The target is low but they must start somewhere.

Golden Minerals Co.

(AUM-T, AUMN-A) C$7.24

Velardena Meets its Maker

Event

We are initiating coverage of Golden Minerals (AUM-T, AUMN-A) with a

SPECULATIVE BUY rating and a target price of $14.00/share. Please see

our full initiation report, which we expect to publish later today, for complete

discussion and analysis.

Impact

Golden Minerals is an emerging silver and gold producer that is based in

Colorado and run by the former Apex Silver management team. The company

has a large portfolio of assets but its two principal projects are Velardena in

Mexico, which it acquired through a merger with ECU Silver Mining Inc. in

September, and El Quevar in Argentina.

At Velardena, the company is expanding the small scale production from its

oxide and sulphide mills with simple process control improvements while

mine output is expected to ramp up once development has been shifted out of

the veins and more working faces have been exposed. We forecast silverequivalent

(AgEq) production reaching a run rate of 1.6mm oz/year by Q4/12.

At the same time, the company is advancing a Preliminary Economic

Assessment on a major expansion project that we expect it to complete in

mid-2012. We anticipate a new 2,000-tpd mill generating incremental

production averaging 7.4 million oz/year AgEq at total cash costs of US$7/oz

AgEq after capital expenditures of US$225 million, commencing mid-2014.

In the meantime, we expect an updated resource from the company’s highgrade

El Quevar silver project in Argentina in Q1/12 and drill results that

could yield a discovery from its large Zacatecas property package in Mexico,

its Cochabamba project in Peru or its Atlas project in the Deseado Massif of

Argentina.

AUM has declined by more than 70% this year, and the company is now

trading at a discount to peers and its market cap prior to the merger of equals

with ECU Silver. We are initiating coverage with a SPECULATIVE BUY

rating and a $14.00/share target price, based on a valuation of 0.8x NAV5%

calculated at long-term prices of US$1,500/oz gold and US$30/oz silver.