Hi Janson!

Whenever a company has debt on the balance sheet, it means that there is increased risk built in. There are many companies in various sectors right now that may not be able to stay in business under their current financial obligations. GM is the most obvious example. I mentioned in the interview that I have become very conservative in the companies that I present in my articles, and that means I look for companies that have no debt and strong cash positions. In my personal PF I still own a lot of stocks that are not conservative but I still am willing to take that risk for my own choices.

With ECU, about $15 million in debt is outstanding through the IIG Capital loan. This is a firm that has been very supportive of ECU and has opted to work with the company to ensure that the debt is structured in a way that does not compromise the ability of the company to remain solvent. Given that ECU has just proven it can raise much more money than that if necessary, I do not think the debt load is a threat to their ability to stay in business. However the interest that is payable on that loan is a factor that will put a big dent in future profits so its worth noting.

My expectation is that within a quarter we will find out that ECU is able to not only pay down this debt, but earn enough profits to fund future exploration work. I think the company is capable of improving their balance sheet from here on based on internal cash flow generation, and may not have to tap the market again to secure sustainable income from operations.

So to answer your question, ECU is not a conservative stock choice and I would not discount that the debt load is significant. However, I still think the stock is worth buying based on the potential upside from the new mill acquisition, and I do think the company will build a stronger balance sheet once the recurring cash flow from operations is established. One of the ratios that I think is worth considering is debt to cash flow. We should find out within a quarter or two how this plays out but I would think a producer with a ratio in the range of 1:1 is acceptable. Can ECU generate cash flow of about $1.2 million per month? That would amount to about 50 ounces of gold per day. I think they can do it.

cheers!

mike