Bear Creek Mining Corp V.BCM

Dailey letter Canaccord

[SILVEER]

Daily Letter | 17 11 July 2006 Canaccord Adams is the global capital markets group of Canaccord Capital Inc. (CCI : TSX|AIM) The recommendations and opinions expressed in this Investment Research accurately reflect the Investment Analyst’s personal, independent and objective views about any and all the Designated Investments and Relevant Issuers discussed herein. For important information, please see the Important Disclosures section in the appendix of this document. Bear Creek Mining BCM : TSX-V : C$6.41 SPECULATIVE BUY Target: C$6.90 Graeme Currie 1.604.643.7405 [e-mail] Toni Wallis 1.604.643.7551 [e-mail] COMPANY STATISTICS: Market Capitalization (M): $211.0 Long-term Debt (M): 0 Working Capital (M): $17.8 SHARE PRICE PERFORMANCE: COMPANY SUMMARY: Bear Creek Mining is a Vancouver-based junior exploration company focused on precious metal projects in Peru. The company is focused on bulk tonnage silver prospects and has acquired two prospects with significant exploration leverage, Corani and Santa Ana. Drill exploration is ongoing at Corani with 4 drills, and is anticipated to now begin at Santa Ana in Q2/06. Resource of 250 million ounces silver announced at Corani. All amounts in C$ unless otherwise noted. Mining and Metals – Exploration and Development MORE DRILL RESULTS FROM CORANI: DRILLING HAS COMMENCED AT SANTA ANA Event Bear Creek Mining is a Vancouver-based junior exploration company under the stewardship of Andrew Swarthout, President, and David Volkert, VP Exploration, with Catherine McLeod-Seltzer as Chairman. Bear Creek is focused on precious metal bulk tonnage prospects in Peru with the Corani Project as the most advanced project in their portfolio. A second key prospect held by the company within the same Tertiary-age precious metals belt is the volcanic hosted epithermal silver-lead-zinc Santa Ana property in southern Peru at 120 kilometres south of Puno. Corani Bear Creek today announced the results from an additional 24 drill holes completed at Corani. For background, Bear Creek optioned an initial 70% interest in the Corani property from Rio Tinto in January 2005. Under the terms of the agreement, Bear Creek is to pay to Rio Tinto US$5.4 million by January 2008, at which time Rio Tinto may elect to either maintain a 30% interest, or sell it to Bear Creek for US$5 million. Rio Tinto also has a back-in option to acquire 60% (Bear Creek 40%) if either an 11 billion pound economic copper resource or a 10 million ounce gold or gold-equivalent economic resource is defined. In the latter case, if the back-in is elected, Bear Creek Mining would be carried for 40% to production. The company announced in Q1/06 an initial resource estimate of 250.0 million ounces contained silver at a cut-off grade of 20 g/t (0.64 oz/t) silver based on 83 diamond drill holes completed, including results from 24 surface trenches. Daily Letter | 18 11 July 2006 Figure 1: Corani drill hole locations Source: Bear Creek Mining The results released today continue to demonstrate the potential for material resource expansion at Corani. Highlights of the results include: 1. Corani Este: step-out drilling north under the post mineral cover continues to extend the silver mineralization with base metals increasing. Hole C-93 is the most Daily Letter | 19 11 July 2006 northeasterly collared hole reported to date and intersected the highest combined grade/ thickness interval so far with 65 metres grading 173 g/t Ag, 2.8% Pb and 4.0% Zn. 2. Minas Corani: the first test holes on the 400-metre wide post-mineral tuff covered target area west of the Minas Corani resource area intersected silver and base metal mineralization including 70 metres grading 76 g/t Ag, 1.7% Pb ad 0.7% Zn in Hole C- 91, and Hole C-95 collared 500 metres further to the northwest intersected 110 metres grading 48.3 g/t Ag. The drill holes reported from the Minas Corani area now indicate that the mineralization between the west and east sides of this deposit are connected beneath the post mineral tuff and have intersected higher lead and zinc grades. In total, since the completion of the initial resource estimate for Corani, the company has now completed an additional 106 drill holes. We hold the view that based on the results from this further step-out drilling that resources at Corani, on our very rough preliminary estimates, could well exceed 300 to 350 million ounces of silver. Total drilling for the project now exceed 37,300 metres in 229 drill holes. Four drills are currently active on the project with two defining resources at Corani Este and Minas Corani, and the other two drills exploring for extensions of silver and base metals in all target areas. Bear Creak also announced that the initial scoping study to identify economic parameters for capital and operating costs is underway by Independent Mining Consultants of Tucson, Arizona, and a new resource estimate is expected in August. Concurrently, metallurgical test work is ongoing and initial results from this work are also expected in August. We would anticipate the scoping study results late into H2/06. Santa Ana Santa Ana represents a near-surface, bulk-tonnage, volcanic hosted silver-lead-zinc target in an epithermal setting which has never been drilled. Due to the location of the project, a Supreme Decree was required from the Federal Government before drilling could proceed. Yesterday, Bear Creek also reported that drilling had commenced at Santa Ana on July 5 with one diamond core drill. The first phase of drilling will be 1,000 metres in ten holes to be completed by July 27, 2006. The drilling will focus on the southern part of the area of the 2.8-kilometres long by over 600-metres wide anomaly. In late 2004 and early 2005, Bear Creek collected 446 surface samples from surface outcrops, shallow workings (up to three metres deep), and mine dumps. The average for all samples is 82.8 g/t silver (2.7 ounces per tonne); including 335 wall rock and fractured outcrop samples averaging 43 g/t silver, and 78 samples taken from mineralized structures averaging 237 g/t silver. Mine dump samples (25 samples averaging 154 g/t silver) are not included in the 82.8 g/t silver average. Impact – Positive We believe resource expansion potential at Corani remains significant. In addition, the exploration leverage that could develop from Santa Ana has, in our view, the potential to as much as equal the resource size of Corani. With drilling now underway at Santa Ana, the market may begin to reflect a premium for this leverage. Daily Letter | 20 11 July 2006 Valuation For valuation purposes, we will continue to use an in situ approach for valuing the resources at Corani. We are currently using a revised in situ average for Inferred Resources of US$45.00/oz Au and for Measured and Indicated resources a value of US$75.00/oz Au. At a 63:1 Ag to Au exchange the Measured and Indicated resource at Corani is the equivalent of 706,350 ounces of gold. Employing the in situ value of US$75.00/oz this implies a value of C$62.33 million at a 0.85:1 C$ to US$ ratio. At a 63:1 Ag to Au exchange the Inferred resource is the equivalent of 3.26 million ounces of gold. Employing an in situ value of US$45.00/oz this implies a value of C$172.69 million at a 0.85:1 C$ to US$ ratio. We now believe a multiple to the inferred value derived is merited given our view that resources could increase materially given the ongoing drilling success at Corani. We will use a 1.25 times multiple to account for a potential increase in inferred resources of approximately 800,000 ounces of gold equivalent. This is the silver equivalent of about 50 million ounces. For Santa Ana, with drilling having now commenced, we believe there is the potential for a similar sized silver/lead deposit on this prospect. However, as this proper