www.investologyinc.com/reports/paid/Entourage_Final040406v2.pdfEntourage Mining Ltd. (OTC BB: ETGMF)Riding the Commodity Cycle
Investment Outlook:
PositiveVolatility Risk:
High 12 month target price:
C$0.63Analyst: Waheed Hassan, CFA Report Date: 05 April, 2006
Waheed@investologyinc.net
Price as on 4 April, 2006 ~ $0.38
Dil. Shares Outstanding ~ 74.1 million
Restricted Shares ~ 51.96 million
Free Float ~ 9.0 million
Market Cap. ~ 31.6million
Investment Highlights• Diversified property portfolio with exposure to Gold, Uranium and Diamonds
• Received NI 43-101 Report indicates high reserve potential for a Uranium property
• Drilling underway at the Hatchet Lake Uranium Property and the Smeaton Diamond prospect
• Undervalued compared to peer companies.
Entourage is an attractive investment opportunity with prospects in prolific base and precious metal territories. The company has filed the NI 43-101 report on its Doran Uranium property and has also intersected kimberlite at its Smeaton Diamond prospect. Its current market price does not appear to reflect the potential of its prospect portfolio, and is trading below the valuations of its peers. We are initiating coverage with a Positive Rating.
• Diversified Property Portfolio Close to Producing Properties: Entourage prospect inventory includes Uranium, Diamond and Gold prospects in territories known for these metals. For instance, its Uranium prospects and gold prospects are in the Athabasca Basin, Saskatchewan and the State of Nevada respectively, which are world renowned for Uranium and Gold. Its assets are flanked by producing properties with proven resources and advanced stage projects.
• Benefits from Mining Friendly Environments in Operating Regions: Backed by their high mineral reserves and mining friendly policy framework, Nevada and Quebec were ranked as the second and the fourth most attractive mining destinations in the world respectively during the 2004 Fraser Institute survey. This attaches a high value to Entourage’s prospect portfolio and decreases its risk profile considerably.
• Entourage Prospects are Fast Reaching Advanced Exploration Stages: Entourage’s Diamond and Uranium properties are fast reaching advanced exploration stages. The company just filed the NI 43-101 report for Doran (Quebec Uranium prospect). The Report has confirmed the presence of uranium and thorium. While the company is yet to fully establish the reserve potential of its Doran Property, preliminary drill tests as confirmed in the 43-101 Report remain promising.
• Intersects Kimberlite at Smeaton : Entourage’s drilling program at its Smeaton diamond prospect has intersected kimberlite during the drill programme. Encouraged by this result, the company at present is aggressively developing the Smeaton.
Company ProfileEntourage Mining Ltd. (‘ETGMF’) was originally incorporated under the name, Entourage Holdings Ltd., pursuant to the Company Act (British Columbia) on June 16, 1995. In June’96, it changed its name to Entourage Mining Ltd. On Feb’04, the company started trading on the Over-the-Counter Bulletin Board in the United States. ETGMF’s subsidiary, Entourage USA Inc., is domiciled in Reno, Nevada, and is responsible for acquiring exploration properties in the United States.
ETGMF is a natural resource company engaged in the acquisition and exploration of natural resource properties. It has entered into the following options on various properties:
• 90% interest in and to 70 gold/silver mineral claims situated in Esmeralda County Nevada;
• 100% interest in and to 44 mineral claims known as the Doran Uranium Deposit in the Baie Johan Beetz area of Costebelle Township, Quebec;
• 50% interest in 16,990 hectares (41,864 acres) of contiguous claims known as the Hatchet Lake that have been subject to previous exploration for uranium claims situated in the Athabaska Basin of Northern Saskatchewan;
Presently, ETGMF is concentrating its exploration activities on the Doran and Hatchet Lake Properties which are prospective for uranium.
Risk: ETGMF is a high-risk investment. It is a development stage company with limited operating history. It does not have a track record of producing minerals from either existing or future properties. The company needs equity or debt injection to sustain operations and undertake new drilling activity, which could be potentially dilutive for shareholders. The company is unlikely to be profitable in the short term. Investors also need to be careful about the liquidity risk in ETGMF shares given its relatively low trading volume. ETGMF share price is also subject to high volatility.
ValuationEntourage’s operating environment involves some uncertainties as its value depends on the accuracy of reserve estimates and the extent of actual reserves in its properties. The volatile nature of commodity prices, early stages of its exploration program and the execution risk surrounding any mining venture add further uncertainty. However, the continued strength in commodity prices (particularly those Entourage properties have exposure to) and promising initial test results from its properties offer considerable comfort.
In the absence of earnings, relative valuation models such as PE ratio and Price/Book Value ratio cannot be used for junior mining companies. While the use of Net Present Value (NPV) approach is common in the resources sector, Entourage properties have not progressed far enough to ascertain their resource potential to be used in a NPV model. Its prospects are currently at the exploration stage with much of their reserves yet to be proven.
Consequently, we used the Market Capitalisation to Mining Asset ratio of comparable companies engaged in the exploration of Uranium, gold and other base metals for our valuation. We selected companies with operations in the Athabasca Basin and Quebec. Companies selected have operations and prospects similar to Entourage properties.
We deliberately included companies trading at low multiples to decrease our sample valuation. For instance the Market Cap to Mining Assets ratios for Frontier Development Group (NYSE: FRG) and United Carina Resources (TSX-V:UCA) are considerably lower compared to Entourage and other companies in the same space. Despite its steep valuations, we also included Nova Uranium Corporation (TSX-V: NUC) in the sample in view of Entourage’s exposure to the same commodities as well as its proximity to NUC assets and geological similarities. We avoided including too many junior mining companies in our sample as they are currently trading on very high valuations. The sample selected in our view appears to be adequately representative.
Target price C$ 0.63
Source: Analyst Estimates
The Market Cap to Mining Assets ratio for the selected sample (based on April 04, 2006 prices) is 46.3x compared to 31.6x for Entourage. As we have already included several companies trading at lower valuations compared to Entourage, we did not provide a further discount. The selected sample appears to reflect uncertainties surrounding Entourage’s early stage properties and yet to be proven reserves in its prospects.
Based on a target Market Cap to Mining Assets ratio of 46x Entourage target price amounts to C$0.63. This represents approximately 50% upside potential.
It should be noted that we may re-visit our valuation and target price as Entourage progresses its development work. If we increase the probability of success in our valuation models in view of its promising reserve potential, our target price would be considerably higher.
We are comfortable with our price target given the share price performance of Entourage’s comparables such as Nova Uranium (NUC.V). NUC is also engaged in the development of Uranium assets in Quebec. Its current market capitalisation is C$ 68 million and the stock is now trading at C$4.00 (April 04, 2006). Aided by promising drill results and the confirmation of Uranium at its Mont Laurier property in southern Quebec, NUC stock took off in December 2005 gaining over 140% in just one month. Meanwhile, drill results at Doran or at Smeaton properties, though promising enough, have not provided a similar momentum to Entourage.
NUC Share Price Performance
Given the promising previous drill results at its Doran property, Entourage’s current valuation, both in comparison with NUC as well as other peers appears to be relatively low. The NI 43-101 has confirmed Doran’s uranium potential and has recommended further drilling for a complete estimation of its resources. The market does not appear to have factored in this development into the company’s stock price. However, we view the excellent performance of NUC as a foretaste of what can be expected from Entourage stock, providing of course further prove-up of its reserves.
www.investologyinc.net 4 05 April 2006
Given the promising previous drill results at its Doran property, Entourage’s current valuation, both in comparison with NUC as well as other peers appears to be relatively low. The NI 43-101 has confirmed Doran’s uranium potential and has recommended further drilling for a complete estimation of its resources. The market does not appear to have factored in this development into the company’s stock price. However, we view the excellent performance of NUC as a foretaste of what can be expected from Entourage stock, providing of course further prove-up of its reserves.
ProjectsEntourage prospects are located in mining friendly territories such as Nevada and Quebec, which were ranked as the second and the fourth most attractive mining destinations in the world respectively during the 2004 Fraser Institute survey. The Fraser Institute is an independent public policy organisation based in Canada. Rich mineral reserves supported by attractive geological characteristics together with mining friendly regulatory environment were the reasons behind these high rankings. Nevada ranked highly on the Mineral Potential Index (92) and had the top score on the Policy Potential Index (89). Quebec also scored high both on mineral potential (89) and policy potential (80). This decreases Entourage risk profile considerably, as the company is operating in high mineral potential territories with little bureaucratic hindrances.
Successful mining history supported by geological characteristics of both Nevada and Quebec provides a glimpse of true potential Entourage offers to investors. Nevada is one of three premier gold-producing regions in the world, and currently produces approximately 8 million ounces of gold annually. It has produced over 100 million ounces in the last twenty years. The state ranks as the largest gold producing area in the US (76%) and the third largest in the world (11%) behind South Africa and Australia. All major mining companies such as Newmont Mining, Barrick Gold, Placer Dome etc have a considerable presence in Nevada with several producing mines.
Mining potential is equally promising in Quebec as well. Quebec is characterized by its rich mineral resources and there are many well-known mining companies such as BHP Billiton, Falconbridge, Norand and Barrick-Placer Dome operating in the province. Some of its mineral deposits such as Horne, Gaspé Copper, LaRonde mines (base metals), and the Doyon and Sigma-Lamaque mines (gold) are considered world-class. The Quebec government also offers many incentives for exploration companies. Owing to tax incentives and other concessions together with its rich mineral reserves, Quebec has the lowest net cost of exploration in Canada. Entourage’s Doran Uranium Property benefits from these incentives.
BLACK WARRIOR PROJECT (ESMERALDA COUNTY, NEVADA)The Black Warrior Property is situated in Esmeralda County, Nevada about 50 miles southwest of Goldfield. Goldfield, the county seat, is 260 miles southeast of Reno and 183 miles northwest of Las Vegas. Entourage Mining Ltd. acquired the claims from Goodsprings Development Corporation of Nevada. The elevation on the property ranges from 4,960 feet on the eastern border to 6,000 feet on the western boundary of the claims.
The property lies in the south-central portion of the Walker Lane Belt (WLB), a tectonically 'disturbed zone' which marks the physio-graphic boundary between the predominantly NNE trending ranges of Nevada in the central Great Basin and the NW trending blocks of the composite Sierra Nevada massif in eastern California. The WLB is a composite of 9 structural blocks with differing structural styles. The presence of abundant, faulted, volcanic cover rocks of Late Cenozoic age across much of the WLB indicates that regardless of style, faulting in all structural blocks is of the same age span, Late Cenozoic. In the Silver Peak and Lone Mountain areas, a low-angle decollement surface separates an extended upper plate of brittle deformed Proterozoic and Lower Paleozoic rocks from penetratively deformed Precambrian sedimentary rocks and plutonic rocks of various ages.
The Black Warrior project is a low-sulfidation, vein hosted system with potential for discovery of bulk-tonnage Au-Ag, Cu-Pb-Zn mineralization, high-grade Ag-Au veins and deep sediment-hosted gold mineralization.
Regional Update - Nevada1Nevada’s production of gold, valued at $2.8 billion, was 84% of the U.S. total and helped make the U.S. the third leading gold producer in the world in 2004. Nevada alone accounted for 9% of world production of gold. Only the countries of South Africa and Australia produced more gold than the State of Nevada in 2004.
1 The Nevada Mineral Industry 2004, Nevada Bureau of Mines and Geology Special Publication MI-2004
THE DORAN URANIUM PROPERTYThe Doran property is located in the southeastern part of Quebec, along the north shore of the Gulf of St. Lawrence, and about 25 kilometers west of Aguanish, approximately 85 kilometers east of Havre St. Pierre. The property extends inland from the Gulf of St Lawrence a distance of approximately 10 kilometers to the north.
The topography of the property for the most part is rolling hills having a maximum relief of 100 feet with elevation ranging from sea level to 100 feet. All mineralized areas of interest are located comfortably above sea and river levels. Any heavy equipment could very easily be driven from the road to any of the mineralized zones. The Doran claim block consists of 44 contiguous mineral claims (polygons) covering approximately 2473.3 hectares in the Baie Johan Beetz area
Given below are some excerpts from the summary report of Mr. Ostensoe: "The Main Zone grid of cleared, measured and flagged lines comprised thirty-one 800 meter long lines, spaced 50 meters apart, (total length 24.8 km) and two end lines, each 1500 meters long, that served as control measures. The North Zone grid included ten lines with length 400-500 meters each (total length 5.15 km).
Sufficient GPS observations were recorded to enable accurate plotting of grids. Almost 200 rock and rock chip samples were obtained as part of the recent work. These will, when analyzed, enable a preliminary determination of the merits of the Doran property. The initial results of work in the field indicate high "counts per second" scintillometer readings, indicative of concentrations of radioactive mineralization. The areas of interest have large surface dimensions and, if they can be shown to have vertical persistence, may have important volumes of potentially mineable materials and thus have the potential, with further work, to become high tonnage deposits with economically attractive amounts of uranium."
THE HATCHET LAKE URANIUM PROPERTIESThe Hatchet Lake properties are located in the Saskatchewan province and are 30 kilometers north and northeast of four known uranium deposits (Rabbit Lake, McLean Lake, Collins Bay and Eagle Point) and consist of 14,529 hectares (35,800 acres) of prospective uranium properties.
Previous work on the claims have yielded surface showings of 0.3 per cent to 1.4 per cent U3O8.
Immediately up-ice from the site and within the overall geo-chemical anomaly are two untested geophysical conductors. These conductors occur 10 kilometers along strike of Areva's Moonlight zone, which has intersections up to 1.76 per cent U3O8 over 1.5 meters. These two conductors are targets to be tested in Phase One of the drill program. Sandstone thickness in the area of the conductors is estimated to be 50 meters.
The qualified person, as that term is defined in National Instrument 43-101, on this project is Mr. Daniel Studer, P. Geo., of Saskatoon, Saskatchewan. Entourage has the right to earn 50% of the Hatchet Lake claims from United Carina Resources Corp.(OTCBB:ETGMF) United Carina Resources Corp., a Saskatchewan based mineral exploration company, owns the Hatchet Lake Properties (TSX.V: UCA) and will be the operator of the project. The properties are accessible by improved gravel road from Highway 905 North in north central Saskatchewan.
Regional Update - Saskatchewan2Saskatchewan is currently the largest uranium producing region in the world and accounts for more than 25% of annual world uranium production. Saskatchewan's uranium mining industry is expected to remain competitive well into the future due to its substantial, lower-cost, high-grade uranium resources. Saskatchewan's uranium resources are sufficient for more than 40 years at current rates of production.
Uranium has been produced from two main areas in Saskatchewan. The initial discovery and development of uranium deposits occurred in the Beaverlodge District, on the north shore of Lake Athabasca. This was followed by uranium production from the high grade deposits of the Athabasca Basin began in 1975 at Rabbit Lake. The richest uranium deposits in the world occur at or near the base of the Athabasca Basin sandstone sequence, near the erosional unconformity with the underlying crystalline rocks. The uranium ores in are predominantly pitchblende, which is a sooty, black mineral.
2 Canada's Uranium Production & Nuclear Power, Nuclear Issues Briefing Paper # 3, February 2006There are currently three uranium mining operations in the province; Rabbit Lake, Cluff Lake and Key Lake
Recent Developments
Doran NI 43-101 ReportEntourage has just completed and filed the NI 43-101 Report for its Doran property. While primary uranium minerals are yet to be identified, the report confirms the scintillometer detection of large contrasts in the strength of the radiometric characteristics of the formations. In addition, chemical analysis confirms the presence of uranium and thorium, along with other sources of radiation, including potassium in feldspars.
Based on some 113 samples taken from 47 saw-cut trenches on the Main Zone and its continuations and a further 23 samples of saw-cut and rock chip materials from the North Zone, the report has confirmed that there is a high probability of uranium minerals. The report has recommended further exploration work as the initial indicators fully warranted a more comprehensive drill programme. Entourage is expected to continue its drill programmes and we may re-visit our valuations depending on drill results and related announcements.
Smeaton Diamond ProspectProgress Continues at Entourage’s Smeaton/Forte a la Corne diamond prospect as well. The Operator has intersected kimberlite or a closely related kimberlitic rock type on the first target during the drilling program. The Operator has reported intersecting apparently re-sedimented and primary kimberlitic breccia and magmatic rocks from 162.2 meters to 270.4 meters beneath overburden, glacial till and Cretaceous sedimentary strata. The drill hole was stopped at 282.5 meters in sediments due to difficult drilling conditions.
Two pieces of core totaling 30 cm in length were provided to the Company, and examined by independent consultant Harrison Cookenboo (Ph.D., P.Geo), a Qualified Person as that term is defined in National Instrument 43-101. Based on his preliminary petrographic examination, Dr Cookenboo has acknowledged that both pieces of core are in most respects closely similar to macrocrystic serpentine calcite kimberlite. He has further suggested that the examined samples to be best referred to as kimberlite or a closely related "kimberlitic" rock type with the potential for carrying diamonds". Detailed evaluation of indicator mineral chemistry, micro-diamond content, and geochemistry are being undertaken to better define the diamond potential of the kimberlitic rocks.
Entourage is expected to continue the development of both Doran and the Smeaton prospects. Initial drill results indicate the potential of both these prospects to host economic mines. The corporate strategy of Entourage is to explore, develop and prove-up the reserve potential of its assets and then sell them to a larger company for further development. The company however may retain a minority stake in a producing mine, In this backdrop, the company’s ability to prove up its reserves plays an important role. It would help Entourage secure a premium for its assets at the time of sale thus rewarding its investors through capital gains. Promising drill results so far are not reflected in Entourage stock price. Given the performance of its peers in the same area, and in the same business, we believe that Entourage stock has potential for further price appreciation.
MANAGEMENTDr. Paul Shatzko
Director and ChairmanDr. Shatzko is a retired radiologist and self employed businessman. He is the founder and former Chairman of Mountain Province Diamonds (MPV.T), a Toronto Stock Exchange listed mining company. He is also a director of several public companies and has been a director of Entourage Mining Ltd. since July 31, 2004.
Gregory Kennedy
Director, President and Chief Executive OfficerMr. Kennedy was appointed as President of Entourage Mining in April’04. Since May 2003, he has been a Director of the Company. Prior to that he was the Vice President of Operations at Abbastar Holdings Ltd. (TSXV: ABA.H) from July 2001 to May 2003. From November 1998 to December 2000, Mr. Kennedy was Marketing Director of Titan Trading Analytics Inc. (TTA.V) located in Vancouver, British Columbia. Titan Trading is a publicly traded purveyor of computer software designed for the securities and investment community. From January 1991 to November 1998, Mr. Kennedy was a stockbroker with McDermid St. Lawrence Securities, now Raymond James Canada, located in Vancouver, British Columbia.
Michael Hart
Director and Corporate SecretaryMr. Hart worked in the financial markets sector with a number of large financial institutions between 1983 and 1990 where he acted as an account executive and financial consultant. From 1990-1995, Mr. Hart worked as the business and sales manager within the automotive industry. Subsequent to 1995, Mr. Hart worked with an investment-banking group that was responsible for taking projects from start up to the public markets and has had experience with public companies in the oil and gas industry. Currently, Mr. Hart is a member of the Board of Directors of AMG Oil Ltd. and Trans_Orient Petroleum. Mr. Hart is a Member of the Board and the Corporate Secretary for Entourage Mining Ltd.
Corey Klassen
DirectorMr. Klassen, a Calgary Alberta resident, has an economics background and for the past 10 years has been focusing on Business Development Management for major Canadian Financial Institutions and Mortgage Brokering firms. Mr. Klassen is an active member of the Mortgage Brokers Association of British Columbia (MBABC), The Alberta Mortgage Brokers Association (AMBA), and The Canadian Institute of Mortgage Brokers and Lenders (CIMBL).
Craig Doctor
Corporate Communications ConsultantCraig's Company, Doc's Consulting Ltd., has over twenty years experience consulting to junior capital companies in the mining industry.
Owner
