The Octagon A.M. 1 June 8, 2010
The Octagon A.M.
June 8, 2010
SC, BAJ, MAW
HOLD: Shoppers Drug Mart Corp.4 Ontario’s Heath Minister Unveils New Regulations
SC-TSX: $35.50 • Health and Long‐Term Care Minister Deb Matthews announced the final
Target: $33.00 version of Ontario’s Drug System Reform.
• Little was changed from earlier versions. Generic drug prices will be lowered
Robert Gibson, CFA to 25% of branded from 50% and “professional allowance” will be eliminated.
(416) 306-2544· email@example.com Volume discounts will be capped at 10%. These changes will come into effect
July 1, 2010. Shoppers’ quarter‐end is June 19.
• The government will create a transition fund, worth $100 million in 2010/2011.
While new professional services are being introduced, pharmacies will be paid
a transition fee for every prescription dispensed under Ontario’s drug
programs. Pharmacists will get $1.00 per claim until March 2011, $0.65 per
claim until March 2012 and $0.35 per claim until March 2013.
• This legislation will not affect Shoppers second quarter and we expect
management will address the issue during its quarterly conference call
scheduled for July 22.
• Until the other provinces enact their legislation, we will maintain our 2010 EPS
estimate of $2.42, our target price of $33.00 and HOLD recommendation.
Letter of Intent Signed
Baja Mining Corp.
• Baja Mining Corp. has entered into a binding Letter of Intent with Louis
Dreyfus Commodities Metals Suisse SA, setting out three transactions
which, when completed, are expected to satisfy important parts of the
financing package for the Boleo Project. The three transactions that are the
subject of the Letter of Intent are as follows:
Hendrik M. Visagie
(416) 306-2519· firstname.lastname@example.org o Louis Dreyfus will subscribe under a subscription agreement for
common shares of Baja, as a ʺLead Orderʺ in a proposed future
financing to be undertaken by Baja.
o Louis Dreyfus will provide a US$35 million Letter of Credit for the
benefit of Baja (the Equity Cost Overrun Agreement) to satisfy Bajaʹs
equity cost overrun requirement for the Project Finance Package.
o Baja and Louis Dreyfus will enter into offtake agreements under which
Louis Dreyfus is committed to purchase, on commercial terms, 70% of
the annual copper and cobalt production from the Boleo Project for a
term of 10 years from first production of each such metal.
• The Proposed Transactions are subject to completion of formal
documentation, execution of documentation in regard to the Boleo Project
financing and completion of due diligence.
• The Equity Cost Overrun Agreement will comprise a bank letter of credit
which, if drawn, will be converted into common shares of Baja at the Equity
Issue Price. Baja has the right to replace all or any portion of the Equity Cost
Overrun by raising equity or alternative financing at any time.
• Baja reports that the Project Sponsors (Baja 70% and the Korean Consortium
30%) continue to make steady progress toward finalizing the Project Finance
Package for the Boleo Project. The Package is expected to consist of: 1) a
senior project debt financing of US$740 million, including a cost overrun
The Octagon A.M. 2 June 8, 2010
facility of US$50 million; 2) subordinated debt of US$50 million to be
provided to the project by the Korean Development Bank; 3) subordinated
debt of US$50 million which will be provided to the Project by the Korean
Consortium on behalf of Baja; 4) US$50 million of cost overrun funding to be
provided by the Project Sponsors. Bajaʹs share (US$35 million) will be
satisfied by the Louis Dreyfus Equity Cost Overrun Agreement;. and 5)
balance of required equity contributions from each of the Project sponsors.
• The Boleo copper‐cobalt‐zinc‐manganese project located near Santa Rosalia,
Baja California Sur, Mexico, is targeted for copper commissioning in 2012.
• We expect that it will be challenging to get the project into production by the
end of 2012, so we do not expect much until 2013.
Spectacular Gold and Uranium Results at Rompas Project
Mawson Resources Ltd.
• Mawson reported spectacular surface sampling results at its 100%‐owned
Rompas project in Finland.
• Forty‐one selective outcrop grab samples (20 by Areva and 21 by Mawson)
from Rompas were assayed with the results summarized in the table below.
Rob Chang It should be highlighted that the samples were selective in nature and are
(416) 306-2558· email@example.com
not likely indicative of the average grade for the deposit.
Summary of Areva and Mawson Surface Grab Sampling at Rompas
Areva Mawson Areva Mawson
Gold (g/t) Gold (g/t) Uranium (ppm) Uranium (ppm)
Average 1,146 224 27,292 36,088
33.4 oz/ton 6.5 oz/ton 2.7% 3.6%
Maximum 12,800 1,830 24,900 435,500
373.3 oz/ton 53.4 oz/ton 24.9% 43.6%
Minimum 0.1 0.01 13 2
# of Samples 20 21 20 21
* oz/ton = troy ounce per short ton
Source: Company Reports
• The Company noted that the mineralization appeared to be hydrothermal in
nature and fracture‐controlled, hosted mainly by metavolcanics which may
in part be skarnified and/or hornfelsed. Uranium was found in the form of
• Discovered by AREVA in 2008 and recently acquired by Mawson, Rompas is
secured by 11,870 hectares of claim applications. The mineralized zone
appears to be in an area exceeding 6 km in strike and 200 m in width.
• Mawson is planning an active 2010 summer field season at Rompas,
including geological mapping, geochemical sampling and airborne
• Our EV/LB RVM model indicates a peer‐mean reverting valuation of $5.24
per share for Mawson.
The Octagon A.M. 3 June 8, 2010
Upcoming Economic Indicators
Date Country Event Consensus
06/09/2010 10:00 US Wholesale Inventories 0.50%
06/09/2010 14:00 US Fed's Beige Book
06/10/2010 08:30 US Trade Balance -$41.0B
06/10/2010 08:30 US Initial Jobless Claims 449K
06/10/2010 08:30 US Continuing Claims 4640K
06/10/2010 08:30 CA New Housing Price Index MoM 0.30%
06/10/2010 08:30 CA Int'l Merchandise Trade 0.6B
06/10/2010 14:00 US Monthly Budget Statement -$140.0B
06/11/2010 08:30 US Advance Retail Sales 0.20%
06/11/2010 08:30 US Retail Sales Less Autos 0.10%
06/11/2010 08:30 US Retail Sales Ex Auto & Gas 0.30%
06/11/2010 08:30 CA Capacity Utilization Rate 73.20%
06/11/2010 09:55 US U. of Michigan Confidence 74.5
06/11/2010 10:00 US Business Inventories 0.50%
06/14/2010 08:30 CA New Motor Vehicle Sales MoM -5.00%
06/15/2010 08:30 US Import Price Index (MoM) -1.30%
06/15/2010 08:30 US Empire Manufacturing 19.95
06/15/2010 10:00 US NAHB Housing Market Index 22
06/16/2010 08:30 US Producer Price Index (MoM) -0.50%
06/16/2010 08:30 US PPI Ex Food & Energy (MoM) 0.10%
06/16/2010 08:30 US Producer Price Index (YoY) 4.90%
06/16/2010 08:30 US PPI Ex Food & Energy (YoY) 1.10%
06/16/2010 08:30 US Housing Starts 653K
06/16/2010 08:30 US Housing Starts MOM% -2.80%
06/16/2010 08:30 US Building Permits 625K
06/16/2010 08:30 US Building Permits MOM% 2.50%
06/16/2010 09:15 US Industrial Production 0.80%
06/16/2010 09:15 US Capacity Utilization 74.50%
06/17/2010 08:30 US Consumer Price Index (MoM) -0.20%
06/17/2010 08:30 US CPI Ex Food & Energy (MoM) 0.10%
06/17/2010 08:30 US Consumer Price Index (YoY) 2.00%
06/17/2010 08:30 US CPI Ex Food & Energy (YoY) 0.90%
06/17/2010 08:30 US Current Account Balance -$118.6B
06/17/2010 10:00 US Philadelphia Fed. 21
06/17/2010 10:00 US Leading Indicators 0.30%
06/18/2010 08:30 CA Int'l Securities Transactions 3.500B
06/23/2010 14:15 US FOMC Rate Decision 0.25%
181 University Ave. 606 – 4th St., S.W.
4th Floor Suite 1400
Toronto, ON M5H 3M7 Calgary, AB T2P 1T1
Tel: (416) 368-3322 Tel: (403) 750-0475
Fax: (416) 368-3811 Fax: (403) 750-0499
RESEARCH IMPORTANT DISCLOSURES
Base & Precious Metals Consumer Products Stock Ratings
Hendrik M. Visagie, MBA (416) 306-2519 Robert Gibson, CFA (416) 306-2544 Speculative BUY: The stock is in a high growth sector where price
firstname.lastname@example.org email@example.com patterns are more volatile and of inherently greater risk.
BUY: The stock is expected to exceed the average total return of the
Rob Chang, MBA (416) 306-2558 Associates industry sector, on a risk‐adjusted basis, over the next twelve
firstname.lastname@example.org Tracy Nong (416) 306-2549 months.
email@example.com HOLD: The stock is expected to be in line with the average total
Special Situations return of the industry sector, on a risk‐adjusted basis, over the next
Max Vichniakov, MBA (416) 306-2514 twelve months.
SELL: The stock is expected to be below the average total return of
SALES the industry sector, on a risk‐adjusted basis, over the next 12
Alice Tsang (416) 306-2510 Katrin Tosine (416) 304-7781
Distribution of Ratings
Out of approximately 24 stocks in the Octagon Capital Corporation
coverage universe, the ratings distribution is as follows:
Sylvia Lai (416) 304-7782 Sales & Trading Assistant
Speculative BUY 16.7%
firstname.lastname@example.org Gloria Spoden (416) 304-7844 BUY 50.0%
email@example.com HOLD 29.2%
Allen Spektor (416) 306-2541 Under Review 4.2%
TRADING Distribution of ratings is updated on the first of every month.
John Ponech (416) 306-2516 Gordon Baker (416) 306-2532 Analysts are compensated based on their performance. Some of the
evaluation criteria are: quality and effectiveness of research,
soundness of the evaluations and recommendations, client
feedback, internal peer reviews, analytical skills, profitability of the
Jeff Coulthard (416) 306-2522
Capital Markets Group, timeliness and responsiveness.
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