i think it was posted here before, but here it is again: (unfortunately it's in a graphic form and so does not paste well.)

Junior Mining Stocks In a Long-Term Perspective

PREPARED BY MICHAEL BALLANGER

Since the Barron’s Investor Sentiment

numbers dipped below 20% (bulls) for

the week ended March 6th, the major

averages have gone

on an absolute TEAR

in what must be

classified as a

“vintage” bear

market rally with all

sectors starting to

kick in as the Shorts

and the “Left-Behind

Louie’s” are now

scrambling to get a

“piece” of the action.

It might be noted

that if this were a

“true bottom”, the

Barron’s numbers

last weekend would

have still been mired

in the low 20’s but

they were above 30%

in what I would

define as “classic

behaviour within a

bear market”. I am

not a market timer

by any stretch but I

have used Barron’s

Market Lab for over

thirty years to get a

sense of what the

TRUE PSYCHOLOGY

of the market

actually is. It spoke

to me a few week-

ends ago and it

made us some

money but that is

shares, we have been largely left out of

every rally imaginable and every

bullish precious metals move and every

discovery or 43-101 or “Resource

continued page 2

not the purpose of this report.

Most of us are long some physical

bullion in some way, shape, or form but

our BIG POSITIONS are in the compa-

nies that were SUPPOSED TO BENEFIT

from the (correct) overweight in the

precious metals SHARES. Moreover,

since we needed the advantage of lever-

age, we opted for JUNIOR precious

metals shares and if we opted for

JUNIOR EXPLORATION precious metals

Where is the MONEY?

March 23, 2009

TSX Venture Exchange (Weekly)

Estimate Increase” since mid-2007.

That was over two years ago.

Investment Commentary

P2

Junior Mining In a Long-Term Perspective

Why?

The answer to the question, in my

humble opinion, is really quite simple.

It is all about the MONEY. Between

2002 and 2006, over a billion dollars

was raised in the junior mining arena

for EXPLORATION and for that amount

of money, one might have thought that

there would have been a wrath of new

BIG discoveries to fuel the fire of

speculative interest. Well, there were

discoveries but they were either in

proven mining camps (Red Lake)

(Goldcorp’s takeover of Gold Eagle for

$1.5B) or in some remote third world

country where the ultimate takeout

was about 50% of the stock’s 52-week

high. In 2007, the darling of the market

was Noront Resources, manned by the

superb promoter Richard Nemis, who

took a “high-grade pod of

copper-nickel-PGM’s” and commanded

a $800M market cap by this time last

year only to see the promotion

evaporate and take mutual and hedge

fund BAGHOLDERS to a revised market

cap of around $100M. All in all, year

over year, that MONEY produced very

few new real discoveries.

Then in Q2 2008, with the hedge fund

community owning hundreds of

individual names in order to “cover the

field”, the sudden and catastrophic

redemption-led meltdown forced the

hedgies to redeem vast amounts of

capital and any junior that had a “bid”

got hammered. As represented by the

TSX Venture Exchange, the carnage

was the worst I have ever seen, despite

historically high multi-decade pricing

for the underlying metals like gold,

silver, and copper.

Well, the devastation ended near the

end of 2008 and the juniors almost

caught a “forced desperation bid” last

month when the global markets took

out the lows and rallied from 678.62 to

937.90 representing a 38% advance

from the lows but considering the 80%

drop from the Q2 2007 peak, the rally

in the TSXV has been anemic.

Why?

The junior mining/exploration sector

devoted a great amount of exploration

and development capital into

refurbishing old projects particularly in

the base metals sector. Record high

nickel, copper and zinc prices lured the

hedge and mutual funds into a

“deer-in-the-headlights” mindset that

the metals could never correct and

bought into the sector with little

consideration of the enormous capital

expenditures associated with starting

or re-starting a mine. When the base

metals got taken down with the global

contraction and against a difficult

credit environment, these

developmental juniors were left with

advanced projects, zero funding, and in

many cases, a skewed feasibility model

due to the lower revenue forecasts.

These companies unfortunately

deserve to be on “Care and

Maintenance” until the global

downturn shows signs of reversal and

since many of these companies were

the drivers behind the TSXV move to

3372, it is their inability to recover

which has capped the rebound in the

TSXV.

However, there are a number of

companies in the exploration sector of

the TSXV that are being tarred with the

same brush as the developmental

juniors and herein lies the best

opportunity that I have encountered in

thirty years in this business.

Let’s take ECU Silver Mining Inc.

(ECU.T)(C$0.495) as an example of

an advanced junior exploration

company with what I believe to be

potentially one of the largest silver

deposits under development in the

world with its Velardena project in

Mexico. The rule of thumb for pricing

junior exploration companies is that if

they are not yet in production, you can

usually buy them safely up to ten

percent of “in situ metal value”. If you

have ten million tonnes of ore worth

one-hundred dollars per tonne, you

have a one-billion dollar in-the-ground

value. Using discounted net present

value modeling and accounting for

both mining costs and capital costs,

you can arrive at various valuations

depending on term and rate of interest

and capital cost payback period but the

rule to which I adhere is that I can pay

up to ten percent of a billion dollars or

one hundred million because the major

mining companies, when they take an

interest, will pay between twenty and

thirty percent of in situ metal value. My

“lift” is therefore two to three times my

cost base.

In the case of ECU, I take the January

26th report authored by Bill Lewis of

Micon (an independent) who states that

there exists between 569 and 930

million “silver equivalent ounces” of

mineral potential present at Velardena.

[Please note there are no assurances

that all or any part of the resource

estimate or that all or any part of the

mineral potential will be economically

viable and that until a prefeasibility

study is completed, there are no

assurances the updated mineral

resource will be economically viable.]

This would imply a potential in situ

metal value or “in ground” value

(assuming U.S.$10/oz. silver) of

between $5.6B and $9.3B. Using my

rule, I am therefore “safe” in buying

ECU for a valuation of between

$569-930M (10% of in situ metal value)

or after dividing by the undiluted

shares issued of 242M, between

U.S.$2.35 and $3.64 per ECU share.

With the shares quoted on 3/23/09 at

U.S.$0.40, I submit that it is this type

of severe discounting that is hampering

the TSXV’s rebound but at the same

time creating some terrific

opportunities.

Here is another example. New gold

discoveries in proven favourable

mining jurisdictions like the Canadian

provinces of Ontario and Quebec,

specifically the Abitibi-Greenstone Belt

which has produced 180M ounces of

gold and 145M tonnes of Zn-Cu ore

continued page 3

P3

Junior Mining In a Long-Term Perspective

over the past one-hundred years, have

historically been priced in the $50M-

100 range of market capitalization. Last

year, Goldcorp took over Gold Eagle for

$1.5B in stock and cash for a gold

discovery below one-thousand feet in

depth. Other comparables included

Rubicon Minerals (RMX.T) capped at

over $250M for a gold discovery in the

Red Lake Camp where the most

noteworthy drill result was 2.5 m of

173 gms/t (8’ of 5.0 ounces/t).

I draw to your attention Explor

Resources Inc. (EXS.V) (U.S.$0.20)

whose discovery in the heart of the

Abitibi-Greenstone Belt was reported

last July at 12.2 m of 16.6 gms (40’ of

.496 opt) and who recently reported 3.0

m of 142 gms./t (10’ of 4.15 opt) at their

Eastford Lake Gold property. EXS.V is

capped at C$20M compared to RMX.V

at $250M.

The valuation gap that we are now

experiencing in the junior exploration

arena is reminiscent of the late 70’s, a

period of stagflation not unlike today’s

environment (only it was a lot better

back then because the banks weren’t

technically insolvent) during which the

TSXV (then the old Vancouver Stock

Exchange) was muddling along with

investor interest suffering after the

horrendous 1973-74 bear market and

that remained in place until gold prices

finally broke out above the $300

market. Within months into late ’79,

the gold price rocketed north of $500

ultimately peaking in January 1980 at

an intra-day $857 per ounce. In the

move AFTER the gold breakout in 1978,

the old VSE took off on an ascent that

saw many juniors advance in the order

of several multiples as the public finally

came down with a severe case of gold

fever and since gold was relatively

expensive and offered little in the way

of leverage, the GO-TO investment

became the juniors. The U.S.$1,000

level for bullion in 2009 is to the

juniors today what the $300 level was

to the juniors back in 1978.

As for the TSXV, the chart below shows

the severity of the discount in the junior

sector by way of the correlation to gold

bullion. The “$CDNX:$GOLD” chart

proves in spades that a picture is worth

a thousand words.

I believe that these juniors represent

excellent risk-reward opportunities.

Those looking to take advantage of in

situ metal valuation adjustment should

look to ECU Silver Mining Inc.

(ECU.T) and those looking for an

exploration discovery valuation adjust-

TSXV vs. Gold Bullion (Weekly)

ment should consider Explor

Resources Inc. (EXS.V) where such

adjustments could be substantial over

the intermediate term as these junior

markets experience normalization and

a return to sanity. It “feels” like the

‘70’s and very few remember how

many fortunes were made in a very

short window – but I do.

It was wondrous.

Junior mining companies are speculative investments whereby significant loss of capital is possible and should be suitable for risk tolerant investors only. This

article is solely the work of the author who is a registered investment advisor at Union Securities Ltd. ("USL"), this is not an official publication of USL and the

author is not a USL analyst. The views (including any recommendations) expressed in this article are those of the author alone, and are not necessarily those

of USL. The information contained in this article is drawn from sources considered to be reliable, but the accuracy and completeness of the information is not

Union Securities Ltd. Toronto Office • 901-33 Yonge St. Toronto, ON M5E 1G4 • Telephone: (416)-777-0600 • www.union-securities.com • Member: TSX, TSX Venture, IIROC

guaranteed, nor in providing it do the author or USL assume any liability. The information is given as of the date appearing on this article and

neither the author or USL assume any obligation to update the information or advise on further developments relating to the information

provided herein. This article is provided for information purposes only and does not constitute an offer or solicitation to buy or sell the securities

mentioned herein. This material is not intended for distribution in the United States or in other jurisdictions where this material is prohibited.

The holdings of the author, USL, its affiliated companies and holdings of respective directors, officers and employees and companies with which

they are associated may, from time to time, include the securities mentioned herein.

Prepared by Michael J. Ballanger

B.Sc., B.A.

Investment Advisor

Union Securities Ltd.

Office: (416) 775 5119

Fax: (416) 777 1276

mjballanger@union-securities.com