Thursday July 14, 2011
S&P/TSX Composite
Dow Jones
S&P 500
NASDAQ
S&P/TSX Venture
Philadelphia SOX
Crude Oil (US$/brrl)
Gas (US$/mmbtu)
Copper (US$/lb)
Gold (US$/oz)
Nickel (US$/lb)
Palladium (US$/oz)
Platinum (US$/oz)
Silver (US$/oz)
Uranium (US$/lb)
Canadian Dollar
30 Year Canada
30 Year U.S.
Volatility Index (VIX)
+90.87
+44.73
+4.08
+15.01
+37.24
-1.09
+0.62
+0.07
+0.01
+23.20
+0.19
+13.50
+26.15
+2.03
+1.00
+0.0077
+0.02
+0.00
+0.080
13324.94
12491.61
1317.72
2796.92
1989.13
393.87
98.05
4.40
4.39
1585.50
10.71
778.75
1756.75
38.13
53.75
1.0422
3.379
4.170
19.95
Bird Is the Word
Canaccord Genuity’s Inaugural
Chicken McNugget Eating
Contest took place yesterday,
pitting archrivals Derek Lovett
and Brady Fletcher.
The rules were simple: eat more nuggets than
the other guy in 20 minutes. Note that while
unbuttoning pants was permitted, “Reversal of
Fortune” was definitely not.
Twenty-five hundred calories, 180 grams of
fat, and three days worth of sodium later,
Vancouver West-native Fletcher took home the
title (and meat sweats), putting back an even
60 nuggets versus Lovett’s valiant effort of 51.
Lovett’s demise may have been due to poor
sauce technique. The pride of Surrey, B.C.,
kept up with Fletcher, going nugget-for-nugget
with the help of hot mustard sauce through 30,
before flavour-fatigue led him to call an illtimed audible: BBQ sauce. A quick move to
sweet and sour proved too little, too late.
A rematch has already been agreed to. Training
camp will begin shortly.
CANADA
The S&P/TSX Composite rallied on Wednesday as strong Chinese growth
data fuelled optimism for the global recovery and sparked a rally by energy
and materials issues.
Frontier Rare Earths (FRO) agreed to form a strategic partnership with
state-run Korea Resources Corp. to develop Frontier’s Zandkopsdrift
project in South Africa. As per the deal, Korea Resources will buy a 20%
stake in the Zandkopsdrift project, as well as up to a 10% stake in Frontier
and the right to purchase up to 40% of production from the project.
Northgate Minerals (NGX) will acquire Primero Mining (P) in a
US$409-million deal that includes the San Dimas mine in Mexico. The
announcement comes with the intention of combining the two companies
into a “new, leading mid-tier gold producer”, which would have a
combined market value of about $1.2 billion. Bear Creek Mining (BCM)
has launched a legal action against the Peruvian government, which
recently cancelled the company’s rights to its mineral concessions. The
company announced Wednesday that it has applied for a constitutional
injunction, known as an ampara, against the Peruvian government.
Research In Motion (RIM) was down after Co-CEO Jim Balsillie told the
company’s annual meeting Tuesday that the BlackBerry maker's
foundation is strong. He highlighted the company’s plan to launch seven
new BlackBerry smartphones running its new operating system in the
coming months. OpenText (OTC) was up after announcing it has acquired
Global 360 Holding, a leading provider of process and case management
solutions, for about $260 million.
UNITED STATES
The S&P 500 snapped a three-day slide on Wednesday, as Federal Reserve
Chairman Ben S. Bernanke said he is prepared to further stimulate the
economy and Chinese growth topped forecasts. Commodity producers and
industrial companies led gains as China’s growth boosted stocks most-tied
to the prospects for the global economy. Clean Energy Fuels (CLNE) got
a lift after Chesapeake Energy (CHK) said it would invest $150 million
over three years to fund the development of liquefied natural-gas truckfuelling stations.
The Canada Pension Plan Investment Board is teaming with a consortium
of other investors to buy Kinetic Concepts (KCI), a producer of wound
care products, for $6.3 billion, including debt. Video game publisher
Electronic Arts (ERTS) announced it is buying PopCap Games in a deal
worth up to $1.3 billion, as it tries to ramp up its social and casual games
portfolio and better compete with Zynga, creator of FarmVille.
Transcept Pharmaceuticals (TSPT) fell sharply after the company said it
failed to win U.S. clearance for the first drug specifically designed to help
people get back to sleep after waking up in the middle of the night.
This publication is a general market commentary and does not constitute a research report. Any reference to a research report
or a recommendation is not intended to represent the whole report and is not itself a research report or recommendation. This
commentary is for informational purposes only and does not contain investment advice. This publication may be wholly or
partially based on industry rumour, gossip and innuendo and as such is not to be relied upon as investment advice.
– Canadian and U.S. Comments for Thursday July 14, 2011
2
ECON 101
CANADIAN Data Today: No scheduled releases.
U.S. Data Today: This morning, the Producer Price Index (Jun) is expected to fall by 0.1%, after gaining 0.2% the previous
month, while PPI Ex-Food & Energy (Jun) should rise by 0.2%, after also gaining 0.2% previously.
Advance Retail Sales (Jun) are expected to come in flat, after losing 0.2% the previous month, while Retail Sales Less Autos
(Jun) should rise by 0.1%, after gaining 0.3% previously.
Initial Jobless Claims (Jul 9) are expected to fall to 410K from 418K the previous week, while Continuing Claims (Jul 2)
should fall to 3,680K from 3,681K before that.
Finally, Business Inventories (May) are expected to rise by 0.8%, after also gaining 0.8% the previous month.
ECON 201
The U.S. Import Price Index (Jun) decreased by 0.5%, while economists had expected it to decline by 0.7%. The Monthly
Budget Statement (Jun) came in at -$43.1 billion while analysts had forecast -$65.0 billion.
China’s GDP (Q2) grew by 9.5% after expanding by 9.7% in Q1. Industrial Output (Jun) increased by 15.1% after rising
13.3% in May.
U.K. Jobless Benefit Claims (Jun) rose by 24,500 to 1.52 million.
MARKET MOVERS
Technical Indicators:
Advancing Issues
Declining Issues
Unchanged Issues
Total Issues
New Highs
New Lows
Up Volume (000s)
Down Volume (000s)
Unchanged Volume (000s)
Total Volume (000s)
TSX
890 (58%)
455 (30%)
180 (12%)
1,525
51
82
284,914
66,394
13,037
3,643,451
TSX VENTURE
650 (47%)
397 (29%)
337 (24%)
1,384
41
145
130,217
51,179
36,105
2,175,012
NYSE
2,761 (68%)
1,198 (29%)
126 (3%)
4,085
234
134
2,667,738
1,255,443
69,553
39,927,339
AMEX
486 (70%)
168 (24%)
39 (6%)
693
19
27
921,610
52,105
10,115
9,838,301
NASDAQ
1,794 (67%)
792 (30%)
93 (3%)
2,679
260
179
1,219,784
600,842
29,268
18,498,944
Source: Yahoo! Finance
Notable 52-Week Highs:
Argonaut Gold
ATS Automation Tooling Systems
Alimentation Couche-Tard
AuRico Gold
Avion Gold
Boyd Group Income Fund
Canaccord Financial
Claymore Gold Bullion ETF
Canoe Strategic Resources I.F.
Calian Technologies
AR
ATA
ATD.B
AUQ
AVR
BYD.UN
CF.PR.A
CGL
CSR.UN
CTY
$ 6.32
$ 8.40
$ 30.25
$ 11.98
$ 2.55
$ 14.24
$ 25.15
$ 14.32
$ 12.11
$ 19.25
DB Gold Double Long
Dollarama Inc.
FT Adv. Short Duration High Y.
Central GoldTrust
HBP COMEX Gold BullionBull+ETF
Horizons COMEX Gold E.T.F.
Intertape Polymer Group
Jovian Capital
lululemon athletica
Lydian International
DGU
DOL
FSD.UN
GTU.UN
HBU
HUG
ITP
JOV
LLL
LYD
$ 49.65
$ 33.34
$ 12.01
$ 58.40
$ 20.95
$ 16.20
$ 2.42
$ 10.50
$ 60.11
$ 2.95
This publication is a general market commentary and does not constitute a research report. Any reference to a research report
or a recommendation is not intended to represent the whole report and is not itself a research report or recommendation. This
commentary is for informational purposes only and does not contain investment advice. This publication may be wholly or
partially based on industry rumour, gossip and innuendo and as such is not to be relied upon as investment advice.
– Canadian and U.S. Comments for Thursday July 14, 2011
Can-Materials Income E.T.F.
Northern Property REIT
Open Text
PowerShares Ultra DLUX ETF
Paladin Labs Inc.
RioCan Real Estate Investment
Royal Gold
Scorpio Mining Corp
MXF
NPR.UN
OTC
PGL
PLB
REI.UN
RGL
SPM
$ 10.33
$ 31.01
$ 66.74
$ 20.26
$ 45.60
$ 26.41
$ 62.25
$ 1.69
Trican Well Service
Trilogy Energy Corp.
George Weston
Westport Innovations
Extorre Gold Mines
iShares DEX Real Return Bond
BMO Real Return Bond Index ETF
TCW
TET
WN.PR.E
WPT
XG
XRB
ZRR
$ 25.90
$ 27.77
$ 22.47
$ 26.84
$ 14.76
$ 23.55
$ 16.78
BWE
CLC
HBD
LIP
PBG
$ 0.20
$ 9.04
$ 4.10
$ 1.25
$ 13.50
PetroBakken Energy
Perpetual Energy
Ratel Group Ltd.
Serabi Mining
Sears Canada
PBN
PMT
RTG
SBI
SCC
$ 12.56
$ 2.83
$ 0.17
$ 0.43
$ 15.20
3
Notable 52-Week Lows:
BioWest Therapeutics
CML HealthCare
HBP COMEX Gold BullionBear+ETF
Lipari Energy, Inc.
Petrobank Energy and Resources
CANADIAN EQUITIES OF INTEREST
Listed Alphabetically by Symbol
China Growth/Copper
Better-than-expected China growth. China's headline GDP growth for Q2/11 was more resilient than expected at 9.5% year
over year (yoy). On a quarter-over-quarter, seasonally-adjusted basis, growth was 2.2%, with the annualized rate at about 9.1%.
For June, industrial production growth rebounded to 15.1% yoy. Credit Suisse Chief Economist for Non-Japan Asia Dong Tao
believes the rebound supported Q2/11 industrial activity, given the softness seen in April and May. Fixed asset investment
growth was 25.6% yoy, weaker than May’s level, while retail sales growth improved to 17.7% yoy in June. In Dong's view, the
resilient Q2/11 GDP growth could have been helped by the contribution from Q2/11 net trade, which rebounded to $46.7 billion
from a $0.7 billion deficit in Q1/11. Moreover, Dong believes the rebound in industrial production in June helped improve the
momentum in the domestic economy as well, though he thinks that could reflect an inventory build-up. Dong says this set of
better-than-expected data does not guarantee continued strong performance in H2/11, but at least it eases the fear of a hard
landing among the decision makers. This should give China more reason to maintain the status quo over monetary and housing
policies for the time being. On monetary policy, Dong believes that China has entered a "broad tightening, but selective easing"
phase. Looking ahead, he believes that interest rates will be more often used as the tool for continued monetary policy
normalization. Freeport McMoran Copper & Gold (FCX), the de facto proxy of Chinese economic health, traded higher
yesterday. Year to date, FCX shares are down roughly 10% but have recently broken above their 50- and 200-day moving
averages and look set to test resistance at the $56.00 level.
Bear Creek Mining* (BCM : TSX-V : $3.91), Net Change: -0.04, % Change: -1.01%, Volume: 750,076
Bring it on! Bear Creek Mining announced it has filed legal action against the Peruvian government, after the company had its
rights to the Santa Ana silver project cancelled. The company has filed an application for a Constitutional injunction in Peru,
known as an Amparo. The company and its legal advisors continue to maintain that it has complied with all legal requirements
and Environmental and Social Impact Assessment procedures, including public consultations which exceeded the requirements
of the law. Further, Bear Creek believes that there was no basis for modifying the Presidential Supreme Decree granted to Bear
Creek in 2007, which granted the company titles to the mineral concessions in full accordance with the law. CEO Andrew
Swarthout noted, "Despite the measures taken recently by the Peruvian government which has forced Bear Creek to take legal
action to defend its rights under the law, the company believes that a political solution is yet possible." Bear Creek shares have
tumbled in recent months amid fears of new mining laws in Peru and the subsequent cancellation of the Santa Ana mining
permit.
B2Gold* (BTO : TSX : $3.36), Net Change: 0.13, % Change: 4.02%, Volume: 3,562,805
Remember Bema Gold? Canaccord Genuity Precious Metals Analyst Steven Butler initiated bullish coverage of B2Gold
yesterday, highlighting that while progress to date has been commendable, the future looks even brighter. B2Gold is targeting
production growth from the Limon and La Libertad mines in Nicaragua and a pipeline of exploration projects in Nicaragua,
This publication is a general market commentary and does not constitute a research report. Any reference to a research report
or a recommendation is not intended to represent the whole report and is not itself a research report or recommendation. This
commentary is for informational purposes only and does not contain investment advice. This publication may be wholly or
partially based on industry rumour, gossip and innuendo and as such is not to be relied upon as investment advice.
– Canadian and U.S. Comments for Thursday July 14, 2011
4
Colombia, Costa Rica and Uruguay. His bullish thesis is based on its: 1) Proven management team: Led by President and CEO
Clive Johnson, B2Gold’s management team has decades of international mining experience, though they are most known for
growing Bema Gold into an intermediate producer before its sale to Kinross Gold (K); 2) Expected growth in reserves and
production at Limon and La Libertad: Butler believes Jabali and other potential higher-grade discoveries should drive nearmedium term production growth at La Libertad. He also sees the potential for high grade discoveries at Limon to enhance
production levels, considering historical mined grades in the largely unexplored district; 3) Exploration and de de-risking upside
at the Gramalote JV: A potentially larger resource and de-risking of the project through a pre-feasibility study could materially
improve Butler’s in-situ valuation over the next 12 months; 4) Attractive pipeline of exploration projects: He sees significant
optionality upside to potentially sizeable discoveries at the Cebollati project (Uruguay) and Trebol/Pavon JV (Nicaragua), where
the limited exploration undertaken to date has returned encouraging results; and 5) Potential for enhanced valuation with rerating potential: Shares currently trade in line with the junior producer average; however, Butler believes a premium multiple to
the group is justified considering management’s proven track record, attractive growth profile and exploration pipeline. He sees
good potential for our valuation to materially increase following reserve/resource growth and project de-risking over the next
several months.
Canaco Resources* (CAN : TSX-V : $3.55), Net Change: 0.27, % Change: 8.23%, Volume: 1,234,140
More Magambazi goodness. Canaco Resources rallied on Wednesday after releasing another set of solid drill results from the
Magambazi zones at its Handeni project in Tanzania. Highlights include hole MGZD203, which intersected 20.3 m grading 6.93
g/t gold, 21.7 m grading 4.7 g/t gold and 14 m grading 4.13 g/t gold. A Bay Street analyst commented that these are strong
exploration results that continue to support the delineation of a high-grade near surface gold resource at the Magambazi zones.
He adds that we should see a lot of drill results over the next four months with a resource estimate announced before the end of
the year. Shares of Canaco have underperformed since early June when news broke that the Government of Tanzania was
considering a Super Profits Tax in the country. The news of the potential Super Profits Tax overshadowed the strong drill results
reported from on June 8. The drill holes from the Magambazi Central were particularly significant (18.2 metres grading 3.24 g/t
gold and 34.2 metres grading 3.71 g/t gold) as they demonstrated continuity of mineralization between the Magambazi South
and Magambazi North zones. It's worth noting that there has been nothing reported since that time that suggests that the
Government is moving forward with a new tax. Further even with the tax, Canaccord Genuity Mining Analyst Nicholas
Campbell remains bullish on this story as drill results demonstrate continuity of mineralization within the Magambazi Central
zone, which connects the Magambazi North and Magambazi South zones.
Frontier Rare Earths* (FRO : TSX : $2.20), Net Change: 0.21, % Change: 10.55%, Volume: 198,015
Let's make a deal. Shares of Frontier Rare Earths jumped after the company announced that it has signed a Strategic Partnership
Agreement with Korea Resources Corporation (KORES). The agreement is designed to accelerate the development of Frontier’s
Zandkopsdrift rare earth project in South Africa. Under the terms of the agreement, which is non-binding, KORES will acquire
up to a 20% interest in the Zandkopsdrift project as well as a 10% equity position in Frontier and the right to purchase up to
40% of Zandkopsdrift rare earth production. The parties expect to sign a binding agreement in Q4/11. "Signing a strategic
partnership agreement with KORES is one of our most important milestones achieved to date and represents a significant thirdparty endorsement of our Zandkopsdrift project," said James Kenny, President and CEO of Frontier Rare Earths. The
company’s principal project is the Zandkopsdrift project, which comprises an area of approximately 60,000 hectares in the
Namaqualand region in the Republic of South Africa and includes the Zandkopsdrift rare earth deposit. Zandkopsdrift area is
well situated approximately 450 km north of Cape Town and 230 km north of the deep water port of Saldanha Bay.
Fortune Minerals* (FT : TSX : $1.60), Net Change: 0.14, % Change: 9.59%, Volume: 2,043,873
Bring on the kimchi. Fortune Minerals has announced that they have entered into an agreement with POSCO Canada
(POSCAN), whose parent company is Korean steel making giant POSCO, to develop the Mount Klappan anthracite
metallurgical coal project in northwest B.C. Under the terms of the agreement, POSCAN will acquire a 20% interest in Mount
Klappan and based on current capital cost estimates, is anticipated to make total payments and cash contributions of $181
million, including $30 million in upfront funding. POSCAN will fund 20% of the operating costs and receive 20% of the
product produced from the project. Mount Klappan in one of the world's largest undeveloped met coal deposits with a Measured
and Indicated resource of 230.9 million tonnes and an Inferred resource of 359.6 million tonnes. As part of a Definitive
Resource Study, initial production at the project will be 3 million tonnes per year, with expansion potential from three adjacent
deposits. Transportation will be provided by CN Rail (CNR), who can extend railway infrastructure to the mine site and ship
the coal directly to the Ridley Terminal in Prince Rupert. Robin Goad, President and CEO of Fortune, commented, "We are
This publication is a general market commentary and does not constitute a research report. Any reference to a research report
or a recommendation is not intended to represent the whole report and is not itself a research report or recommendation. This
commentary is for informational purposes only and does not contain investment advice. This publication may be wholly or
partially based on industry rumour, gossip and innuendo and as such is not to be relied upon as investment advice.
– Canadian and U.S. Comments for Thursday July 14, 2011
5
extremely proud that Mount Klappan has attracted a world-class organization like POSCO as a major investor and strategic
partner." The funding required to construct the Lost Fox Mine and railway infrastructure is estimated at $768 million, which
would result in POSCAN's total contribution to the JV being $154 million, or 20%, and Fortune's contribution being $614
million, or 80%. Based on a financing scenario of 70% debt and 30% equity, Fortune's equity requirement is anticipated to be
$184 million over the life of the construction phase, of which $80 million is to be arranged by December 31, 2015.
Neo Material Technologies* (NEM : TSX : $8.95), Net Change: 0.25, % Change: 2.87%, Volume: 406,909
Watch out! Over the next week or so, watch for updates from two key users of neo powders, Seagate Technology (STX) and
Nidec (NJ). Both companies will be reporting quarterly results, STX will report on Q4F11 and year-end 2011 results on July 20
and NJ will report Q1F11 results on July 22. Another wildcard may be the Chinese setting their rare earth export quotas for
H2/11. Chinese officials have not released on the date the quotas will be announced. Last week, the World Trade Organization
ruled against China on its curbs of raw materials (rare earths) exports. China is widely expected to appeal the ruling. Neo is
perhaps the best-positioned company in the rare earth space as it can access the robust export market from its ultra low-cost
Chinese manufacturing base. While Neo is still in the process of trying to quantify the overall affects of the Japan tsunami, the
company has made the point that none of its customers were directly affected by the disaster. The company did acknowledge
that its business will be temporarily affected while supply chains are rebuilt, but it believes that any sort of slowdown would not
be permanent. Neo gave guidance that the Magnequench division will have volume shifts from the second quarter to the third
quarter or fourth quarter. Canaccord Genuity Sustainability Analyst Yuri Lynk believes Neo's Q2, despite being sequentially
weak volume-wise due to Japanese related supply chain issues, will be yet another record quarter.
Rainy River Resources* (RR : TSX-V : $11.21), Net Change: 0.07, % Change: 0.63%, Volume: 115,967
When it rains, it pours. Rainy River Resources announced further results from expansion drilling at the Rainy River project in
western Ontario. The recent results indicate continuity in the Western area with hole NR11750 intersecting 7.6 g/t gold and 26.5
g/t silver over 16.5 metres, including 15.9 g/t gold and 41.1 g/t silver over 4.5 metres. Rainy River also continues to return
decent deep intercepts on 17 East, which demonstrates improved continuity with hole NR11735 intersecting 31.5 metres grading
2.7 g/t gold and 31.1 g/t silver and expansion to the west with holes NR11705 returning 3.7 g/t Au and 7.9 g/t silver over 6.0
metres at a vertical depth of 595 metres. Continued drilling is expected to upgrade Inferred resources into the Measured and
Indicated categories and support a preliminary economic assessment in Q4/11. The company owns 100% of the advanced
exploration stage Rainy River gold project. Currently, the asset has a NI 43-101 compliant resource of 3.42 million ounces gold
in the Measured and Indicated category and 3.17 million ounces gold in the Inferred category.
Rockhaven Resources (RK : TSX-V : $1.50), Net Change: 0.20, % Change: 15.38%, Volume: 498,365
Jeter is not the only one getting some love from New York. It was announced Wednesday that New York-based private asset
management firm, Tocqueville Asset Management, acquired an aggregate of 5,000,000 common shares of Yukon-focused
Rockhaven Resources in a private placement, dated May 12, 2011, at a price of $1.20 per common share. Tocqueville, on behalf
of one or more accounts, now has authority to exercise control or direction over an aggregate of 5,000,000 common shares,
representing 10.82% of Rockhaven's outstanding shares. Earlier this week, Rockhaven announced that three drills and a large
excavator are currently working at its wholly-owned, road accessible Klaza bulk-tonnage gold-silver discovery in the Dawson
Gold Belt, Yukon. Presently, two drills are concentrating on definition drilling the discovery along a confirmed 500-m strike
length of the Klaza zone. A third drill and excavator are testing new targets along strike of the Klaza zone and the three other
parallel zones (BRX, HERC and BYG). Rockhaven said 20 drill holes (4,000 m) have been completed on the Klaza property to
date, with assays pending.
Scorpio Mining* (SPM : TSX : $1.63), Net Change: 0.17, % Change: 11.64%, Volume: 3,201,806
Your Horoscope: The stars are aligned, your wealth will improve. Scorpio Mining rallied as the company announced that Q2
silver production nearly doubled alongside rocketing silver prices. Better yet, this was the second strong quarter in 2011 as the
company was able to maintain production levels attained in Q1 on higher production from its flagship Nuestra Senora mine in
Mexico. In the Q2, mill throughput rose 86% to 128,674 tonnes from the year-ago quarter. While recovered silver was up 95%
at 365,692 ounces, while recovered copper rose 17% to 438,529 pounds. However the company acknowledges that while
comparisons to the second quarter of 2010 show large production increases, it should be noted that Q2 2010 suffered from a
significant throughput reduction due to a ball mill failure. Scorpio said copper production at the end of this quarter lagged
forecasts by 25% due to the lower grade of the copper ore. Parviz Farsangi, President and CEO, commented, "We set a record
for tonnes processed and lead produced, while silver and zinc approximated last quarter's record production. During the quarter
This publication is a general market commentary and does not constitute a research report. Any reference to a research report
or a recommendation is not intended to represent the whole report and is not itself a research report or recommendation. This
commentary is for informational purposes only and does not contain investment advice. This publication may be wholly or
partially based on industry rumour, gossip and innuendo and as such is not to be relied upon as investment advice.
– Canadian and U.S. Comments for Thursday July 14, 2011
6
we eliminated our debt using operating cash flows and are now ideally positioned to advance the growth initiatives announced
in our June 27, 2011 news release, which include increased processing capacity, optimization of existing resource base and
aggressive exploration of our extensive land holdings in Mexico."
Yellowhead Mining* (YMI : TSX-V : $1.12), Net Change: 0.09, % Change: 8.74%, Volume: 186,000
Bulls: 4, Bears: 0. A fourth Bay Street brokerage has initiated (favourable) coverage of copper company Yellowhead Mining.
Yellowhead has a 100%-interest in the Harper Creek copper project in south-central B.C., approximately 150 km by highway
northeast of Kamloops, B.C. In late May, Yellowhead released drill results from Harper Creek. Hole HC11-87 returned 242.52
m of 0.39% Cu, 1.6 g/t Ag, and 0.037 g/t Au from 220 m depth below the current planned open pit at the project. This is
considered one of the best overall drill intercepts on the project to date. Step-out Holes 85 (north step-out) and 86 (east step-out)
returned narrower intercepts of 65.8 m at 0.34% Cu and 46.4 m at 0.28% Cu, respectively. Step-out drilling has confirmed
mineralization 200 m to the north of the Harper Creek deposit. Canaccord Genuity Senior Mining Analyst Wendell Zerb stated
that recent exploration results are considered positive in that mineralization extends north of the current pit, but based on depth
and grade of the recent intercepts, it is uncertain at this point if this mineralization will fall into the upcoming mine plan. Zerb
also noted that the deposit is still open to the south, at depth, and to the east. Yellowhead has begun work on the Harper Creek
feasibility study, expected to be completed by the end of November 2011. The study is expected to incorporate the operating
parameters set out in the PEA published on April 5, 2011. Zerb continues to view Yellowhead’s 100%-owned Harper Creek
copper project as an excellent leveraged copper play based on its favourable infrastructure and overall mining logistics driving
solid project economics at elevated copper prices.
U.S. EQUITIES OF INTEREST
Listed Alphabetically by Symbol
Clean Energy Fuels (CLNE : NASDAQ : US$17.01), Net Change: 1.93, % Change: 12.80%, Volume: 9,019,805
Chesapeake Energy (CHK : NYSE : US$29.94), Net Change: 0.17, % Change: 0.57%, Volume: 6,663,099
Nice piece of pie. Chesapeake Energy announced earlier this week that it is going to invest $1 billion in developing technology
and infrastructure needed for the widespread adoption of natural gas powered vehicles. Clean Energy Fuels is going to get a
$150-million slice of that pie. The investment will fund 150 new natural gas fuelling stations along interstate highway corridors
for fleet trucks to convert their rigs to run on natural gas. Clean Energy's President and CEO, Andrew Littlefair, stated, "It's
probably the biggest investment in natural gas vehicle infrastructure ever and so for the very first time, we can see a way to
build the infrastructure across the country." CNBC's Mad Money host Jim Cramer called the investment a game-changer, and
Littlefair agreed. Clean Energy's stock continued its rally Wednesday after Bank of America Merrill Lynch raised its rating and
increased its price target, stating that savings of up to $2 a gallon on fuel costs for natural gas-powered trucks could be enough
of an incentive for truck owners to make the switch, even if a proposed tax break supporting conversion costs for trucks fails to
pass in Congress. Well-known energy tycoon T. Boone Pickens serves on the board of directors of Clean Energy Fuels and
along with Clean Energy CEO Andrew Littlefair has been among the most prominent backers of the NatGas Act in Washington.
Capital One Financial (COF : NYSE : US$50.87), Net Change: -1.37, % Change: -2.62%, Volume: 10,079,976
Capital, I say! Capital One’s Q2 profit increased by 50%, handily beating Wall Street’s expectations, helped by lower loan loss
provisions and a decline in net charge-offs. Earnings came in at $1.97 per share, up from $1.33 in the same period last year, and
ahead of the average analyst estimate of $1.71. Revenue increased 2.3% to $3.99 billion, but bottom-line growth was driven by
decreased loan loss provisions, which fell to $343 million from $723 million and a lower net charge-off rate, which fell to
2.91% from 5.35%. Included with the Q2 results was the announcement that Capital One will sell $2 billion of common stock to
fund a portion of its recent purchase of ING Direct USA. Last month, the company announced it would be acquiring the U.S.
online banking operations of ING (ING) for around $9 billion in cash and stock, as ING was required by European regulators to
unload portions of its business in relation to financial help received in 2008. Once the deal is complete, Capital One will become
the seventh-largest bank in the U.S. by assets. ING will have a 9.9% stake in Capital One and have the right to appoint a board
member.
Campbell Soup (CPB : NYSE : US$34.25), Net Change: -0.34, % Change: -0.98%, Volume: 4,502,647
No more noodling-around. CEO Denise Morrison on Tuesday laid out the basic building blocks for Campbell’s new business
This publication is a general market commentary and does not constitute a research report. Any reference to a research report
or a recommendation is not intended to represent the whole report and is not itself a research report or recommendation. This
commentary is for informational purposes only and does not contain investment advice. This publication may be wholly or
partially based on industry rumour, gossip and innuendo and as such is not to be relied upon as investment advice.
– Canadian and U.S. Comments for Thursday July 14, 2011
7
strategy. While the day lacked the specifics that investors were hungry for, according to Credit Suisse, Morrison was successful
on many important counts in that she: a) took responsibility for past mistakes; b) provided some rational explanations for what
caused them; c) reiterated the big areas for investment; and d) highlighted Campbell’s core competency in shelf-stable,
vegetable-based processed foods. Strategy is the art of making hard choices, notes Credit Suisse, and Campbell has done that by
exiting Russia and closing their Marshall, Michigan plant. Still, Campbell's soup business has not kept up with evolving
consumer tastes. Per capita consumption of soup is actually rising. Take a visit to Whole Foods (WFMI) grocery stores and
you will find gourmet soups in steaming hot kettles for immediate consumption and in the refrigerated sections all around the
store. Consumers have shifted to fresher, higher quality, and more exotic experiences that Campbell can't provide when
confined to the steel can in the middle of the store. Management recognizes that they need to introduce more "cutting edge"
packaging presentations and varieties. But at the end of the day, shelf stable products only emulate the experience of freshly
prepared food; they can't match it. Credit Suisse hopes to be proved wrong here. All things considered, the firm has raised its
F11 EPS estimate by $0.04 to $2.49, but lowered its F12 and F13 estimates by $0.08 and $0.14 to $2.37 and $2.65, respectively,
which is the middle of management’s guidance. The firm believes it is too soon to make a call as to whether Campbell will
succeed with its new strategy. Campbell doesn’t yet have a robust pipeline of breakthrough simple meals ideas, or a plan for
targeting Hispanics and Millennials. The company has only brought one outsider into the organization to provide perspective,
and it is not yet clear whether he will deliver. In addition, the company is basically starting all over again in emerging markets at
a time when some of their most historically provincial U.S. peers already have legitimate platforms in China with credible
growth objectives. For these reasons, Credit Suisse remains neutral on the company.
Electronic Arts (ERTS : NASDAQ : US$23.91), Net Change: -0.26, % Change: -1.08%, Volume: 13,961,804
Popping a cap in its shares…Electronic Arts announced a deal to buy PopCap Games, the maker of Bejeweled, Plants Vs.
Zombies, Bookworm and Peggle, for $650 million in cash, $100 million in stock and a performance-based earn-out that could
bring the total value of the deal to as much as $1.3 billion. EA said the deal should be neutral to F12 results, but accretive to
EPS in F13 by at least ten cents. The earn-out provision will be based on PopCap’s cumulative earnings before interest and
taxes over a two-year period. The deal is expected to close in August. “Bringing PopCap to the EA family represents a leap
forward in our digital transformation,” said EA CEO John Riccitiello. “It adds to our momentum on the mobile and social
platforms and accelerates us toward our goal of achieving $1 billion in digital business in F12.” Eric Brown, chief financial
officer of Electronic Arts, noted the deal would help the company better compete with Zynga, another big player in the social
gaming space. Just a few weeks ago, Zynga filed for an IPO that is expected to bring the company more than $1 billion,
evidence of the growth potential in the sector. “We’re not going to knock down Zynga tomorrow — they’ve got a great business
— but we’ve got an opportunity to close that gap,” said Brown. Talk like that may make Zynga attractive to EA’s long-time
rival Activision (ATVI), thinks the Wall Street Journal, which noted Activision is the only video game publisher that poses a
serious threat to EA’s quest for market domination. The two companies have swapped the top spot in the video game business a
few times over the years, on the strength of valuable franchises such as Call of Duty (Activison) and Madden NFL (EA).
Kinetic Concepts (KCI : NYSE : US$68.23), Net Change: 3.74, % Change: 5.80%, Volume: 36,398,678
Going private. Kinetic Concepts has agreed to be acquired by a group of investors led by private-equity fund Apax Partners in a
deal valued at about $4.98 billion, confirming recent speculation that the wound-care and hospital bed provider would be taken
private. The consortium is led by Apax Partners and includes the Canada Pension Plan Investment Board and the Public Sector
Pension Investment Board. At $68.50 a share, the offer price represents a 6.2% premium to Kinetic's close on Tuesday. The
total value of the deal, including debt assumption, is estimated at $6.3 billion. The deal, expected to close by the end of the year,
follows word last week that a number of private equity firms, including Blackstone Group L.P., were evaluating the company
for a potential purchase. According to terms of the Apax consortium deal, Kinetic has a 40-day 'go-shop' period, during which it
can encourage and solicit alternative proposals from third parties. Kinetic, which makes devices and products for wound care
and tissue regeneration, had 72.68 million shares outstanding as of April 29 and reported a jump in first-quarter earnings thanks
to strength in one of its core franchises.
Netflix (NFLX : NASDAQ : US$298.73), Net Change: 7.46, % Change: 2.56%, Volume: 6,993,400
DVDs? That’s old-school. Shares of Netflix were up after the online and mail-order movie rental company disclosed plans to
separate its streaming and mail-order DVD subscription plans in the U.S., hiking the cost for subscribers who want both services
by 60%. The company said it would now charge $7.99 for unlimited streaming, as well as $7.99 to receive one DVD at a time,
or $15.98 for both. Previously, subscribers paid $9.99 under a single plan for the both services. The new pricing will take effect
on or after September 1 for existing members and immediately for new subscribers. The company said the change was made to
This publication is a general market commentary and does not constitute a research report. Any reference to a research report
or a recommendation is not intended to represent the whole report and is not itself a research report or recommendation. This
commentary is for informational purposes only and does not contain investment advice. This publication may be wholly or
partially based on industry rumour, gossip and innuendo and as such is not to be relied upon as investment advice.
– Canadian and U.S. Comments for Thursday July 14, 2011
8
"better reflect the costs of each and to give members a choice." But the price hike also comes amid growing costs for mail
shipping and higher right fees for the content it streams. Netflix, the top movie rental service with 23 million subscribers,
recently focused on its streaming service for televisions and mobile devices while downplayed its business of mailing DVDs in
red envelopes as its members are watching more content streamed over the Internet than on discs delivered by mail. Online
streaming through Netflix--and other providers like Hulu LLC and Google (GOOG) YouTube--has seen a spike in interest as of
late. Some analysts suggest the company’s move was to steer people away from DVDs by raising the cost for the combined
service and the hike could lead some customers to downsize to a streaming-only plan and perhaps visit a Coinstar (CSTR)
Redbox kiosk for an occasional DVD. Netflix is expected to report second-quarter earnings on July 25.
News Corp. (NWSA : NASDAQ : US$15.93), Net Change: 0.58, % Change: 3.78%, Volume: 147,230,027
In News Corp. news…Rupert Murdoch’s beleaguered News Corp. has dropped its bid to buy the part of British Sky
Broadcasting (BSkyB) it doesn’t already own, after U.K. lawmakers demanded the offer be scrapped because of a phone
hacking scandal at its newspapers. “It has become clear that it is too difficult to progress in this climate,” said News Corp.’s
Chief Operating Officer in an email Wednesday. He said News Corp. remains a committed long-term shareholder in BSkyB.
The withdrawal of the $12.5-billion bid for the 61% of Britain’s largest pay-TV broadcaster is a blow to News Corp.’s strategy
to bolster digital operations and benefit from BSkyB’s rising cash flow. News Corp., the owner of the Wall Street Journal and
the Fox TV networks and film studios, will now turn its efforts to worsening allegations that journalists at the News of the
World Sunday newspaper hacked into the phones of murdered schoolgirl Milly Dowler and terror victims and paid police for
stories. Before sidelining the BSkyB deal, the allegations prompted Murdoch to close the 168-year-old tabloid on which his
media operations in the U.K. were founded.
Pandora Media (P : NYSE : US$17.93), Net Change: -0.12, % Change: -0.66%, Volume: 777,043
Opening Pandora’s Box. Canaccord Genuity Technology Analyst Heath Terry recently attended Pandora’s first Financial
Analyst Day, where the recently-listed company provided a deeper view of its longer-term financial model, the product roadmap
and the industry. A few key takeaways for Terry: 1) Radio audience represents 93% of the U.S. population, or over 234 million
Americans (Pandora currently has 36 million users). Within music listening, 80% is spent on the radio, with the rest on ondemand options (e.g. iTunes, Rhapsody, Spotify), which Pandora views as complementary; 2) As of June 2011, Pandora had
3.6% share of radio listening hours, up from 2.2% at the end of 2010 and 1.1% at the end of 2009; terrestrial radio occupies
94.4% and other Internet radio, 2%. Pandora represents 60% of Internet radio listening. The service finished the fiscal year with
3.8 billion listener hours, up 111% from F10; 3) According to Nielsen's January 2011 data, Pandora is a top-five mobile app
across Apple’s (AAPL) iPad/iPhone, Google’s (GOOG) Android and Research In Motion’s (RIMM) BlackBerry OS's; the
app is downloaded on one out of every two smartphones sold (50 million smartphones are sold per quarter in the U.S.). There's
been a shift from non-mobile to mobile listening with 40%/60% share in Q1/12 vs. 60%/40% in Q1/11; and 4) 87% of Pandora's
F11 revenue stemmed from advertising (grew 138% year-over-year), and 13% (12-14% historically) came from subscription
(grew 266% year-over-year). Advertising is considered a fundamental part of the product, with which Pandora addresses three
major U.S. ad markets: online media advertising, mobile advertising and radio advertising for a composite $37 billion market by
2014. According to the company, Pandora has penetrated every major category of advertisers, including auto, food & beverage,
media/telecom, consumer/retail, tech, travel/hospitality, and local advertising.
Validus Holdings (VR : NYSE : US$28.02), Net Change: -2.79, % Change: -9.06%, Volume: 9,022,554
Transatlantic Holdings (TRH : NYSE : US$51.54), Net Change: 2.52, % Change: 5.14%, Volume: 5,530,594
Beat this: Insurance and reinsurance company Validus has proposed merging with reinsurer Transatlantic Holdings in a deal
worth $3.5 billion in cash and stock, trumping an all-stock bid by Allied World (AWH). Last month, Transatlantic Holdings
and Allied World agreed to a merger in a $3.2 billion stock-for-stock deal that would offer Transatlantic new primary insurance
operations and bigger capital base outside the U.S. On Tuesday, Validus countered Allied World’s bid and proposed paying
1.5564 of its voting common shares and $8 in cash for every share of Transatlantic, which based on Tuesday's closing prices,
puts the total consideration value at $55.95 a share, a 14% premium to Transatlantic's last closing price and 12% premium to the
Allied World deal. Validus also said that its proposed transaction is structured to be tax-free to Transatlantic stockholders for the
Validus voting common shares they would receive and the merger will increase the geographical footprint of Transatlantic.
Yesterday, Transatlantic Holdings said its board will carefully consider and evaluate the Validus proposal in due course and will
inform Transatlantic stockholders of its position.
This publication is a general market commentary and does not constitute a research report. Any reference to a research report
or a recommendation is not intended to represent the whole report and is not itself a research report or recommendation. This
commentary is for informational purposes only and does not contain investment advice. This publication may be wholly or
partially based on industry rumour, gossip and innuendo and as such is not to be relied upon as investment advice.
– Canadian and U.S. Comments for Thursday July 14, 2011
9
Yum! Brands (YUM : NYSE : US$55.58), Net Change: 0.35, % Change: 0.63%, Volume: 6,284,709
“Chickity China, the Chinese chicken.” – Barenaked Ladies. The owner of the Pizza Hut, Taco Bell and KFC chains said its
second-quarter net income rose 10%, as growth overseas offset declines in the U.S. business. Yum Brands on Wednesday
reported it earned $316 million, or $0.65 per share, in the latest quarter, as sales also grew 10% to hit $2.8 billion. Analysts had
expected the company to report earnings of just $0.61 per share on revenue of $2.7 billion. Profit was helped by “strong
performance in China and other emerging markets”, said Chief Executive Officer David Novak, with sales in China growing
more than 18%. Yum, with more than 4,000 KFC and Pizza Hut stores in China, added 99 new restaurants to the nation during
the quarter. But while sales surged out east, the opposite was true at home. Profits slumped 28% in the U.S., due to a decrease in
store traffic and to higher commodity costs. The company said it is in the process of reducing its ownership of U.S. franchises
Pizza Hut and KFC to 5%. It also said it wants to sell two brands, A&W and Long John Silver’s, to focus more on international
development.
COFFEE BEANS
– Karen Stewart, CEO and founder of Fairway Divorce Solutions headquartered in Calgary, said in the weeks following the
Stampede each year, she sees a 30-40% increase in clients looking to split with their spouses. (Sun Media)
– Qantas Airways engineers plan a one-minute work stoppage this week at Australia’s biggest airline to maintain their legal
right to strike. Workers will put down their tools at 10 a.m. on July 15 and forfeit one minute’s pay to comply with conditions
governing legally protected industrial action. (The Australian Licenced Aircraft Engineers Association)
– The average Canadian is better off than they were a generation ago, but the gap between the rich and the poor continues to
widen, according to the Conference Board of Canada. Since 1993, the richest group of Canadians increased their share of total
national income while poor and middle-income people lost ground, the Conference Board said in a report released Wednesday.
The average income of the poorest group in Canada did increase marginally between 1976 and 2009 (to $14,500 from $12,400,
after taxes and transfers and adjusting for inflation). But the gap between the average income of the poorest group and that of
the richest group of Canadians grew to $117,500 in 2009, up almost $30,000 from 1976, when the gap was $92,300. (CBC)
– “Blame summer” seems to be the gist of a Canadian bank’s Summer Spending Survey, which finds 37% of Canadians have
let their saving programs slip, 38% have slacked off on budgeting and 50% on bill payments. A bank VP quips that relaxing
over the summer “doesn’t mean you should take a vacation from your financial responsibilities.” (Financial Post)
– Prosecutors will go ahead with lesser summary charges instead of a more serious indictable charge against a Toronto man
accused of attacking a baby raccoon with a garden spade, court heard Wednesday. Nguyen Dong, 53, was represented by his
lawyer at the hearing and did not appear in court himself. His case was adjourned until August 18. (Globe and Mail)
– A semi-trailer truck tipped over along a highway in Idaho, spilling more than 14 million bees. The Fremont County Sheriff’s
office received many 911 calls alerting it to the accident, saying everyone at the scene was stung more than once. (Reuters)
THE LAST DROP: Drink Triple, See Double, Think Single. – The Unofficial Mantra of the Calgary Stampede
* Canaccord Genuity and its affiliated companies may have a Corporate Finance or other relationship with the company and
may trade in any of the Designated Investments mentioned herein either for their own account or the accounts of their
customers, in good faith and in the normal course of market making. The authors have not received, and will not receive,
compensation that is directly based upon or linked to one or more specific Corporate Finance activities, or to coverage
contained in the Morning Coffee.
This publication is a general market commentary and does not constitute a research report. Any reference to a research report
or a recommendation is not intended to represent the whole report and is not itself a research report or recommendation. This
commentary is for informational purposes only and does not contain investment advice. This publication may be wholly or
partially based on industry rumour, gossip and innuendo and as such is not to be relied upon as investment advice.