ECU Value Analysis

Bryant Blake

As an ECU shareholder, the companies poor share price performance over the last 20 months has motivated me to examine the companies resource value to see if the market is correct or not. As you will see in the numbers below, the markets current valuation of ECU is extremely low on a historical basis, and that ECU is at its best buy value since its share price was less than 10 cents per share many years ago. Below is a table listing relevant resource, share and price data for the dates of 6/3/08 (current), 11/10/06 and 12/04/05. Each of these time data points is exactly 4 months and 10 days past each of ECU’s NI43-101 resource report news releases which were on 1/24/08, 6/30/06, and 7/25/05. These resource reports can be accessed on ECU’s web site at the following links:

http://www.ecu.ca/s/NewsReleases.asp...
Title=ECU-Silver-Doubles-NI-43-101-M... ...

http://www.ecu.ca/s/NewsReleases.asp...
Type=News-Releases&_Title=ECU-Si... ....

http://www.ecu.ca/s/NewsReleases.asp...
_Type=News-Releases&_Title=Techn... .

From these tables, it is evident that ECU has added greatly to its value over the last 3 years using MI&I. Both the companies silver resource and the silver price have had substantial gains over this time resulting in great increases in the companies silver resource value. Although the companies’ shares outstanding have increased moderately, the multiple increases in the resource value have resulted in the ratio of Resource/Market Cap increasing 4 fold between November 10, 2006 and the current time. Looking at the MI&I Ag equivalent ounces, it can be found that between the companies 1st and 2nd NI43-101’s that the amount increased by 6.32 million ounces per month, and between the 2nd and latest NI43-101’s the amount increased by 6.29 million ounces per month. This shows that the company is consistently adding over 75 million ounces of Ag equiv per year. This is much more than the annual production of the world’s top silver producer Penoles which is about 50 million ounces per year and is nearly twice the annual production of the world’s largest silver mine, BHP’s Cannington, which is about 40 million ounces per year.

While the growth in the MI&I resource has been great, if we add in potential ounces, then the resource growth has been simply phenomenal. For calculation of the potential resource statistics, the upper range value of potential resources was used from both NI43-101 reports. The resource value including potential ounces has increased more than 10 fold in the last 19 months, during which time the companies share price has dropped by 44%. Using a value basis including potential ounces, the companies resource value divided by market cap has increased 18 fold in the last 19 months from 3.07 to 57.87. Going back to Jason Hummel’s old stock value reports, my memory is that this ratio for large caps and producers was generally 1 to 10, for juniors were generally 10 to 40, and for highly speculative plays was generally over 40. I consider ECU far from speculative because they have permits, are currently mining, have full land claim ownership, have no reported legal issues, have good management, and are in mine friendly Mexico.

I like comparing ECU to Pan American Silver, mostly because both companies are producers but their production is small relative to their resource. I also like comparing to Pan American because I consider it a well run company, it is profitable, and thus sets a good company model to shoot for. According to Pan Americans 2007 annual report, the companies total silver reserves plus MI&I resources are 561.612 million ounces. This does not include gold and base metals. Pan Americans gold grades are generally low, but they do have some fairly good base metal grades. I believe that a doubling of Pan Americans silver reserve and resource would give a good to high estimate of their silver plus gold and base metals. This would put Pan Americans Ag equivalency at 1,123.224 million ounces or slightly below ECU’s total including potential reserves. Using the $16.90 per ounce silver price in the above ECU study, this gives Pan American’s reserve and resource a value of $18,982.5 million dollars. Pan American’s current market cap is $2,591.85 million dollars. This gives the company a resource value divided by market cap figure of 7.32. This is below ECU’s value of MI&I of 10.65 and is way below ECU’s value including potential ounces which is 57.87. Also, I would like to point out that the silver resource used above for Pan American includes 148.217 million ounces which are classified historical or potential, so using ECU’s values including potential ounces is somewhat comparing apples and apples. Based on Pan Americans stock valuation, ECU’s share price should be $2.03 using MI&I and should be $11.07 including potential metal amounts. Please also keep in mind that Pan Americans current valuation is depressed along with the entire junior market. I believe that once ECU puts its potential ounces into MI&I, it will be an $11 stock.

For value investors, ECU’s current share price offers its best company value in years. For investors who believe that the potential ounces estimated in the latest NI43-101 by Micon are correct, the company is currently at bargain prices and multiple price gains are just a matter of time as the companies share price will reflect its resource. Should ECU’s resource value to market cap ratio ever get back down to 3 (a level it was below in the past), its share price using MI&I would be $4.97, and including potential metals its share price would be $27.01. Regards,

-Bryant Blake, P.E