El Tigre Silver Corp. (TSXV: ELS, Frankfurt: 5RT, OTCQX ... · El Tigre Silver Corp. is a Vancouver...

Investment Analysis for Intelligent Investors

Siddharth Rajeev, B.Tech, MBA, CFA Analyst

Chris Porter, BSc

Research Associate - Mining

Alexandros Tzilios Research Associate

May 29, 2012

2012 Fundamental Research Corp. www.researchfrc.com

PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT

El Tigre Silver Corp. (TSXV: ELS, Frankfurt: 5RT, OTCQX: EGRTF) - Initiating Coverage: Potential

For Near Term Cash Flow

Sector/Industry: Junior Exploration/Mining www.eltigresilvercorp.com

Market Data (as of May 25, 2012)

Current Price C$0.26

Fair Value N/A

Rating* N/A

Risk* 5 (Highly Spec)

52 Week Range C$0.15 – C$0.56

Shares O/S 37,673,109

Market Cap C$10.17 mm

Current Yield N/A

P/E (forward) N/A

P/B 1.9x

YoY Return -23.5%

YoY TSXV -37.4%

*see back of report for rating and risk definitions

Investment Highlights

• El Tigre Silver Corp’s flagship property is the El Tigre Silver Project in Sonora State, Mexico.

• The historic El Tigre underground mine operated from 1903 to 1938, with total estimated production of 75 million oz silver and 380,000 oz gold.

• Near term catalysts include the potential for cash flow from silver production.

• Reprocessing of the tailings stockpile is due to commence by the end of 2012.

• Tailings production will be supplemented by ore from the historic 700 level waste dump at a later date.

• 2012 exploration includes 5,000m of drilling aiming to define a large, low grade bulk tonnage silver-gold deposit at Gold Hill. A NI 43-101 complaint resource estimate for Gold Hill is expected by the end of Q3 2012.

• The main El Tigre vein was historically mined over a 1.5km strike length; management believes the total strike length is 5.3km.

• Significant exploration potential exists across the entire property with several high and low grade vein systems relatively unexplored to date.

• Sprott Asset Management (TSX: SII) and Pinetree Capital (TSX: PNP) hold a combined interest of 15%.

• Our current valuation on ELS is $0.30 per share – which is solely based on silver/gold production from the historic tailings stockpile and does not take into account the potential resource at the Gold Hill deposit or any other potential targets on the property.

Risks

• Success of drilling, resource expansion, and development are important long-term success factors for the company.

• The company does not have a NI 43-101 compliant resource estimate.

• The value of the company depends on commodity prices.

• Political risk could have an effect on project development and investor interest.

• We consider the lack of reliable road access to the property a minor risk.

Key Financial Data (FYE - Dec 31)

(C$) 2010 2011

Cash 2,329,305 842,511

Working Capital 2,430,345 951,374

Mineral Assets 4,103,978 4,103,978

Total Assets 6,707,738 5,347,388

Net Income (1,104,632) (2,712,778)

EPS (0.05) (0.08)

El Tigre Silver Corp. is a Vancouver based silver exploration company focused on development of the 100% owned El Tigre Silver project in

Sonora State, Mexico. The company aims to be a silver producer by the end of 2012 reprocessing tailings from the historic El Tigre underground

mine which closed in 1938. The 431 km2 property has significant exploration potential and the company is currently working to define an

openpitable resource at the Gold Hill target.

An FRC

analyst visited

the El Tigre

project in April

2012.

El Tigre Silver Corp. (TSXV: ELS) - Initiating Coverage



Company

Overview

Corporate

History &

Structure

El Tigre Silver Corp. (“ELS” or “the company”) is a junior resource company based in Vancouver Canada. The company’s flagship project is the 100% owned El Tigre silver property in Sonora, Mexico, located within the northern part of the highly prolific Sierra Madre Gold-Silver Belt. Management believes the property has an exploration potential

greater than 100 million ounces of silver. The 431 km2 property includes the historically producing El Tigre mine which operated from 1903, to 1938, with total production during that time estimated to be 75 million ounces of silver and 380,000 ounces of gold.

We expect the following three catalysts to offer near term upside potential:

• Silver production by the end of 2012 from reprocessing of the historic tailings

stockpile.

• Potential to supplement production with material from a historic ore dump at the

700 level mine access.

• Potential to define a significant low grade bulk tonnage deposit at the Gold Hill

target.

Based on these factors, we believe that investors should view the El Tigre property as a

medium to long term exploration project, with near term upside provided by cash flow

from processing of the historic tailings.

The company was incorporated in December 2007 as a capital pool company under the name Herdron Capital Corp. The qualifying transaction was completed in February 2010 when the company acquired part of the El Tigre property, all of the issued and outstanding shares of Pacemaker Silver Mining S.A de C.V. (“Pacemaker”), and its 100% owned subsidiary Compania Minera Talaman S.A. de C.V. At the close of the transaction, the company changed its name to El Tigre Silver Corp. and Pacemaker became a 100% owned subsidiary. The current corporate structure is as follows;




Mining

Outlook in

Mexico

Mexico has long been one of the best countries in the world for silver exploration and mining projects, and for the first time since 2004, regained its title as the top silver

producer in 2011 (USGS). According to the Silver Institute, world production of silver rose for the ninth consecutive year in 2011, to a record 761.6 million ounces (1.4% increase over 2010), with Mexico responsible for around 21% of world production. The graph below shows the world’s top silver producers. Although there are some primary silver projects in Mexico, production is usually a co-product of other metals, including gold.

Source: The Silver Institute

Silver production in Mexico increased by 13% in 2011 to 152.8 million ounces. The increase was mainly due to the start of production at both the Peñasquito mine operated by Goldcorp Inc. (TSX: G), and the Palmarejo mine operated by Coeur d'Alene Mines Corp. (TSX: CDM). We believe that new mining projects scheduled to begin production in 2012, and 2013, should continue to increase Mexico’s gold and silver production. Mexico has been producing silver for over 500 years, since the time of the Aztecs. However, we believe there is still great potential, as modern exploration techniques have only started in the past 20 years when Mexico began welcoming foreign investors. El Tigre’s property is located in the State of Sonora as part of the Sierra Madre Occidental range. This mountain range is one of the world’s largest precious metals deposits, running from southeast Arizona, U.S.A, to Guanajuato, Mexico, a distance of 1,500 kilometers. The Sierra Madre Silver Belt has been mined for hundreds of years and there are many historic and producing mines in the region. Mexico is generally mining friendly with a tax structure in place to support mining. There are some political risks, but Mexico is still a relatively stable country. As it is located next to one of the world’s largest importers of gold and silver (the United States), the country is an ideal target for mining companies and investors.




El Tigre Silver

Project

Northern Mexico, including the states of Sonora, Sinaloa, Chihuahua, and Durango, tend to be more prosperous and open to foreign investment and free trade. We believe it to be a better environment for mining than the poorer south where there is more political turmoil and anti-capitalist sentiment.

Property Overview

The property is located in the Sierra El Tigre, northeastern Sonora, Mexico, approximately 90 km south-southeast of the Mexico-USA border town of Aqua Prieta (Figure 1). We believe this property has the potential to realise near to medium term cash flow from reprocessing of the historic tailings on site. The company owns 100% of nine Mexican Federal exploration concessions for a total of 431 km2. The El Tigre property comprises eight of these concessions, with the ninth located approximately 100 kilometers to the south west near Nacozari. Management states that the ninth concession has no exploration potential.

Figure 1. Location of the El Tigre Property

Source: Company

The property hosts an epithermal low sulphide vein system over a strike length of around 5.3 kilometers. The historic El Tigre underground mine was developed over approximately 1.5




kilometers of strike. Based on historic and recent exploration, we believe there is

significant potential to define extensions to known veins, as well as additional

mineralised structures.

Property Ownership

The company gained initial control of the property in February 2010, when ELS acquired all of the issued and outstanding shares of private Mexican company Pacemaker Silver Mining S.A. de C.V. (“Pacemaker”). Pacemaker’s primary asset was four of the eight concessions that make up the current El Tigre property. As part of the transaction, ELS paid the principal shareholders of Pacemaker a total of 11.5 million common shares at a deemed price of $0.35 per share, which at the time represented 64.8% of ELS. Upon completion of the transaction, Pacemaker became a wholly owned subsidiary of ELS, and therefore, obtained the initial four permits of the El Tigre property. The additional five permits were acquired in April 2010, from private Mexican company Pacerick Mexicana S.A. de C.V., which was controlled at the time by an “insider” of ELS. The total consideration for these permits was $75,000. At close of this transaction, the company owned 100% of nine mining concessions in Sonora with a total area of 431 km2. As mentioned above, the El Tigre property comprises eight of these concessions. In September 2011, ELS entered into an option agreement with the private land owner for the acquisition of the surface land and tailings associated with the historic mine, which is located within the boundaries of the El Tigre concessions. Terms of the agreement state that ELS have two years in which to evaluate the tailings project. ELS is also required to spend a minimum of US$30,000 on engineering work during the two years, and pay US$20,000 on exercise of the option. Management indicates that the spending requirement will be met in the next few months. If ELS decide to exercise the option at any time during the two years, they will pay a further 100,000 common shares. The seller retains a 10% NSR (net smelter return) of net profit from any future production from the tailings project. A recent amendment to the agreement with the private land owner provides ELS with the rights to process an existing stock pile of ROM (Run of Mine) ore located close to the historical 700 level portal. This asset is discussed in more detail below. During our site visit, we learned that ELS have a good working relationship with the land owner, which we consider a significant advantage as it will help avoid any possible

future complications when developing the project.

Property History

El Tigre Mine

Mining in the El Tigre region of Sonora began in 1903 when the El Tigre mine, owned by




Lucky Tiger Combination Gold Mining Company, began production. Direct shipping of

the ore was possible in the first few years of operation due to high gold and silver

grades in the upper oxidized part of the formation. As the mine developed deeper underground, it was necessary to mill the lower grade ore and recovery was achieved through cyanide leaching, and later in the 1920’s, by flotation processing.

The mine operated from 1903, to 1938, with total production during that time

estimated to be 75 million ounces of silver and 380,000 ounces of gold. From the start of operations to 1927, the company reports that ore averaged 1,308 g/ton silver, 7.54 g/ton gold, 0.4% copper, 1.1% lead and 1.5% zinc. The mine was developed on 15 levels along a 1.5 km strike, extracting ore from three primary veins known as El Tigre, Sooy, and Seitz-Kelly. During our site visit, we learned that much of the mine was backfilled at the time of closure, including the main access portal at the 700 level. It is interesting to note that

backfill material was ROM ore and could potentially be a future source of easy mill

feed.

Figure 2. Photograph of the El Tigre Mill, 1911

Source: Company

Modern Exploration

The possibility of processing tailings from the historic mine has been investigated by a number of companies since the late 1960’s. The most significant work was completed by Anaconda Minerals (“Anaconda”) who optioned the property in 1981. Work completed by Anaconda included mapping, drilling (7,812 meters), underground exploration drifting along veins, surveying and metallurgical testing of the tailings and general project maintenance. The company reports that much of this technical data is available to them and provides a good source of baseline geological information on the property. Anaconda completed a large amount of exploration across the entire property which will be used to identify priority satellite targets for future exploration.




Anaconda dropped the option in 1984 reporting that exploration had not defined any targets that met their size requirements. Market prices of precious metals are also likely to have been a factor in the decision to drop the property.

Property Description

Climate

The climate at the property is typical of that found in the Sonora Desert. Temperatures at the El Tigre mine are elevation dependent and range from as high as 40oC in summer to minus 15oC in winter. The property is at elevations between 1,500 and 2,000 meters above sea level. The climate and elevation does not preclude exploration and work is generally achievable year round. Heavy rain fall is mainly restricted to the monsoon season which runs from July to September with infrequent rain during the winter months. Access & Infrastructure

The property is accessible by road using three different routes. The easiest is on paved highway to the town of Esqueda, followed by 45 km east on dirt roads. Lake Angostura lies between Esqueda, and the site, but can be traversed either by boat, or by crossing a dam at the southern end of the lake. There are two longer alternative access routes to the north and south of Esqueda. Road access in the monsoon season is complicated by the river Rio Bavispe which flows around three sides of the property. There is currently no bridge traversing the river which is not fordable during times of high water during the monsoon season. Heavy rains during this time also have the potential to wash out roads making them impassable. We consider the lack of reliable road access a minor risk for ELS. However, we note that the planned tailings processing will likely produce silver dore bars rather than concentrate so large quantities of material will not be transported off site, reducing the need for significant road upgrades. Management states that power for tailings processing will be supplied by generators on site. However, we note that if a larger scale operation is developed in the future, then a more permanent power source will be required. During our site visit, we learned that there is sufficient water available on site for the proposed production scenario.

Geology & Mineralization

The property is part of the Sierra El Tigre formed as a result of extensional faulting during the Cenozoic, which created a series of north trending regional scale faults. Geology of the project area comprises a granitic basement underlying a thick sequence of




Tertiary volcanic rocks in the south, alluvial fanglomerates in the west, and bedded limestones in the north. The volcanic rocks have been intruded by andesitic and rhyodacite stocks and dikes which has complicated the stratigraphic sequence. Mineralised epithermal veins at the El Tigre property are hosted in a 5.3 km long, north trending fault zone known as the Teras Fault Zone. It is thought that the mineralisation hosting faults are a result of collapsed calderas located in the eastern part of the property. The primary low suplhidation type veins in the south include the Sooy, El Tigre, Seitz-Kelly and Combination veins, which were exploited during operation of the historic mine, and were the focus of exploration carried out by Anaconda. Veins in the northern region include Aquila, Escondida, Fundadora, and Protectora, which have seen little mining and exploration to date. ELS intend to further explore these veins in the future.

Figure 3. Main veins of the El Tigre project

Source: Company




In addition to the high grade vein hosted mineralisation already identified, the potential for a lower grade deposit is also being investigated by the current drill program. This zone is located on the higher elevations known as Gold Hill, in the hanging wall of the fault zone (see Figure 6). The deposit is thought to be hosted in intensely fractured volcanic rocks which suggests the potential for an oxidised, bulk tonnage, low grade deposit.

Recent Exploration

Tailings

In 2011, ELS began exploration of the tailings pile comprising 410 meters of channel samples, 46 auger drill holes, topographic mapping, and metallurgical testing. The aim of exploration was to define the grade, size and metallurgical composition of the tailings pile. It was found that the tailings are divided into three distinct layers which are a result of different levels of oxidation from the original processed ore (see Figure 9). The bottom zone is red (fully oxidised), followed by grey (partially oxidised) and yellow (sulphide). The bottom red zone was found to have the highest average grades (103 g/t Ag, 0.425 g/t Au). The sulphide material is at the top and will likely be the initial source of feed. Photographs of the tailings pile taken by us can be seen in the ‘Site Visit” section below. The following two tables show a comparison of assays from the auger drilling and channel sampling, followed by a summary of gold and silver grades in the tailings pile.

Source: Company

2011 Regional Drilling

In 2011, the company completed 10 widely spaced drill holes for a total of approximately 2,300 meters. The aim of drilling was to test mineralized targets identified by Anaconda in the 1980’s, and follow up on initial preliminary field work completed by ELS in 2010. Targets included areas in Espuelas Canyon, Mule Mountain, in Tigre Viejo Canyon and on Gold Hill.

The targets were found to host areas of both high grade vein silver mineralisation and




low grade disseminated gold mineralisation. More specifically, the company identified a potentially large open-pitable resource immediately south of the El Tigre vein in the hanging wall of the fault in an area known as Gold Hill. 2011 drill intercepts were comparable to two holes (T-2 and T-3) drilled by Anaconda in 1983 which gave true widths of 110 meters of 0.315 g/t Au, and 80 meters of 0.412 g/t Au, respectively. From 16.5 m to 111 m, hole ET 31 encountered around 61 meters (true width) of 0.422 g/t Au with 54 g/t Ag. As can be seen in the table below, this includes shorter lengths of higher grade intercepts, such as 1.5 m of 842 g/t Ag, and 1.5 m of 984 g/t Ag. The following table provides a summary of the best intercepts of drilling at Gold Hill in 2011.

Source: Company

Ongoing Work & Future Development

Tailings Processing; As detailed above, work on the tailings began in November 2011, and aims to be in

production by the end of 2012.

ELS is in the process of completing the necessary work to achieve production, including resource modeling as well as engineering and economic studies. We expect a construction

decision before the end of Q2 2012.

Metallurgical testing was completed in April 2012, following sample collection in 2011. Results showed that recovery was increased by fine grinding the tailings and gold recovered using agitated leach tanks. The following table shows the assay and recovery results of three samples taken from the tailings pile.

Source: Company

After our site visit, and reviewing the data provided to us by management, including

channel samples, and auger drilling completed in 2011, we believe the stock pile

contains between 750,000 to 800,000 tons of material.




Management has indicated in discussions that processing will likely utilize a cyanide agitated vat leach system followed by a Merrill Crowe circuit for silver recovery, at a processing capacity of 250 tpd. This is similar to the circuit used at the Malpaso Mill in Chihuahua state, Mexico operated by Dia Bras Exploration Inc. (TSX-V: DIB). We are therefore please to learn that ELS have appointed the same process providers who designed the Malpaso Mill for design and construction at El Tigre. At 250 tpd, we believe, there is enough material for a 8 to 10 year mine life resulting in potential total recoveries of between 1.5 and 1.8 million ounces of silver and 8,000 to 9,000 ounces of gold. Grades of the material range from 2.4 to 2.8 opt for silver and from 0.009 to 0.01 opt for gold. Recently completed metallurgical testing shows that with further grinding, recovery rates of 79% for silver and 94% for gold can be achieved. Management estimates the total capital cost of the operation will be a maximum of $3 million. The company states that this will be raised by way of debt financing, which we believe is positive for ELS shareholders by reducing dilution. 700 Level Ore Dump

There is potential to supplement near term silver production with material from the 700 level dump. This dump was created at the entrance of the main haulage level of the old El Tigre mine and consists of mineralised ore that was discarded during the original sorting process. There have been no formal tonnage estimates for the dump to date.

Figure 4. The 700 level ore dump

Source: Company




Assays of rock chip samples and auger holes gave average silver grades of 230 g/t and 259 g/t respectively. A summary of 44 rock samples and 9 auger holes is given in the following table.

Ag Au Ag Au

Chip samples 230 0.89 16.3 - 937 0.064 -5.3

Auger drilling 259 0.71 124 - 465 0.26 - 1.26

Average Grade (g/t) Range (g/t)

Source: Company data

We are encouraged by these results as they demonstrate the potential to supplement production from the tailings pile with good grade ore from the 700 waste dump. Management has indicated that the likely production scenario will be 75% tailings and 25% from the 700 level dump, but will only commence once the tailings process has been established. It should be noted that this is ROM (run of mine) ore and therefore, will need to be crushed before processing. This is not included in the $3 million CAPEX described above for the tailings. Gold Hill Exploration

ELS began the 2012 drilling program in March and aims to complete 5,000 meters in approximately 24 holes. Drilling is focused on the Gold Hill area and will in-fill the widely spaced holes drilled in 2011. To date, 11 holes have been completed for a total of 2,250 meters of drilling. Drilling has intercepted several high grade intervals separated by lower grade mineralisation. Some of the exploration highlights from this drilling include:

• Hole ET-33: 1.0 m of 1,611 g/t Ag and 9.73 g/t Au.

• Hole ET-34: 0.75 m of 809 g/t Ag and 9.5 g/t Au.

• Hole ET-35: 1.0 m of 515 g/t Ag and 0.95 g/t Au. Company geologist state that the target area is approximately 1.4 km long, 220 meters deep and ranges from 70-100 meters wide. Drilling will be completed by the end of June, and we

expect an initial NI 43-101 complaint resource estimate for the Gold Hill area by the

end of Q3 2012. On May 5, 2012, the company announced a private placement for gross proceeds of $3 million. This will provide working capital for ongoing exploration at Gold Hill, and drilling additional targets across the property.




Figure 5. Location of drill holes on the Gold Hill deposit

Source: Company

Additional Targets

The company has longer term aims to explore a number of other targets on the property which could significantly expand the resource base. These areas comprise both high and low grade deposits such as veins in the north including Aquila, Escondida, Fundadora, and Protectora, which have seen only minor historic production and exploration. Exploration work completed by Anaconda will be a valuable source of information to prioritize these targets. ELS plans to begin initial exploration on these targets later in 2012.




Site Visit

Historic Mine

An opportunity exists to redevelop the historic El Tigre underground mine. As mentioned above, the main access to the mine was from the 700 level which was filled at the time of closure and the company believes that much of the mine was backfilled. Management has long term plans to excavate the material from both level 4, and 7, for inspection, and to complete underground channel sampling. The opportunity to increase production by developing the underground mine is attractive. However, we caution that this is a longer term strategy and additional exploration will be needed to define additional resource. The company has data from historical underground drilling which suggests there are other veins (parallel to the main El Tigre vein) in the lower areas of the mine.

Conclusion

In summary we believe there are several sources of near term upside for El Tigre including;

• Silver production from tailings by the end of 2012.

• Potential to supplement tailings processing with ore from the 700 level waste dump.

• Potential to define a significant low grade bulk tonnage gold/silver deposit at Gold Hill.

Longer term upside catalysts include;

• Redevelopment and expansion of the historic El Tigre underground mine.

• Potential to define a number of other deposits on the property, both low grade disseminated and high grade veins.

On April 4, 2012, we had the opportunity to visit the ELS offices in Hermosillo and travelled to the El Tigre property. We toured the site and observed the ongoing drill program at Gold Hill, in addition to a number of historic mine workings, the 700 level waste dump and the tailings pile. Photographs taken by us on the site visit are provided below.




Figure 6. Remnants of the old El Tigre mill and associated buildings

Source: FRC

Figure 7. View of the El Tigre Vein from Gold Hill looking north

Source: FRC

Historically mined El

Tigre vein

Gold Hill deposit in hanging wall of El Tigre vein




Figure 8. Drilling the Gold Hill deposit. Hole #34

Source: FRC

Figure 9. Three distinct layers are visible in the tailings stockpile

Source: FRC




Figure 10. Aerial view of the tailings pile.

Material will be transported to the leach vats using road haulage or a conveyor

Source: FRC

Figure 11. The mine camp at the head of El Tigre Canyon looking north

Source: FRC

Location of proposed tailings processing plant




Management

Management and board hold approximately 5.6% of the outstanding shares. Biographies of the company’s management team and board of directors, as provided by the company, are below: Stuart Ross - President, Chief Executive Officer, Director For the last 25 years, Mr. Ross has assisted public companies listed on the TSX Venture exchange and the NASDAQ exchange. Mr. Ross has held various senior positions including President, CEO, CFO and Executive Vice President within various sectors of industry including, mining, beverage production and distribution, medical services, industrial fabrication and merchant banking. His duties involved directing public transactions including, raising equity funding, arranging debt financings, administrative and financial advisory roles and property acquisitions. Steven Craig - Vice President Exploration Mr. Craig is an accomplished senior mining geologist and resource manager with 36 years of diversified industry experience. He was the Vice President of Exploration for Gryphon Gold beginning in Jan 2006 and concluding in Aug. 2011. Prior to joining Gryphon, Mr. Craig's background ranged from exploration and operational experience to being an officer and/or director of various resource companies, principally Kennecott Exploration Company, a subsidiary of the Rio Tinto Group. During his 23 year tenure with Kennecott, he held progressively more responsible management and technical positions culminating in Regional Exploration Manager for Nevada and California. Mr. Craig received his M. S. degree in Economic Geology from Colorado State University in 1980 and a B. S. degree in Geology from Western State College in 1974. Grant Smith - Chief Financial Officer Mr. Smith is the senior partner with Clearline Chartered Accountants, a firm of chartered accountants, with offices in Vancouver and North Vancouver. Mr. Smith was previously a manager with Johnsen Archer and PricewaterhouseCoopers, both accounting firms. Mr. Smith also works in the public sector as CFO of Premium Exploration Inc. He was previously CFO for Aurcana Mining Corporation. Jose Velazquez - Country Manager Mr. Velazquez brings over 30 years of experience in exploration and mine geology, field work and supervision of mining exploration projects in Mexico to El Tigre. He has managed projects from grass roots to pre-feasibility and has supervised over 100,000 meters of drilling. Projects that he was responsible for include the La Colorada, Sonora mined by El Dorado; Moris, Chihuahua mined by Manhattan and the San Filipe Deposit, Baja California mined by Frisco. Mr. Velazquez earned his Geological Engineer Degree from UASLP, San Luis Potosi, Mexico. Daniel Tellechea - Director Mr. Tellechea is currently the President and CEO of Dia Bras Exploration Inc. He received a BSc in accounting in 1968 and a Master's Degree in Business Administration in 1983, both from the Tecnologico de Monterrey (Mexico). From 2003 to 2005, Mr. Tellechea was President and CEO of Asarco LLC ("Asarco"). Previous to that, from 1994 to 2003, Mr.




Management

Rating

Tellechea served as the Managing Director of Finance and Administration of Grupo Mexico, Asarco's parent corporation. For the period between 1999 and 2003, he also served as Asarco's Chief Financial Officer and as Vice-President of Finance for Southern Peru Copper Corporation, which was majority owned by Grupo Mexico. Wade Anderson - Director Mr. Anderson has been a chartered accountant for over 20 years. He graduated from the University of Saskatchewan with a Bachelor of Commerce degree in 1987. He worked an international accounting firm in Saskatoon, Saskatchewan and Toronto, Ontario performing assurance engagements for private and public companies. The range of experience includes public companies in financial institutions and a large uranium mining company. For the last 15 years, Mr. Anderson operated an accounting firm specializing in owner managed enterprises in Western Canada. Currently, he serves as the chief financial officer for a privately held group of companies. Jeffrey Wilson - Director Mr. Wilson is also Executive Vice President and VP - Exploration for Lincoln Gold Corp. and brings 34 years of professional exploration experience, in the United States, Mexico and Central America to El Tigre Silver. He served as Director of Exploration for Echo Bay Exploration Inc. for 11 years, first in the western U.S. and later in Mexico and Central America. He earlier served as Exploration Manager, Western U.S., with Tenneco Minerals Company, working mostly in Nevada. Mr. Wilson earned his MSc. in Geology from The University of Southern California. Ken Booth - Director Mr. Booth has more than 30 years of experience in exploration, mining corporate finance and public company administration. In mining corporate finance, he has worked for two of Canada's largest investment banks executing numerous equity financings for both junior and senior companies and was involved in a variety of significant mergers and acquisitions. While working for resource companies, Ken has held several positions including CEO and vice-president of corporate development. In these roles he was instrumental in raising equity funding and negotiating property acquisitions and joint ventures. Mr. Booth is currently CEO of Invenio Resources Corp., an exploration company with projects in Alaska, Nevada and Utah. He is also a director of two other exploration companies. Robert Papirnick - Director Mr. Papirnick is an entrepreneur and businessman who has managed several private companies in Alberta in the automotive supply industry over the course of the last 35 years. In 1985 he founded Trend Motoring Acc. Ltd., an automotive supply company in Vancouver, British Columbia.

We believe that one of the most important aspects of a junior mining company is its management. Therefore, we have developed a management rating system as a quantitative way to rate management based on a number of factors, including technical experience, the ability to raise financing, and the management’s time commitment to the company. Our net

rating for El Tigre is 3.9 out of 5.0.




Strength of

Board

Financials

We believe that the Board of Directors of a company should include independent or unrelated directors who are free of any relationships or business that could materially interfere with the director’s ability to act in the best interest of the company. An unrelated/independent director can be a shareholder.

Poor Average Good

None of the directors have filed for personal bankruptcy X

Three out of six hold shares in the company X

The Audit committee is composed of three independent

Board membersX

The Compensation committee is composed of three

Board members, two of which are independentX

XFive out of six directors are independent

At the end of 2011, the company had $0.84 million in cash. Working capital was $0.95 million. The company reported a net loss of $2.71 million (EPS: -$0.08) in FY2011. We estimate the company had a burn rate (spending on its operations and exploration activities) of $0.20 million per month in FY2011. The table below shows a summary of the company’s




Valuation &

Rating

cash and liquidity position.

(in C$) 2010 2011

Working Capital 2,430,345 951,374

Current Ratio 30.31 6.32

Monthly Burn Rate (incl. exploration) (117,784) (197,618)

Cash from Financing Activities 2,467,118 884,616

LT Debt / Assets - -

Subsequent Financings:

• In January 2012, the company completed the second and final tranche of a non-brokered private placement for gross proceeds of $0.38 million. The company issued 1.53 million units. Each unit consists of a common share and one-half of a share purchase warrant (exercise price - $0.40; maturity – 2 years).

• On May 5, 2012, the company announced a non-brokered private placement for up to 12 million units at a unit price of $0.25 for gross proceeds of $3 million. Each unit consists of a common share and one-half of a share purchase warrant (exercise price - $0.40; maturity – 1.5 years).

The company currently has about $1 million in cash – which should be sufficient for

another 4 – 6 months. The proposed $3 million financing will enable the company to fund the capital requirements for the tailings production facility.

Stock Options and Warrants - We estimate the company currently has 2.93 million stock options (weighted average exercise price - $0.35) and 16.34 million warrants (weighted average exercise price - $0.54) outstanding. Currently, 0.28 million options are in the money.

Our DCF valuation on ELS is $0.25 per share. A summary of our valuation is shown in the table below. Our valuation of the company is based only on silver/gold production from

the historic tailings stockpile, and does not take into account the exploration potential

of the property which is at an early stage.

As mentioned earlier, we believe the stock pile should contain between 750,000 to 800,000 tons of material. At this time, we feel it is too early to assign a valuation on the potential resources at Gold Hill or any of the company’s other targets. Also, there has not been enough work done on the 700 level ore dump for us to assign a valuation.




Resource (in tons) 775,000

Wt. Avg. Ag Grade (opt) 2.73

Wt. Avg. Au Grade (opt) 0.01

Ag Recovery (%) 79.4%

Au Recovery (%) 94%

Recovered Ag (in troy oz) 1,681,998

Recovered Au (in troy oz) 8,276

Production Commencement mid 2013

Mill Processing (tpd) 250

Mine Life (in years) 9

Au Price (US$/oz)$1,500/oz in 2013, $1,400/oz in

2014, and $1,200/oz for 2015+

Ag Price (US$/oz)$27.5/oz in 2013 ,$25/oz in 2014,

and $22/oz for 2015+

LT C$/US$ (2015+) 1.1

Average Operating Costs (US$/ton) $20

Capital Costs (in $) $3,000,000

Discount Rate 10%

Fair Value (after-tax @ 10%) $8,385,333

Working Capital*

$3,912,374

No. of Shares (diluted)*

49,783,686

Value per Share $0.25

* Assumes the proposed $3 million financing is completed

* The number of shares were calculated based on the treasury stock method

DCF Valuation Summary

The sensitivity of our valuation to silver prices and discount rate is shown below.

$0.25 8.0% 10.0% 12.0%

$16 $0.20 $0.19 $0.18

$18 $0.22 $0.21 $0.19

$20 $0.24 $0.23 $0.21

$22 $0.27 $0.25 $0.23

$24 $0.29 $0.27 $0.25

$26 $0.31 $0.29 $0.27

$28 $0.34 $0.31 $0.28

Valuation Sensitivity Discount Rate (% )

Silver Price

(US$/oz)

Our in-house models indicate that the peer average Enterprise Value to resource ratio of junior producing projects is $5.26 per silver equivalent ounce. We feel it is appropriate to compare the company’s tailings project to junior producers as it is extremely close to production and the capital required to commence production is minimal ($3 million). Therefore, the market value of the silver equivalent ounces in the tailings should be comparable to the market values of silver equivalent ounces held by junior producers. Based on a $5.26 per oz metric, we arrived at a comparables valuation of $0.35 per share.




Risks

Comparables Valuation

Fair Value $13,668,653

Working Capital* $3,912,374

No. of Shares (diluted)* 49,783,686

Value per Share $0.35

* Assumes the proposed $3 million financing is completed

* The number of shares were calculated based on the treasury stock method The average of our DCF and comparables valuation is $0.30 per share; the current share price is $0.26 per share. Again, note that our current valuation is solely based on

silver/gold production from the historic tailings stockpile and does not take into

account the potential resource at the Gold Hill deposit or any other potential targets on

the property. The primary reason for this is because there is not enough information available for us to estimate a resource at Gold Hill. For these reasons, we do not believe our valuation represents the fair value of ELS; we, therefore, do not assign a ‘fair value’ or

‘rating’ on ELS at this time.

As detailed above, resource definition drilling is ongoing and the company expects to produce a NI 43-101 compliant resource by the end of Q3 2012. However, the initial drill results from the 2012 exploration at Gold Hill are positive and demonstrate the potential to define a resource. We conclude that ELS would be attractive for an investor wanting to

invest in the tailings project with speculative exploration upside. The following will result in a significant change in our valuation:

• An initial NI 43-101 complaint resource estimate for the Gold Hill area – expected by the end of Q3 2012.

• When the company has a reasonable estimate on the size/metallurgy/economics of the ore at the 700 level waste dump

• Identification of additional deposits on the property (longer term catalyst) The following risks, though not exhaustive, may cause our estimates to differ from actual results:

• The success of drilling, resource expansion, and development are important long-term success factors for the company.

• At this time, the company has not defined a NI 43-101 resource, and does not own a producing mineral property.

• The value of the company depends on commodity prices.

• The ability to raise capital and share dilution.

• Political risk could have an effect on project development and investor interest.

• Road access to the property is relatively difficult and can become worse during the Monsoon season. We consider this a minor risk.

We rate the company’s shares a RISK of 5 (Highly Speculative).




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

The opinions expressed in this report are the true opinions of the analyst about this company and industry. 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 guarantee that our forecasts will materialize. Actual results will likely vary. The analyst and Fundamental Research Corp. “FRC” does not own any shares of the subject company, does not make a market or offer shares for sale of the subject company, and does not have any investment banking business with the subject company. Fees were paid by ELS to FRC. The purpose of the fee is to subsidize the high costs of research and monitoring. FRC takes steps to ensure independence including setting fees in advance and utilizing analysts who must abide by CFA Institute Code of Ethics and Standards of Professional Conduct. Additionally, analysts may not trade in any security under coverage. Our full editorial control of all research, timing of release of the reports, and release of liability for negative reports are protected contractually. To further ensure independence, ELS has agreed to a minimum coverage term including an initial report and three updates. Coverage can not be unilaterally terminated. Distribution procedure: our reports are distributed first to our web-based subscribers on the date shown on this report then made available to delayed access users through various other channels for a limited time. The performance of FRC’s research is ranked by Investars. Full rankings and are available at www.investars.com. The distribution of FRC’s ratings are as follows: BUY (68%), HOLD (8%), SELL (4%), SUSPEND (20%). To subscribe for real-time access to research, visit http://www.researchfrc.com/subscribe.php for subscription options. This report contains "forward looking" statements. Forward-looking statements regarding the Company and/or stock’s performance inherently involve risks and uncertainties that could cause actual results to differ from such forward-looking statements. Factors that would cause or contribute to such differences include, but are not limited to, continued acceptance of the Company's products/services in the marketplace; acceptance in the marketplace of the Company's new product lines/services; competitive factors; new product/service introductions by others; technological changes; dependence on suppliers; systematic market risks and other risks discussed in the Company's periodic report filings, including interim reports, annual reports, and annual information forms filed with the various securities regulators. By making these forward looking statements, Fundamental Research Corp. and the analyst/author of this report undertakes no obligation to update these statements for revisions or changes after the date of this report. A report initiating coverage will most often be updated quarterly while a report issuing a rating may have no further or less frequent updates because the subject company is likely to be in earlier stages where nothing material may occur quarter to quarter. Fundamental Research Corp DOES NOT MAKE ANY WARRANTIES, EXPRESSED OR IMPLIED, AS TO RESULTS TO BE OBTAINED FROM USING THIS INFORMATION AND MAKES NO EXPRESS OR IMPLIED WARRANTIES OR FITNESS FOR A PARTICULAR USE. ANYONE USING THIS REPORT ASSUMES FULL RESPONSIBILITY FOR WHATEVER RESULTS THEY OBTAIN FROM WHATEVER USE THE INFORMATION WAS PUT TO. ALWAYS TALK TO YOUR FINANCIAL ADVISOR BEFORE YOU INVEST. WHETHER A STOCK SHOULD BE INCLUDED IN A PORTFOLIO DEPENDS ON ONE’S RISK TOLERANCE, OBJECTIVES, SITUATION, RETURN ON OTHER ASSETS, ETC. ONLY YOUR INVESTMENT ADVISOR WHO KNOWS YOUR UNIQUE CIRCUMSTANCES CAN MAKE A PROPER RECOMMENDATION AS TO THE MERIT OF ANY PARTICULAR SECURITY FOR INCLUSION IN YOUR PORTFOLIO. This REPORT is solely for informative purposes and is not a solicitation or an offer to buy or sell any security. It is not intended as being a complete description of the company, industry, securities or developments referred to in the material. Any forecasts contained in this report were independently prepared unless otherwise stated, and HAVE NOT BEEN endorsed by the Management of the company which is the subject of this report. Additional information is available upon request. THIS REPORT IS COPYRIGHT. YOU MAY NOT REDISTRIBUTE THIS REPORT WITHOUT OUR PERMISSION. Please give proper credit, including citing Fundamental Research Corp and/or the analyst, when quoting information from this report. The information contained in this report is intended to be viewed only in jurisdictions where it may be legally viewed and is not intended for use by any person or entity in any jurisdiction where such use would be contrary to local regulations or which would require any registration requirement within such jurisdiction.

El Tigre Silver Corp. (TSXV: ELS, Frankfurt: 5RT, OTCQX ... · El Tigre Silver Corp. is a Vancouver...

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