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latest Blackmont recommendation

posted on Aug 31, 2009 04:34PM

Debt Restructuring Provides

Financial Flexibility

Reason for Comment:

Company Update

Event:

Restructuring of Debt Agreement

Analysis & Forecasts:

ECU Silver entered into an agreement

with its lender to restructure its current debt by deferring

principal payments for a year. ECU currently has $15.75

million drawn against its $22 million facility, and will now

have until November 30, 2010, to commence principal

repayments in equal monthly instalments over a period of

12 months. The cost of this arrangement to ECU is an

increase on the coupon to 12% (from 11%). While operations

at the Velardeña oxide mill are now generating cash flow,

the one-year deferral of the debt repayment provides the

company financial flexibility (ECU reported Q2/09 cash and

cash equivalents of $385,000).

Valuation & Recommendation:

This release is positive for

ECU, allowing the company to match cash flows of liabilities

with the ramp-up at Velardeña. Despite the mitigation of

near-term financial risk, ECU still has a weaker-thanpreferred

balance sheet. We are maintaining our NAV at

$0.75 per share (includes $0.30 for the oxides and $0.45

for the sulphide resource) and holding our target price

(based on 1.0x NAV) at C$0.90. We are maintaining our

OUTPERFORM recommendation, but caution this company

is for risk tolerant investors only.

Primary Reasons for Recommendation:

1. Attractive valuation (0.68x NAV and $0.54/oz in-situ)

but balance sheet is weak.

2. Excellent exploration upside at Velardeña.

3 Recommendations
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