Clifton Star Res Inc CFMSF

LOM Spotlight reports on processing alternative

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Clifton Star Resources Inc. (CFO-TSXV)1	Speculative Buy. Target:$2.00
	March 27/13 closing price: $0.69
Michael Fowler, M.Sc MBA	416-964-4440
Clifton Star Reports On A Possible Economic Beneficial Processing Alternative- -– Positive: The company announced the results of some metallurgical studies that indicate a potentially positive alternative processing method to that which was suggested in the PEA study tabled on January 13 2013. The study indicates that if the deposit was processed by a floatation circuit in the mill, a concentrate could be produced which would have gold grades between 39g/t and 84 g/t. These are high grade concentrates and could be refined by a copper smelter. Smelter payables should be in the order of 90% of the total gold content. The study also indicates that the gold recoveries would be in the order of 90%, meaning that the company could receive approximately 80% of the mine recovered gold value. The savings particularly in the capital cost of the project would be $157.5 million, as a pressure oxidation system circuit would not have to be used to process the ore. The total capital cost of the project was estimated at $270 million, which includes a pressure oxidation process, and thus producing a concentrate may be the preferred processing option. More metallurgical work is needed to confirm this option. The stock is inexpensive; trading at a resource EV/oz of $20(includes option payments). Currently this would be on the lower end of comparable company valuations. If we just took the NPV from the PEA study, this number would equate to $10 per share of value. The results of these metallurgical tests could significantly increase this latter number. However we were carrying too high a target price given the probable future market conditions in this sector. We have therefore reduced our target to $2.00 per share. This implies that the market will pay $50 per ounce of resource one year out and that the company will increase its share count to 95 million from the current 38 million. We may be conservative in our target price update since Clifton Star still has an outstanding $22.5 million convertible debt deal (debenture convertible at $3.12 per share) outstanding with Osisko Mining. Obviously, as we have nothing on this subject, there is a dispute as to its enforceability.