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Bottom-Fish Comment - July 16, 2012: Bottom-Fish Strategy for Abitibi Royalties Inc
 Abitibi Royalties Inc was recommended as a medium priority bottom-fish buy in the $0.50-$0.75 range on July 13, 2012 based on its ownership of a sleeper-style asset in the form of a 30% carried interest in the CHL property adjoining to the east of Osisko's Malartic Mine. Osisko spent $2 million in 2007-2011 to earn 70%. The results have not been overly impressive in that a resource estimate for the western part of the Jeffrey Zone yielded only 163,579 ounces gold in an indicated plus inferred resource of 7,570,000 tonnes of 0.67 g/t gold. This does not include any mineralization associated with Osisko's Mammoth Zone which extends onto the CHL property. Although the property has seen over 300 holes, only a portion was used for the Jeffrey resource estimate because it assumed a standalone mining operation with a small pit. Furthermore, few holes were drilled in the area between Osisko's Mammoth pit limit and the Jeffrey Zone; during 2012 this area known as the "South Barnat Extension" is the focus of a 10,000 m drill program that may stitch together the Jeffrey and Mammoth Zones. If it does, the resource could blossom towards 500,000 ounces, making a pit development straddling the CHL and Malartic properties a priority for Osisko. In such a case it would make sense for Osisko to make an offer for Abitibi, especially if it is true as Glenn Mullan claims that the underlying "free carried interest" agreement is written tightly enough to prevent Osisko from dumping costs into the CHL account whereby Abitibi never sees a profit. Abitibi Royalties was created on July 15, 2011 when the parent company, Golden Valley Mines Ltd, distributed 1 Abitibi share for every 25 Golden Valley shares, while retaining a control block of 5,771,912 shares representing 66% of the 8,701,000 issued Abitibi shares. The public float is thus very fragmented and illiquid, but control lies with Mullan's flagship, Golden Valley, which would be revitalized as a prospect-generator if it got $3-$4 of liquid value for its Abitibi position. The structure of the spinout was designed to facilitate an eventual takeover bid by Osisko to lock up 100% of the gold expansion potential to the east of its Mammoth open pit mine. With 9,561,000 shares fully diluted and a 30% net interest, at a $1 stock price the CHL project has an implied value of $32 million, which is probably fair value for the scenario of Jeffrey as a small standalone open pit mine that feeds the Osisko mill. Confirmation of the Mammoth-Jeffrey unification scenario's 400,000-500,000 ounce potential at typical Malartic grades would boost the target CHL valuation to $100-$150 million, implying a price target of $3-$4 for Abitibi Royalties if no dilutionary financings are undertaken. The key to Osisko's urgency in expanding the pit onto the CHL ground would be linked to development logistics with the Malartic Mine itself. Glenn Mullan is running Abitibi Royalties on a shoestring budget and intends to keep it that way until he can coax an acceptable buyout offer from Osisko; bottom-fishers should be prepared to buy and hold for a long time. Abitibi also has the Luc Bourdon and Bourdon West projects in northern Ontario's Ring of Fire farmed out 70% to White Pine and Noront, which could provide some entertainment value if this pair makes a discovery. Management is headed by Glenn Mullan and members of his Canadian Royalties team.
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