Jennings – Building High Grade Tonnes

This morning, Probe announced an additional 52 holes at its Borden Gold project, Ontario. Good follow-up on the previous high-grade hit (hole 256: 51m of 10 g/t gold, December 12, 2012), with drilling 50m away returning 36.5m of 4.5 g/t gold and 12.6m of 5.9 g/t gold.

This potential u/g accessible mineralization is showing good continuity and is starting to build tonnage

(Figure 1). Though it is too early for us to ascribe value to this high grade mineralization, we will be watching the results as drilling steps out 500m to the southeast, all still away from the lake.

If this high grade mineralization holds, we calculate that every 50m of strike could add 50,000 ounces to the resource. This potential mineralization may not come into play in the earlier years of mine life, but we believe it adds another dimension to the Borden Gold project and highlights the exploration potential of the area.

The 2013 budget is set at 80,000m or $15 million, of which 25% could be used to tackle regional exploration around Borden Gold, as well as at the recently picked up East Limb properties.

Probe continues to advance the main Borden Gold deposit, with a PEA expected within a couple months. Focus remains on the higher-grade core that now boasts an enviable open-pit grade of 1.66 g/t and a resource of 2.34 Moz (85% indicated). We expect this should allow Probe to start mining with a smaller, less expensive mill on the order of 15,000 tpd while still maintaining significant production levels.

The stock remains cheap versus its peers, trading at an EV/oz of $16 vs. $20, the median average of select open pit deposits in Ontario and Québec.

Probe remains fully financed for 2013, with approxmately $32 million in treasury currently. We believe any price below $1.70 is a good entry point for Probe given the current overhang of warrants due on April 21, at that strike price.

Our NAV 5% valuation remains unchanged at $5.46 per share. We reiterate our BUY rating and 12-month target of $4.00 per share, based on an unchanged 0.72x weighted average NAV multiple.