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March 27, 2009

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Richard

Very good points, also some points to consider;

On Brokers
-Assess the quality brokerage houses these guys are working with- some Howe street bucket shops are just awful. Look at the reports that they have produced in the past- just call the broker and ask him to send you some; mind you they are going to send you the best ones, so look on the web first. I want to see long term holds from these past brokers. I find the US brokers/underwriters better as they get a discount for buying TSX in USD and they want longer term. Think of it, they get a 20-30% USD/CAD cushion right off the bat.
On Statements
- Unaudited financial statements, are we taking these at face value? Look at OTC or TSX-V stocks, yes I know that management has to sign off, but if you are looking at a Geo turned CEO, are they going to comb thru the numbers like an auditor would? No.

Also ask yourself "Are all CFO's infallible? Do you think that they may ever make a mistake? Have you ever made a mistake? If your answer is yes, then call these companies, talk to the CEO and tell them to put out a 3rd party audited yearly statement (it’s only 20-30k). Most of these companies for years never have an audited financial besides their prospectus. Push for this, you really run the company and can vote with your feet.

On pooled resource type companies-
You know the ones(Denison, goldgroup.com(forget if GG has skin in the co's.), Manex Resource Group manexresourcegroup.com is especially bad), that centralize their accounting, geologists, PR, IR, and M&A. Basically a couple of non-related companies pay a 3rd party to outsource the basics of their company(). Not cool, at the end of the day that 3rd party has other clients so they really don't care about you. Any CEO that makes this kind of decision is out in my books. This goes for hiring recruiters, outsourcing M&A (Western Uranium corp to haywood)(century mining got slaughter on terms when their outsourced agent deal w. fortus fell thru) , or even outsourcing IR/PR. Same w. CEO’s that has a company that the public company pays to rent, admin, PR/IR Mgt, legal. They can use this suck money out of the company look at their rent- if it varies by more than 20% per month without the office moving- then what is really happening here? Suck, suck, suck. (Sometimes they can do this to pump their own stock or so they can sell, if you are a CEO of a small sub 250m company you can never sell until you leave) (If you seek opacity go invest with citi or blackstone.) Basically if it is outsourced, transparency is lost, my trust for management is gone and so is my money.

Excluded from this rule is drilling, heli surveys/transportation, engineering planning/EA's and sometimes legal if they are small. I also watch for the enterprising CEO that has several companies that he runs- a Mr. Audet is guilty of this. Maybe be just a chairman, this is or can be ok, but CEO, prez, and chair of a couple of companies? Makes me think that the quality of the companies is suspect. Think of the conversation this guy has with a broker- Broker; Who are you calling for today? No, I don't like that one, do you have anything else?....

On PP's (private placements)
-or double brokered or single brokered PP's where the agent is actually a director or executive. Yes it is technically not legal but if you read thru PR's and prospectuses you see a lot of this going on mainly with the smaller cap companies. There is basically no regulation in Canada so you have to do your own, but since when do you need your investing butt wiped for you? Come on big boy.

CEO's and directors shouldn't be getting a cash bonus and not calling it a bonus when raising money is the main part of your job. And when the company is not generating cash flow yet.
Also watch for a company pays out more in commissions for these agents that it would take hiring a full
time VP of corporate development. One company I looked at, forget the name paid out 2m in commish. for like 10 or 12m. Think about WACC or cost of equity. As a pub co. you have to spend atleast 250k/yr. for IR. But a top of the line VP will never cost you more than 1.5m (newmont pays it's VP corp. d. only 800k salary, still less than these guys above).
On CEO's
I am very fundamental when it comes to research- I don't so much as care about the CEO's background* but rather how the CEO makes a decision. Except when he has a history of bad mining companies that have never done anything. I rather have a kid (ALTURAS) that is determined than a lazy idiot that has experience any day. Or a GEO that forgets he is a CEO.
Little things like website doesn't work, no PR for a quarter, no one calls you back, lame idiot secretary that doesn't speak English with a company located in Canada on a Canadian stock exchange- equals Lame duck CEO. The CEO is responsible for everything. The blame rests with him and the the board, they hired him in most cases. Also watch for HQ's that are out in the sticks or out of the country with no branch here or are not in major financial centers (small to mid size companies). A CEO's job is to get the money. No money, no mine, no employees.

On Consistency
Don't try and wow me with pinching narrow vein drill results expressed in Oz per ton or PPM or PPB to get a bit number. It is Canada, report it in Metric grams per ton. And for you US companies who cannot release a 43-101 because of the inferred/indicated measurement- do it anyways and put it on your site, or if you are scared put it thru sedar and if the SEC calls it, say you are considering a TSX listing.
Bang! Transparency!, as Emeril would say if he was a stock picker.


On Good communication with shareholders.
Look at what bad communication did to Hudbay. I am not an investor in hudbay or lundin, and when I first heard about the proposed merger I thought the debt was high and saw why everyone was freaking out. Then I saw the Hudbay CEO(Palmiere) on BNN and he explained the merger, and whether or not it is BS, he made it sound good and reasonable. That is what they should have done in the beginning. Coke cola would have never made it as far as they have without good marketing, because after all it is just colored sugar water.
Examples of good communication; Stornoway diamonds- does the IR thing well I get emails from them all the time and am consistently updated, west timmins also does this. I am not an investor in these stocks as I don't like diamonds and west timmins doesn't fall under my parameters, but none the less these guys do a great job with the IR thing.

From article quote
"Whenever a company hits a significant milestone and achieves a 52 week high and has plans for growth that requires capital look for the private placement. This kind of management is not patient enough to grow the company through its own cash-flow. They want grow a big empire as fast as they can so that can "take something off the top"."
I can see where the writer is coming from, but mining company’s exploration especially need money from dilution because there is no Venture Cap, PE or bank that will lend for exploration. Funny thing is those same guys will lend to Bio-tech firms, no problem and bio tech is way, way higher risk.
So what could I do to get money to advance my project/property to feasibility? Or if I wanted to buy another property/company? I don't see a problem with growing quickly thru acquisitions; it's what Munk did with a little company called Barrick. And small scale mining ties management up with managing the mine and leaves little time for promotion and building the story- look at impact silver, they will always be small, even though they are profitable, you won't get a 10 bagger out of them and look at their earnings fluctuate (even thought they are hedgers). If they were private, yes this would be the way to go.

How else could you get this money? Brokers don't want you to start mining until feasibility. And if you go rouge, good luck getting any more money from anyone on the street.
But the "rules" kind of change when you are public and some things don't really make sense until you work out the numbers, the type of numbers that will not be presented to you in any Q or any annual. You have to do big frequent PP's to get the ball rolling and build up your cash and your cash flow. Sometimes it is true that some exploration companies just do exploration well. Basically, if you want cash flow and re-investment, buy an O&G stock.
If you want big pops and a rollercoaster of ups and downs with 1000 to 1 odds and 500%+ paybacks go with mining and be prepared to lose some of the time.

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