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KODIAK EXPLORATION UPDATE

August 4, 2008

Kodiak Exploration (KXL, TSX-V) took the market by surprise with a major news release late in the trading day Friday, August 1, just prior to a Canadian long weekend. The stock initially turned higher on the news, then got nailed with some major selling in the closing minutes to finish down three cents at $2.40 (the high for the day was $2.69 and the low was $2.3. Like most Canadians, I thought it was safe to abandon the markets a little early Friday as I departed for the beautiful Fraser Canyon in British Columbia to enjoy a two-day river raft expedition. Just as I was leaving (sure enough), my Blackberry started to sound like a three-alarm fire as the KXL news hit the wire and a trading frenzy ensued. In retrospect, my first-ever river rafting experience was a great lesson for anyone in learning how to overcome fear, a lesson that can easily be applied to the markets. And I believe “fear” will be a weapon used by savvy and ruthless traders tomorrow with Kodiak, as it was at the end of the day Friday. More on that later.

First off, Kodiak management is not stupid, so why did they issue this news release when they did? A Friday afternoon before a long weekend is usually when companies or politicians dump bad news into the market. Was Kodiak actually releasing “bad” news, or was there some serious strategic thinking behind this unusual timing?

For a couple of reasons I would argue Kodiak was very astute in getting this information out precisely when they did. In this age, of course, the Internet is huge. And Kodiak has a very substantial following on the bullboards. One effect of releasing this information late Friday morning was to generate a lot of positive discussion at Stockhouse, Agoracom and other boards over a period covering four days prior to the stock trading again Tuesday morning. Most importantly, Kodiak has given everyone ample time to review the news and digest it. And there is a lot to digest here, believe me. This is a massive project where high grade gold occurrences extend over hundreds of square kilometers. I thank Kodiak for giving us opportunity to properly digest this important exploration update, and the stage is now set for what should be a dramatic week in the trading of this stock.

So what about the news? A little while ago I predicted Kodiak was soon going to release “blockbuster” news on the Hercules Project. Did this qualify as “blockbuster” news, and if so, why did the stock close down on the day?

Markets are funny and sometimes stupid and completely irrational. We’ve all heard the old adage, “Buy on rumor, sell on news.” A little bit of that certainly took place Friday. I remember last fall, Kodiak issued great news after a halt and the stock absolutely tanked - all the way from almost $3.00 to $2.00 in less than an hour - and then turned in the other direction just as quickly. Before long, the stock was trading over $4.00. That’s the market and one should always be prepared for that kind of reaction and volatility.

The news Kodiak came out with Friday was “blockbuster” in our view:

• The dimensions of the Golden Mile mineralized zone have increased by more than 600 per cent since March
of this year;
• Other stand-alone regional targets (spread across more than 200 kilometres of Kodiak’s landholdings) are yielding very encouraging results;
• Drill program is being expanded (five rigs to eight)
• Kodiak has yet to find the “end” of this system!

There will always be naysayers, of course, and Kodiak certainly has its share. But that, in part, is what makes the market so fun (not to mention volatile) and potentially very profitable. I received this email (below) from one of my readers:

“I’m sure you will be writing something about the news release KXL put out. I thought the news release looked good but I’m wondering how you would respond to several of the negative postings on the Stockhouse Bullboards like this one:

(Stockhouse poster): “They released over a hundred holes as you said. Almost 300 separate intersections which is good if you don’t actually read them. Less than 20% of the intercepts were over a metre and less than 7% (!) were more than 5 gram metres. And you are talking about open pitting?!! Do they have gold shoots. Yes, though I don’t know how big they will be and the long section on the web site shows all the high grade ones cut off already. Do they have “millions and millions of ounces”? Not even remotely close. They could pull a million together with enough holes but that won’t hold up a stock with a $200 million market value.

“They released heading into a long weekend for a reason. They waited until they had over 100 holes for a reason. I don’t short stocks and won’t be trading this one anymore now. Listen to the expert Allenbow if that gives you a warm glow but I’m afraid KXL is going to be trading a lot lower in a week, not higher. These guys are great promoters but that act works way better on people like Allenbow and not so much on funds and unfortunately this is a lousy market and the fund placement is free trading. Like I said, good luck.”

Aren’t the bullboards fun? I don’t mean to offend the writer of the above posting, but unfortunately some people just don’t know that they don’t know. Kodiak senior geologist Brian Maher (Vice President, Exploration) is no “promoter” and has probably forgotten more about mining than what any of us have learned about anything our entire lives. Quite simply, Maher knows his business.

“Based on what we have seen to date, not only at Hercules, but elsewhere in our enormous land package, I think we are just beginning to understand the size and scale of this very large gold mineralized system,” stated Maher in Friday’s release. What the above poster and other investors have to educate themselves about is what Kodiak is drilling into - a vein hosted Archean gold deposit. These can be huge deposits that extend to depths well in excess of 1.5 kilometres. In layman’s terms, gold this abundant at shallower depths over such a massive area, as Kodiak has discovered, has got to come from somewhere. I have a lot of respect for the geological understanding of Coach247 who often posts at Agoracom (he has also visited the Hercules Property and surrounding landholdings on more than one occasion). He made a very wise and true statement following release of Friday’s news: “The high ratio of gold encountered so far is simply an indication that the chance of getting something really rich is very high.” Coach247 knows his stuff, from a geological standpoint, so you can certainly trust any of his postings you see on the boards, in particular as they relate to the geology of this play.

Maher would love nothing more than to drill a bunch of holes 1,500 or more metres deep. He knows, however, that at this stage of exploration, that doesn’t make any sense. The best strategy is to punch shallower holes over as wide an area as possible. From there -based on results - a plan of attack can be formulated as to where to start drilling really deep. Drilling deep right now would just slow everything down.

Where From Here

Tomorrow (Tuesday) will be a very, very interesting day for Kodiak as trading resumes. In a general sense, the most likely scenario, in our view, is that traders will try to force the share price down to start with, and they will probably succeed. From there, we would expect a reversal during the day. This could all happen very fast. After all is said and done, look for higher prices by the end of the week. From a technical standpoint, one thing that does concern us is that Kodiak’s 200-day moving average is now in decline. But that could be offset by shorter term moving averages that have turned or could turn positive. Remember, Kodiak has tremendous long-term support between the 500-day moving average ($1.75) and $2.00. Keep that in mind as volatility sets in.

There are five ways to approach Kodiak as an investment:

1. Do not invest at all (acting stupid is always an option);
2. Short the stock (also sort of stupid and only for experienced traders);
3. Go long and hold for at least one year (maybe two or longer);
4. Hold a core position (for at least one year) and take a trading position where you are buying and selling from time to time to take advantage of price volatility;
5. Just trade the stock and don’t hold a long term core position (only for experienced traders).

At SolomonSmallCaps we believe the wisest option for the average investor is #3. This is exactly the kind of stock you want to hold for a considerable period of time for a potential return of five, 10 or 20 times your original investment (or even more). Those kinds of returns are very possible with Kodiak for those who are patient and ignore the noise, the silly share price games, the occasional irrationality of the market, and some of the crazy, agenda-driven posters at Stockhouse and elsewhere. Kodiak has a tremendous team of geologists on the ground who, in our opinion, are going to nail down a massive amount of gold at Hercules and throughout their extensive regional landholdings at Beardmore-Geraldton.