Greenstone Belt - The richest in Canada per km²
Exploration & Development of zinc, copper & gold assets in Canada.
Message: The Full Report
Investment Analysis for Intelligent Investors Siddharth Rajeev, B.Tech, MBA Analyst Vincent Weber, B.Sc Research Associate Kevin Liu, BBA, BSc Research Associate September 5, 2009 2009 Fundamental Research Corp. www.researchfrc.com Siddharth Rajeev, B.Tech, MBA PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT Murgor Resources Inc. (TSX-V: MGR) –Increase in resource estimates; HudBay’s commitment to growth in the Flin Flon belt increases likelihood of a takeover Sector/Industry: Junior Exploration/Mining www.murgor.com Market Data (as of September 4, 2009) Current Price C$0.13 Fair Value C$0.63 ( ↓) Rating* BUY Risk* 5 (Highly Spec) 52 Week Range C$0.04 - C$0.29 Shares O/S 54.17 mm Market Cap $7.04 mm Current Yield N/A P/E (forward) N/A P/B 0.61 YoY Return -48.0% YTD TSXV -57.4% *see back of report for rating and risk definitions - 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 5-Sep-08 4-Jan-09 5-May-09 3-Sep-09 $0.00 $0.05 $0.10 $0.15 $0.20 $0.25 $0.30 Investment Highlights Updated resource at Hudvam and Wim properties include increases
in overall tonnage as well as a significant shift of resources from the inferred to indicated categories. The Hudvam, Wim and Fon deposits now have combined NI 43-
101 compliant indicated and inferred resources of 9.12 million metric tonnes of ore containing 186 million pounds of copper, 444 million pounds of zinc, 356,000 ounces of gold and 2.99 million ounces of silver. In the past few months, MGR raised a total of $1.21 million from
two financings, including a $0.81 million private placement with China Nonferrous Metals Exploration Corp. (CNME). CNME now holds 14.95% of MGR shares. The increase in MGR’s resource estimates (and a shift of resources from the inferred to indicated categories), the significant drop in MGR shares in the past 12 months, and HudBay Mineral ’s confirmed commitment to growth in the Flin Flon Greenstone Belt, we believe, make MGR a better acquisition target now than at the time of our initiating report in May 2008. At the end of June 2009, HudBay had $846 million in cash and cash equivalents. Although we raised our overall valuation on the company, the value
per share dropped from $0.98 to $0.63 per share, due to a 129% increase in our estimate of the number of diluted shares. Key Financial Data (FYE - April 30) (C $) 2007 2008 2009 (9 mo) Cash + Marketable Securities 2,496,098 403,124 982,240 Working Capital 2,228,438 272,372 1,194,935 Mineral Assets 14,293,768 20,518,066 19,038,100 Total Assets 17,194,701 21,828,133 20,494,815 Net Income 338,815 530,583 (3,579,628) EPS 0.004 0.026 (0.110) Murgor is advancing the Hudvam, Wim and Fon deposits which have combined NI 43-101 compliant indicated and inferred resources of 9.12 million metric tonnes of ore containing 186 million pounds of copper, 444 million pounds of zinc, 356,000 ounces of gold and 2.99 million ounces of silver. Murgor Resources Inc. (TSX-V: MGR) - Update Page 2 Siddharth Rajeev, B.Tech, MBA PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT Potential takeover target
We believe the company is a potential take-over target for HudBay Minerals Inc (TSX:
HBM). HudBay is a key operator in the region with a dwindling reserve base. While its
flagship 777 mine still holds significant reserves, HudBay has indicated that The Chisel
North and Trout Lake mines have estimated mine lives extending only to about 2011. In
discussion with HudBay, management has indicated that the first option to be considered is
aggressive development of the Lalor deposit –which is currently undergoing a scoping study
–
we anticipate near term efforts by HudBay will also focus on securing resources to replace
Chisel North and Trout Lake by 2012. In fact, HudBay’s recently appointed CEO Peter
Jones stated “We will grow our principal operating platform in the Flin Flon Greenstone Belt, which will continue to be our cornerstone.” (
HudBay CEO Unveils, HudBay Minerals Inc. June 19, 2009)
Strategic Plan at AGM
potential takeover target is further increased by the 65% back-in right held by HudBay on
both the Hudvam and Wim deposits, both of which lie in close proximity to currently
operating milling infrastructure owned by HudBay (see Figure 1 below).
Figure 1: Murgor and HudBay Minerals Inc. Flin Flon property locations (Source: Murgor Resources Inc.) We believe the Hudvam deposit would seemingly be an excellent source of ore to fill the excess capacity that will be available at the Flin Flon mill once the Trout Lake mine is exhausted. As noted above, metallurgical test work indicates Hudvam ore is responsive to processing techniques used at the Flin Flon mill with a final concentrate of higher grade than HudBay is currently producing. HudBay would likely be interested in processing this material with its own ore to boost overall recoveries and grades. Additionally, the ramp completed by Mingold Resources in 1988 (see our initiating report for details) reduces development time and cost. We believe the at-surface nature of the Wim deposit, and thus, decreased development times should be seen as a positive factor for acquisition. Even with an aggressive approach towards Lalor, the resources of the deposit lie between 500 and 1,200 meters below surface; the timeline to production, perhaps four to five years, is significantly longer than that of Wim. Any modifications required at the Snow Lake mill to process Lalor ore could potentially be completed in a year’s
time.
As a result of the above factors, we are
Murgor Resources Inc. (TSX-V: MGR) - Update Page 3
2009 Fundamental Research Corp. www.researchfrc.com
Siddharth Rajeev, B.Tech, MBA
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
Updated
resource
estimates
confident the company’s projects would be beneficial additions to HudBay’s asset base.
The increase in MGR’s resource estimates (and a shift of resources from the inferred to
indicated categories), the significant drop in MGR’s shares, and HudBay’s confirmed
commitment to growth in the Flin Flon Greenstone Belt, we believe, make MGR a better
acquisition target than at the time of our initiating report in May 2008. At the end of June
2009, HudBay had $846 million in cash and cash equivalents.
In our initiating report on Murgor, released on May 9, 2008, we discussed the company’s
planned timeline for completing feasibility on Hudvam by the end of 2008, and Wim by mid
2009. Delays encountered in the industry, as well as the freeze in credit markets, has limited
the company’s ability to meet these goals, however significant infill drilling has been completed on both properties allowing for updated resource estimates. Preliminary metallurgical test work was also completed on both Hudvam and Wim with positive results. Hudvam Similar to previous resources estimates, updated resources released on August 28, 2008, were calculated based on a 2% Cu equivalent cut-off for Zones 1 and 3. Table 1 summarizes the updated resource estimate and presents the previous estimate for comparison purposes. Of significance to note is the substantial quantity of inferred resources that were moved to the indicated category. Also significant to note is the accompanying increase in grade for all metals with the move to indicated resources. We believe these factors speak to the strength of the deposit. Accompanying the new resource estimate is a 14% increase in overall tonnage. Table 1: Updated Resources, Hudvam Deposit Resource Category Metal Tonnes Grade Contained Metal 2008 Indicated Cu 854,000 1.22% 23,008,000 lbs Zn 854,000 1.78% 33,541,000 lbs Au 854,000 3.82 g/t 105,000 oz Ag 854,000 13.84 g/t 380,000 oz Inferred Cu 503,000 0.79% 8,759,000 lbs Zn 503,000 1.33% 14,746,000 lbs Au 503,000 3.25 g/t 53,000 oz Ag 503,000 6.96 g/t 113,000 oz 2007 Inferred Cu 1,193,000 1.17% 30,778,000 lbs Zn 1,193,000 1.71% 44,720,000 lbs Au 1,193,000 2.94 g/t 111,000 oz Ag 1,193,000 10.49 g/t 403,000 oz (Source: Murgor Resources Inc.) Due to the orientation of the deposit and its location below Vamp Lake, underground mining methods are assumed. As a result, a small portion, 21,128 tonnes, of the indicated resource, is subdivided into a crown pillar required for structural support which would be mineable by appropriate techniques at the end of the mine life. Murgor Resources Inc. (TSX-V: MGR) - Update Page 4
2009 Fundamental Research Corp. www.researchfrc.com
Siddharth Rajeev, B.Tech, MBA
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
Metallurgy
Locked cycle test work on the Hudvam deposit showed copper recoveries averaging 89%
producing a concentrate of 30% copper. Gold was recovered into the copper concentrate
with recoveries of 56% by flotation at a grade of 51 g/t. The addition of a gravity
concentrate prior to flotation increased the recovery of gold to 67%. Zinc recovery averaged
70% into a final concentrate grading 48% zinc. These initial results are positive but further
work will be required. It is interesting to note that the metallurgical test work was completed
using the Flin Flon mill flowsheet by the same lab utilized by HudBay. In a sense, this
proves the mineralization can be treated at the Flin Flon mill.
Current Status
In our initiating report we briefly discussed the company’s discovery of a new sulphide lense
located between Zones 1 and 3 at a vertical depth of approximately 300 meters. The
mineralization was intersected by Hole 44 with assay results of 2.17 g/t Au, 1.11% Cu,
0.76% Zn and 13.30 g/t Ag over a mineable width of 5.82 meters. Near term exploration
will focus on further testing this area called Zone 44.
Wim
At the Wim deposit, the company successfully increased the confidence level of resources to
the indicated category while also recording a significant increase in total tonnage –the new
resource estimate was released on September 18, 2008. As with the Hudvam deposit, the
grade of all metals increased with the move to indicated resources (Table 2, below).
In terms of increased tonnage, the indicated resource represent a 35% increase over 2007
total resources, while 2008 total resources represent a 56% increase over 2007.
Table 2: Updated Resources, Wim Deposit Resource Category Metal Tonnes Grade Contained Metal 2008 Indicated Cu 2,777,000 1.94% 118,763,000 lbs Zn 2,777,000 0.30% 18,365,000 lbs Au 2,777,000 1.88 g/t 168,000 oz Ag 2,777,000 7.53 g/t 672,000 oz Inferred Cu 446,000 1.12% 11,013,000 lbs Zn 446,000 0.43% 4,228,000 lbs Au 446,000 2.11 g/t 30,000 oz Ag 446,000 5.06 g/t 39,000 oz 2007 Inferred Cu 2,062,000 1.92% 87,333,000 lbs Zn 2,062,000 0.26% 11,943,000 lbs Au 2,062,000 1.65 g/t 110,000 oz Ag 2,062,000 5.58 g/t 370,000 oz (Source: Murgor Resources Inc.) Metallurgy Preliminary metallurgical testing at the Wim deposit was positive with copper recoveries averaging 92% into a final concentrate of 32.6% copper. Murgor Resources Inc. (TSX-V: MGR) - Update Page 5
2009 Fundamental Research Corp. www.researchfrc.com
Siddharth Rajeev, B.Tech, MBA
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
Other
properties
Red Lake
Acquisitions
Private
Placement
Completed
Management
Changes
Current Status
A helicopter borne VTEM survey identified eight targets on the Wim property, seven of
which are located on company staked ground. Future exploration by the company will focus
on these targets.
Fon and Windfall Properties
The company is currently drilling a large electromagnetic geophysical anomaly on the Fon
property at Abbot Lake Saskatchewan and has recently announced the commencement of a
new phase of exploration on the Windfall property located in Quebec. Exploration on
Windfall is to include mechanical trenching followed by drilling of up to 3,000 meters on
gold-bearing NE-trending structures and strike extensions to the 1,327.9 g/t (over 4.8 meters)
intersection discovered by Noront Resources Inc (TSX-V: NOT) in 2006, just south of the
property. Noront holds a 50% interest in 29 of the 213 claims composing the Windfall
property.
In late August 2009, the company acquired the right to earn a 100% interest in two gold
properties near Red Lake, Ontario.
The
Gullrock Property
consists of eight claims covering 1,409 hectares approximately one
kilometer east of Goldcorp’s
(TSX: G, NYSE: GG) Red Lake property. The company may
earn 100% interest in the property by making aggregate payments of $88,500, issuing 120,000 common shares over a period of 48 months, and incurring $50,000 in exploration expenditures over a period of 12 months. The
Premier Property
consists of three mining claims covering 524 hectares in the Uchi
Belt proximal to the past producing Hudson-Patricia mine. Grab samples collected by Murgor geologists during due diligence returned assays of 128.5 g/t, 116.2 g/t and 9.0 g/t. On August 31, 2009, MGR announced the completion of a private placement with China Nonferrous Metals Exploration Corp. (CNME). CNME was issued 8.10 million common shares of MGR at $0.10 per share for gross proceeds of $0.81 million. CNME now holds 14.95% of the shares of the company and has been given a right to participate in future equity financings so that it may retain its share-ownership percentage in MGR. CNME is a Canadian based corporation majority-owned by Chinese shareholders including state-owned Beijing Donia Resources Co (Donia), whose mandate includes exploring for and acquiring base metal resources worldwide.
This is CNME’s first investment in a Canadian public co
mpany and the confidence of
CNME adds positive weight to Murgor’s projects.
CNME director Mr. Nick Zeng stated,“…
we feel that Murgor’s advanced Wim and Hudvam deposits, along with its significant
prospective land package, represent great development and exploration opportunities
”.The company has added Mr. Mark Eaton to the Board of Directors of the company and
appointed Ms. Isabelle Gauthier as Chief Financial Officer (previously Vice-President of
Finance) replacing Mark Schneiderman. Mr. Eaton brings noteworthy experience in mining
and equity sales. Biographies as provided by the company are found below.
Murgor Resources Inc. (TSX-V: MGR) - Update Page 6
2009 Fundamental Research Corp. www.researchfrc.com
Siddharth Rajeev, B.Tech, MBA
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
Financials
Mark Eaton –Director
Mr. Eaton is a private investor and investment professional based in Toronto, with over 20
years of experience in equity capital markets specializing in the resource sector. Mr. Eaton
is a graduate of Hull University in England. From 1985 to 1995, he worked in London, U.K.
in institutional equity sales for several leading Canadian investment dealers. In 1995, Mr.
Eaton worked in U.S. institutional equity sales for Tucker Anthony in Boston, then moved
on to New York, where from 1996 to 1998, he served as Vice President of Global Mining
Sales for Robert Fleming Ltd., a London based Merchant Bank. While at Robert Fleming
Ltd., Mr. Eaton's responsibilities included the marketing of global mining and commodity
research.
From 1998 to 2007, Mr. Eaton held the position of Managing Director of Global Mining
Sales, a division of CIBC World Markets of Toronto Canada. During this time Mr. Eaton
also held the position of Manager of U.S. Equity Sales for CIBC World Markets, building its
teams in Boston and New York to market the full Canadian products and services of CIBC
World Markets. More recently, Mr. Eaton was a Partner and Director of Loewen Ondaatje
McCutcheon Ltd., a Toronto-based investment dealer where he was also in charge of Sales
and Research. Mr. Eaton is also on the Board of Directors of UEX Corporation, a
Vancouver-based uranium exploration company trading on the TSX.
Isabelle Gauthier –CFO
Ms. Gauthier is a Chartered Accountant and a graduate from Université du Québec à
Montréal (UQAM). She has been a member of the Ordre des Comptables Agréés du Québec
since 1998. From 1996 to 2006, she worked for the Chartered Accountant firm of Raymond,
Chabot, Grant, Thornton as an auditor where she gained a solid experience in management
and financial reporting for mining companies. Since 2006, Ms. Gauthier has been
responsible for all accounting duties with SearchGold Resources Inc. and Golden Share
Mining Corporation, two public companies in the junior mining sector, based in Montreal.
She is now Chief Financial Officer for both companies.
At the end of FY2009 (12 months ended April 2009), the company had $0.36 million in cash
and marketable securities. The company also had $0.55 million in cash and bonds held for
exploration expenses. The table below shows the company’s cash and liquidity position.
(C$) 2008 2009 Cash + Marketable Securities 403,124 358,063 Working Capital 272,372 313,576 Current Ratio 1.29 3.56 LT Debts/ Assets - - Burn Rate/Month (incl exploration costs) ($973,984) ($275,707) Cash from financing activities 3,862,346 3,160,102
We estimate MGR’s burn rate (cash spent on operating and investing activities) was $0.28
million per month in FY2009.
Subsequent financings –
million from two financings.
Murgor Resources Inc. (TSX-V: MGR) - Update Page 7
2009 Fundamental Research Corp. www.researchfrc.com
Siddharth Rajeev, B.Tech, MBA
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
Valuation
-
In June 2009, MGR announced it completed a $0.40 million private placement by issuing4.44 million units at a price of $0.09 to SIDEX Limited Partnership, La Société de
Développement de la Baie-James, and to two “accredited investors” in Canada and
elsewhere. Each unit consists of one common share and one share purchase warrant
(exercise price of $0.11 per share for a period of 12 months, and thereafter at a price of
$0.13 per share for a period of 24 months from the date of issuance).
-
Nonferrous Metals Exploration Corp. (CNME). CNME was issued 8.10 million common
shares of MGR at $0.10 per share for gross proceeds of $0.81 million.
These financings have placed the company in a sound cash position.
Stock Options & Warrants:
(weighted average exercise price of $0.26) and 13.84 million warrants (weighted average
exercise price of $0.28) outstanding.
We have continued to value MGR based on its three most advanced stage projects –
Hudvam, Wim and Fon. We valued MGR based on our assumption (and what we believe is
the most likely scenario) that MGR will be able to utilize HudBay’s facilities at Flin Flon to
process ore from the Hudvam and Fon properties, and the Snow Lake mill to process ore
from the Wim property, and thereby, significantly lowering the associated initial capital
expenditures to put the projects into production.
Although HudBay has a buy-back option, our valuation models indicate that HudBay is
better off acquiring MGR (and thereby maintaining a 100% interest in the projects), instead
of reimbursing MGR twice the cash paid by MGR to HudBay, and solely financing and
bringing the Hudvam, Wim and Fon projects into commercial production to earn up to 65%
interest. A summary of our valuation is shown below.
Valuation Summary VPS Hudvam & Fon DCF $0.23 Real Options $0.33 Average $0.28 Wim DCF $0.26 Real Options $0.37 Average $0.32 Working Capital - LT Debt $0.04 Fair Value $0.63 * Resource estimate –100% of Indicated + 50% of Inferred
* Zinc –US$0.75/lb, Copper –US$2.03/lb, Gold –US$600/oz, and Silver –US$11/oz
* C$/US$ - 1.15 Murgor Resources Inc. (TSX-V: MGR) - Update Page 8
2009 Fundamental Research Corp. www.researchfrc.com
Siddharth Rajeev, B.Tech, MBA
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
Although our revised valuation on MGR increased from $23.56 million to $35.04 million
(due to an increase in resource estimates and lower capital expenditures, offset by higher
operating cost estimates), our value per share estimate dropped from $0.98 per share to $0.63
per share due to a 129% increase in the number of diluted shares (calculated based on the
treasury stock method), from 24.11 million to 55.28 million.
A summary of our valuation models (DCF and real options) are shown below.
Hudvam and Fon
Hudvam Fon
Mineral Resources (tonnes) - Ind. + 50%Inf. 1,105,527 2,271,563
Average Copper Grade (%) 1.12% 0.25%
Average Zinc Grade (%) 1.68% 3.73%
Average Gold Grade (g/t) 3.69
Average Silver Grade (g/t) 12.27 10.88
Recovered Copper (lb)
Recovered Zinc (lb)
Recovered Gold (oz)
Recovered Silver (oz)
Mine Life (years)
Capital Costs + Remaining Payments
Avg. Operating Costs
Discount rate
Net Present Value (C$)
No. of Shares
Fair Value per Share
787,545
6.40
$35,650,000
35,517,017
159,395,946
$0.23
DCF Valuation Summary - Hudvamand Fon
$0.60/lb Zn Equiv.
11.6%
$12,507,793
55,278,271
87,907
Estd.Value of Minerals if extracted today ($) $43,293,677
Annualized Standard Deviation of Mineral prices 26.3%
Capital Investment ($) $35,650,000
Estd. Mine Life (years) 6.4
Riskfree Rate 3.20%
Stock Price $43,293,677 T.Bond rate 3.20%
Strike Price $35,650,000 Variance 0.07
Expiration (in years) 6 Annualized div yield 0%
d1 = 0.932
N(d1) = 0.824 Value of Option ($) $18,118,500
d2 = 0.267 No of shares (Dil.) 55,278,271
N(d2) = 0.605
Value per share $0.33
Real Options Valuation - Hudvam and Fon Output Inputs relating to the underlying asset Murgor Resources Inc. (TSX-V: MGR) - Update Page 9
2009 Fundamental Research Corp. www.researchfrc.com
Siddharth Rajeev, B.Tech, MBA
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
Wim
Mineral Resources (tonnes) - Ind. + 50% Inf. 2,999,787
Average Copper Grade (%) 1.88%
Average Zinc Grade (%) 0.31%
Average Gold Grade (g/t) 1.90
Average Silver Grade (g/t) 7.35
Recovered Copper (lb) 114,327,285
Recovered Zinc (lb) 15,359,513
Recovered Gold (oz) 109,780
Recovered Silver (oz) 425,114
Mine Life (years) 8.2
Capital Costs + Remaining Payments $35,250,000
Avg. Operating Costs $1.55/lb Cu Equiv.
Discount rate 11.63%
Net Present Value (C$) $14,541,197
No. of Shares 55,278,271
Fair Value per Share $0.26
DCF Valuation Summary - Wim
Estd.Value of Minerals if extracted today ($) $44,981,658
Annualized Standard Deviation of Mineral prices 23.0%
Capital Investment ($) $35,250,000
Estd. Mine Life (years) 8.2
Riskfree Rate 3.20%
Stock Price $44,981,658 T.Bond rate 3.20%
Strike Price $35,250,000 Variance 0.05
Expiration (in years) 8.2 Annualized div yield 0%
d1 = 1.098
N(d1) = 0.864 Value of Option ($) $20,715,933
d2 = 0.439 No of shares (Dil.) 55,278,271
N(d2) = 0.670
Value per share $0.37
Real Options Valuation - Wim Output Inputs relating to the underlying asset The following table shows the sensitivity of our valuation to changes in zinc and copper prices. $0.63
$1.50 $2.03 $2.50 $3.00
$0.50
($0.13)
$0.36 $0.85 $1.39
$0.75
$0.12 $0.63
$1.13 $1.68
$1.00
$0.40 $0.93 $1.44 $1.99
$1.50
$1.00 $1.54 $2.05 $2.61
Cu Price (US$/lb) Zn Price (
US$/lb)
Murgor Resources Inc. (TSX-V: MGR) - Update Page 10
2009 Fundamental Research Corp. www.researchfrc.com
Siddharth Rajeev, B.Tech, MBA
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
Conclusions &
Rating
Risks
Based on our review of the company’s progress
since our initiating report and revised
valuation models, we reiterate our BUY rating on the company, but lower our fair value estimate from $1.00 per share to $0.63 per share. We continue to rate the shares a RISK of 5 (Highly Speculative).
The following risks, though not exhaustive, may cause our estimates to differ from actual
results:
The positive outcome of feasibility studies on the Hudvam and Wim properties are
important long-term success factors for these early projects.
The value of the company depends heavily on commodity prices (copper, zinc and gold)
Access to capital and share dilution.
Murgor Resources Inc. (TSX-V: MGR) - Update Page 11
2009 Fundamental Research Corp. www.researchfrc.com
Siddharth Rajeev, B.Tech, MBA
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
Fundamental Research Corp. Equity Rating Scale:
Buy
–Annual expected rate of return exceeds 12% or the expected return is commensurate with risk
Hold
–Annual expected rate of return is between 5% and 12%
Sell
–Annual expected rate of return is below 5% or the expected return is not commensurate with risk
Suspended or Rating N/A
——
—
Coverage and ratings suspended until more information can be obtained from the company regarding recent events.
Fundamental Research Corp. Risk Rating Scale:
1 (Low Risk) -
The company operates in an industry where it has a strong position (for example a monopoly, high market share etc.) or operates in a regulated industry.
The future outlook is stable or positive for the industry. The company generates positive free cash flow and has a history of profitability. The capital structure is conservative with little or no debt.
2 (Below Average Risk) -
The company operates in an industry where the fundamentals and outlook are positive. The industry and company are relatively less sensitive
to systematic risk than companies with a Risk Rating of 3. The company has a history of profitability and has demonstrated its ability to generate positive free cash
flows (though current free cash flow may be negative due to capital investment). The company’s capital structure is conservative with little to modest use of debt.
3 (Average Risk) -
The company operates in an industry that has average sensitivity to systematic risk. The industry may be cyclical. Profits and cash flow are sensitive
to economic factors although the company has demonstrated its ability to generate positive earnings and cash flow. Debt use is in line with industry averages, and coverage ratios are sufficient.
4 (Speculative) -
The company has little or no history of generating earnings or cash flow. Debt use is higher. These companies may be in start-up mode or in a
turnaround situation. These companies should be considered speculative.
5 (Highly Speculative) -
The company has no history of generating earnings or cash flow. They may operate in a new industry with new, and unproven products.
Products may be at the development stage, testing, or seeking regulatory approval. These companies may run into liquidity issues, and may rely on external funding. These stocks are considered highly speculative.
Disclaimers and Disclosure
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Any “forward looking statements” are our best estimates and
opinions based upon information that is publicly available and that we believe to be correct, but we have not independently verified with respect to truth or correctness.
There is no guarante
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company. Fees of less than $30,000 have been paid by MGR to FRC. The purpose of the fee is to subsidize the high costs of research and monitoring. FRC takes
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ratings are as follows: BUY (69%), HOLD (13%), SELL (3%), SUSPEND (15%).
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