Market Equities Research Group Equities Commentary December 3, 2008 1:37AM EST  Content found herein is not investment advise see Terms of Use, Disclaimer, & Disclosure

The following is an addendum to our December 1, 2008 segment on celebrated contrarian investment advisor Dr. Marc Faber having told Bloomberg television that he was now buying gold exploration stocks as well as gold producers. We presented a list of gold companies that have good cash position and/or are producing cash-flow positive from operations, of which Metanor Resources Inc. was a candidate.

Metanor Resources Inc. (TSX-V: MTO) highly profitable in bulk sample phase;

CDN$800K cash flow profit on a straight accounting basis in quarter ending Sept 30/08

Preamble: Metanor Resources Inc. (TSX-V: MTO) is an unhedged gold producer in mining friendly Quebec. Metanor at its 100% owned 1,200 (upgradeable capacity) TPD mill in Desmaraisville (Val d'Or) is now a full fledged commercial producer as of October 1, 2008. Production in 2008/09 should conservatively come in at 25K oz gold and increase significantly thereafter. Ore extract is coming from their 100% open pit operation on their Barry gold deposit (located approximately 65 km southeast of the mill). With recent (Nov. 08) sales of gold bars by Metanor at ~$CDN1,000/oz MTO.V is experiencing significant positive cash flow from low direct cash cost (~CDN$475/oz) production. The current market cap of MTO.V is less than 30% the replacement value (~CDN$140M) of their infrastructure alone, ignoring the 1M+ oz gold resource, with ever expanding & further significant exploration potential, with substantial revenue projections.   Images from left to right: Ball mill at Bachelor Lake facility, Bachelor Lake Mill & Mine, Barry Deposit

On SEDAR (copies stmt1, stmt2), Dec. 1, 2008, Metanor Resources Inc. filed a quarterly income statement that shows about a $1.3M loss of which was $400K in stock based compensation (which is a non cash item) with no revenue against it. Looking at the deferred development cost and exploration expenses statement… there are $2.7M in expenditures and $4.4M of gold sales. Taking the sales of $4.4M and deducting the aforementioned $1.3M income statement loss then deducting (being conservative) ALL the deferred development costs of $2.7M… Metanor Resources Inc. still made ~$400K AFTER stock based compensation.

Summary:

$2.7M Deferred Development Costs + $1.3M operations loss = $4M of total expenses
Take this away from $4.4M Revenue = $400K Profit + $400K stock based compensation = $800K positive cash flow from operations.

The above numbers are what would have occurred from a proper Profit and Loss Statement but Metanor was still under “bulk sample” mode. Bulk sample just means it is eligible for tax incentives in Quebec.

Metanor only announced commercial production on October 1, 2008, but had they announced commercial production as of July 1st they would have been technically profitable.

Notes to above numbers: Part of the development costs are not all operational, Metanor has many properties and is adding value to them so there are some expenses that would stay capitalized but being conservative Metanor still made $800,000 on a operational cash flow basis, stock based compensation is just a measure of what the options are worth. Metanor’s line of credit reflected the volume of payables paid and inventory build up, but on a straight accounting basis, they made money.

Forward looking: If they can turn a handsome positive cash flow/profit at roughly half of upgradable capacity of the mill with Barry deposit ore and at a point where they are supposed to be ironing out the kinks -- project forward to where the company plans to be at 1200TPD with a mix of higher grade Bachelor Lake/Hewfran and Barry ore and higher efficiencies … the future looks very bright indeed.

Comments: Editor@MarketEquitiesResearch.com