Almaden Minerals Limited - Cormark Securities

Tyron Breytenbach, P.Geo, (416) 943-6747 [email protected]

MORNING MEETING NOTES APRIL 21, 2014

Our disclosure statements are located on the second last page of this report

Recommendation: Buy (S) Target Price: C$2.80

Almaden Minerals Ltd. (AMM-TSX)

Produces Positive PEA Just Four Years Since Discovery

Current Price C$1.49 Shares Outstanding (MM)

52 Wk High C$2.34 Basic

52 Wk Low C$1.08 Diluted

Cash (MM) C$15.0 Mngt. & Dir.

Total Debt (MM) $0.0 Market Cap.

NAVPS C$3.30 Float

Price/NAV 0.45x EV

Dividend $0.00 Reserves

Dividend Yield 0.0% Total Resource

EV/oz AuEq 19

C$96.1

4.3 MMoz

C$81.1

0.0 MMoz

64.5

75.0

4.8

C$88.9

Unless otherwise denoted, all figures shown in US$

Investment Thesis: Almaden is Canadian based explorer and project generator currently focused on its flagship Ixtaca asset (4.25 MMoz AuEq) in Eastern Mexico. The company boasts a tight share structure and remains well capitalized from proceeds generated by the sale or option of its stable of projects in North America (Mexico, the US and Canada).

Highlights:

• Ixtaca PEA Outlines Large Open-Pit; Profitable At Lower Metal Prices The maiden PEA demonstrates a sizable producer (260 Koz AuEq) that works at spot metal prices (20% after-tax IRR) and remains profitable at our lower price forecast (17% after-tax IRR at $1,200/oz Au and $20/oz Ag). The four-year payback is attractive when compared to assets of similar size (3.15 Moz AuEq recovered LOM).

• Doré Production Increases Capex; Royalty Sale Provides Financing Alternatives The study outlined production of an Au/Ag doré bar vs. our model that assumed a concentrate as the final product. Capex is therefore elevated to $500 MM (from our $320 MM estimate), but is partially offset by the elimination of the ~12% processing fee. As an unburdened resource, the sale of a stream or royalty provides optionality in accessing pre-production capital.

• Maintaining Buy (S) Rating, Increasing Target To C$2.80 (From C$2.60) We lower our discount rate to 5% (from 8%) to account for the newly completed study and reduced modelling risk which has us increasing our target to C$2.80 from C$2.60.

Company Description:

Almaden employs the project generator model to stake early stage ground for exploration and apply its experience and proprietary database in making new discoveries. The company holds a portfolio of active projects, JVs and NSRs. It is currently focused on completing a PFS for its 100%-owned 4.25 MMoz Ixtaca discovery in Eastern Mexico.

Source: BigCharts.com, April 17, 2014 (Chart C$)




Maiden PEA Confirms Large, Royalty Free Asset With Robust Economics: The most significant change from our original assumption is the decision to produce a doré bar vs. concentrate and use a larger throughput rate. These changes have increased our pre-production capital estimate to $500 MM (from $320 MM) but also allow Almaden to recapture the smelting charge. The project generates a robust return at even our lower metal price assumptions (17% after-tax IRR at $1,200/oz Au & $20/oz Ag) and a solid ~20% after-tax IRR at spot gold prices. Key economic drivers are:

Low Strip Ratio: The waste rock (volcanic ash/tuff) has a much lower density than the host rock and combined with the favorable geometry of the ore body translates into strip ratios of just 2:1.

Low Cost Jurisdiction: Mexico is well established as a mining-friendly jurisdiction with producers in the region able to demonstrate some of the lowest unit-mining costs in the industry. A decent pool of experienced labor and suppliers is also available. The PEA contractor mining rate of $1.81/t matches other producers in the region (e.g. Timmins Gold, TMM-T, Market Perform rating, C$1.85 target, covered by Kyle McPhee).

Robust Recovery: The metallurgy of Ixtaca suggests a clean concentrate without the Lb-Zn values typical seen in most Mexican Ag ores. The company reports that even lower grade silver samples (~15 g/t Ag) recover well. The PEA has defined an improved (90%) recovery rate for both metals following ongoing testing as part of the design work.

No Third-Party Line Royalty: As an in-house and “organic” discovery, Ixtaca is unburdened by any third-

party top-line royalties, drastically improving economics.

Our full list of assumptions is detailed below and we have updated our model following the PEA release.

Figure 1: PEA Results & Assumptions CSI old PEA CSI new

Long Term Gold Price ($) $1,200 $1,320 $1,200Long Term Silver Price ($) $20 $21 $20

Tonnes Milled (MMt) 115.8 129 129AuEq Grade (g/t) 1.14 0.80 0.84Au Grade (g/t) 0.54 0.42 0.42Ag Grade (g/t) 30.9 25.27 25.27

Total Mine Life (years) 13 12 12Average Annual Throughput (tpd) 25,000 30,000 30,000Average Ag Recovery (%) 80% 90% 90%Average Ag Recovery (%) 78% 90% 90%

O/P Mining Costs ($/t of rock) $1.80 1.81 1.81Strip Ratio W:O 2.00:1 2.00:1 2.00:1Processing Costs ($/t of ore) $6.20 $9.00 $9.00G&A Costs ($/t of ore) $2.00 $2.10 $2.10Refinery Charge (Including Transport) (% of revenue) 12% 0 0

Average Cash Costs ($/oz AuEq) $651 N/A 717Average All-in Sustaining Costs ($/oz AuEq) $736 N/A 750Average Gold Equivalent Production (Koz/yr) 239 260 260

Initial Capital ($ MM) $320 $496 $500Sustaining Capital ($ MM) $90 $106 $106Total Captial ($ MM) $410 $602 $606

After-tax NPV5% ($ MM) $414 $437 $307After-tax IRR (%) 27% 22% 17%

Sources: Company Reports/Cormark Securities



During the past twenty-four months, Cormark Securities Inc., either on its own or as a syndicate member, participated in the underwriting of securities for these companies


We Expect An Eventual Sale/Spin-out Of Ixtaca: Given the impressive production profile and safe jurisdiction, returns are adequate down to gold prices of $1,200/oz in our view. At our conservative metal price assumptions the after-tax IRR is a moderate 17% though we note that Ixtaca delivers the 4th highest production rate of the group and we exclude any potential tax rebates and rely solely on the new Mexican tax regime ($393 MM total tax burden at $1,200/oz Au & $20/oz Ag)

Figure 2: Peer Comparables Sorted By Production Profile

AnnualProduction

Company Project NPV IRR NPV IRR($MM) (%) ($MM) (%) (Koz)

♦ Pretium Resources Brucejack $2,309 54% $3,024 68% 426Asanko Gold AGM $463 20% $842 31% 325

♦ Sabina Gold & Silver Back River $152 13% $481 27% 300Almaden Ixtaca $307 17% $658 28% 260

♦ Guyana Goldfields Aurora $601 25% $886 33% 194♦ Victoria Gold Eagle $232 20% $443 31% 192

Lydian International Amulsar $431 24% $624 30% 186♦ Belo Sun Volta Grande $188 9% $561 17% 167

Newstrike Capital Ana Paula $166 20% $331 31% 162♦ Dalradian Curraghinalt $315 42% $45 54% 160♦ Romarco Haile $750 29% $1,051 36% 126♦ Probe Mines Borden $244 18% $434 28% 126♦ Kaminak Gold Corp Coffee $92 14% $236 24% 120♦ Castle Mountain Castle Mtn $245 26% $404 38% 120♦ True Gold Mining Karma $190 40% $300 56% 97♦ Sulliden Gold Shahuindo $219 30% $317 42% 85

Midway Gold Pan $90 25% $157 38% 80Golden Queen Soledad $176 22% $249 28% 80

♦ Roxgold 55-Zone $140 33% $217 46% 75♦ West Kirkland Hasbrouck $73 35% $116 50% 65

$1,200/oz Au & $20/oz Ag $1,400/oz Au & $25/oz Ag

Sources: Company Reports/Cormark Securities

We suggest the asset may be of interest to mid-tier producers experienced in Mexico and looking to grow production significantly. Obvious candidates include Alamos Gold (AGI-T, not rated) and Pan American (PAA-T, not rated) as both would benefit from a ~260 Koz production boost and have healthy cash balances (Alamos: $410 MM; Pan American: $423 MM) with minimal to no debt. We also note that the asset would likely appeal to producers of both gold and silver as revenue is split equally between the two metals.




Figure 3: FCF Profile At Cormark Financing Assumptions (65% Equity/35% Debt)

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Capex Debt Issuance ($175 MM)Equity Issuance ($325 MM) Interest PaymentDebt Repayments Operating Cash Flow (Base Case)Cash at $1,100/oz Au & $18/oz Ag Cash at $1,300/oz Au & $22/oz AgCash at $1,200/oz Au & $20/oz Ag

Source: Cormark Securities

Valuation: Our Ixtaca model now demonstrates an NPV5% of $307 MM after updating our project scope to match the higher throughput rates (30,000 tpd) and flow sheet as laid out in the PEA. We have also switched to a 5% discount rate (previously 8%) to reflect the reduced risk stemming from a published PEA and a resource that is largely (83%) within the higher confidence M&I categories. We maintain our 0.85x NAV multiple but update our dilution assumptions to assume the project is now financed at a 65/35% equity to debt split and that the equity is issued at the current share price.

Figure 4: Valuation Summary $MM $/Share

AssetsIxtaca NPV5% 306.55 4.09Caballo Blanco NSR Present Value (7.5%) 8.72 0.12Remaining Exploration Ground 10.00 0.13Remaining NSR Portfolio 0.24 0

Corporate AdjustmentsCash 15.00 0.20Pro Forma Cash 325.00Cash from Warrants/Options 13.13 0.18

Net Asset Value 678.62 3.14Net Asset Value (C$) C$3.30

Basic S/O 64.49Options and Warrants Outstanding 10.48Fully Diluted S/O 74.97Fully Diluted & Financed S/O 215.80

Current Almaden Share Price ($/sh) C$1.49

Price/NAV 0.45x Source: Cormark Securities




Upcoming Catalysts:

• Drill Results: With $15 MM in cash and equivalents, we expect continuous news flow from the large epithermal gold system at Tuligtic - Ongoing

• Potential Asset Sale/Option: Almaden has a successful track record of monetizing its discoveries; we would not be surprised to see a deal that includes Ixtaca or any of the 12 other earlier stage projects. Almaden could then focus on leveraging its proprietary geological database to uncover further economic projects and repeat the success - Ongoing

Maintain Buy (S) Recommendation, Increase Target To C$2.80: Almaden’s Ixtaca has evolved into a sizable and robust asset that we expect is monetized to allow the company to focus on what it does best, creating value with the drill bit. Our new valuation methodology has us increasing our target to C$2.80 (from C$2.60) and continues to be based on conservative metal pricing and 0.85x NAV multiple.

I, Tyron Breytenbach, hereby certify that the views expressed in this research report accurately reflect my personal views about the subject company(ies) and its (their) securities. I also certify that I have not been, and will not be receiving direct or indirect compensation in exchange for expressing the specific recommendation(s) in this report.


RECOMMENDATION TERMINOLOGY

Cormark’s recommendation terminology is as follows: Top Pick our best investment ideas, the greatest potential value appreciation Buy expected to outperform its peer group Market Perform expected to perform with its peer group Reduce expected to underperform its peer group Our ratings may be followed by "(S)" which denotes that the investment is speculative and has a higher degree of risk associated with it.

Additionally, our target prices are set based on a 12-month investment horizon.

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Almaden Minerals Limited - Cormark Securities

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