.66 0.97 0.96 3.28 10,854 NA 8.6x NA

CFPS EBITDA Working Capex Total Production Production Shares (mln) Capital (mln) (mln) Debt (mln) (Cu tonnes) (Coal Mt) Outstanding

(mln, f.d.)

2011A C$7.84 C$5,367 C$5,267 C$(1,236) C$7,035 321,000 22.8 594.0 Old 2012A 5.44 3,736 4,753 (1,809) 7,195 373,000 24.7 589.0

New 2012A 5.44 3,736 4,753 (1,809) 7,195 373,000 24.7 589.0 Old 2013E 5.52 3,625 3,923 (2,818) 7,337 350,445 24.2 589.0

New 2013E 4.83 3,631 3,932 (2,813) 7,337 350,445 24.2 589.0 Old 2014E 6.77 4,621 3,197 (3,330) 7,329 351,033 25.8 589.0

New 2014E 6.18 4,630 3,537 (3,005) 7,329 351,033 25.8 589.0 Source: Raymond James Ltd., Thomson One; Note: Subordinate Voting

Company Citations Company Name Ticker Exchange Currency Closing Price RJ Rating RJ EntityCopper Mountain Mining CUM TSX C$ 1.73 2 RJ LTD.Mercator Minerals Limited ML TSX C$ 0.22 3 RJ LTD.Nevsun Resources Ltd. NSU TSX C$ 3.51 2 RJ LTD.Oz Minerals OZL.D ASX NC Silver Wheaton SLW NYSE US$ 22.74 2 RJ LTD.Suncor Energy SU NYSE NC RJ LTD.Taseko Mines Ltd. TKO TSX C$ 2.24 2 RJ LTD.Trevali Mining Corporation TV TSX C$ 0.62 R RJ LTD. Notes: Prices are as of the most recent close on the indicated exchange and may not be in US$. See Disclosure section for rating definitions. Stocks that do not trade on a U.S. national exchange may not be registered for sale in all U.S. states. NC=not covered.



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Ratings and Definitions Raymond James Ltd. (Canada) definitions

Strong Buy (SB1) The stock is expected to appreciate and produce a total return of at least 15% and outperform the S&P/TSX Composite Index over the next six months. Outperform (MO2) The stock is expected to appreciate and outperform the S&P/TSX Composite Index over the next twelve months. Market Perform (MP3) The stock is expected to perform generally in line with the S&P/TSX Composite Index over the next twelve months and is potentially a source of funds for more highly rated securities. Underperform (MU4) The stock is expected to underperform the S&P/TSX Composite Index or its sector over the next six to twelve months and should be sold.

Raymond James & Associates (U.S.) definitions

Strong Buy (SB1) Expected to appreciate, produce a total return of at least 15%, and outperform the S&P 500 over the next six to 12 months. For higher yielding and more conservative equities, such as REITs and certain MLPs, a total return of at least 15% is expected to be realized over the next 12 months. Outperform (MO2) Expected to appreciate and outperform the S&P 500 over the next 12-18 months. For higher yielding and more conservative equities, such as REITs and certain MLPs, an Outperform rating is used for securities where we are comfortable with the relative safety of the dividend and expect a total return modestly exceeding the dividend yield over the next 12-18 months. Market Perform (MP3) Expected to perform generally in line with the S&P 500 over the next 12 months. Underperform (MU4) Expected to underperform the S&P 500 or its sector over the next six to 12 months and should be sold. Suspended (S) The rating and price target have been suspended temporarily. This action may be due to market events that made coverage impracticable, or to comply with applicable regulations or firm policies in certain circumstances, including when Raymond James may be providing investment banking services to the company. The previous rating and price target are no longer in effect for this security and should not be relied upon.

Raymond James Latin American rating definitions Strong Buy (SB1) Expected to appreciate and produce a total return of at least 25.0% over the next twelve months. Outperform (MO2) Expected to appreciate and produce a total return of between 15.0% and 25.0% over the next twelve months. Market Perform (MP3) Expected to perform in line with the underlying country index. Underperform (MU4) Expected to underperform the underlying country index. Suspended (S) The rating and price target have been suspended temporarily. This action may be due to market events that made coverage impracticable, or to comply with applicable regulations or firm policies in certain circumstances, including when Raymond James may be providing investment banking services to the company. The previous rating and price target are no longer in effect for this security and should not be relied upon.

Raymond James Euro Equities, SAS rating definitions Strong Buy (1) Expected to appreciate, produce a total return of at least 15%, and outperform the Stoxx 600 over the next 6 to 12 months. Outperform (2) Expected to appreciate and outperform the Stoxx 600 over the next 12 months. Market Perform (3) Expected to perform generally in line with the Stoxx 600 over the next 12 months. Underperform (4) Expected to underperform the Stoxx 600 or its sector over the next 6 to 12 months. Suspended (S) The rating and target price have been suspended temporarily. This action may be due to market events that made coverage impracticable, or to comply with applicable regulations or firm policies in certain circumstances, including when Raymond James may be providing investment banking services to the company. The previous rating and target price are no longer in effect for this security and should not be relied upon.

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Suitability Categories (SR) Total Return (TR) Lower risk equities possessing dividend yields above that of the S&P 500 and greater stability of principal.

Growth (G) Low to average risk equities with sound financials, more consistent earnings growth, at least a small dividend, and the potential for long-term price appreciation.

Aggressive Growth (AG) Medium or higher risk equities of companies in fast growing and competitive industries, with less predictable earnings and acceptable, but possibly more leveraged balance sheets.

High Risk (HR) Companies with less predictable earnings (or losses), rapidly changing market dynamics, financial and competitive issues, higher price volatility (beta), and risk of principal.

Venture Risk (VR) Companies with a short or unprofitable operating history, limited or less predictable revenues, very high risk associated with success, and a substantial risk of principal.

Rating Distributions

Coverage Universe Rating Distribution Investment Banking Distribution RJL RJA RJ LatAm RJEE RJL RJA RJ LatAm RJEE

Strong Buy and Outperform (Buy) 65% 51% 32% 42% 28% 22% 0% 0% Market Perform (Hold) 34% 43% 64% 37% 28% 9% 0% 0% Underperform (Sell) 1% 6% 4% 20% 0% 2% 0% 0% Raymond James Relationship Disclosures Raymond James Ltd. or its affiliates expects to receive or intends to seek compensation for investment banking services from all companies under research coverage within the next three months.

Company Name Disclosure Capstone Mining Corp. Raymond James Ltd - the analyst and/or associate has viewed the material operations of

Capstone Mining Corp.. Raymond James Ltd - within the last 12 months, Capstone Mining Corp. has paid for all or a material portion of the travel costs associated with a site visit by the analyst and/or associate.

Copper Mountain Mining Raymond James Ltd - the analyst and/or associate has viewed the material operations of Copper Mountain Mining.

First Quantum Minerals Ltd. Raymond James Ltd - within the last 12 months, First Quantum Minerals Ltd. has paid for all or a material portion of the travel costs associated with a site visit by the analyst and/or associate.

HudBay Minerals, Inc. Raymond James Ltd - the analyst and/or associate has viewed the material operations of HudBay Minerals, Inc.. Raymond James Ltd - within the last 12 months, HudBay Minerals, Inc. has paid for all or a material portion of the travel costs associated with a site visit by the analyst and/or associate. Raymond James Ltd. has managed or co-managed a public offering of securities within the last 12 months with respect to HudBay Minerals, Inc.. Raymond James Ltd. has provided investment banking services within the last 12 months with respect to HudBay Minerals, Inc.. Raymond James Ltd. has received compensation for investment banking services within the last 12 months with respect to HudBay Minerals, Inc.. Raymond James Ltd. makes a market in the securities of HudBay Minerals, Inc..



Company Name Disclosure Lundin Mining Corporation Raymond James Ltd - the analyst and/or associate has viewed the material operations of

Lundin Mining Corporation. Raymond James Ltd - within the last 12 months, Lundin Mining Corporation has paid for all or a material portion of the travel costs associated with a site visit by the analyst and/or associate.

Mercator Minerals Limited Raymond James Ltd - the analyst and/or associate has viewed the material operations of Mercator Minerals Limited. Raymond James Ltd - within the last 12 months, Mercator Minerals Limited has paid for all or a material portion of the travel costs associated with a site visit by the analyst and/or associate. Raymond James Ltd. has managed or co-managed a public offering of securities within the last 12 months with respect to Mercator Minerals Limited. Raymond James Ltd. has provided investment banking services within the last 12 months with respect to Mercator Minerals Limited. Raymond James Ltd. has received compensation for investment banking services within the last 12 months with respect to Mercator Minerals Limited.

Nevsun Resources Ltd. Raymond James Ltd - the analyst and/or associate has viewed the material operations of Nevsun Resources Ltd.. Raymond James Ltd - within the last 12 months, Nevsun Resources Ltd. has paid for all or a material portion of the travel costs associated with a site visit by the analyst and/or associate.

Silver Wheaton Raymond James Ltd - the analyst and/or associate has viewed the material operations of Silver Wheaton.

Taseko Mines Ltd. Raymond James Ltd - the analyst and/or associate has viewed the material operations of Taseko Mines Ltd.. Raymond James Ltd - within the last 12 months, Taseko Mines Ltd. has paid for all or a material portion of the travel costs associated with a site visit by the analyst and/or associate.

Trevali Mining Corporation Raymond James Ltd - the analyst and/or associate has viewed the material operations of Trevali Mining Corporation. Raymond James Ltd - within the last 12 months, Trevali Mining Corporation has paid for all or a material portion of the travel costs associated with a site visit by the analyst and/or associate. Raymond James Ltd. has managed or co-managed a public offering of securities within the last 12 months with respect to Trevali Mining Corporation. Raymond James Ltd. has provided investment banking services within the last 12 months with respect to Trevali Mining Corporation. Raymond James Ltd. has received compensation for investment banking services within the last 12 months with respect to Trevali Mining Corporation.

Stock Charts, Target Prices, and Valuation Methodologies Valuation Methodology: The Raymond James methodology for assigning ratings and target prices includes a number of qualitative and quantitative factors including an assessment of industry size, structure, business trends and overall attractiveness; management effectiveness; competition; visibility; financial condition, and expected total return, among other factors. These factors are subject to change depending on overall economic conditions or industry- or company-specific occurrences.



Risk Factors General Risk Factors: Following are some general risk factors that pertain to the projected target prices included on Raymond James research: (1) Industry fundamentals with respect to customer demand or product / service pricing could change and adversely impact expected revenues and earnings; (2) Issues relating to major competitors or market shares or new product expectations could change investor attitudes toward the sector or this stock; (3) Unforeseen developments with respect to the management, financial condition or accounting policies or practices could alter the prospective valuation.

Mining - Base Metals & Minerals - Risk Factors Some of the risk factors that pertain to the projected 6-12 month stock price target for mining companies in our universe are as follows: Mining companies are subject to a range of risks, including, but not limited to: environmental risk, political risk, operational risk, financial risk, hedging risk, commodity price fluctuation risk, and currency risk. Any difference between our metal price forecasts and realized metal prices will likely have an impact on our earnings and valuation estimates for the mining companies in our research coverage universe. The operation of mines, and mills is complex and is exposed to a number of risks, most of which are beyond the company’s control. These include: environmental compliance issues; personnel accidents; metallurgical/other processing problems; unexpected rock formations; ground or slope failures; flooding or fires; earthquakes; rock bursts; equipment failures; consultant errors and, interruption due to inclement weather conditions, road closures, and/or local protests. Other risks include, but are not limited to: uncertainties surrounding reclamation costs; aging equipment and facilities which could lead to increased costs; strikes; and, transportation disruptions.

Mining - Risk Factors Some of the risk factors that pertain to the projected 6-12 month stock price target for mining companies in our universe are as follows: Mining companies are subject to a range of risks, including, but not limited to: environmental risk, political risk, operational risk, financial risk, hedging risk, commodity price fluctuation risk, and currency risk. Any difference between our metal price forecasts and realized metal prices will likely have an impact on our earnings and valuation estimates for the mining companies in our research coverage universe. The operation of mines, and mills is complex and is exposed to a number of risks, most of which are beyond the company’s control. These include: environmental compliance issues; personnel accidents; metallurgical/other processing problems; unexpected rock formations; ground or slope failures; flooding or fires; earthquakes; rock bursts; equipment failures; consultant errors and, interruption due to inclement weather conditions, road closures, and/or local protests. Other risks include, but are not limited to: uncertainties surrounding reclamation costs; aging equipment and facilities which could lead to increased costs; strikes; and, transportation disruptions.

Additional Risk and Disclosure information, as well as more information on the Raymond James rating system and suitability categories, is available for Raymond James at rjcapitalmarkets.com/Disclosures/index and for Raymond James Limited at www.raymondjames.ca/researchdisclosures.

International Disclosures For clients in the United States:

For clients in the United States: Any foreign securities discussed in this report are generally not eligible for sale in the U.S. unless they are listed on a U.S. exchange. This report is being provided to you for informational purposes only and does not represent a solicitation for the purchase or sale of a security in any state where such a solicitation would be illegal. Investing in securities of issuers organized outside of the U.S., including ADRs, may entail certain risks. The securities of non-U.S. issuers may not be registered with, nor be subject to the reporting requirements of, the U.S. Securities and Exchange Commission. There may be limited information available on such securities. Investors who have received this report may be prohibited in certain states or other jurisdictions from purchasing the securities mentioned in this report.

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