Cline Mining Corporation T.CMK

CMK Analyst report

[Danlewis2010]

evised 12-Month Target: $5.50

CLINE MINING CORPORATION Previous 12-Month Target: $4.00

(TSX-CMK $3.87) Risk Rating: ABOVE AVERAGE

RAISING TARGET ON MSHA APPROVAL;

COAL PRODUCTION HAS BEGUN

§ Summary – We are raising our target on CMK to

$5.50/share from $4.00/share, following the recent

receipt of MSHA (Mine Safety & Health Administration)

approval, which allows the Company to mine coal from

the Apache and Allen coal seams. Underground coal

production has already commenced, and the

rehabilitation of the preparation plant has been

completed. We are maintaining our SPECULATIVE

BUY recommendation.

§ Production Guidance – Production is slated to reach a

run rate of 3.0 mtpy by the end of FY 2011.

Prior guidance had been to achieve that run rate by the

end of calendar 2012. We note that CMK is permitted to

truck up to 3.0 mtpy, although we anticipate the

reinstallation of the rail line in FY 2012.

§ Model Revisions – We have tweaked our FY 2012 and

FY 2013 assumptions to reflect higher coal pricing and

slightly lower OPEX (due to scale economies, given a

more aggressive production schedule). We have left

our long-term benchmark coal price unchanged at

US$170/tonne.

§ Valuation Revisions – Given the Company’s mining

plan has been approved and production has begun, we

have reduced the discount rate used in our

NAV calculation to 8% from 9%. We have also

incorporated three multiple-based valuation estimates

given that CMK is now a producer (see p. 3). The simple

average of all three estimates is $5.38, and we are

therefore raising our 12-month target to $5.50/share.

§ Valuation Upside Potential – Every US$10/tonne

change in our long-term coal benchmark price alters our

NAV estimate by approximately
.70/share.

Using the average benchmark price level for

December 2010 (month to date) of US$221/tonne

implies a NAV estimate of well over $8.00/share.

We further note that there is significant potential for

expanding production beyond the initial 3.0 mtpy level,

and we will adjust our model/valuation as warranted.

Sector: SPECIAL SITUATIONS

Analyst: RUSSELL STANLEY, CFA, MBA

e-mail: [e-mail]

Tel: [phone] Fax: [phone]

Associate: GRACE VONG, CA

e-mail: [e-mail]

Tel: [phone] Fax: [phone]

Cline Mining Corporation is a mine development company

focused on the exploration and development of metallurgical coals

in Canada and the U.S. The Company is currently developing its

100% owned New Elk Coal Mine in Colorado into production.

Company Statistics

52-Week Range $4.27 to
.33

Basic Market Cap ($MM) $621.8

Basic Shares O/S (MM) 160.7

Fully Diluted O/S (MM) 176.1

Cash ($MM) $26.6

Total Debt ($MM) $19.7

Earnings Summary

FYE: November 2010E 2011E 2012E 2013E

Annual Production (mt) 0.0 1.0 2.8 3.0

Net Sales ($MM)
.0 $147.9 $408.9 $394.1

EBITDA ($MM) ($9.2) $51.8 $227.4 $220.4

EBITDA Margin nmf 26.3% 41.8% 40.9%

Diluted EPS (
.09)
.19
.82
.79

Operating CF PS (
.02)
.19
.85
.82

EV/EBITDA nmf 11.9x 2.7x 2.8x

P/E nmf 20.7x 4.7x 4.9x

P/CF nmf 20.0x 4.6x 4.7x

2

Theinformation contained in this report was obtained from sources webelieve to be reliable. We do not represent that such information isaccurate or

complete and it should not be relied onas such. Any opinions expressed herein reflect our judgment at this dateand are subject to change. Jennings

Capital Inc.and/or employees from time to time may hold shares, options or warrantson any issue included in this report and may buy or sell such

securities. This report is not to be construed as an offer to sell or solicitation to buy securities. Member – CIPF. Jennings Capital (USA) Inc. is a

member of SIPC.

MSHA Approval and Production Guidance

MSHA (Mine Safety & Health Administration, an enforcement agency of the U.S. Department of Labour

responsible for miner safety) recently approved the Company’s mining plan, allowing CMK to mine coal

from the Apache and Allen coal seams. Accordingly, underground coal production has already begun

using continuous mining methods. The upgrading and rehabilitation of the preparation plant has been

completed and it has a capacity of 3.0 million tonnes per year (mtpy).

Production is slated to reach a run rate of 3.0 mtpy by the end of FY 2011. Prior guidance had been to

achieve that run rate by the end of calendar 2012. Recall that CMK is permitted to truck up to 3.0 mtpy

from the New Elk Coal Mine to the nearby Jansen Rail Yard. This connects to the Burlington Northern

Santa Fe (BNSF) Railroad, which in turn provides access to major bulk coal export terminals.

Changes to Our Model

We have made the following notable revisions:

· Discount Rate – Given the Company’s mining plan has been approved and production has begun, we

have reduced the discount rate used in our NAV calculation to 8% from 9%, to reflect the associated

reduction of permitting risk. In isolation, this change increased our NAV from $3.94 to $4.36.

· FY 2011 and 2012 Production Capacity – We now assume that in FY 2011, the Company will

produce 1.0 million metric tonnes (up from 0.6 million metric tonnes), and 2.8 million metric tonnes in

FY 2012 (up from 2.5 million metric tonnes). Given CMK’s guidance that it should exit FY 2011 at a

3.0 mtpy run rate, our FY 2012 production estimate appears reasonable.

· Benchmark Pricing – We have revised upward our benchmark pricing for FY 2012 and FY 2013 to

$200/tonne (up from $188.75/tonne), and $185/tonne (up from $174/tonne), respectively. Our pricing

assumptions for FY 2011 and FY 2014+ remain unchanged at $200/tonne and $170/tonne,

respectively.

· Operating Costs – We have lowered our OPEX assumptions (on a clean tonne basis) as follows:

o FY 2011: $86/tonne (down from $88/tonne).

o FY 2012: $59/tonne (down from $68/tonne).

NAV Sensitivity

We present below a table that illustrates the sensitivity of our NAV estimate to various discount rates and

long-term benchmark coal pricing (in US$).

Exhibit 1. Sensitivity Table

Discount Rate $150 $160 $170 $180 $190 $200

8% $3.38 $4.06 $4.74 $5.42 $6.10 $6.78

9% $3.09 $3.70 $4.31 $4.92 $5.54 $6.15

10% $2.82 $3.38 $3.93 $4.49 $5.04 $5.59

Benchmark Coal Pricing

Source: Jennings Capital Inc.

Our benchmark is the Coking Coal Hampton Roads Index, CCH-HIGH. This index is constructed by

Energy Publishing, and was used by Wood Mackenzie as the benchmark for CMK’s coal in the

Company’s scoping study. We note that, consistent with Wood Mackenzie’s approach, the benchmark

3

Theinformation contained in this report was obtained from sources webelieve to be reliable. We do not represent that such information isaccurate or

complete and it should not be relied onas such. Any opinions expressed herein reflect our judgment at this dateand are subject to change. Jennings

Capital Inc.and/or employees from time to time may hold shares, options or warrantson any issue included in this report and may buy or sell such

securities. This report is not to be construed as an offer to sell or solicitation to buy securities. Member – CIPF. Jennings Capital (USA) Inc. is a

member of SIPC.

pricing in our model is then quality adjusted for CMK’s coal quality (higher ash, but lower sulphur than the

benchmark), which results in an approximate 10% discount to the benchmark received by CMK.

For the month of December, this benchmark price averaged US$221/tonne. Using that as our benchmark,

all else equal, our NAV would be well over $8.00.

Valuation Approach

As CMK is now producing coal, we are adjusting our valuation approach to incorporate comparable

company valuations. We are now using the simple average of our NAV8% and three multiple-based

valuation approaches (P/E, EV/EBITDA, P/CF) based on current multiples applied to North Americanlisted

coal producers based on 2012 consensus estimates. We have discounted these multiples to reflect

early stage production risk, as well as size/liquidity differences. The results of this approach are

summarized in Exhibit 2.

Exhibit 2. Valuation Breakdown

Metric Peer Multiples CMK Multiple Discount Valuation

P/E 11.2x 8.5x 24% $7.00

P/CF 6.0x 4.5x 25% $3.81

EV/EBITDA 5.7x 4.5x 21% $5.96

NAV8% $4.74

Average $5.38

Source: Bloomberg, Company Reports, Jennings Capital Inc.

On this basis, we are raising our 12-month target on CMK to $5.50/share from $4.00/share, and are

maintaining our SPECULATIVE BUY rating until production results are demonstrated.

4

Jennings Capital Inc. Research Disclosures

Companies Ticker

Cline Mining Corporation TSX-CMK

I, Russell Stanley,hereby certify that the views expressed in this report accuratelyreflect my personal views about the subject securities or issuers. I

alsocertify that I have not, am not, and will not receive, directly orindirectly, compensation in exchange for expressing the specificrecommendations or

views in this report.

Note: We initiated coverage on Cline Mining Corporation on May 26, 2010 with a SPECULATIVE BUY recommendation, an ABOVE AVERAGE risk

ratingand a C$3.00 target price. Share price at that time was C$1.23. OnNovember 10, 2010 we increased our target price to C$4.00. Share priceat

that time was C$2.65.

U.S. Client Disclosures

Thisresearch report was prepared by Jennings Capital Inc., a member of theInvestment Industry Regulatory Organization of Canada and the Canadian

InvestorProtection Fund and a Participating Organization of the Toronto StockExchange and the TSX Venture Exchange. Jennings Capital Inc. is an

affiliateof Jennings Capital (USA) Inc. Jennings Capital (USA) Inc. acceptsresponsibility for the contents of this research report, subject to theterms

and limitations as set out above. JenningsCapital (USA) Inc. is a registered broker-dealer with the Securities andExchange Commission and a member

of the National Association of Securities Dealers Inc.

THE FIRM THAT PREPARED THIS REPORT MAY NOT BE SUBJECT TO U.S. RULES WITH REGARD TO THE PREPARATION OF RESEARCH

REPORTS AND THE INDEPENDENCE OF ANALYSTS.

Thisreport does not constitute an offer to sell or the solicitation of anoffer to buy any of the securities discussed herein. Any transaction inthese

securities by U.S. persons must be effectedthrough either Westminster Securities Corporation, a U.S. broker-dealerregistered with the Securities and

ExchangeCommission and a member of the National Association of SecuritiesDealers Inc. and the New York Stock Exchange Inc. or through Jennings

Capital(USA) Inc., A U.S. broker-dealer registered with the Securities andExchange Commission and a member of the National Association of

Securities Dealers Inc.

U.S. PERSONS

Thisresearch report was prepared by an affiliate of Jennings Capital (USA)Inc. or other person that may not be registered as a broker-dealer inthe

United States. The firm that prepared this reportmay not be subject to U.S. rules regarding the preparation of researchreports and the independence of

research analysts.

Subjectto the limitations on liability described above, Jennings Capital (USA)Inc. takes responsibility for the content of this research report in

accordancewith Rule 15a-6 under the U.S. Securities Exchange Act of 1934, asamended. All transactions by U.S. persons in securities discussed in

this report must be performed through Jennings Capital (USA) Inc.

U.K. Client Disclosures

Thisresearch report was prepared by Jennings Capital Inc., a member of theInvestment Industry Regulatory Organization of Canada and the Canadian

Investor Protection Fund and a Participating Organization of the Toronto Stock Exchange and the TSX Venture Exchange.

JENNINGS CAPITAL IS NOT SUBJECT TO U.K. RULES WITH REGARD TO THE PREPARATION OF RESEARCH REPORTS AND THE

INDEPENDENCE OF ANALYSTS.

Thecontents hereof are intended solely for the use of, and may only beissued or passed onto persons described in part VI of the FinancialServices and

Markets Act 2000 (Financial Promotion) Order 2001.

This report does not constitute an offer to sell or the solicitation of an offer to buy any of the securities discussed herein.

Stock Ratings

Speculative Buy: Thestock is expected to provide a total return in excess of 10% over thecurrent trading price over the next 12 months; however,

there is material event risk associated with the investment.

Buy: The stock is expected to provide a total return in excess of 10% over the current trading price over the next 12 months.

Hold: The stock is expected to provide a total return of 0% to 10% over the current trading price over the next 12 months.

Sell: The stock is expected to provide a negative total return over the next 12 months.

Risk Ratings

Low/Average Risk — Stocks with less volatility than the market as a whole, with solid balance sheets and dependable earnings.

Above Average Risk — Stocks with more volatility than the market. Financial leverage is considerable but not threatening, earnings are more erratic,

or other quality concerns regarding accounting, management track record, and similar issues.

Speculative — Stocks of unproven companies or ones with very high financial leverage, suspicious accounting, or with other significant quality

concerns. A speculative risk rating implies at least the possibility of financial distress leading to a restructuring.

5

Distribution Ratings: Out of approximately 75 stocks in the Jennings Capital Inc. coverage universe, the ratings distribution is as follows:

BUY 43%

SPECULATIVE BUY 43%

HOLD 9%

RESTRICTED 3%

TENDER TO OFFER 3%

SELL 0%

Revised Monthly

Security Abbreviations: NVS (non-voting shares); RVS (restricted voting shares); RS (restricted shares); SVS (subordinate voting shares); MV

(multiple voting shares).

Quarterly Recommendation Hierarchy: Is a ranking distribution identifying the percentage of total, number, and the investment banking relationship

(%) for all recommendation categories that can be found on the Jennings Capital Inc. website (www.JenningsCapital.com).

Analyst Stock Holdings: Equity Research analysts, associates and members of their households are permitted to invest in securities covered by them.

NoJennings Capital Inc. analyst, associate or employee involved in thepreparation of an analyst report is permitted to effect a trade in thesecurity of an

issuer whereby there is an outstandingrecommendation for a period of 30 calendar days before and 5 calendardays after issuance of the research

report

Compensation: Thecompensation of the analyst and/or associate who prepared this researchreport is based upon in part, the overall revenues and

profitabilityof Jennings Capital Inc. Analysts are compensated on a salary and bonussystem. Some factors affecting compensation including the

productivityand quality of research, support to institutional, retail andinvestment bankers, net revenues to the equity and investment bankingrevenue as

well as compensation levels for analystsat competing brokerage dealers. Analysts are not directly compensatedfor specific Investment Banking

transactions.

Jennings Capital Inc. Relationships: Jennings Capital Inc. may receive or seek compensation for investment banking services from all issuers under

research coverage within the next 3 months.

JenningsCapital Inc. or its officers, employees or affiliates may executetransactions in securities mentioned in this report that may not beconsistent

with the report’s conclusions.

Company Specific Disclosures

Is this an issuer related or industry related publication? Issuer Industry

Does the Analyst or any member of the Analyst’s household have a financial interest in the securities Yes No

of the subject issuer? If yes, nature of interest:

Is Jennings Capital Inc. or Jennings Capital (USA) Inc. a market maker in the issuer’s securities Yes No

at the date of this report?

Do Jennings Capital Inc., Jennings Capital (USA) Inc. and their affiliates in the aggregate Yes No

beneficially own more than 1% of any class of common equity of the issuer?

Does Jennings Capital Inc., Jennings Capital (USA) Inc. or the Analyst have any actual material conflicts Yes No

of interest with the issuer? Explanation:

Does the Analyst or household member serve as a Director or Officer or Advisory Board Member of Yes No

the issuer?

Has the Analyst received any compensation from the subject company in the past 12 months? Yes No

Has Jennings Capital Inc., Jennings Capital (USA) Inc. and/or any affiliates managed or Yes No

co-managed an offering of securities by the issuer in the past 12 months?

Has Jennings Capital Inc., Jennings Capital (USA) Inc. and/or any affiliates received compensation for Yes No

investment banking and related services from the issuer in the past 12 months?

Has the Analyst had an onsite visit with the Issuer? Yes No

(The extent to which the analyst has viewed the material operations is available on request)

Has the Analyst ever been compensated for travel expenses incurred as a result of an onsite visit with

an Issuer? Yes No