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Initiating Report September 27, 2012
RED TIGER MINING INC. (TSX-V: RMN)
Recommendation Speculative Buy
Risk High
Price (Close: Sept. 26, 2012) $0.40
52-Week Range $1.20 - $0.40
Target Price $0.95
Shares O/S 69.2 million
Market Cap $27.7 million
Average Daily Volume 50-day: 5,200
200-day: 8,100
Year-End December 31
Book Value Per Share June 2012A: $0.34
Dec. 2012E: $0.33
Dec. 2013E: $0.43
Mineral Property Per Share June 2012: $1.12
eResearch Analysts: Yuri Belinsky, B.A., M.A.
Bob Weir, B.Sc., B.Comm., CFA
Note: The Company had a 1-for-10 share consolidation and changed its name from Zaruma Resources
Inc. to Red Tiger Mining Inc. in November 2011.
UPFRONT
Now producing! After an extended delay, during which time the Company’s
ownership changed, its name changed, its shares were consolidated, and it
weathered a heavy rainstorm that damaged facilities and halted production for
over four weeks this past July, Red Tiger Mining Inc. (“Red Tiger” or the
“Company”, and formerly Zaruma Resources Inc.) is now in production. The
Luz del Cobre copper project in the State of Sonora, Mexico, is producing
copper cathodes and ramping up to the commercial stage.
Full-capacity operation, at 20 tonnes per day, at Luz del Cobre should start in
November 2012, and Red Tiger will likely declare it to be in commercial
production in January 2013. The project is anticipated to operate until 2017 and
produce almost 35,500 tonnes of cathodes. The life-of-mine could be extended
by up to two years depending upon the outcome of future definition drilling.
There is also hidden value in Red Tiger’s gold holdings, which total 405,000 oz
Au. These are currently on hold, but the Company expects to resume exploration
of the targets soon. The goal is to bring them into production in 2014.
RECOMMENDATION
For risk-tolerant retail investors, we recommend the shares of Red Tiger
Mining Inc. as a Speculative Buy. Our Target Price is $0.95 per share.
With only 69 million shares outstanding and substantial insider holdings (about
70%), the share float is small and the average daily share trading volume is low.
The market capitalization is also small. These factors limit institutional interest.
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TARGET PRICE
We valued Red Tiger based on our DCF model of the Company’s Luz del Cobre operation which started
producing copper in early 2012. In the model, we used the Company’s indications about the plant’s capacity, Luz
del Cobre’s NI 43-101 compliant resource estimate, and our estimates of the project’s capital and operating costs
which are based on the Company’s actual numbers and estimates.
The project’s Intrinsic Value (or NAV) at a 10% discount rate (our base scenario) amounts to $0.94 per share (see
Valuation, page 7). Once the project enters commercial production, we would likely lower the discount rate,
which would increase the Intrinsic Value.
The calculated Intrinsic Value implies a current 2013E P/CF of 4.3x, as compared to our chosen peer group
current average P/CF of 11.2x (see Valuation, page 8). At its current stage of development, we believe that Red
Tiger is not yet ready to trade in line with the producing peers in terms of P/CF. However, this gap with the peers
may well narrow in 2013-2014 after Luz del Cobre has been in commercial production for a while.
In our valuation, we did not include any value which may be attributed to Red Tiger’s gold assets (405,000 oz
Au). Once Red Tiger nears production of gold, these assets would likely boost the Company’s valuation.
Based on our Intrinsic Value calculation, our Target Price is set at $0.95 per share.
We rate the shares as a Speculative Buy, suitable only for risk-tolerant investors who would be interested in an
undervalued, overlooked developing copper producer.
INVESTMENT SUMMARY
● Red Tiger is producing: Red Tiger started the crushing and curing of ore at the Luz del Cobre project in
November 2011. The first copper cathodes were produced at the project in May 2012. By the end of August
2012, the Company had produced almost 900 tonnes of cathodes.
● Recent interruption is behind: A heavy rainfall in the Luz del Cobre’s area in July 2012 interrupted
production for over four weeks and caused some damage to the mine and facilities, but without critical
consequences. Red Tiger took swift action to restore the facilities and resume production. In August 2012, 112
tonnes of cathodes were produced.
● Commercial production is around the corner: So far, the production is not recognized as being
commercial. We expect that the project will reach its capacity, 20 tonnes per day (tpd) of cathodes, in
November 2012. After two months of full-capacity work, in January 2013, the project could be declared to be
in commercial production.
● Production until 2017: The Luz del Cobre mine is expected to be in production until 2016 when the
currently-identified resources should be depleted. In 2017, the project should produce cathodes based on
rinsing of the leach pad. Over the life of the project, 3.95 million tonnes of ore are expected to be mined and
almost 35,500 tonnes of cathodes produced.
● More resources could add to the project’s life: Red Tiger plans to conduct definition drilling of the
copper targets close to Luz del Cobre in 2013. Based on the drilling results, the Company expects that
additional resources could add up to two more years to the life of the project.
● Gold projects may start producing soon: The Company also plans to resume exploring its gold targets, with the goal of bringing them into production in 2014. This plan has a high likelihood of materializing, as the
targets are close to the Luz del Cobre site and the same existing infrastructure could be used.
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THE COMPANY
Red Tiger is involved in the exploration and development of copper and gold projects within its 100%-owned
San Antonio property in the San Antonio District in Mexico’s State of Sonora (see map below).
Map 1: San Antonio Property
Source: Company
The Company is focusing on the Luz de Cobre project at San Antonio where it has started producing copper
cathodes.
Table 1: Property Summary
Projects Comments
Luz del Cobre (Copper) NI 43-101 & NI 43-101F1 Technical Report June 2009.
Measured & Indicated (M&I): 4,562,000 tonnes; Cu 1.09%; Cu lbs 109.1 mil.
Inferred: 189,000 tonnes; 0.61% Cu; 2.5 mil. lbs Cu.
Copper cathode production started in the spring 2012.
Sapuchi (Gold) NI 43-101 & NI 43-101F1 Technical Report June 2009.
Oxide (0.30 g/t Au): M&I: 2,220,000 tonnes; 1.4 g/t Au; 74,300 oz Au.
Inferred: 872,000 tonnes at 0.86 g/t Au; 24,100 oz.
Potential open-pit gold leach operation, supported by existing infrastructure.
Realito Trend (Gold) NI 43-101 Technical Report September 2004.
Underground: Underground Total M&I: 1,739,000 tonnes; 4.82 g/t Au; 244,400 oz Au
Underground Total Inferred: 162,000 tonnes at 3.97 g/t Au; 20,800 oz. Au.
Open Pit: Open Pit Total: M&I: 551,000 tonnes; 2.08 g/t Au; 36,700 oz. Au.
Open Pit Total: Inferred: 72,000 tonnes; 2.13 g/t Au; 4,900 oz.Au Source: Company, eResearch
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BACKGROUND
Financing and Name Change
Red Tiger Mining Inc. began life as Golden News Inc. in 1983, and changed its name twice before continuing as
Zaruma Resources Inc., which subsequently became Red Tiger Mining Inc. This latest name change, effective
November 2011, accompanied a 1-for-10 share consolidation. The number of common shares outstanding
following the consolidation was 65,232,175. The name change also marked the Company’s progress from the
exploration and development stage to the production stage.
In Q3/2011 (ended September 30), the Company completed conditions for the release from escrow of a private
placement of $25 million in equity units, along with a bank financing of $30 million. In November 2011,
Mexican courts approved the creditors’ settlement agreements which ended the Mexican litigation that had been
ongoing. As a result, necessary filings were made in certain courts and registries that resulted in the removal of
liens on the mining concessions where the Company’s Luz del Cobre copper project is located. This matter had
been in the Mexican courts since 2009. In July 2011, funds were released from escrow; this completed the
financing.
Among the transactions that took place during the escrow period was the cancelling of agreements between the
Company and Glencore International AG and certain of its affiliates, in exchange for the payment of $23.5
million to Glencore in settlement of the Glencore loan and the issuing of shares and warrants by Red Tiger.
Technical Reports
The 2006 NI 43-101 Technical Report on the feasibility of Luz del Cobre was completed by M3 Engineering
and Technology Corporation ("M3") of Tucson, Arizona, and P&E Mining Consultants Inc. ("P&E") of
Brampton, Ontario. Qualified Persons and Independent Consultants Peter Erath, P.Eng. of M3 authored the
review of the process design, flow sheet, engineering and capital and operating cost estimates, and Eugene
Puritch, P.Eng., of P&E estimated the ore reserves and prepared the pit optimization and production schedule.
The copper resource estimate was updated on June 1, 2009 (see the table below) using a cut-off grade of 0.29%
Cu for oxide mineralization and 0.27% Cu for the mixed oxide-sulphide mineralization, using a 36-month
trailing average price of $3.04/lb Cu.
Table 2: Luz del Cobre Resources
Resource
category
Oxide Mixed Oxides / Secondary Supplies Total Measured and Indicated
Tonnes Cu% Cu lbs mil Tonnes Cu% Cu lbs mil Tonnes Cu% Cu lbs mil
Measured 387,000 0.89 7.6 1,654,000 1.40 51.0 2,041,000 1.3 58.6
Indicated 521,000 0.71 8.2 2,000,000 0.96 42.3 2,521,000 0.91 50.5
Total 908,000 0.79 15.7 3,654,000 1.16 93.4 4,562,000 1.09 109.1
Inferred Tonnes Cu% Cu lbs mil Tonnes Cu% Cu lbs mil Tonnes Cu% Cu lbs mil
33,000 0.62 0.5 156,000 0.61 2.1 189,000 0.61 2.5
Source: Company
DEVELOPMENT AND PRODUCTION
Development and Pre-Production
Construction and development of the Luz del Cobre mine restarted in H2/2011. Ore crushing, curing, and
placement on the valley leach pad began in November 2011. By December 31, 2011, 21,800 tonnes of ore were added to the stockpile, with 0.87% Cu on average. The total of broken ore in the stockpile at December 31, 2011,
including ore mined in 2008, was 70,800 tonnes at 0.82% Cu. Irrigation of the stacked ore on the leach pad
commenced in March 2012 and the production of cathodes started in May 2012.
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Interruption in Production
The heavy rain-storm in mid-July 2012 resulted in a four-week disruption of production. On July 16, 2012, in just
three hours, 128 mm of rainfall occurred at the mine site, or 21% of the usual annual rainfall in the region. The
rainfall caused some erosion of the stacked ore on the leach pad (see Picture 1 below) and some damage to the
pipeline to the solvent extraction plant and irrigation lines on the leach pad itself. Leach solution from the pad was
contained in the pregnant leach solution pond, supported by the overflow pond. There was no leakage to the
environment, and there was no damage to the mine or buildings and equipment on site.
COMMENT: To prevent similar damage from occurring in the future, Red Tiger is currently enhancing the
surface water drainage system and water deviation channels, as well as placing existing large boulders of broken
ore as support of the flanks of the lifts of crushed ore on the leach pad.
Picture 1: The Leach Pad with Erosion Channel after the Rainfall
Source: Company
Resumption of Production and Further Production Plans
On August 20, 2012, the Company reported that crushing and stacking of acid-cured ore and irrigation of the leach
pad had resumed. During the production stoppage, mining operations continued with newly crushed ore filling the
erosion voids on the pad in preparation for laying new drip lines in order to restart the irrigation process.
Production in August was estimated at 112 tonnes of copper cathodes and we thus estimate overall production by
August 31 at around 900 tonnes of cathodes. The Company expects to accelerate production to the previous level
by the end of September.
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COMMENT: We assume that production will reach the designed copper recovery capacity of the plant of 20
tpd in November 2012. Taking this into account, overall in 2012, the total ore extracted should amount to 343,400 tonnes, while production should amount to 2,575 tonnes of cathodes (see the table on the next page).
We expect that 100% of the project’s current Measured resources plus around 75% of the Indicated resources will
be mined over Life-of-Mine (LOM). The total tonnage of ore mined over LOM is thus 3.95 million tonnes. Based
on the project’s economics published by the Company, Luz del Cobre is expected to produce from 2012 until 2017. We assume that, from November 2012 to December 2015, the project will work at its full copper recovery
capacity and, in 2016, at 75% of capacity. In 2017, in the absence of further exploration discovery, the mining operations will likely stop and production will be based on the rinsing of the leach pad. (The Company is fairly
certain that its definition drilling will be able to extend LOM by up to two years.)
Based on the resource estimate and the information from the Company’s MDA, in the model, we use a straight-
line copper grade of 1% and copper recovery of 75%.
Table 3: 2012 Mining Schedule
2012 2013 2014 2015 2016 2017 Total
Total Ore Mined, tonnes 343,400 960,000 960,000 960,000 723,333 * 3,946,733
tpd 941 2,630 2,630 2,630 1,982 *
Copper Invoiced, tonnes 2,575 7,200 7,200 7,200 5,425 5,795 35,395
tpd 7 20 20 20 15 16
* - no mining, rinsing
Source: Company, eResearch estimates
FURTHER EXPLORATION
Copper Assets
Red Tiger plans to carry out definition drilling for copper in the vicinity of the Luz del Cobre project. Copper
mineralization of the pit is open to the west, southwest, and to depth. West of the open pit there is also the Trion
Extension (see Map 3 on page 13) hosting 300 metres of oxide copper mineralization. The Company expects that,
as a result of the definition drilling, the project’s life in the near future can be extended for at least two years of
production.
COMMENT: Given that Red Tiger is now focusing on ramping up production, we expect that it will resume
drilling extensions of Luz del Cobre no sooner than Q2/2013. For the time being, to remain conservative, we are
limiting the tonnage mined over LOM to 83% of the current total NI 43-101 compliant resource.
In the longer term, Red Tiger plans to explore further the Sapo Carrizo area about 7km to south-west of the pit.
The area hosts extensive hydrothermally-altered breccia with primary copper-silver mineralization.
COMMENT: The Sapo Carrizo area is considered a prime target for a major porphyry-style copper discovery.
Gold Assets
Red Tiger is focusing on bringing Luz del Cobre to commercial production. Further exploration of its San
Antonio’s gold prospects is currently on hold. The Company has plans for expanding the resources at the Sapuchi
project (see Map 3 on page 13) through drilling on the open extensions of the pit outline. Close to Sapuchi, there
is the Realito Gold Trend with nearby surface gold occurrences that are considered likely to become part of a
larger gold resource. Red Tiger’s total NI 43-101 compliant resource in those targets is 405,000 oz of gold.
COMMENT: Red Tiger plans to bring its gold targets into production in 2014. We consider these plans to be
attainable, as Sapuchi and the Realito Gold Trend are within 1km of the Luz del Cobre crusher location and,
therefore, can use Luz del Cobre’s infrastructure for future production.
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VALUATION
We have valued Red Tiger using a DCF model, and a Peer Comparison using Market Capitalization to Operating
Cash Flow.
1. DCF Valuation Method
Assumptions
For our DCF model, we have used production assumptions described on pages 5-6. While Red Tiger expects that
the cash cost for an open-pit, heap-leach, solvent extraction (SX), electrowinning (EW) operation will be, on
average, $1.30/lb, we are using a higher cash cost assumption of $1.50/lb (straight-line). To date, the Company
has incurred almost $55.7 million in capex on the Luz del Cobre project. We assume contingency capex by 2017
at 10% of the initial cost, or $5.5 million.
We are assuming that Red Tiger will pay back the $3.5 million bridge loan, which it took out in March 2012, in
late 2013. The $30 million Deutsche Bank loan will likely be paid back monthly by May 2016. See Table 4 below
for a summary of the DCF model.
Table 4: NAV Assumptions and Results
Ore mined, million tonnes 3.95
Copper Grade 1%
Copper recovery (out of ore mined) 75%
Payable copper (lbs million) 78.6
Payable copper production (tpd) 2013-2015: 20 tpd, 2016: 14 tpd, 2017: 16 tpd
Life of Mine 2011-2016 mining, 2017 rinsing
Capital Costs ($ million) $55.7 million initial, $5.5 million contingency
LOM Copper Price ($/lb) $3.50
LOM Cash Cost ($/lb) $1.50
Discount Rate 10.0%
Net Present Value, $ million $69.3
Cash, $ million $1.5
NAV, $ million $70.9
No. of Shares 75.3
Value per Share $0.94
Sensitivity Analysis
For the valuation of Red Tiger, we have used a 10% discount rate. We set this rate higher than the more
commonly used 5%-8% for mining operations at the pre-commercial stage to take into account the currently
heightened risks on the stock and commodity markets. At 10%, the NAV, or Intrinsic Value, comes to $0.94 per
share. We believe that, once Red Tiger reaches commercial production, a lesser hurdle rate could be used, which
would raise the Intrinsic Value (see Table 5).
Table 5: DCF Sensitivity to the Discount Rate
Discount Rate NAV, $ NAV/share, $
6% 82.8 1.09
8% 76.8 1.01
10% 70.9 0.94
12% 66.4 0.88
14% 61.8 0.81
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2. Peer Comparison
For peers, we have selected small-cap producing mining companies (copper, gold, silver and base metals)
operating in Mexico. The peer group is trading closely on trailing P/CFPS (Operating Cash Flow Per Share), at an
average of 11.2x (see Table 6).
Table 6: Market Capitalization to OCF Peer Comparison
Company Stock Price Shares O/S (M) Market Cap (M) CFPS P/CFPS
Red Tiger Mining $0.40 75.3 $30.1 $0.22 1.79
SilverCrest Mines $2.77 89.7 $248.6 $0.25 11.3
Scorpio Mining Corporation $1.09 198.0 $215.8 $0.09 12.6
Excellon Resources $0.38 275.2 $103.2 $0.04 10.5
Starcore International Mines $0.40 139.8 $55.2 $0.04 10.5
Peer Average 11.2 Source: Company and eResearch
Red Tiger is currently trading at an 84% discount to the peer average on this multiple based on the Company’s
2013E Operating Cash Flow (including working capital changes) and 12 months’ forward number of shares
(which we estimate at 75.3 million).
COMMENT: We attribute the wide discount to the market’s low awareness and/or cautious approach towards
Red Tiger’s prospects at the present time.
COMMENT: In the table above, the P/CFPS multiple for Red Tiger is based on its forward-looking 2013 Operating Cash Flow estimate, while the multiple for each company in the peer group is based on trailing
reported cash flow. In the future, by the time we apply the peer average multiple to Red Tiger, the Company’s
2013 Operating Cash Flow will be reported. As shown in Table 7 below, using the peer average multiple of 11.2x, the corresponding value for Red Tiger’s shares would be $2.50. In reality, until Red Tiger “proves” itself, by
successfully producing and selling its copper output, by extending its life-of-mine, and by making progress in
realizing on its gold assets, we are unlikely to afford the shares of Red Tiger such a generous multiple.
Table 7: Scenarios for MC/R Ratio
P/CFPS CFPS Potential MC ($M) Shares O/S (M) Price/Share
1.8 $0.22 $30.1 75.3 $0.40
11.2 $0.22 $188.2 75.3 $2.50
15.0 $0.22 $251.8 75.3 $3.34 Source: Company and eResearch
Since there is such a wide divergence between the P/CFPS for Red Tiger and the corresponding average for the
peer group, we currently consider this approach as not applicable for our valuation purposes.
3. Target Price
The $0.94 Intrinsic Value derived by the DCF method implies a 2013E P/CFPS of 4.3x for Red Tiger. A higher
multiple may be attainable when the Company has been in commercial production for a while, likely towards the
end of 2013 or in 2014. We have rounded the Intrinsic Value of $0.94 up to $0.95 as our stated Target Price.
Further possible upside for the stock stems from Red Tiger’s gold assets which we did not take into account in our
valuation. The Company has 405,000 oz of gold in NI 43-101 compliant resources and plans to start producing gold in 2014.
We will include Red Tiger’s gold assets in our valuation once the Company takes practical steps towards the
development and launch of gold production.
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FINANCIAL REVIEW AND OUTLOOK
Revenues and Profits: The production at the Luz del Cobre project, which started in November 2011, has not
yet been recognized as being commercial. This could happen starting in January 2013, provided Red Tiger
achieves production volume of 20 tpd of cathodes for two consecutive months. At the price of $3.50/lb of copper
(our long-term copper price forecast), the Company’s 2013 revenues should exceed $46 million (see the financial
statements on the next page).
Taking into account the cash cost of $1.50/lb of copper and other expenses, which should rise as compared to
2012, the Company should post around $10.5 million in net income in 2013.
Capital Expenditures: We assume that the sustaining capex at the Luz del Cobre project will amount to around
$2 million in 2013. An additional $100,000 could be spent on further exploration of the project to increase the
mineral reserve/resource.
Financing: We assume that, in 2013, Red Tiger will continue to make monthly payments on the $30 million
Deutsche Bank loan and will pay back the $3.5 million bridge loan.
In a September 17, 2012 filing, Red Tiger hopes to raise US$2.5 million through a non-brokered, private
placement. It expects to issue 6.1 million units at C$0.40 per unit. A unit consists of one common share and one
three-year warrant exercisable at C$0.60 per share.
If successful, this financing would raise Red Tiger’s shares outstanding to 75.3 million. We used this number for
our valuation purposes. Given our Target Price for the stock at $0.95 per share, we do not expect that any
options/warrants will be exercised by the end of 2013 (see the options/warrants table below).
Table 8: Warrants and Options
Warrants
Exercise Expiry Potential
Number Price Date Comment Equity
150,000 $1.00 20-Dec-12 Out-of-the-Money $150,000
80,000 $1.00 15-Feb-13 Out-of-the-Money $80,000
170,000 $1.00 18-Mar-13 Out-of-the-Money $170,000
41,242,060 $1.00 15-Jul-13 Out-of-the-Money $41,242,060
9,773,000 $1.00 20-Jul-13 Out-of-the-Money $9,773,000
3,636,362 $0.75 25-May-15 Out-of-the-Money $2,727,272
55,051,422 $54,142,332
Options
Exercise Expiry Potential
Number Price Date Comment Equity
55,000 $1.60 2-Oct-12 Out-of-the-Money $88,000
12,500 $1.80 22-Feb-13 Out-of-the-Money $22,500
30,000 $2.95 17-Jun-13 Out-of-the-Money $88,500
160,000 $1.00 5-Dec-13 Out-of-the-Money $160,000
40,000 $1.00 23-Sep-14 Out-of-the-Money $40,000
365,000 $1.00 18-Aug-16 Out-of-the-Money $365,000
275,000 $1.00 1-Dec-16 Out-of-the-Money $275,000
25,000 $1.00 19-Mar-17 Out-of-the-Money $25,000
962,500 $1,064,000
Current Price: $0.450
Set out on the next page are abridged financial statements of net income/loss; cash flow; and the balance sheet.
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Table 9: Selected Financial Information
(US$) Year End Year End 12 months Year End Year End
Statement of Income (Loss) Dec. 31 2010 Dec. 31 2011 Jun. 30 2012 Dec. 31 2012E Dec. 31 2013E
Revenues - - - - 46,667,451
Cost of sales - - - - (22,758,621)
Exploration, evaluation and project admin. (1,626,816) (222,373) (353,737) (362,580) (181,290)
G&A (243,307) (320,723) (556,630) (570,546) (1,874,922)
Travel, IR and shareholder information (44,618) (51,182) (72,326) (74,134) (76,358)
Luz del Cobre – finance costs (1,119,843) 577,676 - (3,220,896)
Finance costs (125,090) (94,865) (21,201) (21,731) (22,166)
Other (86,696) (358,902) (384,023) (393,624) (590,435)
Depreciation (83,475) (63,540) (93,864) (96,211) (7,828,543)
Stock-based compensation (40,709) (164,258) (207,262) (212,444) (216,692)
Net Income/(Loss)* (3,370,554) (1,275,843) (1,111,367) (1,731,269) 9,897,528
Total Shares Outstanding 12,110,875 65,232,175 69,193,537 75,262,287 75,262,287
Weighted Average Shares Outstanding 11,777,566 34,348,892 51,771,215 68,337,894 75,262,287
Earnings (Loss) Per Share* ($0.29) ($0.04) ($0.02) ($0.03) $0.13
Cash Flow Statement
Net Income (Loss) (3,370,554) (1,275,843) (1,111,367) (1,731,269) 9,897,528
All Non-Cash Items 235,321 (488,416) (65,498) 505,466 7,745,235
Cash Flow from Operations (3,135,233) (1,764,259) (1,176,865) (1,225,803) 17,642,763
Capital Expenditures (Properties) - (11,445,419) (19,433,294) (8,582,895) (2,100,000)
Other Investing Items - (11,818,641) (7,531,678) 6,786,963 3,000,000
Free Cash Flow (3,135,233) (25,028,319) (28,141,837) (3,021,735) 18,542,763
Working Capital Changes 2,286,396 (1,025,892) (1,651,998) (846,719) (859,420)
Cash Flow before Financing (848,837) (26,054,211) (29,793,835) (3,868,454) 17,683,343
Equity Financing 75,405 24,234,369 26,048,937 4,292,233 -
Debt Financing 795,680 3,700,094 5,225,149 (1,926,000) (14,074,000)
Change in Cash 22,248 1,880,252 1,480,251 (1,502,221) 3,609,343
Cash, Beginning of the Period 2,132 24,380 59,308 1,904,632 402,411
Cash, End of the Period 24,380 1,904,632 1,539,559 402,411 4,011,754
Balance Sheet As At: Dec. 31 Dec. 31 Jun. 30 Dec. 31 Dec. 31
2010 2011 2012 2012E 2013E
Cash 24,380 1,904,632 1,539,559 402,411 4,011,754
Other Current Assets 522,835 8,229,651 3,492,882 2,968,950 2,820,502
Mineral Properties 32,869,309 39,308,901 58,056,288 66,516,600 60,788,057
Other Non-Current Assets 2,083,878 5,551,073 2,427,560 2,476,111 2,352,306
Total Assets 35,500,402 54,994,257 65,516,289 72,364,072 69,972,619
Current portion of long-term debt 26,634,055 2,471,913 9,414,795 10,878,104 8,223,644
Other Current Liabilities 13,889,395 5,109,412 11,266,494 14,590,404 13,860,884
Long-Term Debt - 26,432,424 23,238,527 20,695,896 12,450,000
Other Non-Current Liabilities 618,723 23,224,935 4,092,659 4,911,191 3,252,086
Shareholders' Equity (5,641,771) (2,244,427) 17,503,814 22,288,477 32,186,004
Total Liabilities & Equity 35,500,402 54,994,257 65,516,289 73,364,072 69,972,619
Book Value Per Share ($0.48) ($0.07) $0.34 $0.33 $0.43
* Before FV change of derivative liability
Source: Company, eResearch estimates
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SAN ANTONIO PROPERTY
Description
The San Antonio property is located east of the city of Hermosillo, capital of Sonora State, Mexico, within the
Soyopa and San Javier municipalities (see Map 1 on page 3). Hermosillo provides the full range of services and
supplies needed for a mining project. Experienced competent mining professionals are available in Mexico and
general labour can be recruited from the surrounding small towns.
The property comprises 42 mostly-contiguous mining claims totaling 11,240 hectares. Under Mexican law, the
claims may be held for 25 years and can then be renewed for an additional 25 years, as long as the annual taxes
are paid and current.
COMMENT: Red Tiger’s taxes are paid up-to-date, and all holdings are currently in good standing.
The surface rights of the holdings are owned by two co-operatives, San Antonio de la Huerta and San Javier. For
work requiring surface disturbances, a Surface Occupation Lease is required with the co-operatives. San Javier
owns land on the west, and San Antonio controls the land on the east side of the claim block. A Surface
Occupation Lease is in effect with San Antonio on a portion of its land where exploration work has been done and
is planned for the future. Additionally, the Company has a lease, for life-of-mine, with annual payments for the
use of all surface rights required for the Luz del Cobre project (see map below).
Map 2: Luz del Cobre Project Layout
Source: Company
Infrastructure
Road access to the site is by a two-lane highway from Hermosillo, and then by an improved dirt road. The SX-EW
copper plant and camp are located just west of the Yaqui River and 1km south of the village of San Antonio de la
Huerta in gently rolling hills within the river basin. In the main part of the project, the topography rapidly
becomes mountainous. Site elevations range from 150 metres at the camp to over 1,300 metres above sea level on
the high peaks, with the slopes covered with seasonal heavy bush vegetation.
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Picture 2: San Antonio Property Looking West, Yaqui River in Foreground
Source: Company
A 13.2 KV power transmission line crosses the property from the Novillo hydroelectric facility 50 km to the north.
The current line provides power for the camp, office and laboratory facilities. Generators produce the power
needed for the production of copper from Luz del Cobre. The Company constructed and owns the license to a
fully permitted water well (350,000 cubic metres/year) about 800 metres northeast of the camp between the
village and the Yaqui River which provides water to the camp and for the processing plant.
In the area, winters are mild, but summers are very hot with daily temperatures nearly always in excess of 40
degrees Celsius. Heavy thunderstorms occur in the summer, mainly from July into September, and a more
persistent light rain may fall during the winter months.
Geology and Composition
The San Antonio property is located in a cluster of copper, molybdenum and gold occurrences within a 50km-by-
20km zone, part of the northwestern Mexico-Arizona porphyry belt which includes the world-class copper
deposits Cananea and Claridad. Historically, the mineralization at San Antonio has been considered to be
porphyry related, but the characteristics of the district strongly suggest that the mineralization may belong to an
emerging new class of mineral deposits characterized as iron-oxide-copper-gold-(uranium) ("IOCG") systems.
Mineralization on the San Antonio property contains either copper or gold alone, but potential exists for deposits
containing both metals, either in a zoned deposit or by overprinting of separate (but related) mineralizing events.
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Wide-spread copper mineralization occurs in various locations over the entire property (see Map 3, below):
● Blanket-type oxidized, surficial copper mineralization (Luz del Cobre)
● Primary sulphidic copper mineralization in breccias and stockworks (Carrizo)
● Primary sulphidic copper impregnations in volcanics and intrusive dykes
● Stockwork and veinlet-fillings in sediments.
Two primary types of gold deposits have been exploited on a small scale on San Antonio in the past (exclusive of
placer deposits). These are the structurally controlled or vein mineralization, and breccia hosted mineralization.
Often, these two types may blend into one another. The primary focus of exploration, due to the potential for
larger sized deposits, is breccia-hosted mineralization. Additionally, a blanket-type oxidized gold mineralization
has been found on top of a primary gold structure at Sapuchi Ridge.
The various types of copper and gold mineralization and targets appear to be generally aligned along a southwest
to northeast structural trend which is cross-cut by a major southeast to northwest structural pattern.
Map 3: San Antonio Property’s Targets
Source: Company
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SHARE STRUCTURE Shares Issued and Outstanding 69,193,537
Kirkland Intertrade Corp. 33.9% 23,482,673
Faith Union Industries Ltd. 33.3% 23,061,081
Glencore Finance Bermuda Ltd.
3.1%
70.3%
2,150,060
Kirkland Intertrade Corp. is owned by Maxim Finskiy, and Faith Union Industries Ltd. is owned by Sergey
Yanchukov. Messrs. Finskiy and Yanchukov are Directors of the Company (see below).
MANAGEMENT and DIRECTORS Source: Company website at www.redtigermining.com
1. Management
Thomas Utter, President and Chief Executive Officer
Thomas Utter was instrumental in reorganizing Norway-based Zaruma Gold ASA and, in 2000, led the company
to a listing on The Toronto Stock Exchange as Zaruma Resources Inc. He is also President and a Director of Red
Tiger’s 100%-owned Mexican affiliate, Minerales Libertad, S.A. de C.V. Mr. Utter holds a Ph.D. in geochemistry
and an Honorary Professorship at the Technical School in Darmstadt in Germany.
Frank van de Water, Chief Financial Officer
Frank van de Water joined Zaruma Resources Inc. in 2002. He also serves on the Board of Directors of Romios
Gold Resources Inc., Strait Minerals Corporation, Aurcrest Gold Inc., and Razore Rock Resources Inc. He holds a
B.Comm. from Concordia University, and is a member of the Canadian Institute of Chartered Accountants.
James Moore, General Manager, Minerales Libertad, S.A. de C.V.
James Moore is leading the site team and the operations of the Luz del Cobre Project. Mr. Moore has over 35
years' experience in the mining industry, 20 years of which were with Newmont Mining Company with senior
operational positions in managing mining projects in Peru, Bolivia, Indonesia and Uzbekistan.
2. Directors
Maxim Finskiy, President, MMC Intergeo (the mining and exploration arm of the private Russian
conglomerate, Onexim Group);
Sergey Yanchukov, Major shareholder, Mangazeya JSC, a Russian oil and gas producing company;
Sergei Tchetvertnykh, CEO of Bayview Ridge Capital Inc., a Toronto based merchant banking firm;
Francis Scola, Managing Director, LFM Partners;
Keith Hulley, Chairman of the Board, Gabriel Resources Ltd.; and
Thomas Utter, (see bio above).
CORPORATE INFORMATION
Red Tiger Mining Inc.
20 Toronto Street, 12th floor
Toronto, Ontario M5C 2B8
Tel: 416-869-0772
Fax: 416-367-3638
e-mail: [email protected]
Website: www.redtigermining.com
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ANALYST CERTIFICATION
The Research Analysts who were involved in the preparation of this Research Report hereby certify that:
(1) the views and opinions expressed herein accurately reflect the Research Analysts’ personal views concerning
any and all securities and issuers that are either discussed or are the subject matter of this Research Report;
and
(2) The compensation received for the preparation of this report was not related, in any way, to the Research
Analysts’ views and opinions expressed herein.
eResearch Analysts on this Report:
Yuri Belinsky, B.A., M.A: Yuri Belinsky has extensive experience in equity research, with emphasis on mining
and oil & gas companies. He had a successful track record in the capital markets in Ukraine, progressing from an
analyst to the head of research for a team of 12 analysts. He also has experience as a portfolio manager. Mr.
Belinsky has a B.A. in Economics and two MA degrees, in Public Administration and in Social Research and
Evaluation.
Bob Weir, B.Sc., B. Comm., CFA: Bob Weir has 45 years of investment research and analytical experience in
both the equity and fixed-income sectors, and in the commercial real estate industry. He joined eResearch in 2004
and has been its President, CEO, and Director of Research since May 2005. Prior to joining eResearch, Mr. Weir
was at Dominion Bond Rating Service (DBRS), latterly as Executive Vice-President responsible for supervising
the firm’s 34 analysts and conducting the day-to-day management affairs of the company.
Analyst Affirmation: I, Yuri Belinsky, and I, Bob Weir, hereby state that, at the time of issuance of this research
report, I do not own, directly or indirectly, any shares of Red Tiger Mining Inc.
eRESEARCH ANALYST GROUP
Director of Research: Bob Weir, CFA
Financial Services Robin Cornwell
Life Sciences Scott Davidson
Christopher Neuman
Manufacturing and
Industrial Products
Energy Yuri Belinsky
Eugene Bukoveczky
Special Situations
Bill Campbell
Victor Sula
Mining & Metals Yuri Belinsky
Eugene Bukoveczky
Mining Advisors George Cargill
Graham Wilson
Bill Campbell
eResearch Disclaimer: In keeping with the policies of eResearch concerning its strict independence, all of the opinions expressed in this report, including the selection of the 12-month Target Price and the Recommendation
(Buy-Hold-Sell) for the Company’s shares, are strictly those of eResearch, and are free from any influence or
interference from any person or persons at the Company. In the preparation of a research report, it is the policy of eResearch to send a draft copy of the report, without divulging the Target Price or Recommendation or any
reference to either in the text of the report, to the Company and to any third party that paid for the report to be written. Comments from Company management are restricted to correcting factual errors, and ensuring that
there are no misrepresentations or confidential, non-public information contained in the report. eResearch, in its
sole discretion, judges whether to include in its final report any of the suggestions made on its draft report.
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eResearch Recommendation System
Strong Buy: Expected total return within the next 12 months is at least 40%.
Buy: Expected total return within the next 12 months is between 10% and 40%.
Speculative Buy: Expected total return within the next 12 months is substantial, but Risk is High (see below).
Hold: Expected total return within the next 12 months is between 0% and 10%.
Sell: Expected total return within the next 12 months is negative.
eResearch Risk Rating System
A company may have some, but not necessarily all, of the following characteristics of a specific risk rating to qualify for that rating:
High Risk: Financial - Little or no revenue and earnings, limited financial history, weak balance sheet, negative free cash
flows, poor working capital solvency, no dividends.
Operational - Weak competitive market position, early stage of development, unproven operating plan, high cost
structure, industry consolidating, business model/technology unproven or out-of-date.
Medium Risk: Financial - Several years of revenue and positive earnings, balance sheet in line with industry average, positive
free cash flow, adequate working capital solvency, may or may not pay a dividend.
Operational - Competitive market position and cost structure, industry stable, business model/technology is well
established and consistent with current state of industry.
Low Risk: Financial - Strong revenue growth and earnings over several years, stronger than average balance sheet, strong
positive free cash flows, above average working capital solvency, company may pay (and stock may yield)
substantial dividends or company may actively buy back stock.
Operational - Dominant player in its market, below average cost structure, company may be a consolidator,
company may have a leading market/technology position.
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receive little or no research coverage.
Red Tiger Mining Inc. paid eResearch a fee to have it conduct research on the Company on an Annual Continual Basis.
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