Clifton Star Res Inc CFMSF

LOM update gives $11.25 target

[tooclassy]

Tuesday, August 03, 2010

Clifton Star Resources Inc. (CFO-TSXV)	Speculative BUY – Target: $11.25
	Jul. 30/10 closing price: $4.82
Michael Fowler, M.Sc MBA	416-964-4440
Update On Clifton Star: Osisko, the project operator of the Duparquet joint venture with Clifton Star, is more than halfway through a major 120,000 metre drilling program, which is a massive campaign. According to Clifton Star management, Osisko has completed its grid drilling campaign at the Beattie property and is now drilling Donchester. The drilling results so far have shown the potential for a large low grade target that may be amenable to open pit mining. However the assay results represent less than 25% of the total expected results for the year and, therefore, we can expect more news flow in the near future. Amazingly neither Osisko nor Clifton Star has provided a compilation map of the combined drilling locations and so the results have very little context and almost impossible to interpret. We understand that such a map is in the process of being drawn up. With the lack of transparency by Osisko, there have been questions regarding Osisko’s staying power in the joint venture. Osisko has the right to acquire a 50% interest from 2010 to 2013 by making expenditures of $70 million on the properties. Right now it is too early to say that Osisko will complete its total joint venture spending, but we note that they have started to refurbish the old mill at Duparquet for winter accommodation (a good sign) and probably will spend more than $20 million on Duparquet exploration this year. The results to date have been good, but the context is missing as discussed. Our $11.25 per share target is based on the potential of 9 million ounces of gold resource on the property. Currently, there are NI 43-101 resource estimates of 2.642 million ounces, these reports are now dated (Beattie-Donchester report was October 2009). Since then a substantial amount of drilling has occurred and resource estimates are promised in the future but with no definitive dates (probably Q1 2011). Other interesting facts are that the company has likely completed the first trench of the property payment to the underlying owners of $8.5 million. $22 million is due in December 2012 and $31 million in December 2017. Our expectation is that the company will seek to pay this off sooner than those dates. In addition, in time Clifton Star could become a rather straightforward takeover target with more than 50% of the shares owned by three institutions. We maintain a Speculative Buy on the stock.

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