Recent coverage put out on MNM by Hallgarten & Company in NewYork.

12 Month Target: $1.60

Hallgarten & Company 60 Madison Ave New York, NY 10010 T 973-889-1136
Hallgarten & Company
Initiating Coverage
Christopher Ecclestone
[email protected]

Magellan Minerals (TSX: MNM.v)
Strategy: Long

http://www.hallgartenco.com/production.asp


Magellan Minerals
The explorer to follow in the Brazilian jungle

+ Magellan is positioned in the Tapajos region of northern Brazil where the garimpeiro mining
boom of recent decades unearthed enormous amounts of gold. The region is now moving on
to a more mature mining culture.

+ The company’s founders are veterans of BHP and Rio Tinto and were responsible for finding
the Tocatinzinho deposit in the Tapajos that is now owned by Brazauro and being proved up
by Eldorado Gold (EGO)

+ Magellan has recently merged with Chapleau Resources bringing on board seasoned
management, some extra cash resources and a new project.

+ Company has two gold majors on its register in the form of Newmont and Kinross

+ The company is very keen to move to production even if that means acquiring some small
production assets in the short term.


Conclusion

The Magellan story is really quite simple. The company has entered the Amazonian jungle on the heels of
the garimpeiros. Call them what one might, this group of miners were very successful in identifying
deposits, inefficient in exploiting them (throwing sheer manpower at the problem) and then disastrous
environmentally in the mining process and the devastation left behind. It is well known that we are always
partial to an old mine site as by its very nature a mine that was inefficiently exploited in the past must
have residual resources on site. And when the previous exploiters of the site operated on such a primitive
level it is almost guaranteed that they were merely (and literally) scratching the surface of whatever
resource there might be.

The merger with Chapleau gives the merged group more economies of scale in the region but the usual
advantages accruing from a merger are not there. One project is not necessarily much more advanced
than the other and neither partner is laden with cash. If anything the have achieved a greater
concentration of assets in the area where good properties are hard to find (and access). However
Chapleau brought the attraction that the Coringa project had an imminent 43-101 being issued and thus is
possible as the first property to move to production (albeit limited). Cuiu Cuiu on the other hand has such
a dizzying array of prospective sites that it is hard to determine which is more meritorious than the next.
All are strewn along the range between good and great.

The first hurdle to leap will be the financing needs. There is no gun against the head with $4.5mn in cash
and liquids at the company’s disposal, but neither does the current stash count much in moving the
various balls forward. If the amount to be raised is moderated to the tenor of the market’s mood then the
company will have enough on board to kill various birds with multiple stones. Getting a scoping study in
the bag for Coringa would excite us a lot. Buying a small producing property would produce a similar
effect. More drilling is fine if one or more of the aforementioned is also achieved. We are initiating
coverage of Magellan with a 12 mt price target of CAD$1.60 and a Buy rating.