July 9, 2008

Phoscan Chemical (FOS : TSX-V : $1.70) - Buy - Target: $4.70 Keith Carpenter

Comment: Initiating coverage on PhosCan with a BUY rating and C$4.70 target price

We are initiating coverage of the PhosCan Chemical with a BUY rating based on the following conclusions:

Stronger phosphate markets going forward. As we highlighted in our thematic piece, "The Modernization of the BRICs", we believe the phosphate market has undergone a significant change that will lead to higher prices going forward.

Lower-cost access to markets. PhosCan's proposed Martison project is expected to benefit from a superior product in super phosphoric acid (SPA) and lower-cost access to its target markets for both monoammonium phosphate

(MAP) and SPA.

Ability to capitalize on structural issues in the SPA market. Due to the structure of the market and recent events, PhosCan has an opportunity to serve the supply-constrained SPA market with a product offering that provides flexibility in output.

Strong management team. PhosCan has done an excellent job in sourcing the strongest management team in the junior fertilizer space, in our opinion, to move the project through to production.

Valuation. We value the shares of PhosCan Chemical on a 1.0x NAV of $4.70, using a long-term MAP and SPA price of US$650/t and US$1,250/t fob, respectively, and a 10% discount rate.