Curis Resources Ltd PCCRF

RE: This is the time to buy...

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Curis downgraded by National Bank analyst :

Title: Curis Resources Ltd. - CUV (T) Cdn
.95 Price: Cdn
.95 StockRating: Outperform TargetPrice: Cdn$2.55 Headline: Florence Slowed by Re-Zoning Delays – Recalibrating Timeline & Risk

December 14, 2011 The NBF Daily Bulletin

Base Metals

Curis Resources Ltd.

CUV (T) Cdn
.95

Stock Rating: Outperform

(Unchanged)

Target: Cdn$2.55

(Was $5.15)

Risk Rating: Speculative

Reducing NAV Estimate, Target

Florence Slowed by Re-Zoning Delays –

Recalibrating Timeline & Risk Assumptions

(Unchanged)

? State and federal permitting largely on track, with only

modest slippage in the timelines… Project work continues

with numerous permits already in place from prior work

conducted by BHP/Magma; permit amendments for the two

key permits (UIC and APP) to be issued by the ADEQ (State)

and EPA (Fed) are in process with receipt expected in late

Q1/12 or early Q2/12 (vs. Q4/11 previously).

? …however, ~1/2 of the resource resides on private land

that needs to be re-zoned for industrial use by Town

Council. This process is advancing more slowly and with

what appears to be mounting opposition. Curis has prudently

pulled its re-zoning application and plans to re-submit post

receipt of permits. Approval by State/Fed authorities should

remove the onus on council to perform a technical review.

While this should facilitate re-zoning efforts, increased public

relations and perhaps time is needed to alter sentiment.

? NAV cut on more conservative timing and financing

assumptions. To account for modest re-zoning delays and

the potential for additional field testing and monitoring before

full-scale permits are received, we are delaying commercial

production to H1/15 (H1/14 old). As well, we are upping the

project discount rate to 10% (8% old). We would look to revert

back to 8% on a positive re-zoning decision.

? Lowering target price to $2.55 from $5.15; Outperform

rating maintained. Our target is based on a 0.65x multiple

(0.75x old) of our fully diluted, fully financed NAV10% (NAV8%

old) estimate of $3.91/share ($6.78/sh old).

Company Profile: Stock Performance

Curis Resources Ltd. is a Canadian-listed development

company focused on advancing the 100%-owned Florence

oxide copper deposit in Arizona, USA.

Page 2

Investment Summary and Outlook

Curis Resources Ltd.’s principal asset, the 100%-owned Florence copper project,

affords investors exposure to a uniquely compelling, 3+ billion pound

development-stage asset in the United States. Florence is an advanced stage oxide

copper project located in central Arizona approximately 65 miles southeast of Phoenix and

70 miles north-northwest of Tucson. Florence is a shallowly buried, heavily fragmented,

porphyry copper deposit that is amenable to in-situ copper recovery. We characterize the

asset as uniquely compelling on the basis that Florence’s in-situ leach production plan

should benefit from both low capex and low operating cost intensity production. This is

juxtaposed to an industry that has been facing significantly escalating input cost pressures

and tight labour and equipment markets.

Lowering target price to $2.55 from $5.15; maintaining Outperform rating. While we

continue to favour the technical merits of the project and Curis’ State and Federal-level

permitting efforts are tracking well, re-zoning efforts for the part of the deposit that lies on

private lands within the town of Florence have been met with increased opposition. In this

report we focus on the latter and recalibrate our company valuation taking into account

increased timing risk and more conservative financing assumptions. The net result is a

substantial drop in both our company valuation and target. Our target is based on a 0.65x

multiple (0.75x old) of our fully diluted, fully financed NAV10% (NAV8% old) estimate of

$3.91/share ($6.78/sh old). We note, however, that a number of favourable catalysts are in

the lined up for H1/2012 that could cause us to revisit our assumptions with an upward bias.

Revising Project Assumptions in Response to Local Area

Developments

State and federal permitting largely on track, with only modest slippage in the

timelines… Project work continues with numerous permits already in place from prior work

conducted by BHP and Magma. Permit amendments for the two key permits, the Aquifer

Protection Permit (APP) and the Underground Injection Certificate (UIC), are tracking well,

with receipt expected in late Q1/12 or early Q2/12, an approximate 3 month delay. The APP

and UIC are administered by the Arizona Department of Environmental Quality (ADEQ) and

the Environmental Protection Agency (EPA), respectively.

…however, ~1/2 of the resource resides on private land that needs to be re-zoned for

industrial and opposition appears to be growing in this regard. While Town Council has

yet to make a final decision on re-zoning, minutes from recent Council meetings and media

reports suggest to us that more time, a revamped public relations campaign, and receipt of

Federal and State permits may be required to restore a higher level of public support for the

project. In fact, recognizing the risk of a negative re-zoning vote by Town Council, in late

November, Curis pulled its re-zoning application with the intent to re-submit post receipt of

permits. We see this as being a prudent decision since permitting approval by State and

Federal authorities should remove the onus on council to make a technical assessment on

the project – something Council is not qualified to do. Moreover, a stamp of approval by

government officials and planned participation in community meetings should provide

much-needed third-party input.

We see the potential for modest delays to the project start date and the likelihood of

additional monitoring by the ADEQ to satisfy community concerns on in-situ

leaching. The copper resource at Florence is hosted on both State and town lands, with an

approximate 50% / 50% split. Following the 2-2 Planning & Zoning Commission vote on the

re-zoning application (see our October 11, 2011 Curis research note), Curis expressed an

intent to start development on the State portion of the deposit while the Town land issue was

being resolved. The State and Federal agencies are expected to render permitting decisions

in early 2012. While development of the State lands does not require Town-level approval, we

view it as increasingly likely that the ADEQ and Curis may run the scaled-down test facility for

longer than would be expected otherwise to gather enough data to demonstrate that in-situ

leaching does not adversely effect the aquifer that sits above the copper resource. An

impermeable aquitard (clay layer) sits between the copper resource and aquifer. 10 years of

Page 3

aquifer water testing post completion of the BHP and Magna tests showed no signs of

contamination in the aquifer. We remain confident that the project will proceed but we have

pushed out our assumed start date as a result.

Financial Model

Incorporating more conservatism into our assumed timelines. In light of the

developments taking place in the Florence area described above, we see increased risks to

the assumed timelines. As mentioned, we see the potential for the ADEQ to call for a longer

period of water quality monitoring to satisfy community concerns. With this and an

approximate 3-month delay in receipt of the permits for the Phase 1 Production Test Facility

(PTF), we have incorporated a one-year delay to the start of full-scale production. We now

assume that work on the Phase I (PTF) starts in Q4/12 (vs. Q2/12 previously) and

commercial production starts in Q1/15 (vs. Q1/14 previously).

Financing assumptions also revised. At the same time, have pushed back the timing of

our equity and debt financing assumptions by two quarters. Concurrent with this we have

also assumed lower equity issue prices (we now assume the first equity raise of $30mln

takes place at $2.00 per share, down from $3.75 per share and the second equity raise of

$95mln takes place at $3.00 per share from $5.00 previously). To account for heightened

project risk, we have increased our assumed discount rate to 10% from 8%. We present our

new assumptions and the effect on our project and company valuation in Figure 1.

Next Steps

Near-term catalysts still in the hopper and should not be overlooked. 2011 delivered

very few catalysts for Curis. 2012 should bring to bear an abundance of news flow much of

which has the potential to be transformational. Positive potential upcoming catalysts include:

(1) State permit approval, that could be in place in late Q1/12 or early Q2/12, (2) An off-take

deal that could include a component of project financing as well; and (3) New Town Council

members in Florence – scheduled for Spring of 2012, many new members are to be added to

the local Town Council. Assuming the new members are supportive of the project, this could

provide fresh support and minimize local opposition.

Page 4

Valuation

Lowering target price to $2.55 from $5.15; maintaining Outperform rating. Our target is

based on a 0.65x multiple (0.75x old) of our fully diluted, fully financed NAV10% (NAV8% old)

estimate of $3.91/share ($6.78/sh old). We note, however, that a number of favourable

catalysts are in the lined up for H1/2012 that could cause us to revisit our assumptions with

an upward bias. We present our sensitivity analysis in Figure 2 below.

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