Fortune - Oct 2016 - Initiating

Siddharth Rajeev, B.Tech, MBA, CFA Analyst

October 12, 2016

2016 Fundamental Research Corp. “10+ Years of Bringing Undiscovered Investment Opportunities to the Forefront” www.researchfrc.com

PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT

Fortune Minerals Limited (TSX: FT / OTC: FTMDF / Frankfurt: FMP) - Initiating Coverage – A

Unique Opportunity in Cobalt and Gold

Sector/Industry: Junior Resource www.fortuneminerals.com

Market Data (as of October 12, 2016)

Current Price $0.145

Fair Value C$0.85

Rating* BUY

Risk* 5 (Highly Spec)

52 Week Range $0.02 - $0.17

Shares O/S 268,149,007

Market Cap $38.88 mm

Current Yield N/A

P/E (forward) N/A

P/B 0.6x

YoY Return 383.3%

YoY TSX 4.2% *see back of report for rating and risk definitions * All figures in C$ unless otherwise specified.

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

1-Oct-15 30-Jan-16 30-May-16 28-Sep-16

$-

$0.02

$0.04

$0.06

$0.08

$0.10

$0.12

$0.14

$0.16

$0.18

Investment Highlights

� Fortune Minerals Limited (“company”, “Fortune”) is advancing its 100% owned NICO project in Canada’s Northwest Territories (“NWT”) to production.

� NICO 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.

� We believe cobalt has been overlooked by investors in the past few years. We have a very positive outlook on this sector based on projected strong demand in Lithium-Ion rechargeable batteries and supply concerns with the Democratic Republic of the Congo (“DRC”), the world’s largest cobalt supplier.

� Two feasibility studies have been completed on the NICO project. The project has all of the key permits in place, including the environmental assessment (“EA”) approvals, to commence construction. Management is currently evaluating financing options and off-take for the products it plans to produce.

� We believe the unique combination of gold and cobalt make NICO a very attractive investment opportunity for both mining and technology related project financiers. NICO is one of only two advanced stage cobalt projects in North America, with the added benefit of a 1.11 million ounce gold reserve.

� Fortune has a strong management team, and board, with experience in advancing large projects to production.

� We are initiating coverage on Fortune with a BUY rating and a fair value estimate of $0.85 per share.

Risks

� The value of the company is highly dependent on commodity prices (primarily cobalt and gold).

� Project financing and/or off-take agreements may take longer than expected. � Development risks. � Access to capital and share dilution. � The company has approximately $8.75 million in unsecured debentures

outstanding, but principal and interest are not due until 2022.

Key Financial Data (FYE - Dec 31)

(C$) 2015 Q2-2016

Cash $144,835 $190,610

Working Capital -$58,548 $111,911

Mineral Assets $67,283,007 $67,527,531

Total Assets $67,958,584 $68,148,772

Net Income (Loss) -$39,811,564 -$1,238,623

EPS -$0.19 -$0.02

• Fortune completed a $1.25 million financing subsequent to Q2-2016.

Page 2



Background

NICO Project

Fortune, headquartered in London, Ontario, Canada, was founded in 1988 by CEO, Robin Goad. Since its inception, the company has held and operated several resource projects in North America, with target commodities ranging from precious and base metals, diamonds, coal and industrial minerals. The company had a major setback in 2015, when it defaulted on a debt facility, which it had used to acquire the Revenue Silver Mine (a near-term silver producer in Colorado, U.S.) in 2014. Ownership of the project was transferred to the creditors, but Fortune was able to retain all of its other assets. The default was primarily a result of the soft commodities market at that time, which made it challenging for the company to attract capital to finance the mine. Another significant development was the sale of the Arctos Anthracite Coal Project in British Columbia by Fortune and joint venture (“JV”) partner POSCO Canada Ltd. (“POSCO” - one of the world’s leading steelmakers) to BC Rail for $18.3 million in May 2015. The company received $9 million as its share of this disposition. We believe management made a prudent decision to divest its interest in the project considering the unresolved issues with the Tahltan First Nations making this project difficult to advance. Fortune and POSCO retain a 10-year option to reacquire the project at the same price from BC Rail, which can be exercised should the development of this asset be warranted in the future. The aforementioned two developments have allowed the company to focus its attention and resources to the 100% owned NICO project, which is an advanced stage polymetallic project, with cobalt and gold as the primary metals. Fortune has continued to advance and de-risk this project since its discovery by the company in 1996. Management is currently evaluating project financing options and off-take to fund the project’s CAPEX. We believe the strong

fundamentals for cobalt and gold, and the uniqueness of NICO as the only known

primary cobalt and gold vertically integrated potential producer in North America,

make Fortune a very compelling story on the TSX exchange for investors.

Ownership

The NICO project was originally acquired by Robin Goad and Director, Carl Clouter through staking during 1992 – 1994. The leases were subsequently sold to the company in 1994 for 300,000 shares (900,000 on a post-split basis). All of these shares are escrowed until commercial production. Although a company controlled by Fortune’s former Chairman, George Doumet, used to have a minority interest in the project, Fortune acquired the minority interest in 2007, and increased its ownership to 100%.

Location

The NICO Project, consisting of 10 contiguous mining leases covering 5,140 hectares, is located 160 km northwest of the City of Yellowknife, and 50 km north of the Tłįchọ aboriginal community of Whati, NWT. The leases are surrounded by Tłįchọ (First Nation) lands. The NWT is home to several past producing gold mines and four of the largest diamond mines in the world, including the Ekati, Diavik, Snap Lake, and Gahcho Kue mines.

Page 3



Source: Company

Fortune also owns 100% of the Sue-Dianne copper-silver-gold deposit, which is located

25 km north of the NICO deposit, and serves as a potential satellite deposit for NICO. Sue-Dianne, like NICO, is a near-surface deposit that is amenable to open pit mining methods and concentration of the recoverable metals by flotation.

Historic Exploration and Development Fortune has spent over $116 million on the NICO project to date on exploration, development, and technical / economic assessments. The first known work on the property was by local prospectors who identified indications of mineralization on the property in the 1930s. The property was subsequently subject to preliminary exploratory work by various parties including Noranda Inc. After acquiring the project in 1994, Fortune discovered the Bowl Zone in 1996, which is now the primary mineralized deposit at NICO. Initial work confirmed strong similarities to the large polymetallic Olympic Dam deposit in Australia and other global analogues. The Olympic Dam mine, owned by BHP Billiton (NYSE: BHP), is one of the world’s largest copper and uranium producers, with gold and silver as by-products.

Page 4



Subsequent to the discovery, Fortune conducted extensive drilling at Bowl Zone from 1996 to 1998, results for which were used to prepare initial resource estimates, and the core also used for preliminary metallurgical testwork by SGS Lakefield Research. A scoping level economic study was conducted by SNC-Lavalin (TSX: SNC) in 1999.

Location of the NICO Deposit (Bowl Zone)

Source: 2007 Feasibility Study Report (Micon)

This work was followed by an updated resource estimate by Strathcona Mineral Services in 2000 who also prepared a scoping study in 2002, and then by Micon in 2004. Encouraged by the positive results, the company continued to conduct extensive drilling and metallurgical studies through 2007. Underground test mining was conducted by Procon Mining and Tunneling Ltd. (“Procon”) in 2006, and 2007, which verified the grade and geometry of the deposit. Bulk samples were also collected for pilot plant tests at SGS Lakefield Research, which validated the process flowsheet, improved projected metal recoveries, and produced samples of products for testing by potential customers. A feasibility study led by Micon was also completed that year. The majority of the work done on the property since 2008 has

been focused on development, permitting, environmental assessments, and financing.

An updated feasibility study was prepared by Micon in 2014, incorporating the results of a Front-End Engineering and Design (“FEED”) study by Jacobs Engineering and other consultants, and post-FEED improvements conducted by Hatch Engineering.

Geology and Mineralization

NICO is a hydrothermal Iron Oxide Copper Gold (“IOCG”) style deposit similar to the

Page 5



massive Olympic Dam deposit in Australia. The Olympic Dam mine is one of the largest mineral deposits in the world. Other well-known IOCG deposits include the La Candelaria mine in Chile, Salobo in Brazil, Ernest Henry in Australia, and the Kiruna mine in Sweden. An IOCG deposit’s large size and polymetallic nature, we believe, make them highly

attractive for exploration and development.

IOCGs are typically copper-gold deposits, but also commonly contain other metals such as uranium, rare earth elements, silver, cobalt, molybdenum and sometimes bismuth as by-products. They typically grade from 0.5% to 1.5% copper (“Cu”), and 0.2 grams per tonne (“gpt”) to 1 gpt gold (“Au”). They are, however, very large. For example, the Olympic Dam deposit is estimated to hold approximately 3 billion tonnes of ore grading 1.2% Cu, 0.5 gpt Au, 0.04% uranium, and 6 gpt silver. In the case of NICO, cobalt and gold are the main

constituents, with bismuth and copper as by-products, making it a unique deposit for

this class. The NICO deposit is currently the only significant identified IOCG deposit in

Canada.

The ore at NICO is hosted in three 40-50° dipping stratabound lenses (approximately 40 m apart) consisting of brecciated ironstone up to 1.3 km in length, 550 m in width and with individual lenses up to 70 m thick. The three lenses are referred to as the Upper, Middle and Lower Zones.

Source: Company

Mineralization is comprised of iron-rich silicates, iron oxide and a sulphide fraction averaging 5% to 10% consisting primarily of cobaltian arsenopyrite, cobaltite, bismuthinite, chalcopyrite, pyrite and pyrrhotite. One of the positive aspects of NICO is its high

concentration ratio during flotation, which allows for the production of a bulk

concentrate containing the recoverable metals. This concentrate represents less than 4% of the original mass of the ore, allowing for lower transportation costs for shipment of the

Page 6



concentrate from the mine site to the processing facility and also significantly lowering refining costs.

Reserve Estimate

The following table summarizes the project’s reserve estimate as per the most recent feasibility study in 2014.

Tonnes

(Kt)Au (gpt) Co (% ) Bi (% ) Cu (% )

Proven and Probable Reserve

(undergound) 577 4.96 0.10% 0.17% 0.02%

Proven and Probable Reserve (open pit) 32,500 0.96 0.11% 0.14% 0.04%

Proven and Probable Reserve (total) 33,077 1.03 0.11% 0.14% 0.04%

Au Co Bi Cu

Contained Metal 1.11 Moz 82.3 Mlbs 102.1 Mlbs 27.2 Mlbs

The NICO project is comprised of 33.08 million tonnes, averaging 1.03 gpt gold, 0.11% cobalt, 0.14% bismuth, and 0.04% copper, containing 1.1 Moz of gold, 82 Mlbs of cobalt, 102 Mlbs of bismuth, and 27 Mlbs of copper. The estimate was based on test mining, surface trenches, and the results of 327 drill holes. The deposit is locally open for potential expansion with additional drilling.

2014 Feasibility Study by Micon International Limited

The 2014 Feasibility Study was based on mining of the NICO deposit with conventional open pit truck and shovel mining (4,650 tonnes per day - “tpd”) for 20 years (strip ratio of 3:1), supplemented by a small contract underground mining operation for two years at the beginning of mine operations. The underground mining operation is estimated to extract

1,544 tpd of high-grade, gold-rich ore, allowing for higher cash flows in the initial years

of operations to accelerate payback. At the mine site, ore will be subjected to two-stage crushing, followed by grinding and bulk floatation to produce a gold-cobalt-bismuth-copper bulk concentrate representing approximately 4% of the original weight of the ore.

Page 7



Pit Shells and the Planned Underground Stopes

Source: 2014 Micon Feasibility Study Report

Page 8



The concentrate will then be transported by road (450 km) to the rail head at Hay River, NWT, and then by rail to the company’s planned hydrometallurgical processing facility in Saskatchewan, named the Saskatchewan Metals Processing Plant (SMPP), for further downstream processing (see the map on page 3). The 2007 feasibility study had initially proposed to have the processing plant at the mine site.

However, the company subsequently decided to move the downstream processing of

concentrate to Saskatchewan due to the availability of low cost power, proximity to

reagents and services, a skilled labour pool, and attractive tax environment. It also provides a better location for the company to toll process concentrates from other mines and generate additional revenue. Management estimates that having the process plant in Saskatchewan will result in annual cost savings of approximately $7 million. The SMPP is expected to be constructed in the community of Langham, 26 km northwest of Saskatoon. The company had already acquired the 482 acre property in 2013, and obtained its EA approvals for the plant.

The SMPP will produce the following products from the bulk concentrate: � Gold as doré bars � Cobalt as battery-grade cobalt sulphate heptahydrate � Bismuth as bismuth ingots, needles and oxide � Copper as copper cement

The SMPP will process approximately 180 tpd of bulk concentrate (approximately 4% of the 4,650 tpd of ore). The flowsheet at the facility consists of regrinding the bulk concentrate to 14 microns, followed by secondary flotation to separate the feed into a cobalt concentrate and a bismuth concentrate, each containing roughly half the recoverable gold. � Bismuth is recovered from the bismuth concentrate by a chloride leach and an electro-

recovery (CLER) circuit.

� The bismuth residue from the CLER circuit and the cobalt concentrate will be blended and subjected to pressure acid leach in an autoclave. The cobalt pregnant solution will be processed by solvent extraction to remove impurities. This process will be followed by a three-stage crystallization process to produce a cobalt sulphate heptahydrate product grading 20.9% cobalt.

� The residue from the pressure treatment, which contains the gold, is then leached with

cyanide and the gold recovered as doré using a Merrill Crowe circuit. � In the cobalt recovery process, iron, arsenic and copper is precipitated with lime and

sodium carbonate. The copper precipitate is then re-leached and then re-precipitated as copper cement, which will be sold to a copper smelter for conversion to copper metal.

Page 9



The overall recoveries, from ore to final products, are estimated to be 84.4% for Co,

68.8% for Au, 72.2% for Bi, and 41.2% for Cu. The following table show the recovery rates by stage.

Source: 2014 Micon Feasibility Study

The company has conducted several pilot plant tests to confirm the process flow sheet, and recoveries.

Infrastructure

NWT Mine Site: The mine site will be accessed by a 94 km all-weather road, to be constructed by the NWT and Tłįchọ governments, extending to the community of Whati from the existing highway from Edmonton to Yellowknife. Fortune will then construct a 51 km spur road from Whatì to the mine site. The road will enable Fortune to truck the concentrate from the project site to Hay River, NWT. The cost associated with the construction of the 51km spur road is estimated at $32 million, and is included in the capital costs in the 2014 Feasibility Study.

Page 10



Source: Company

SMPP: The SMPP site is well connected and close to an established road (approximately 4 km from the Yellowhead Highway) and rail networks. The CNR main rail line, between Saskatoon and Edmonton, traverses the southwestern portion of the property. A siding will be constructed to receive railcars carrying concentrate and reagents, and to ship out products to the company’s customers.

Power and Water

NWT: Electric power is to be supplied by a power line approximately 30.5 kilometres long, from the Snare Hydroelectric Complex to the project site. Fortune is currently in negotiations with the NWT Power Corporation with regard to a power supply agreement. The project site has sufficient access to water due to its proximity to several lakes. The current plan is to source water from Lou Lake in a separate drainage basin, located 3km from the mill site.

Page 11



SMPP: Grid electric power is readily available near the plant site. Fresh water will be sourced from two of three wells distributed across the site. The SMPP site also has access to natural gas and reagent sources for processing.

Environmental Assessments (“EA”) and Permitting

The company has all the permits in place to commence construction of the mine. The only significant permits / approvals required are the mine permit, and the re-zoning of the SMPP site from agricultural to industrial use. The permits / approvals already in place include land use permits, water license approvals, and the EA approvals in the NWT, and EA approvals for SMPP. A key point to note here is

that the project has received approval to proceed from the Federal Minister of

Aboriginal Affairs and Northern Development, and from the Tłįcho aboriginal

government. We believe this is critical as it is extremely important for mining projects to maintain a good relationship with the local communities and receive their approval. Fortune has yet to enter into a definitive royalty / participation agreement with Tłįcho.

Project Economics

The following table shows a summary of Micon’s estimates.

Page 12



Proven and Probable Reserve33.08Mt @ 1.03 gpt Au, 0.11%

Co, 0.14% Bi & 0.04% Cu

Processing Rate 4,650 tpd

Model Price Annual

Production

LOM

Production

LOM

Revenues

($)

% of Total

Gold US$1,350/oz 41.4 koz 814 koz 1,249,358 32.5%

Cobalt (in sulphate) US$19.04/lb3.56 Mlbs / 1,615

tonnes 69.53 Mlbs 1,504,283 39.2%

Bismuth US$12.64/lb3.86 Mlbs / 1,749

tonnes 73.66 Mlbs 1,057,972 27.5%

Copper US$2.38/lb0.58 Mlbs / 264

tonnes 11.20 Mlbs 30,214 0.8%

Mine Life 20 years

Initial Capital - $ $589M

Exchange Rate 0.88

NWT Operating Cost ($/t) - ore

mined$39.71

SMPP Operating Cost ($/t) $18.11 / t mined or $564 / t

concenrate

After-Tax IRR 15.1%

After-Tax NPV @ 7% - C$ $224M

2014 FS (Report by Micon)

The PFS used an average cobalt metal price of US$16/lb, and an average price of US$19.04/lb for cobalt sulphate (the final product of NICO). The study also used an average bismuth price of US$10.5/lb, and an average price of US$12.64/lb for bismuth products (ingot, needles and oxide) produced by NICO. The initial CAPEX of the project is estimated at $589 million, of which, approximately $347 million will be for the NWT site and the remaining $243 million for the SMPP.

Page 13




The study estimates the CAPEX to be funded by 30% equity and 70% debt, which we believe is a reasonable assumption considering that lenders may be open to have debt levels as high as 80% to 90% in certain cases. Note that higher debt levels positively impact a project’s net present value (“NPV”). The net cash cost of the project (defined as the total operating cost net of revenues from byproducts such as gold, bismuth and copper) is -$5.19 per lb of Bi. The net cash cost with

gold as the primary product is estimated at -$702 per oz.


Based on the above, Micon estimated a base-case after-tax NPV @ 7% of $224 million,

with an after-tax Internal Rate of Return (“IRR”) of 15.1%. The NPV is highly sensitive to commodity prices, as shown in the table below.


We feel comfortable with the inputs and assumptions as the key parameters have been

validated by recognized entities listed in the table below.

Page 14



Production Validation CAPEX / OPEX Validation

Micon(Feasibility Report) Micon(Feasibility Report)

Hatch (Detailed Engineering) Procon/CAMCE & Hatch (NICO & SMPP CAPEX/OPEX Reports)

Procon(Underground Production) EBA (NICO Project Access Road (NPAR Design)

P&E (Reserves, Open Pit &Underground Production)

Golder Associates (Waste Rock & Tailings Disposal, Environmental &

Geotechnical Technical Reports)

SGS (Metallurgical Tests, Pilot Plant)

Flow Sheet & Product Samples)

Jacobs (FEED Study)

DMA (Bismuth)

EBA (NPAR Design) As a sign of confidence in 2013, one of Fortune’s previous contractors, Procon Resources Inc., invested $11.7 million in equity at a price of $0.40 per common share. Procon now holds 36.97 million shares, or 14% of the total outstanding shares of Fortune. Procon, a mining contracting company headquartered in Vancouver, Canada, is majority owned by China CAMC Engineering Co., Ltd. ("CAMCE" / SZSE: 002051 / Market capitalization of US$2.8 billion). Procon’s CEO at that time, Ed Yurkowski, also became a director of Fortune subsequent to this investment. According to our discussions with management, although Fortune and CAMCE had a Memorandum of Understanding for project financing, and were in the late stages of bank due-diligence with a Chinese policy bank, a definitive agreement was not signed due to the decline in the commodity sector in 2014, and the abrupt termination of Chinese outbound investment in resources during this period. Our discussions with management indicate that Fortune’s in-house studies have identified the following significant opportunities for improvements to project economics over the 2014 Feasibility Study: � higher throughput rate (5,500 tpd versus 4,500 tpd) with minimal additions to CAPEX; � the decline in oil prices since 2014, and the cost savings from the currently lower

engineering and construction costs due to the commodity sector decline; � the FS used a US$:C$ exchange rate of 0.88 versus the current rate of 0.77, and � a more rigorous procurement strategy to lower capital costs.

Our detailed valuation models, scenario and sensitivity analysis, are presented later in the report.

Page 15



Other

Significant

Projects

Management

Team

Development Timeline / Exit Strategy

The company’s primary focus at this time is to obtain project financing to advance NICO to production. According to management, they are currently in discussions for potential off-take agreements and financing solutions with several parties, none of which can be disclosed at this time to maintain confidentiality. Based on NICO’s exposure to cobalt and its use in

batteries, we believe that NICO will be attractive for both mining and technology

institutional investors and private equity. We believe any positive developments with respect to the ongoing discussions will have a strong impact on Fortune’s share price. As mentioned earlier, the company has the right to repurchase the Arctos anthracite coal deposits, located 330 km northeast of the port of Prince Rupert, from BC Rail. Fortune had initially acquired this project in 2002 from a predecessor of ConocoPhillips (NYSE: COP) for $3.4 million. Fortune subsequently brought in South Korea's POSCO as its 20% JV partner. POSCO is one of the world’s leading steelmakers. The project, located in the Klappan area of northwest British Columbia, holds significant anthracite metallurgical coal deposits. A 2012 feasibility study showed proved and probable reserves of 125 Mt, with an initial CAPEX of $789 million, an after-tax NPV @ 8% of $406 million, and an after-tax IRR of 14.7%, at an average price of $184/t of metallurgical coal. The current price is approximately US$210/t. In May 2015, as a result of ongoing unresolved issues with the Tahltan First Nation, NGO and environmental group protests, and because of the company’s funding obligations under its JV with POSCO, the JV sold its interest to BC Rail for $18.3 million. The JV between Fortune and POSCO was also restructured to a 50:50 ownership ratio with Fortune as the operator. Fortune and POSCO retain the right to repurchase the licenses for a 10 year period at the same price. Fortune had spent more than $40 million on this project (including the acquisition price), and more than $120 million was invested collectively by Fortune, POSCO and ConocoPhillips. The company also has a 100% interest in the Salkeld Lake project, which is a 116 hectare (“ha”) property south of Great Slave Lake in the NWT, with copper, silver, gold, lead and zinc showings. Fortune also holds a 1% net smelter royalty covering 78 ha of land located south of the Eldorado mining district at Great Bear Lake, NWT. Fortune’s largest shareholders are China Mining Resources Group (~6%) and Procon (~14%). CEO, Robin Goad, is a large individual shareholder with 1.4% of the total outstanding shares, and former Chairman George Doumet owns 1.7% (as per the 2015 insider filing). Management and board members combined hold 7.36 million shares, or

2.7% of the total outstanding.

Page 16



Management and Board Shares % of Total

Robin E. Goad 3,693,290 1.4% Director since 1988

Mahendra Naik 410,000 0.2% Director since 2006

Edward Yurkowski 1,900,000 0.7% Director since 2013

David Ramsay 707,571 0.3% Director since April 2016

Carl L. Clouter 450,000 0.2% Director since 1988

Glen Koropchuk 200,000 0.1% Director since September 2016

Shou Wu (Grant) Chen - 0.0% Director since 2010

Total 7,360,861 2.7%

The company recently added a few high profile members to its team, including Glen Koropchuk and David Ramsey who were appointed to the board of directors, and David Massola as the CFO. We believe that this demonstrates management’s positive outlook

and intent to aggressively advance the NICO project to production. David Ramsay is a former Cabinet Minister in the NWT government. Glen Koropchuk, as former COO of De Beers Canada, led the permitting, aboriginal engagement and project management for the Gahcho Kué diamond mine (costing $1 billion), in the NWT. He had a 30 year career with Anglo American (LSE: AAL). David Massola is the former CFO of De Beers Canada and BHP-Billiton Diamonds. Brief biographies of the management team, as provided by the company, follow:

Robin E. Goad, M.Sc., P.Geo., President & C.E.O.

Robin Goad is a professional geologist with more than 30 years of experience in the mining and exploration industries in Canada and internationally. Prior to founding Fortune in 1988, Robin worked for large companies including Noranda and Teck, and as a consultant to the resource industry. Robin is a director of the NWT & Nunavut Chamber of Mines and has served as President and director of other TSX listed mineral exploration and development companies.

David Massola, B.Sc. (Acc.), Vice President Finance & C.F.O.

Dave Massola is an executive with three decades of international mining experience in a broad range of financial and business aspects, including strategic planning, mergers and acquisitions, capital raising, taxation, treasury and risk management. This includes 20 years with BHP-Billiton at the Escondida Copper Mine in Chile, the Island Copper Mine in British Columbia and the Ekati Diamond Mine in the NWT. As Vice President and C.F.O. of De Beers Canada, he contributed to the development of two diamond mines in northern Canada. Subsequently as Senior Vice President of Finance and C.F.O. of GlobeStar Mining, Dave was a key employee in the financing, construction and operations of GlobeStar’s Cerro de Maimón Mine in the Dominican Republic and negotiated its subsequent sale. He was also the President and C.E.O. of Continental Nickel Ltd., while it was developing a mine in Tanzania, and led negotiations for its subsequent takeover.

Page 17



Board of

Directors

David A. Knight, B.A., LL.B., Corporate Secretary

David is a partner with Norton Rose Fulbright Canada LLP, part of the Norton Rose Group, a leading international legal practice with extensive expertise in the resource sector. David specializes in securities law, including public and private financings, mergers and acquisitions, stock exchange listings and regulatory compliance and acts for investment dealers and issuers. David is a member of the Law Society of Upper Canada.

Richard P. Schryer, M.Sc., Ph.D., Director of Regulatory & Environmental Affairs

Rick Schryer is an aquatic scientist with more than 23 years of experience in mine permitting, environmental assessments, environmental studies and monitoring. Prior to Fortune, he worked with Golder Associates.

Troy D. Nazarewicz, CIM, CPIR, Investor Relations Manager

Troy Nazarewicz has 17 years of experience as an investment advisor and portfolio manager with MacDougall, MacDougall & MacTier Inc. and he also worked as a Business Development Manager with a design and marketing firm.

Robin E. Goad , M.Sc., P.Geo., President, CEO & Director

Mahendra Naik, B.Comm., C.P.A., C.A., Chairman & Director

Mahendra Naik is a Chartered Accountant and was one the founding directors and key executives in starting IAMGOLD Corporation, a TSX and NYSE listed gold mining company. As Chief Financial Officer from 1990 to 1999, he was involved in the negotiations of the Sadiola and Yatela mine joint ventures with Anglo American and the US$400 million in project debt financings for development of the mines. In addition, he was involved in more than $150 million in equity financings. Mahendra is currently the C.E.O.of FinSec Services Inc., a private business advisory company and a director and member of the audit and compensation committees for IAMGOLD. In addition, Mahendra is a Director and member of audit, compensation and risk/control committees of FirstGlobalData Limited, Goldmoney Network Limited and Jameson Bank.

Shou Wu (Grant) Chen , M.B.A., M.Sc., Director

Grant was formerly Deputy Chairman and CEO of China Mining Resources Group Limited, a Hong Kong based company that mines and processes molybdenum, copper, zinc and other metal products in China and invests in Canadian mining companies. Grant previously worked as a geologist in the precious metals sector in China and then as an analyst and merchant banker, and subsequently, Senior Vice President in the Mining and Metals Division for Standard Bank. Grant Chen was formerly the Deputy Chairman and Chief Executive Officer of China Mining Resources Group Limited ("China Mining"). Dealings in shares of China Mining on the Hong Kong Stock Exchange were suspended on October 11, 2011 pending investigations by Hong Kong regulatory authorities in relation to certain previous transactions involving China Mining. Trading has since resumed.

The Honorable Carl L. Clouter, Director

Carl is a commercial pilot and former owner of a charter airline in the NWT. He has been active in mineral exploration in conjunction with more than 40 years of flying in Canada.

Page 18



Carl previously served as a Sentencing Justice of the Peace and on the board for the mineral development assistance program for the Government of the NWT.

Edward Yurkowski, Director

Ed served as Chief Executive Officer of Procon which, in addition to the resource company, is a full mining provider through Procon Mining & Tunnelling Ltd until he retired from that position in 2014. He currently serves as a director and consultant for Procon. Mr. Yurkowski has been involved in the mining and civil contracting industries since 1966, including ownership and management of two large mining construction contracting companies. Mr. Yurkowski received his Bachelor of Science in Civil Engineering in 1971 from the University of Saskatchewan and currently serves as a director of a number of other TSX and TSX Venture Exchange listed companies, including Imperial Metals Corp., Golden Band Resources Inc., BC Moly Ltd. and Copper Lake Resources Ltd.

David Ramsay , B.A., Director

David Ramsay has extensive elected public office experience in the NWT, which has included prominent cabinet positions in the Legislative Assembly. Prior to November 2015, he was Minister of Industry, Tourism and Investment that includes the mining portfolio, which accounts for about 50% of private sector GDP in this jurisdiction. Mr. Ramsay has also served as Minister of Justice, Attorney General, Minister of Transportation and the Minister Responsible for the Public Utilities Board for the Government of the Northwest Territories. As a long-term resident of the NWT, David has been involved with numerous businesses and was the recipient of the Young Entrepreneur Award from the Business Development Bank of Canada in 1996. He was first elected to public office in 1997 and served five years as a Yellowknife City Councillor, where he chaired the Corporate Services Committee and represented the City on the Diamond Task Force. Mr. Ramsay was elected to the Legislative Assembly in 2003, representing the riding of Kam Lake in Yellowknife. In addition to serving in Cabinet, David was Vice President of the Pacific Northwest Economic Region (PNWER) from 2011 to 2014, and President between 2014 and 2015. The PNWER is a statutory public / private partnership of Alaska, Idaho, Oregon, Montana, Washington, British Columbia, Alberta, Saskatchewan, Yukon and the Northwest Territories whose mandate is to increase the economic well-being and quality of life for all citizens of the region, while maintaining the natural environment. Mr. Ramsay is also President of RCS Limited and Northern Building Solutions and he is a director of Northern Gateway Consulting.

Glen Koropchuk , B.Sc., M.Sc., Director

Glen is a mining engineer with ~30 years of global, multiple commodity, operations, project development and corporate social investment experience predominantly with Anglo American & De Beers. Prior to his retirement from De Beers Canada in 2016, Mr. Koropchuk was C.O.O. and responsible for delivering safe, operational excellence from the Snap Lake and Victor diamond mines in Canada’s north. Notably, he also led the permitting, Aboriginal engagement, and project management for the Gahcho Kue diamond mine in the NWT that was finished on budget, on time, and was recognized as the world’s largest new diamond mine at its opening ceremony in 2016. He was previously President of Anglo’s Peace River Coal project and worked in operations, project work and management roles for a

Page 19



Management

and Board

Rating

Commodities

Outlook

number of Anglo’s coal and gold mining operations globally.

Our net rating on Fortune’s management team is 4.4 out of 5.0 (see below).

The company’s board has seven members, of which, six are independent. We believe that the Board of Directors of a company should include independent or unrelated directors who are free of any relationships or business that could materially interfere with the director’s ability to act in the best interest of the company. An unrelated/independent director can be a shareholder. The following table shows our analysis on the strength of FT’s board.

Poor Average Good

Six out of seven directors are independent X

Six out of seven directors hold shares of the company. X

The Audit committee is composed of three board members, all

of them are independentX

The Compensation committee is composed of three board

members, all of them are independentX

In the following section, we present our outlook on NICO’s primary commodities – cobalt, gold, and bismuth.

Page 20



Outlook on

Cobalt

We consider cobalt a highly overlooked commodity by investors. Cobalt is a silver-grey metal with a number of applications because of its magnetic properties similar to iron, high melting point, and hard-wearing ability at high temperatures. Cobalt is primarily used for rechargeable batteries, super-alloys for jet engines, chemicals (paint driers, catalysts – to turn gas into liquid fuels, magnetic coatings and pigments), magnets, and cemented carbides for cutting tools. The following chart shows the demand by application.

Source: CDI

According to the Cobalt Development Institute (“CDI”), approximately 42% of the global refined cobalt production in 2015 was used in batteries, followed by super-alloys (16%). The following table shows the demand growth by application. The demand for batteries, which had only accounted for 27% of the total demand in 2010, increased at a CAGR of 17.3%, to 36,540 tonnes in 2015. The total demand for cobalt was 87,000 tonnes in 2015, up from 7.4% p.a. from 2010. We note that CDI’s figures are lower than certain other sources. We believe the discrepancy may be because CDI’s estimates are based on reported figures and may not include unreported Chinese internal consumption.

Page 21



Unit (metric tons) 2010 2011 2013 2014 2015CAGR (2010

- 2015)

Super-alloy 11,590 14,250 11,360 10,530 13,920 3.73%

Hardfacing/HSS & Other Alloys 3,660 3,750 4,970 5,670 6,090 10.72%

Magnets 4,270 5,250 3,550 4,050 4,350 0.37%

Hard Materials 7,930 9,750 7,100 8,100 8,700 1.87%

Catalysts 5,490 6,750 4,970 5,670 6,090 2.10%

Colours 6,100 6,750 4,260 4,860 4,350 -6.54%

Feedstuffs, Anodising 2,440 2,250 2,840 3,240 3,480 7.36%

Batteries 16,470 22,500 29,110 33,210 36,540 17.28%

Tyre Adhesives 3,050 3,750 2,840 3,240 3,480 2.67%

Total 61,000 75,000 71,000 81,000 87,000 7.36%

Source: CDI

We expect the demand for cobalt in rechargeable batteries will continue to be the key

demand driver of cobalt going forward. The most common rechargeable batteries in the market today are Lithium-Ion batteries (“LIB”). In a LIB, lithium is used as the electrolyte, graphite as the anode (negative electrode) and cobalt typically as the cathode (positive electrode). LIBs is used in a wide range of electronic equipment, such as mobile phones, laptops, digital cameras to name a few. However, the biggest growth driver is the use of LIBs in electric cars. To put things in perspective, a smartphone uses

approximately 5-10 grams of cobalt, a laptop uses approximately 30 grams, while an

electric car uses 5 – 15 kg of cobalt. Cobalt’s superior energy density and ability to retain a charge for a longer period make cobalt-bearing batteries preferred for use in EVs. Declining technology costs are also expected to drive demand for LIBs. A recent report by

McKinsey & Co and Bloomberg New Energy Finance (BNEF) showed that the cost of a

LIB pack has dropped by 65% over the past five years, from US$1,000 per kWh to

approximately $350 per kWh.

LIBs come in five primary types, namely Lithium Cobalt Oxide (“LCO”), Nickel-Manganese Cobalt (“NMC”), Nickel Cobalt Aluminum (“NCA”), Lithium Manganese Oxide (“LMO”) and Lithium Iron Phosphate (“LFP”). LCO, NMC, and NCA use cobalt and these three segments combined accounted for 73% of the LIBs’ market share in 2015 (Source: Avicenne / CRU). LCO’s contain about 60% cobalt by weight and are used primarily in portable electronic devices. NMC and NCA are the dominant batteries used in electric cars and stationary storage cells, and contain between 10% and 20% cobalt by weight.

One of the biggest developments in the battery space was the announcement by Tesla (NASDAQ: TSLA) in 2014 that it was building a $5 billion Lithium-Ion battery manufacturing facility, termed the “gigafactory”, in Nevada, U.S.A., in partnership with Panasonic (TSE: 6752). This facility is expected to open this year. Tesla estimates their sales

Page 22



to be approximately 500,000 electric cars in 2018, up from approximately 51,000 in 2015. Assuming an average of 10 kg per car (100 kWh), we estimate that 500,000 cars will require approximately 5,000 tonnes of cobalt per year, which is approximately 5.7% of new demand relative to the total demand of 87,000 tonnes in 2015.

In addition to Tesla, several other EV (electric vehicles) manufacturers have announced strong projections: � Volkswagen (XTRA: VOW3) estimates they will have 2 - 3 million EVs per year by

2025, requiring approximately 150 GWh of battery capacity. � Volvo (OM: VOLV B) has stated that they intend to sell over a million EVs by 2025. � Ford Motor (NYSE: F) announced a commitment to invest US$4.5 billion to bring 13 new

EVs to its portfolio by 2020. � Porsche AG (DB: PAH3) announced a €700 million investment to their main assembly

plant for EV production. � Chinese backed Faraday Future plans to invest US$1.0 billion to develop intelligent EVs. � In addition to the above, General Motors (NYSE: GM), Nissan (TYO: 7201), Audi (FWB:

NSU), BMW (FWB: BMW), Mercedes (FWB: DAI), BYD (SEHK: 1211), Mitsubishi (TYO: 6503), Renault (Euronext: RNO) have EVs in their current / future portfolio.

The Commodities Research Unit (“CRU”) Group estimates electric car and plug-in hybrid vehicle sales could reach approximately 17 million by 2030 (up from 0.54 million last year), reflecting a CAGR of 25% per annum (“p.a.”) from 2016 to 2030. We estimate this would

equate to approximately 170,000 tonnes of cobalt demand just from EVs (17 million

vehicles @ 10kg of cobalt per vehicle). The following chart shows that EV car sales are estimated to be approximately 35% of new car sales by 2040.

Page 23



The current production capacity of lithium-ion batteries is approximately 35 GWh globally. However, once Tesla’s gigafactory and the other facilities being built by LG Chem (KRX: 051910), Foxconn (SEHK: 2038), BYD, and Boston Power are completed, the total capacity is estimated to reach 255 GWh by 2020.

CRU estimates total cobalt demand will reach 100,000 tonnes by 2017, driven by 7.5% p.a. growth. They expect global demand could rise to 150 kt by 2025, of which, 80,000 tonnes of cobalt will be consumed by Li-ion batteries alone (30 kt for EVs).

Page 24



Supply: Cobalt is primarily produced as a by-product of copper and nickel production. According to the CDI, currently about 50% of refined cobalt is produced from nickel ore, 44% from copper ore, and about 6% from primary production. The United States Geological Survey (USGS”) estimates that total global reserves of cobalt are approximately 7.1 million tons. The DRC holds about 48% of these reserves, followed by Australia (15%), and Cuba (7%). Canada is estimated to hold 0.24 Mt, or 3.4% of the total. The U.S. is estimated to hold 0.2 Mt, or 0.3% of the total.

Source: USGS

Page 25



The following charts shows mine production and refined production. The DRC accounted for 63,000 tonnes, or 51% of the mine production and dominates the space. A significant portion of the DRC’s production is refined in China. As a result, China is the number one producer of refined cobalt, accounting for 50% of the global production. Canada is the third largest mine producer at 6,300 tones, or 5% of the global production, in 2015.

Congo

51%

China

6%

Canada

5%

Australia

5%

Zambia

4%

Others

29%

Cobalt Mine Production (2015)

China

50%

Finland

9%

Belguim

9%

Canada

9%

Australia

9%

Others

14%

Refined Cobalt Production (2015)

Source: USGS

Global mine production has increased by 6.7% p.a. from 2010 to 2015, to 124,000 tonnes. Global refined production increased by 5.1% p.a. from 2010 to 2015, to 98,113 tonnes.

One of the biggest concerns with cobalt supply is that there are growing concerns over

cobalt ore supplies from the DRC. First, the DRC has had an unstable political history including several civil wars. Second, in early 2016, Amnesty International (a non-governmental organization focused on human rights) stated in a study that approximately 20% of the cobalt mining in the DRC is by artisanal miners, and that there are approximately 40,000 child miners in the southern DRC. Amnesty International suggested that most of the leading technology and automotive companies are likely to be using cobalt in their products that has been mined by child labour. The study strongly encourages these large players to further investigate their cobalt supply chain and prove that they are addressing human rights abuses. Third, various sources suggest that a significant amount of the DRC’s readily available, near-surface oxide copper-cobalt ores have been depleted – the primary material shipped to China for refining. Additional mining will transition into deeper sulphide ores, and this will increase processing costs. A recent article by the Washington Post on this issue stated the following: � Apple (NSADAQ: AAPL) stated that approximately 20% of their cobalt comes from the

DRC. They have expressed their intent to increase scrutiny of how all of their cobalt is obtained.

� LG Chem stated that they stopped buying DRC sourced minerals in late 2015.

Page 26



� Samsung (KOSC: A005930) stated that they are conducting an internal investigation on their cobalt supplies.

The U.S. has identified cobalt as a critical mineral. Although cobalt is currently not on the ‘conflict-minerals’ list of the U.S., it is likely that independent studies such as the ones conducted by Amnesty and the Washington Post, may prompt the U.S. to include cobalt on the list. The conflict-minerals list was created based on a 2010 U.S. law which requires U.S. based companies to verify that any tungsten, tin, tantalum and gold they obtain is from mines are free of militia control in the DRC region. We believe these growing concerns will play a critical role in a manufacturer’s decision on where to source their cobalt supplies from, especially those manufacturers that promote and market ‘green’ and ‘ethical’ products. This gives projects such as NICO a very strong

advantage based on its location in a stable and safe jurisdiction.

Another key factor to note regarding cobalt supply is that as cobalt is produced

primarily as a by-product of copper and nickel mining, cobalt production is highly

dependent on copper and nickel prices. Several mines, with cobalt as a by-product, suspended production primarily due to low copper and nickel prices; such as Glencore’s (LSE: GLEN) Katanga mine in the DRC and the Mopani mine in Zambia, and Votorantim’s nickel-cobalt operations in Brazil – these three mines account for approximately 6,000 to 6,500 tonnes of cobalt production, or approximately 5% of global production. If nickel and copper prices continue to stay soft, we expect several other large mines to also follow and suspend operations, impacting cobalt supply. We believe these bottlenecks in cobalt supply will prompt large end-users to seek long-term stable sources of supply, giving the NICO project another strong advantage.

Cobalt Prices: Cobalt prices have been relatively stable in recent years as shown in the chart below and currently trades at approximately US$12.93/lb.

Page 27



The price differential between high-grade (99.9%) and low-grade (99.3%) cobalt metal has ranged between $0/lb - $5.5/lb since 1995, and is currently less than US$1.00/lb (as shown in the chart below).

Source: CDI

The following table shows the average, low and high prices of high-grade cobalt

Page 28



since 1992.

Decade (Prices in

US$/lb)Low Price High Price Avg Price

1992-2001 $6.80 $34.00 $20.27

1993-2002 $6.20 $33.50 $18.76

1994-2003 $6.20 $33.50 $18.32

1995-2004 $6.20 $33.50 $18.34

1996-2005 $6.20 $33.50 $17.12

1997-2006 $6.20 $29.50 $15.99

1998-2007 $6.20 $42.50 $16.13

1999-2008 $6.20 $52.50 $17.34

2000-2009 $6.20 $52.50 $17.42

2001-2010 $6.20 $52.50 $17.98

2002-2011 $6.20 $52.50 $18.95

2003-2012 $6.75 $52.50 $20.11

2004-2013 $10.65 $52.50 $20.77

2005-2014 $10.65 $52.50 $19.73

2006-2015 $10.65 $52.50 $19.66

Source: Metal Bulletin (provided by Fortune Minerals)

The following chart shows the expected deficit in the cobalt market. The consensus is that the market may be in a 7,000 tonne deficit by 2020.

Page 29



North

American

Cobalt Projects

Based on the strong demand growth forecast, and the high potential of users to seek supply outside of the DRC, we maintain a very positive outlook on cobalt prices. We believe the

average price of US$19.66 per lb in the last decade is a reasonable and conservative

long-term estimate for our valuation models.

The risk for cobalt is substitution risk. Manufacturers will be forced to move to substitutes if cobalt prices increase significantly. There is also a risk of changes in battery technology that may require less cobalt.

Fortune’s NICO 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.

Page 30



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&I38.58Mlbs @ 0.55% Co and 51.96 Mlbs @ 0.75% Cu and 58

Koz 0.53 gpt Au

Inferred Resources15.65 Mlbs @ 0.47% Co and 23.75 Mlbs @ 0.71% Cu and

22 Koz @ 0.41 gpt Au

Reserves82.3 Mlbs @ 0.11% Co, 1.11 Moz @ 1.03 gpt Au, 102 Mlbs

@ 0.14% Bi & 27 Mlbs @ 0.04% 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) 35.36 Mlbs Co 69.53 Mlbs

LOM Production (Cu) 57.38 Mlbs Cu 11.20 Mlbs

LOM Production (Au) 47 Koz gold 814 koz

LOM Production (Bi) 73.66 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 US$113M @ 8.5% $224M @ 7%

Enterprise Value $77M $46.3M

M&I Resources Proved and Probable Reserves

Cobalt Equiv. lbs (Mlbs) 48.96 208.94

EV / Co lbs $1.57 $0.22

The above table indicates that NICO is a much larger project than the ICP, and therefore, the annual production and initial CAPEX estimates are much higher. We believe the primary

advantages of NICO over ICP are the significantly higher gold content and the

significantly lower operating cost estimate.

We estimate that FT’s shares currently trade at an Enterprise Value (“EV”) to cobalt

Page 31



Outlook on

Gold

equivalent pound of $0.22 versus eCobalt’s $1.57.

Gold has been one of the best performing commodities this year. The current price of US$1255 per oz reflects a 19% YTD increase.

Source: goldprice.org

Gold and the US$ have historically had a very strong negative correlation. However, the relationship tends to turn to a positive correlation during periods of global slowdown and higher uncertainties as investors tend to drift towards both the US$ and gold as safe haven assets. This is what, we believe, the market is experiencing now as both the US$ and

gold have had a very strong year so far. The last time gold and the US$ had a positive correlation was during the global recession in 2008 (see chart below).

Page 32



Outlook on

Bismuth

Source: Macrotrends; modified by FRC

We believe the investment demand for gold, and increasing production costs of newly developed mines, will keep the long-term average gold price well above the US$1,000 per oz mark. Our valuation models assume a long-term average price of US$1,300 per oz for

gold.

Bismuth is a white, brittle metal primarily used in alloys, pharmaceuticals and chemicals. Its low melting point, low thermal conductivity, high density, and low toxicity, make it useful for a wide range of applications. A unique property of bismuth is that it is one of the few metals which expands when it cools, and is therefore used to make dimensionally stable alloys. Bismuth is also commonly used as a substitute to lead. The U.S. imports approximately 95% of its bismuth consumption. The U.S. consumed approximately 1,610 tonnes of bismuth in 2015, up from 1,120 tonnes in 2010, indicating a CAGR of 7.5%. The bismuth market is relatively small compared to the conventional commodities. For example, we estimate that the bismuth market in the U.S. is approximately $27 million, based on 1,610 tonnes (3.55 Mlbs) at an average price of US$7.50 per lb in 2015. According to a report by Persistence Market Research, the global bismuth market, which is estimated to be US$225 million in 2016, is expected to grow at 7% p.a. to US$400 million by 2024. As a comparison, the global cobalt market, we estimate, was approximately US$2 billion in 2015. The USGS estimates global bismuth reserves to be approximately 370 kt, of which China holds 240 kt, or 65% of the total. Canada’s reserves are estimated at 5kt. NICO’s reserve

Page 33



estimate (which is not accounted in the USGS’s estimate for reserves in Canada) is 102 Mlbs, or 46 kt, reflecting 13% of global reserves.

Source: USGS

The following charts show global mine and refined production. China accounted for 50% of the mine production, and 90% of the refined production in 2015.

55%37%

5%

0%0% 3%

Bismuth Mine Production 2015

China

Vietnam

Mexico

Russia

Bolivia

Others 90%

5%

3%1% 1%

0%

Bismuth Refined Production (2015)

China

Mexico

Japan

Kazakhstan

Canada

Others

Source: USGS

Global mine production was 136 kt in 2015, and the refined production was 17kt. NICO is estimated to produce 1.75 kt per year, or approximately 10% of the global production. The following chart shows the price of bismuth. The current price is US$4.55 per lb, down from the average price of US$7.50 per lb in 2015. The average price in the past five years was US$9.78 per lb.

Page 34



Financials

Price of bismuth (US$ / lb)

Source: Company

The following table shows the average, low and high prices of bismuth since 2000.

Decade (Prices in

US$/lb)Low Price High Price Avg Price

2000-2009 $2.80 $19.00 $6.15

2001-2010 $2.80 $19.00 $6.76

2002-2011 $2.80 $19.00 $7.62

2003-2012 $2.80 $19.00 $8.45

2004-2013 $2.80 $19.00 $8.61

2005-2014 $3.40 $19.00 $9.36

2006-2015 $4.10 $19.00 $9.60

Source: Metal Bulletin (provided by Fortune Minerals)

The bismuth market is expected to remain stable with no serious deficit or surplus expected. As mentioned earlier, it is a very niche market and the market size is much smaller than most of the other commodities. A key risk of supply is the lack of geographical diversification as China continues to, and is expected to be the dominant supplier. We have used the average

price of US$9.60 per lb in the last decade as the long-term average price in our

valuation models. At the end of Q2-2016 (ended June 30, 2016), the company had cash and working capital of $0.19 million and $0.11 million, respectively. We estimate the company had a burn rate (cash spent on operating and investing activities) of $0.14 million per month in the first six months of 2016. The following table summarizes the company’s liquidity position:

Page 35



Stock Options

and Warrants

Valuation

(in C$) 2015 Q2-2016

Cash $144,835 $190,610

Working Capital -$58,548 $111,911

Current Ratio 0.84 1.65

LT Debt $4,534,683 $4,955,598

LT Debt / Assets 6.7% 7.3%

Monthly Burn Rate (incl. investing activities) (1,305,005) (143,557)

Cash from Financing Activities $9,585,207 $907,089

Fortune reported a net loss of $39.81 million (EPS: -$0.19) in 2015. This was primarily because of the loss of RSM as mentioned earlier. At the end of Q2, the company had $8.75 million in debentures outstanding, which were issued to creditors as a result of the default on RSM. These debentures are due in August 2022, and bear interest at 5% p.a. (paid at maturity in 2022). Subsequent to June 30, 2016, the company completed a $1.25 million private placement by issuing 12.50 million units at a unit price of $0.10. Each unit consists of a common share and one-half warrant (exercise price of $0.15 for one year). The company currently has 14.24 million options outstanding (weighted average exercise price of $0.20 per share) and 68.06 million warrants (weighted average exercise price of $0.23 per share) outstanding. At this time, 11.93 million options are in-the-money and 21.70 million warrants are at the money. The company can raise up to $1.07 million if all these options are exercised. Our Discounted Cash Flow (“DCF”) valuation model gave an after-tax net asset value estimate on NICO of $241 million, and a fair value estimate on FT’s shares of $0.85 per share. Our valuation is based on the base-case production scenario suggested by the 2014 PFS. The key differences between our valuation, and the 2014 PFS, lie in the long-term commodity price assumptions and the discount rate. We also assumed that NICO will be financed at a 70% debt to capital ratio, with a conservative 5% p.a. cost of debt. The following table shows a summary of our key assumptions.

Page 36



DCF Valuation

Net tonnes per year 4,650

Mine Life (years) 20

Average Price of Co (US$/lb) $19.66

Premium for Co sulphate 20%

Average Price of Au (US$/oz) $1,300

Average Price of Bi (US$/lb) $9.60

Premium for Bi products 20%

Average Price of Cu (US$/lb) $2.50

Average exchange rate (C$:US$) 1.10

NWT Operating Cost $39.71 / t mined

SMPP Operating Cost $18.11 / t mined

Initial Capital Cost ($) $589,000,000

Expected Cost of Equity 11.5%

Expected Cost of Debt 5.0%

Debt 70%

Equity 30%

Tax 27%

Weighted Average Cost of Capital (WACC) 6.0%

After-Tax Net Asset Value (C$) of NICO $241,553,386

Working Capital - Debt ($7,450,589)

Fair Value of Fortune $234,102,797

No. of Shares 275,929,584

Fair Value per Share ($) $0.85

Note that, for conservatism, our valuation does not account for any value from Sue-Dianne or the Arctos anthracite coal project, on which the company and its partner retain a 10-year option to reacquire. The following tables show the sensitivity of our valuation to certain key inputs.

Page 37



Rating

Risks

C$:US$ - 1.1

1 $900 $1,100 $1,300 $1,500 $1,700

$13.66 -$0.33 -$0.11 $0.12 $0.34 $0.57

$16.66 $0.03 $0.26 $0.48 $0.71 $0.93

$19.66 $0.40 $0.62 $0.85 $1.07 $1.30

$22.66 $0.76 $0.99 $1.21 $1.44 $1.66

$25.66 $1.13 $1.35 $1.58 $1.80 $2.03

`

1 1.00 1.05 1.10 1.20 1.30

4.0% $0.86 $1.15 $1.45 $2.04 $2.62

5.0% $0.60 $0.86 $1.12 $1.65 $2.17

6.0% $0.38 $0.61 $0.85 $1.32 $1.79

7.0% $0.19 $0.41 $0.62 $1.04 $1.46

8.0% $0.04 $0.23 $0.42 $0.80 $1.18

`

1 50% 60% 70% 80% 90%

3.0% $0.65 $0.87 $1.13 $1.43 $1.78

4.0% $0.57 $0.76 $0.98 $1.24 $1.53

5.0% $0.50 $0.66 $0.85 $1.06 $1.30

6.0% $0.43 $0.57 $0.72 $0.90 $1.10

7.0% $0.36 $0.48 $0.61 $0.75 $0.91

Gold Price (US$ / oz)

Cobalt Price

(US$ / lb)

Exchange Rate (C$:US$)

WACC

Debt to Capital

Cost of Debt

(p.a.)

We also ran our model with a higher throughput rate of 5,500 tpd (assuming a 5% increase in initial CAPEX), which showed an after-tax NAV of $251 million on NICO. This scenario results in a fair value estimate of $0.91 per share on FT’s shares. Based on our positive outlook on cobalt and gold, review of the NICO project, Fortune’s management team and execution strategy, and our valuation models, we are initiating coverage on the company with a BUY rating and a fair value estimate of $0.85 per share. We believe the loss of RSM and the sale of the Arctos coal project are weighing down Fortune’s share price at the moment. We believe this factor, along with the strong resurgence of the cobalt market, make Fortune’s current share price an attractive entry point for investors. We believe the company is exposed to the following key risks (not exhaustive): � The value of the company is highly dependent on commodity prices (primarily cobalt and

gold). � The company does not currently have any operating mines. � Larger projects tend to have higher CAPEX. � Project financing and/or off-take agreements may take longer than expected.

Page 38



� Development risks. � Access to capital and share dilution. � The company has approximately $8.75 million in debentures outstanding, but due only in

2022. As with most junior exploration / development companies, we rate FT’s shares a risk of 5 (Highly Speculative).

Page 39



Fundamental Research Corp. Equity Rating Scale:

Buy – Annual expected rate of return exceeds 12% or the expected return is commensurate with risk Hold – Annual expected rate of return is between 5% and 12% Sell – Annual expected rate of return is below 5% or the expected return is not commensurate with risk Suspended or Rating N/A— Coverage and ratings suspended until more information can be obtained from the company regarding recent events. Fundamental Research Corp. Risk Rating Scale:

1 (Low Risk) - The company operates in an industry where it has a strong position (for example a monopoly, high market share etc.) or operates in a regulated industry. The future outlook is stable or positive for the industry. The company generates positive free cash flow and has a history of profitability. The capital structure is conservative with little or no debt. 2 (Below Average Risk) - The company operates in an industry where the fundamentals and outlook are positive. The industry and company are relatively less sensitive to systematic risk than companies with a Risk Rating of 3. The company has a history of profitability and has demonstrated its ability to generate positive free cash flows (though current free cash flow may be negative due to capital investment). The company’s capital structure is conservative with little to modest use of debt. 3 (Average Risk) - The company operates in an industry that has average sensitivity to systematic risk. The industry may be cyclical. Profits and cash flow are sensitive to economic factors although the company has demonstrated its ability to generate positive earnings and cash flow. Debt use is in line with industry averages, and coverage ratios are sufficient. 4 (Speculative) - The company has little or no history of generating earnings or cash flow. Debt use is higher. These companies may be in start-up mode or in a turnaround situation. These companies should be considered speculative. 5 (Highly Speculative) - The company has no history of generating earnings or cash flow. They may operate in a new industry with new, and unproven products. Products may be at the development stage, testing, or seeking regulatory approval. These companies may run into liquidity issues, and may rely on external funding. These stocks are considered highly speculative.

Disclaimers and Disclosure

The opinions expressed in this report are the true opinions of the analyst about this company and industry. Any “forward looking statements” are our best estimates and opinions based upon information that is publicly available and that we believe to be correct, but we have not independently verified with respect to truth or correctness. There is no guarantee that our forecasts will materialize. Actual results will likely vary. The analyst and Fundamental Research Corp. “FRC” does not own any shares of the subject company, does not make a market or offer shares for sale of the subject company, and does not have any investment banking business with the subject company. Fees were paid by FT to FRC. The purpose of the fee is to subsidize the high costs of research and monitoring. FRC takes steps to ensure independence including setting fees in advance and utilizing analysts who must abide by CFA Institute Code of Ethics and Standards of Professional Conduct. Additionally, analysts may not trade in any security under coverage. Our full editorial control of all research, timing of release of the reports, and release of liability for negative reports are protected contractually. To further ensure independence, FT has agreed to a minimum coverage term including an initial report and three updates. Coverage cannot be unilaterally terminated. Distribution procedure: our reports are distributed first to our web-based subscribers on the date shown on this report then made available to delayed access users through various other channels for a limited time. The distribution of FRC’s ratings are as follows: BUY (70%), HOLD (8%), SELL (5%), SUSPEND (17%). To subscribe for real-time access to research, visit http://www.researchfrc.com/subscribe.php for subscription options. This report contains "forward looking" statements. Forward-looking statements regarding the Company and/or stock’s performance inherently involve risks and uncertainties that could cause actual results to differ from such forward-looking statements. Factors that would cause or contribute to such differences include, but are not limited to, continued acceptance of the Company's products/services in the marketplace; acceptance in the marketplace of the Company's new product lines/services; competitive factors; new product/service introductions by others; technological changes; dependence on suppliers; systematic market risks and other risks discussed in the Company's periodic report filings, including interim reports, annual reports, and annual information forms filed with the various securities regulators. By making these forward looking statements, Fundamental Research Corp. and the analyst/author of this report undertakes no obligation to update these statements for revisions or changes after the date of this report. A report initiating coverage will most often be updated quarterly while a report issuing a rating may have no further or less frequent updates because the subject company is likely to be in earlier stages where nothing material may occur quarter to quarter. Fundamental Research Corp DOES NOT MAKE ANY WARRANTIES, EXPRESSED OR IMPLIED, AS TO RESULTS TO BE OBTAINED FROM USING THIS INFORMATION AND MAKES NO EXPRESS OR IMPLIED WARRANTIES OR FITNESS FOR A PARTICULAR USE. ANYONE USING THIS REPORT ASSUMES FULL RESPONSIBILITY FOR WHATEVER RESULTS THEY OBTAIN FROM WHATEVER USE THE INFORMATION WAS PUT TO. ALWAYS TALK TO YOUR FINANCIAL ADVISOR BEFORE YOU INVEST. WHETHER A STOCK SHOULD BE INCLUDED IN A PORTFOLIO DEPENDS ON ONE’S RISK TOLERANCE, OBJECTIVES, SITUATION, RETURN ON OTHER ASSETS, ETC. ONLY YOUR INVESTMENT ADVISOR WHO KNOWS YOUR UNIQUE CIRCUMSTANCES CAN MAKE A PROPER RECOMMENDATION AS TO THE MERIT OF ANY PARTICULAR SECURITY FOR INCLUSION IN YOUR PORTFOLIO. This REPORT is solely for informative purposes and is not a solicitation or an offer to buy or sell any security. It is not intended as being a complete description of the company, industry, securities or developments referred to in the material. Any forecasts contained in this report were independently prepared unless otherwise stated, and HAVE NOT BEEN endorsed by the Management of the company which is the subject of this report. Additional information is available upon request. THIS REPORT IS COPYRIGHT. YOU MAY NOT REDISTRIBUTE THIS REPORT WITHOUT OUR PERMISSION. Please give proper credit, including citing Fundamental Research Corp and/or the analyst, when quoting information from this report. The information contained in this report is intended to be viewed only in jurisdictions where it may be legally viewed and is not intended for use by any person or entity in any jurisdiction where such use would be contrary to local regulations or which would require any registration requirement within such jurisdiction.

Documents

Fortune - Oct 2016 - Initiating