initiating report september 27, 2012 red tiger mining inc. · 2012. 9. 28. · eresearch...

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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.

Red Tiger Mining Inc. Initiating Report

eResearch Corporation www.eresearch.ca

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.



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



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.



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.



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.



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



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.



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


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


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.



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



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.



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.



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



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



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.



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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makes all reasonable efforts to provide its publications, via e-mail, simultaneously to all of its Subscribers.

eResearch does not manage money or trade with the general public, provides full disclosure of all fee arrangements, and adheres to

the strict application of its Best Practices Guidelines.

eResearch accepts fees from the companies it researches (the “Covered Companies”), and from financial institutions or other third

parties. The purpose of this policy is to defray the cost of researching small and medium capitalization stocks which otherwise

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.

To ensure complete independence and editorial control over its research, eResearch follows certain business practices and

compliance procedures. For instance, fees from Covered Companies are due and payable prior to the commencement of research.

Management of the Covered Companies are sent copies, in draft form without a Recommendation or a Target Price, of the Initiating

Report and the Update Report prior to publication to ensure our facts are correct, that we have not misrepresented anything, and

have not included any non-public, confidential information. At no time is management entitled to comment on issues of judgment,

including Analyst opinions, viewpoints, or recommendations. All research reports must be approved, prior to publication, by

eResearch’s Director of Research, who is a Chartered Financial Analyst (CFA).

All Analysts are required to sign a contract with eResearch prior to engagement, and agree to adhere at all times to the CFA

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companies they cover for eResearch only under strict, specified conditions, which are no less onerous than the guidelines postulated

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initiating report september 27, 2012 red tiger mining inc. · 2012. 9. 28. · eresearch...

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