Copper Review 2008

Copper Companies Covered
Base Metal Sector – Copper Overview Name Target Rec.

African Copper $1.50 Buy
Anvil Mining $19.00 Buy
Copper Price – Defying Gravity ? Chariot Resources $1.75 Buy
Equinox Minerals $5.50 Buy
X As we close out 2008, the commodity and equity markets

First Quantum $82.50 Buy
Katanga Mining $20.00 Buy
remain very uncertain and very volatile, driven by the ongoing Lundin Mining $10.00 Buy
concerns of the faltering U.S. economy and the global Marengo Mining $1.05 Buy
Norsemont Mining $6.00 Buy
financial crisis. Sherwood Copper $7.75 Hold
Taseko Mining $8.00 Buy
X Most base metals are undervalued relative to the current Quadra Mining $32.00 Buy
supply/demand situation although in the case of copper there
remains a speculative element that has allowed it to Research Team
outperform its peers. David Davidson

Analyst 416.360.3462
X We see short term risk to the price but the longer term thesis ddavidson@paradigmcap.com
remains essentially intact. The copper equities have
Jacob Willoughby
Analyst 416.361.9557
overreacted on the downside presenting some compelling jwilloughby@paradigmcap.com
investment opportunities. Michael Bandrowski
Associate 416.360.1937
Global Economic Overview – From Confusion Comes Opportunity mbandrowski@paradigmcap.com
Since our July base metals update, the U.S., European and Chinese economies
have all been scrambling to curb the current economic downturn. The Federal
Reserve has been busy trying to calm the financial markets. In an effort to ensure Sales
financial soundness the Federal Reserve placed mortgage lending giants Fannie Toronto 416.361.1064
Mae and Freddie Mac under federal protection. Last week it also threw AIG a $85 Calgary 877.513.1025
billion life line and injected $55 billion into the US capital markets. Merrill Lynch Paradigm Capital research is available on First Call,
was recently engulfed by Bank of America and Lehman Brothers has just filed the Reuters or at www.paradigmcap.com
largest Chapter 11 in US history. In addition, global stock markets have been Refer to last page for official disclaimer
subject to drastic declines including the Russian exchanges which saw the heads Issued by Paradigm Capital Inc.
of the Russian central banks suspend trading due to a 20% slide, primarily due to
sinking oil prices and declining money markets. The recent $81 rise in the
benchmark U.S. gold contract for December delivery was gold's biggest one-day
rise in absolute terms since 1980 and the biggest one-day percentage gain for gold
futures since February 2000. The global economy is stuck between slowing
demand in developed economies and rising global inflation, particularly in emerging
economies. Many economists expect global growth to decelerate through 2008 and
slowly recover through 2009. Currently, inflationary pressure has put added
pressure on policy makers as they try to avert the risk to growth. It is now quite
clear that the US economy has dragged down the rest of the developing world. As
far as the metals are concerned, 2007 and the first half of 2008 was a recession
year in the U.S. with demand being negative for the first time in five years. Asia, in
particular China, has been the engine of global economic growth since 2001,
averaging in excess of 10% for the past five years. There are legitimate concerns
about how sustainable this growth is as the Chinese government attempts to
stimulate the economy after the manufactured Olympic slowdown. Most forecasters
expect China to have slower growth but still maintain high single digit GDP growth
for the next 2-3 years; long enough to see us well through the balance of the
metals bull market. Europe’s economy continues to churn sideways with exports
slowing considerably over the past quarter. Japan has begun to give indications of
weaker growth due to reduced U.S. exports.
Paradigm Capital Inc, IIROC/TSX Member 1 September 24, 2008

David Davison, Analyst 416.360.3462
Jacob Willoughby, Analyst 416.361.9557
Michael Bandrowski, Associate 416.360.1397
Underlying base metal demand is driven by global industrial production, which has
been pegged at 2.5% for 2008. The Baltic Dry Index, See Figure 1, while slowing
significantly in recent weeks, remains at elevated levels indicating that the
movement of bulk commodities, particularly coal, fertilizer and grains, around the
world continues to be strong. While the miracle of global synchronized growth has
dissipated, we are of the strong belief that after a few quarters of slow, but slightly
positive growth, the world’s economy will reengage and continue to fuel the current
commodity boom. It is our view that the commodity cycle has temporarily stalled,
not ended.
Figure 1: Baltic Dry Index
12500
12000
11500
11000
10500
10000
9500
Baltic Dry Index (Monthly)
9000
8500
8000
7500
7000
6500
6000
5500
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0
Sep-85
Sep-86
Sep-87
Sep-88
Sep-89
Sep-90
Sep-91
Sep-92
Sep-93
Sep-94
Sep-95
Sep-96
Sep-97
Sep-98
Sep-99
Sep-00
Sep-01
Sep-02
Sep-03
Sep-04
Sep-05
Sep-06
Sep-07
Sep-08
Source: Paradigm Capital, Bloomberg
The Resurgence in the US$ - How Sustainable?

The US$ has appreciated anywhere from 1% to 15% relative to its main trading
partners over the past six months, breaking a downward spiral that began in 2003.
Opinion suggests that this relief has been partly manufactured and is short lived.
When one views the carnage in the U.S. financial markets, further erosion of the
dollar is certainly the logical conclusion. For the most part, economists suggest that
the fall in the dollar will only be halted by an increase in US interest rates, or a strong
economic rebound, both seemingly out of the question for the foreseeable future. For
base metal producers in Canada, Australia and South Africa the lower functional
currencies have started to reduce operation costs, however not as rapidly as the
declines in the commodity prices. In Figure 2, we provide the copper price in five
different currencies all of which show a decline from the peak of $3.93 despite the
narrowing of the spread. Copper remains quite compelling compared to the declines
experienced in zinc and nickel which mine margins turn negative and closures have
begun in earnest.
Figure 2: Copper Price Indexed in Major World Currencies
650
Copper Price Index (Indexed to Jan 1/02 = 100)
600
550
500
450
400
350
300
250
200
150
100
50
0
Jan-02
Mar-02
May-02
Jul-02
Nov-02
Jan-03
Mar-03
May-03
Jul-03
Nov-03
Jan-04
Mar-04
May-04
Jul-04
Nov-04
Jan-05
Mar-05
May-05
Jul-05
Nov-05
Jan-06
Mar-06
May-06
Jul-06
Nov-06
Jan-07
Mar-07
May-07
Jul-07
Nov-07
Jan-08
Mar-08
May-08
Jul-08
Sep-02
Sep-03
Sep-04
Sep-05
Sep-06
Sep-07
Sep-08
US$ C$ Yen Euro A$
China – The Copper Dragon

China continues to be the primary engine of global economic growth and most
forecast much the same, albeit at a slower pace, for the foreseeable future. In 2007
China’s GDP growth accounted for approximately 15 - 20% of the world’s total and
apparent copper consumption is expected to reach almost 5 million tonnes annually
in 2008, or approximately 25% of the global total. China also represents nearly 75%
of the annual demand growth in the copper market of approximately 600,000 tonnes.
China surpassed the United States as the largest consumer of steel, coal, copper,
and iron ore in 2002 even though the per capita intensity of use is still very low, See
Figure 3. Exports still drive the economy of China but evidence suggests that
domestic consumption is increasing dramatically with most of it directed to
infrastructure. How China will cope with the post Olympic hangover is the biggest
question on people’s minds. China has recently announced its first interest rate cut in
six years and has indicated that more cuts can be counted on if growth drops too
rapidly. If there is one country in the world that has the resolve and the capital to
stimulate growth, it is China. As most have realized of late, it may not be wise to bet
against her.

Figure 3: Copper – Intensity of Use
Pound per Capita Intensity
50
45
Pounds of Copper
40
35
30
25
20
15
10
5
0
Indonesia
Thailand
Venezuela
Canada
Germany
India
China
Australia
Taiwan
France
Sweden
Korea
Japan
Italy
Russia
Mexico
Brasil
U.K.
U.S.
Country
Source: Paradigm Capital
Investment Themes – Due for a Rebound

The past 12 months have been characterized by deteriorating trends in both the
commodity and related equity prices. However, since early summer we have entered
the stage where extreme volatility has become much more prevalent. The recent
price movements in copper, gold and oil are evidence of the new environment the
markets will have to endure for the next several months. The longer term
fundamentals still remain positive for most commodities if one subscribes to the
theory that China is not on the verge of economic collapse. Of the base metals,
copper, while not immune to a bout of short selling, should lead the way as the
inventory levels remains acceptable, and production is being hampered by capital
constraints, natural disasters, strikes and political interference. Consequently we
continue to recommend selectively buying a basket of copper stocks.
In Figure 4, we plot the TSE Metal and Mineral Index back to 1977 and it becomes
quite obvious that we had a outstanding run of performance during this sixth major
bull cycle. After peaking at 23,990 in October 2007 the index has retrenched by 25%
as of September 2008. We view this as more than just a normal correction but more
of a panic knee jerk reaction. While we do not expect to scale the heights reached in
October 2007 we strongly believe that after the recent period of consolidation of the
equities, we could see the market push to 22,000, up at least another 20% from the
current level.

Figure 4: TSX Metals & Minerals Index
TSX /S&P Canadian Mining Index
26,500
24,500
22,500 Over past six cycles:
20,500 Avg. bull phase: 195% over 50 mos.
Avg. bear phase: (40%) over 26 mos.
18,500
16,500
14,500
12,500
10,500
8,500
6,500
4,500
2,500
500
Jan-77
Jan-78
Jan-79
Jan-80
Jan-81
Jan-82
Jan-83
Jan-84
Jan-85
Jan-86
Jan-87
Jan-88
Jan-89
Jan-90
Jan-91
Jan-92
Jan-93
Jan-94
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Copper Outlook – Speculation or Not - The Market Remains Tight

The strikes at Southern Copper operations in 2007 underlined the labour unrest in
Mexico and Peru. During the first half of 2008 Chile was caught up in union unrest
directed at Codelco. More recently widespread union activity directed at numerous
mining operations in Peru have surfaced. The market has also reacted to the
uncertainty in Zambia and the DRC. Most observers, including ourselves, had
predicted a modest surplus for the copper market at the beginning of the year.
However, the numerous disruptions we have seen in production combined with the
rebuilding of strategic inventories throughout the year in China, has put the market on
course for an essentially balanced market or even a small deficit. Smelting and
refining charges remain at record lows both in the spot and contract markets and
imply a continued shortage of copper concentrate. We maintain a forecast of an
85,000 tonne surplus for 2008, effectively a balanced market, See Table 1. Given the
record low treatment charges being negotiated in China and most recently Japan of
$45 and 4.5 cents per pound indicates that at least the copper concentrate market
remains tight. Continued production disruption will probably keep the market tighter
than our initial forecast of a surplus of 200,000 tonnes in 2009. New green-field
deposits in the pipeline for development are not expected to have a material impact
on the market until 2012 or later.

Table 1: Copper – Supply, Demand & Market Forecasts (000’s tonnes)
Copper - Supply, Demand & Market Balance Forecast (000s Tonnes)
2003 2004 2005 2006 2007E 2008F 2009F

Supply
Western World Refined Production 11,475 11,850 11,750 12,150 12,450 13,000 13,500
Annual % Change -0.6% 3.3% -0.8% 3.4% 2.5% 4.4% 3.8%
Net East Bloc Exports (250) (250) (175) (100) (50) (50) (50)
Annual % Change -350.0% 0.0% -30.0% -42.9% -50.0% 0.0% 0.0%
Total Western World Supply 11,225 11,600 11,575 12,050 12,400 12,950 13,450
Annual % Change -3.6% 3.3% -0.2% 4.1% 2.9% 4.4% 3.9%
Demand
Western World Primary Consumption 11,000 11,504 11,750 12,200 12,650 12,865 13,250
Annual % Change -6.0% 4.6% 2.1% 3.8% 3.7% 1.7% 3.0%
Market Balance 225 96 (175) (150) (250) 85 200
Change in Stocks 75 (814) (25) (125) (100) 85 200

Difference 1 150 910 (150) (25) (150) - -
Total Reported Stocks 1,700 850 825 700 600 685 885
2
Total Stock Ratio (Wks Of Consumpt'n) 8.0 3.8 3.7 3.0 2.5 2.8 3.5
Average Price (LME three month, US$/lb.) $0.81 $1.27 $1.67 $3.03 $3.22 $3.35 $2.95
Price Year to Date (US$/lb.) $3.55
1Difference = "Market Balance" - "Change in Stocks"; Reported stocks do not always represent actual stocks.
2 Total Stock Ratio = "Total Stocks" / "Primary Consumption".
Source: CRU International, Paradigm Capital estimates
Source: CRU International, Paradigm Capital
While most observers fear a U.S. recession it is important to realize that as far as
metal consumption goes, the U.S. market has been in recession since 2007 with de-
stocking in all parts of the pipeline. At some point manufacturers will restock
providing a significant shock to overall demand.
In Figure 5, we have provided the historical copper price plotted against the quarter
ending level of industry and exchange inventory expressed as weeks of consumption
in inventory. Currently, the market is at just over 3 weeks which is similar to last year
at this time. Looking ahead to the last half of 2008, we are forecasting essentially a
balanced market and have inventories rising in 2009 on the back of a surplus of
200,000 tonnes. The reader will notice the normal inventory level is dynamic and over
the past few years somewhat seasonal due largely to China’s influence. Even with
the build in inventories the exchange level is unlike to increase significantly as most
of the inventory build will occur at the manufacturing level as the industry restocks.
This should continue to provide good support for the copper price well into 2009. In
January we had forecast an average copper price of $2.95 for the year with an
average of $3.25 in the first half falling to $2.65 per pound during the second half.
The actual price for the first half of 2008 was $3.65. As expected prices started to
erode during the second half but should average $3.35 for 2008 and $2.95 for 2009.

Figure 5: LME Copper Inventories and 3 Month Copper Price
1,200,000 $4.20
$4.00
1,100,000 $3.80
LME Copper Inventories (tonnes)
$3.60
1,000,000 $3.40
LME Copper Price (US$/lb)

900,000 $3.20
$3.00
800,000 $2.80
$2.60
700,000 $2.40
600,000 $2.20
$2.00
500,000 $1.80
$1.60
400,000 $1.40
$1.20
300,000 $1.00
200,000 $0.80
$0.60
100,000 $0.40
$0.20
0 $0.00
Sep-94
Sep-95
Sep-96
Sep-97
Sep-98
Sep-99
Sep-00
Sep-01
Sep-02
Sep-03
Sep-04
Sep-05
Sep-06
Sep-07
Sep-08
LME Copper Inventory LME Copper Price
Source: CRU International, Paradigm Capital
To provide a back drop to our price forecasts we include the most recent forward
curve compared to the forward curve as of July 2008 and the forward curve as of
October 2006, See Figure 6. Comparing the following forward curves suggest the
following observations. First, our metal price forecasts appear very conservative,
particularly our long-term price of $1.75. Secondly, the forward curve is surprisingly
flat with the five year anchor price of $2.93. Thirdly, the change in slope for the past
two years suggests copper could flip into a five year contango, similar to what
happened to oil in late 2007. Whatever the outcome, professional traders remain very
positive on the long-term price.

Figure 6: Copper – Copper Forward Curve
Cu Forward Curve
$3.900
$3.800
$3.700
$3.600 July 2008 Forward Curve
$3.500
$3.400
$3.300
$3.200
$3.100
$3.000
US$/lb
$2.900 Current Forward Curve

$2.800
$2.700
$2.600
$2.500
$2.400
$2.300
$2.200
$2.100
$2.000
$1.900 Oct 2006 Forward Curve
$1.800
$1.700
9/24/08
11/24/08
1/24/09
3/24/09
5/24/09
7/24/09
9/24/09
11/24/09
1/24/10
3/24/10
5/24/10
7/24/10
9/24/10
11/24/10
1/24/11
3/24/11
5/24/11
7/24/11
9/24/11
11/24/11
1/24/12
3/24/12
5/24/12
7/24/12
9/24/12
11/24/12
1/24/13
3/24/13
5/24/13
7/24/13
9/24/13
11/24/13
Settlement Date
In Figure 7, we have provided the historical copper price plotted against the quarter
ending level of industry and exchange inventory expressed as weeks of consumption
in inventory. Currently, the market is at approximately 2.8 weeks. This compares to
2.6 weeks last year at this time. Looking ahead to 2009, we are forecasting a modest
surplus and the weeks of inventory remaining at a historically low level of about 3.5
weeks. We believe 5-6 weeks could be considered as normal and the copper market
can function for a significant period below this level if there are no supply shocks. The
reader will notice the normal inventory level is dynamic. We believe it has declined
over time as a result of efficiencies in delivery and because just-in-time inventory
trends have become rampant as it allows for less capital tied up in inventories.

Figure 7: Copper – Price vs. Weeks of Consumption
Copper - LME Cash Price Versus Stock Consumption Ratio
9 $4.00
8 $3.50
Weeks Of Consumption
7 $3.00
US$ Per Pound

6
$2.50
5
$2.00
4
$1.50
3
2 $1.00
1 $0.50
0 $0.00
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Stock Ratio LME Copper
Copper Supply – Can Industry Really Deliver?

In previous cycles the industry was much more responsive to the market dynamics
and initiated new mine development fairly quickly after higher prices repaired
stretched balance sheets. During this prolonged cycle balance sheets have been
largely used to fuel a massive wave of consolidation in the industry. While it would be
wrong to assume that there are few copper projects to develop, there is a large list,
and their impact is expected to come later in the cycle which should continue to
support the longevity of the current cycle. In Figure 8, we have projected the
production of 35 higher profile new copper projects, each with greater than 100,000
tonnes of annual capacity, likely to be in production before 2015. This new capacity
combined with existing mine expansions and the development of numerous smaller
mines could add approximately 7m tonnes to the world production base,
approximately 35% cumulatively until 2015 or at an annual average of 4.5%.
However, as illustrated in Figure 8, this increase is skewed to the back end of the
time frame, from 2013-2015. In our analysis we have assumed demand growth of 2%
in both 2008 and 2009 increasing to average 3% over the time frame 2008 to 2015.
This compares to a global demand growth rate of 3% from 2000 to 2007. This
capacity build is subject to many risks and uncertainties, not the least of which is
permitting, political risk, financing and sourcing the equipment and manpower to build
and operate the projects. Past experience suggests that at least 30 – 40% of this
capacity can be expected to be either significantly delayed of not built at all. One
other factor that comes into play is that the industry has become highly consolidated
and several of these billion dollar projects are owned by the same company. At last
count, Xstrata was the proud owner of at least five of the top 35 projects costing in
aggregate $16.5 billion. Building of all of these projects within the next six years? Not
a chance!
Figure 8: Copper - Supply/Demand Until 2015
26000
Surplus
25000
24000
23000
22000
21000
20000
19000
Tonnes Copper
Total Supply
18000
17000
16000
Total Demand @
15000 3.0% growth
14000
13000
12000
11000
10000
9000
8000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
While the collective industry balance sheet remains extremely robust, and available
for aggressive capital investments the availability of debt financing has been severely
constrained due to the financial crisis precipitated by the sub prime debacle in the
U.S. The capital cost required to build a reasonable size copper mine in 2007 has
nearly doubled in the past 5 years. This comes on the heels of rapidly escalating raw
material costs such as cement and steel, shortage of skilled labour, and higher front-
end environmental outlays. A quick look at the financing requirements of the universe
of mine under consideration, Figure 9, suggests approximately one third can be built
for less the $9,000 per tonne of annual copper output. Another one third appears to
have capital estimates in excess of $12,500 per tonne, the balance in the range of
$9,000 to $12,500 per tonne. For a company to obtain a 12% IRR on these projects,
which we believe is appropriate considering the financial, technical and political risk,
infers the copper price need to obtain this return. For the lower cost third, those
projects below $9,000, a long term copper price of $1.75 per pound would perhaps
be adequate. However projects with projected capacity intensity in excess of $12,500
would need a long term copper price in excess of $2.50 per pound, perhaps as high
as $3.00 per pounds to realize an adequate return. Few companies, to my
knowledge, use a copper price much in excess of $1.75 in their long term planning.
Although we have seen tighter prices used in feasibility studies. BHP recently used
$2.80 in a scoping study for Olympic Dam and Xstrata used $2.65 for the El Morro
study. Consequently we believe that at least 30% of the projected mine increases
may not developed due to marginal economics.
Figure 9: Copper Projects
$20,000
$18,000
$16,000
US$ Capital Cost / Tonne Annual Production
$14,000
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
$0
Escondida expansion
Michiquilly
Olympic Dam expansion

Collahuasi
Quellaveco
Tenke-Fungurume
Petaquilla
Oyu Tolgoi
Rio Blanco
Andina
El Pachon
Los Bronces
Chuqi
Cananea
Konkola Deep
Esperance
Galeno
Cerro Casale
Aqua Rica
El Morro
Lumwana
KOV restart
Spence
El Arco
Reko Diq
Pebble
Las Bambas
Gaby
Galore Creek
La Granja
Tampakan
Toromocho
Kamoto
Safford
Frieda River
If we recast our supply/ demand forecast out to 2015 but eliminated 12 of the most
costly projects the large surplus projected in Figure 8 is essentially eliminated, See
Figure 10. this may in fact be closer to reality than current market expectations.
Figure 10: Copper - Supply/Demand Until 2015 Eliminating 10 High Cost Projects
24000
23000 Deficit
22000
21000
20000
19000
Tonnes Copper
18000 Total Supply

17000
16000
15000
14000 Total Demand @
13000 3.0% growth
12000
11000
10000
9000
8000
06
07
08
09
10
11
12
13
14
15
20
20
20
20
20
20
20
20
20
20

The Market – Doubting the Supercycle?
How does this view of the copper market affect the copper-leveraged equities? Part
of this has been the longevity of this cycle, longer than any in recent memories, and
the markets’ astute realization that a copper price well above the long-term trend line
is unsustainable forever. The key issues going forward are: what is the long-term
sustainable copper price and how quickly the market factors in potential greenfield
production. On the former, the long-term copper price of $1.75 is more than realistic,
but probably too low, in light of capital requirement to bring on new capacity.
Additionally, the rebound of the Canadian and Australian currencies for the better
part of this decade as well as inflationary pressures has contributed significantly to
higher and potentially stranded operating costs. Future brown-field expansions
however, should be able to provide a significantly better return. Many projects waiting
in the wings, such as Reko Diq in Pakistan, generally lack infrastructure or are facing
geo political challenges making it very difficult to obtain a decent return at or below a
copper price of $2.00. We do not see copper dropping to the trend line until late 2010
or early 2011. This will provide the industry with another three to four years of healthy
profitability. This added to the three great years to date will put this cycle in the
history books.
Summary
Normally the market is much more generous with base metal equity valuations at this
point in the commodities cycle than it is now. With the general equity markets
remaining in disarray and hedge fund managers under severe pressure it perhaps is
not surprising that fundamentals are taking the preverbal back seat. We believe the
valuation gap will be overcome and we still strongly recommend being selectively
overweight copper equities, at least until the summer of 2009. The party is not over,
but some exhaustion has definitely set in. We believe a correction was long over due
but certainly underestimated the full extent. Many companies in the Paradigm Copper
universe are trading below 75% NAV which is what the market values these
companies at during the trough of the market, when balanced sheets are bloated and
even good operations are losing money, and exchange inventories are as high as
Everest. Considering the shell-shocked state of the market small cap companies
even with a strong growth profile are expected to under perform the larger more
liquate names. Our top picks in the copper universe remain Equinox, First Quantum,
Quadra and FNX.

Disclaimer Section:
1. David Davidson does not have an ownership position in African Copper (ACU-T), Anvil Mining (AVM-
T), Chariot (CHD-T), Equinox (EQN-T), First Quantum (FM-T), Katanga Mining (KAT-T), Lundin
Mining (LUN-T), Marengo Mining (MRN-T), Norsemont (NOM-T), Sherwood Copper (SWC-T),
Taseko Mines (TKO-T), Quadra (QUA-T).
2. Jacob Willoughby does not have an ownership position in African Copper (ACU-T), Anvil Mining
(AVM-T), Chariot (CHD-T), Equinox (EQN-T), First Quantum (FM-T), Katanga Mining (KAT-T), Lundin
3. Michael Bandrowski does not have an ownership position in African Copper (ACU-T), Anvil Mining
(AVM-T), Chariot (CHD-T), Equinox (EQN-T), First Quantum (FM-T), Katanga Mining (KAT-T), Lundin
4. Paradigm Capital Inc. has assumed an underwriting liability for, and /or provided financial advice for
consideration to the following companies during the past 12 months: Anvil Mining (AVM-T), Marengo
Mining (MRN-T), Norsemont (NOM-T) and Taseko Mines (TKO-T).
5. Paradigm’s disclosure policies and research distribution procedures can be found on our website at
www.paradigmcapinc.com.
Research Rating System

Paradigm Capital uses the following rating recommendations in its research:
Speculative Buy – Expected returns of 10% or more over the next 6-12 months on high-risk development or “pre-revenue”
companies, such as junior mining and early stage biotech companies. (15% of Paradigm’s coverage list consists of
Speculative Buy recommendations).
Strong Buy – Analysts’ top sector picks, with expected returns of 10% or more over the next 6-12 months. (1% of
Paradigm’s coverage list consists of Strong Buy recommendations).
Buy – Expected returns of 10% or more over the next 6-12 months. (66% of Paradigm’s coverage list consists of Buy
recommendations).
Hold – Expected returns of +/-10% over the next 6-12 months. (13% of Paradigm’s coverage list consists of Hold
recommendations).
Sell – Expected returns of –10% or more over the next 6-12 months. (5% of Paradigm’s coverage list consists of Sell
recommendations).
About Paradigm Capital Inc.

Paradigm Capital is a research driven, independent, institutional equity investment dealer focused on sectors and
companies that have attractive long-term secular growth prospects. Paradigm Capital’s research is available on our
website at www.paradigmcap.com. Please speak to your Sales or Trading Representative if you require access to the
website.
The analyst (and associate) certify that the views expressed in this report accurately reflect their personal views about the
subject securities or issuers. No part of their compensation was, is, or will be, directly or indirectly, related to the specific
recommendations expressed in this research report.
Analysts are compensated through a combined base salary and bonus payout system. The bonus payout is determined
by revenues generated directly or indirectly from various departments including Investment Banking, based on a system
that includes the following criteria: reports generated, timeliness, performance of recommendations, knowledge of
industry, quality of research and investment guidance and client feedback. Analysts are not directly compensated for
specific Investment Banking transactions.
The opinions, estimates and projections contained herein are those of Paradigm Capital Inc. (“PCI”) as of the date hereof
and are subject to change without notice. PCI makes every effort to ensure that the contents herein have been compiled
or derived from sources believed reliable and contain information and opinions, which are accurate and complete.
However, PCI makes no representation or warranty, express or implied, in respect thereof, takes no responsibility for any
errors and omissions which may be contained herein and accepts no liability whatsoever for any loss arising from any use
of or reliance on this research report or its contents. Information may be available to PCI, which is not reflected herein.
This research report is not to be construed as, an offer to sell or solicitation for or an offer to buy, any securities. PCI, its
affiliates and/or their respective officers, directors or employees may from time to time acquire, hold or sell securities
mentioned herein as principal or agent. PCI may act as financial advisor and/or underwriter for certain of the corporations
mentioned herein and may receive remuneration for same. Paradigm Capital Inc. is a member of The Toronto Stock
Exchange, The TSX Venture Exchange and The Investment Industry Regulatory Organization of Canada.
To U.S. Residents: This report was prepared by Paradigm Capital Inc. which is not subject to U.S. rules with
regard to the preparation of research reports and the independence of analysts. Paradigm Capital U.S. Inc., affiliate
of PCI, accepts responsibility for the contents herein, subject to the terms as set out above. Any U.S. person wishing to
effect transactions in any security discussed herein should do so through Paradigm Capital U.S. Inc.


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Copper Companies Covered

Base Metal Sector – Copper Overview Name Target Rec.

X As we close out 2008, the commodity and equity markets

outperform its peers. David Davidson

Paradigm Capital Inc, IIROC/TSX Member 1 September 24, 2008

Figure 1: Baltic Dry Index

Source: Paradigm Capital, Bloomberg

The Resurgence in the US$ - How Sustainable?

Source: Paradigm Capital, Bloomberg

China – The Copper Dragon

Paradigm Capital Inc, IIROC/TSX Member 3 September 24, 2008

Pound per Capita Intensity

Source: Paradigm Capital

Investment Themes – Due for a Rebound

Paradigm Capital Inc, IIROC/TSX Member 4 September 24, 2008

TSX /S&P Canadian Mining Index

Source: Paradigm Capital, Bloomberg

Copper Outlook – Speculation or Not - The Market Remains Tight

Paradigm Capital Inc, IIROC/TSX Member 5 September 24, 2008

2003 2004 2005 2006 2007E 2008F 2009F

Market Balance 225 96 (175) (150) (250) 85 200

Change in Stocks 75 (814) (25) (125) (100) 85 200

Source: CRU International, Paradigm Capital estimates

Source: CRU International, Paradigm Capital

Paradigm Capital Inc, IIROC/TSX Member 6 September 24, 2008

LME Copper Price (US$/lb)

LME Copper Inventory LME Copper Price

Source: CRU International, Paradigm Capital

Paradigm Capital Inc, IIROC/TSX Member 7 September 24, 2008

$2.900 Current Forward Curve

Source: Paradigm Capital

Paradigm Capital Inc, IIROC/TSX Member 8 September 24, 2008

Copper - LME Cash Price Versus Stock Consumption Ratio

US$ Per Pound

Stock Ratio LME Copper

Source: Paradigm Capital

Copper Supply – Can Industry Really Deliver?

Source: Paradigm Capital

Olympic Dam expansion

Source: Paradigm Capital

18000 Total Supply

Source: Paradigm Capital

Paradigm Capital Inc, IIROC/TSX Member 11 September 24, 2008

Paradigm Capital Inc, IIROC/TSX Member 12 September 24, 2008

Research Rating System

About Paradigm Capital Inc.

Paradigm Capital Inc, IIROC/TSX Member 13 September 24, 2008

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