Sultan Minerals Inc. (TSXV: SUL) Valuation Reportuntil 1926, when it closed due to low metal prices,...

Investment Analysis for Intelligent Investors

Siddharth Rajeev, B.Tech, MBAAnalyst

Vincent Weber, B.ScResearch Associate-Mining

Randall Hsu, BBAResearch Associate

October 26, 2009

2009 Fundamental Research Corp. www.researchfrc.com Siddharth Rajeev, B.Tech, MBA

PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT

Sultan Minerals Inc. (TSXV: SUL)–Valuation Report

Sector/Industry: Junior Exploration www.sultanminerals.com

Market Data (as of October 26, 2009)Current Price C$0.055Fair Value C$0.26Rating* BUYRisk* 5 (Highly Spec)52 Week Range C$0.02–C$0.10Shares O/S 123.66 mmMarket Cap C$6.80 mmCurrent Yield N/AP/E (forward) N/AP/B 0.62YoY Return 100.0%YTD TSXV 57.2%

*see back of report for rating and risk definitions

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

23-Oct-08 22-Jan-09 23-Apr-09 23-Jul-09 22-Oct-09

0

0.02

0.04

0.06

0.08

0.1

0.12

Investment Highlights

Sultan Minerals Inc. (“Sultan”, “SUL”, “the company”) is a Vancouver, British Columbia based exploration company withsignificant landholdings near Trail, BC.

The Jersey Emerald property encompasses several past producingtungsten and lead-zinc mines. The property is very accessible andunderground infrastructure is in suitable condition for explorationand future development.

The Kena Gold property hosts a potentially bulk minable nearsurface gold deposit among several other underexplored goldshowings.

Both properties have NI 43-101 compliant resource estimates fortheir respective commodities.

At the end of Q2-2009 (quarter ended June 2009), the company had$1.89 million in cash and short-term investments.

Risks

Commodity prices heavily influence the value of the companyThe value of the company is dependent on the success of drilling,

expansion, and determination of favorable resource estimatesAccess to capital and share dilution

Key Financial Data (FYE - Dec 31)(C$) 2008 2009 (6 mo)Cash + ST Inv. 1,904,070 1,893,845Working Capital 1,903,058 1,865,084Total Assets 10,938,037 11,239,860Net Income (1,032,013) (667,428)EPS (0.01) (0.01)Sultan Minerals Inc. has built a large land package in southeastern British Columbia hosting several past producing mines in theNelson Mining District. The Jersey Emerald tungsten/lead-zinc/molybdenum property encompasses several past producing mines andhas a NI 43-101 tungsten resource estimate of 2.72 million tons measured and indicated grading 0.358% WO3 (tungstate), and 2.32million tons inferred grading 0.341% WO3.

Note: An FRC analyst hasvisited Sultan’s properties in the past 18 months; see theback of this report foradditional disclosures.




CompanyOverview

Company History

Jersey EmeraldTungsten-Lead-Zinc-MolybdenumProperty

Sultan Minerals Inc. has built a large land package in southeastern British Columbia hostingseveral past producing mines in the Nelson Mining District. The Jersey Emeraldtungsten/lead-zinc/molybdenum property encompasses the past producing Jersey, Emerald,Invincible, Feeney and Dodger mines, and has an NI 43-101 tungsten resource estimate of2.72 million tons measured and indicated grading 0.358% WO3 (tungstate), and 2.32 milliontons inferred grading 0.341% WO3. The company’s other property, the Kena Gold property, hosts a potentially bulk minable NI 43-101 resource estimate of 381,000 ounces of gold inthe measured and indicated category, and 389,000 ounces in the inferred category, both at a0.5 g/t cut-off.

Sultan Minerals was formed on March 17, 1989, and started trading on the TSX Venture onMay 4, 1989. The company has held various properties throughout North and SouthAmerica, and is currently focusing on properties in British Columbia.

Property Overview: The Jersey Emerald property is located near Salmo, British Columbia,and encompasses several past producing mines including the Jersey, Emerald, Dodger 4400,East Dodger, Invincible and Garnet. The property also includes the Victory Tungstendeposit which the company recently acquired. The mines have produced primarily lead, zincand tungsten, and historic work identified the presence of molybdenum mineralization. Thecompany’s current focus is on the tungsten value held within the property. Total property size in the area is 18,000 ha. The key strength of the property appears to be thesignificant infrastructure present including mine roads, power and accessibleunderground workings. With several past producing mines on site, in an areaaccustomed to mining, we do not expect the acquisition of permits to be an issue.

Ownership: The property is composed of several option agreements and staked landcovering both past producing mines and unexploited tungsten-lead-zinc-molybdenumtargets. Currently, all properties owned or optioned by the company are contiguous.

Jersey Emerald PropertyIn 1993, the company purchased a 100% interest in the property for $43,389, and 0.20million common shares. The agreement is subject to a 3% NSR that can be reduced to 1.5%by cash and share payments totaling $0.50 million, and 50,000 shares on completion of apositive feasibility study. The agreement is also subject to an annual $50,000 advanceroyalty payment that was originally due to commence in October 2000. The agreement wasamended, and the payment commencement date was extended to October 2013. 0.65 millioncommon shares were issued to royalty holders in consideration for amending the agreement.The Jersey Emerald property also includes the Dodger 4400 and East Dodger mines.

Invincible Tungsten MineIn 2005, the company purchased 100% interest in the property by paying the vendor $3,000and 9,000 common shares. The agreement is subject to a 2% NSR which can be reduced to0.5% by a payment of $0.15 million to the vendor after completion of a positive feasibilitystudy. An annual advance royalty payment of $3,000 will commence in 2010. The propertytotals 25 acres and shares boundaries with the Jersey Emerald property.




Figure 1: Jersey property location. (Source: Sultan Minerals Inc.)

Victory Tungsten PropertyOn April 30, 2009, the company purchased 100% interest in the Victory Tungsten Propertyconsisting of six reverted crown grants for a cash payment of $12,000, and issuance of 0.20million common shares to the vendor. The agreement is subject to a 2% NSR which Sultanmay reduce to 0.5% by making a one-time payment of $0.15 million to the vendor at anytime up to, and including the commencement of commercial production.

Garnet MineThe past producing Garnet mine comprises of five mineral claims. The company has entered




into an agreement whereby they may earn a 100% interest in the property by making cashpayments of $75,000 and issuing 500,000 common shares to the optionors over four years.An additional 200,000 common shares are due to the optionor upon commencement ofcommercial production. The property is subject to a 3.0% NSR.

The Garnet mine, and the adjacent HB deposit, produced a total of 6.65 million tonnes of oreover 29 years, recovering 29.4 million grams of silver, 49.5 million kilograms of lead, 260.4million kilograms of zinc, 2.0 million kilograms of cadmium, 0.1 million kilograms ofcopper, and 0.006 million grams of gold. Historic remaining reserves as of 1978, are 0.4million tonnes of ore grading 0.1% lead and 4.1% zinc.

In addition to the optioned properties, the company has staked additional land aroundoptioned claims and purchased approximately 1,100 ha of surface rights over the propertyarea. We anticipate the ownership of surface rights will aid in obtaining permits andpossible future development should the project move to production.

Location/Accessibility/Infrastructure: As these properties encompass past producingmines, infrastructure has long been in place and the region is accustomed to minedevelopment. During the site visit, we observed excellent access by gravel mine roads tothe centre of property, as well as the suitable condition of underground workings.

Portals are well maintained and have dimensions of 20 ft per side providing excellent accessfor underground exploration and development equipment. Figure 2 below is a photo takenby us from just inside the Jersey Mine trackless portal; note the scale and condition of theportal entrance. It appeared as though portals were well constructed during original miningand have been well maintained.




Figure 2: Jersey Mine Trackless Portal (Source: Fundamental Research Corp.)

Jersey and Emerald tailings are present on the property but the company does not own them,and thus, holds no liability. However, the company is currently leasing the Emerald minetailings and conducting metallurgical tests to determine the possibility of recovering anyremaining tungsten, molybdenum and gold.

Power lines and a rail bed run through the Highway 3/6 corridor which passes north-southjust to the west of the property. The Teck Resources Ltd (TSX: TCK) Trail Smelter facilityis located 45 minutes driving distance west of the property.

Lodgings are available in nearby Salmo and Nelson. Skilled labour can be found in Salmo,Nelson, Trail and Castlegar.

Topography ranges from steep slopes on east and west property margins to rolling valley inthe central portion. Significant room for development of mining and milling infrastructure isavailable within claim boundaries. The property is accessible year round for exploration.




Historic Exploration/Production: As a result of being past producing properties, there hasbeen a great deal of activity on the properties. Earliest exploration dates to 1895, when thearea was prospected for gold. Lead mineralization was discovered in 1906, and in 1910,small high grade ore shipments were made. A 25 tpd mill was erected in 1919, operateduntil 1926, when it closed due to low metal prices, and in 1934, was destroyed by a majorforest fire.

Tungsten and molybdenum mineralization was first discovered in 1938. The Emeraldtungsten mine was put into production in 1942 by Wartime Metals Corp. (a federalgovernment agency) as part of the war effort. Operations were suspended in 1943 when wardemand for tungsten eased.

Placer Dome Inc. (acquired by Barrick Gold Corporation in 2006, TSX:ABX) –calledCanadian Exploration Ltd. at the time –purchased the property in 1947, and recommencedtungsten production, followed by lead-zinc production in 1949. Lead-Zinc concentrate wasproduced from Jersey and Emerald, tungsten concentrate was produced from Emerald,Feeney, Invincible and Dodger deposits. Production continued until 1973, when the minewas closed due to low metal prices and depleted lead, zinc and tungsten reserves.

Production totals over the various periods are:

Jersey Mine, zinc - 8.0 million tons @ 3.8% Zn + 2.0% Pb

Emerald Mine, tungsten - 1.6 million tons @ 0.76% WO3

More recent exploration on the property was performed in 1981 by Mentor Exploration Ltd.,who completed a five hole diamond drill program totaling 1,070 meters, and identification offree gold in tungsten tailings in 1993 by Lloyd Addie and Bob Bourdon, the owners previousto Sultan.

SUL Exploration: Since the initial acquisition of the properties in 1993, the company hascompleted exploration work including: geophysical surveys, geological mapping, silt andsoil sampling, prospecting, rock chip sampling and surface and underground diamonddrilling. Initial work in the 1990’s focused primarily on outlining any significant goldpotential within the property resulting in the identification of several gold bearing zones;however, no further action has been taken regarding the gold mineralization. Drilling alsoidentified a lead-zinc zone approximately 55 meters below the former Jersey Lead-Zincdeposit.

In 2005, following the improvement of molybdenum and tungsten prices, and the acquisitionof the Invincible mine, the company focused its efforts on delineating potential molybdenumand tungsten resources. Similar work has continued through to present day. The most recentresults achieved include the updated tungsten resource presented below under the headingResource Estimate.

In September 2008, Geoscience BC, and Natural Resources Canada, engaged FugroAirborne Surveys to complete a geophysical survey of the Kootenay area of BC. The




company participated in the survey by funding the flying of 100 meter spaced survey linesover its Jersey-Emerald property within the survey area. Survey results coincided withtungsten and zinc soil anomalies located approximately two km south of the Emerald mine.A follow up program of trenching and rock chip sampling confirmed the results withsamples returning assays of up to 5.0% zinc and 0.9% tungsten, values comparable tomineralization in past producing zones. The new area of mineralization has been termed theLost Creek Zone and represents important potential for the company to build on the currentresource base.

The company has completed approximately 25,000 meters of diamond drilling in 147diamond drill holes on the property, many of which have expanded historic resources byintersecting mineralization comparable to past production numbers.

Geology and Mineralization:Main rock types within the property area are sedimentary carbonates, pelites and argillitesthat have been intruded by granitic stocks, dykes and sills. As a result, there are a widevariety of deposit types present. The main structure within the mine area is the north-northeast trending Jersey anticline which is evidenced by the general trend of sedimentaryrocks seen in Figure 3.

Figure 3: Jersey Emerald property geology. Sultan holds 100% interest in all claims labeled. (Source: Sultan Minerals Inc.)




Tungsten deposits of interest are primarily related to skarn mineralization where graniticintrusions have come in contact with carbonates. The primary tungsten forming mineral isscheelite (CaWO4), which is easily identified in core as it fluoresces under short waveultraviolet light (Figure 4). Minor amounts of the mineral powellite (CaMoO4) are oftenfound associated with sheelite indicating the presence of molybdenum.

Figure 4: Jersey Emerald core sample. The mineral scheelite fluoresces light blue undershort wave ultraviolet light. (Source: Fundamental Research Corp.)

Lead-zinc deposits are typically found within dolomites and are categorized as sedimentaryexhalative deposits. More than 50% of the world’s lead and zinc are produced from this deposit type (Linnen, R.L., Sedimentary Exhalative (SEDEX) Deposits, 2007).

Molybdenum porphyry deposits have been found in quartz stockwork veining zonesunderlying the lead-zinc and tungsten deposits.

Metallurgy: Although no metallurgical testing has been completed on ore from thecompany’s property, Wardrop Engineering Inc. completed a Preliminary EconomicAssessment (PEA) in early 2007, making several assumptions based on data from othermines recovering tungsten from the mineral scheelite. Wardrop assumed a two step recoveryprocess incorporating both gravity and flotation concentration with a final recovery ofslightly greater than 80%. Historical recoveries achieved in past production wereapproximately 82%.

Resource Estimate: The most recent tungsten resource estimate incorporates two separate




resource estimates: those calculated in 2008 for the Emerald, East Emerald and Lower EastEmerald deposits, and; those calculated in 2006 for the Invincible, Dodger and East Dodgerzones. Both estimates were completed by the same authors and apply a 0.15% WO3 cut-offgrade.

Figure 5: Combined 2006-2008 total WO3 resource summary(Source: Sultan Minerals Inc.)

We believe the company will achieve the most value out of the property by exploringthe newly discovered and acquired zones of mineralization and further building on thetungsten resource, preferably with an increase in grade above 0.4% WO3.

A small molybdenum resource estimate was completed by Wardrop in 2007 for the Dodgermolybdenum zone:

CategoryCut-off

(%) TonsGrade Mo

(%) Pounds Mo

Indicated 0.05 28,000 0.098 54,880

Inferred 0.05 481,000 0.103 990,860Figure 6: Molybdenum resource estimate for the Dodger Molybdenum zone.

(Source: Sultan Minerals Inc.)

PEA by Wardrop Engineering in 2007: Wardrop estimated production could bepotentially commercial based on a 1,100 tpd mining operation applying the 2006 resourceestimate and a tungsten concentrate price of US$244/MTU –which was the price when thereport was prepared. However, Wardrop estimated that the project is not economic (based onthe 2006 resource estimate) based on the three-year average concentrate price ofUS198/MTU. Note that concentrate prices have dropped considerably in the past 12 months,and are currently trading below US$150/MTU.

Current Status: The company recently resumed diamond drilling on the property targetingnew tungsten, zinc and molybdenum discoveries located south (Lost Creek Zone) east andeast northeast of the Dodger mine (see Figure 7). The recently acquired Victory Tungstendeposit will also be drill tested once permitting is obtained (applications have been




submitted). The Victory deposit is the current target as historical results indicate the zonepotentially hosts ore grading above 0.5% WO3. The company recently released assays fromsix holes of the current program completed on the Victory deposit. Results include a 13 foot(3.96 meter) section of 0.76% WO3.

Figure 7: Jersey Emerald property past producing mines and near-term drill targets.(Source: Sultan Minerals Inc.)

Development Timeline: Due to the recent drop in metal prices, the company’s near term focus is on the underexplored areas of the property including the recently acquired Victorydeposit. A recovery in metal prices may result in the company turning to focus on short termproduction of a tungsten concentrate. The company is likely to need a partner if interestturns to development of the lead-zinc potential of the property.




Kena GoldProperty

turns to development of the lead-zinc potential of the property.

The company holds 100% interest in the Kena Gold property located near the town ofNelson in southeastern British Columbia, 45 kilometers from the Teck Resources Trailsmelter. Lying within 25 km (40 km by road) of the company’s Jersey Emerald property, Kena shares the same benefits of nearby power and labour sources.

Figure 8: Kena and Jersey-Emerald property locations(Source: Sultan Minerals Inc.)

The property totals 8,000 hectares and covers several gold, silver and gold-copper prospects,




particularly the Gold Mountain and Kena Gold zones which host NI 43-101 resourceestimates completed in 2004.

Zone Class Cutoff (g/t) Tonnes Grade (g/t) Ounces (Au)

Gold MountainMeasured plus

Indicated 0.5 5,490,000 1.04 184,000Inferred 0.5 10,710,000 0.967 333,000

Kena GoldMeasured plus

Indicated 0.5 6,330,000 0.969 197,000Inferred 0.5 1,440,000 1.216 56,000

Figure 9: 2004 resource estimate on the Kena Gold property.(Source: Sultan Minerals Inc.)

The Hall Creek Syncline, a south plunging fold associated with intense shearing, dictates thestructure of the area with the property lying on the eastern limb of the fold. The primaryrocks on the property are volcanic and sedimentary rocks of the lower Jurassic RosslandGroup which have been intruded by stocks of the mid Jurassic Silver King intrusive.

Figure 10: Kena Property Geological Map (Source: Sultan Minerals Inc.)




Management

The Gold Mountain zone hosts several styles of mineralization primarily related to alterationcaused by the Silver King intrusive. Low-grade bulk tonnage mineralization was the initialtarget, however, the company has also focused on a high-grade corridor of goldmineralization and bonanza shoots which have returned values up to 240 g/t Au over a 1.23meter interval.

The Kena Gold zone hosts low grade mineralization with bulk tonnage potential similar tothe Gold Mountain zone which lies 500 meters to the northwest. Geologic trends andgeophysical/geochemical features lead company geologists to believe that the two zones areconnected, and a structural mapping program is currently underway to investigate thispotential. We anticipate an infill drilling program will be completed between the two zonesthat will both confirm this theory, and increase the current resource estimate. The nearsurface gold zones lie on a gently sloping hill implying bulk tonnage targets with potentiallylow strip ratios.

The company recently received an independent geological assessment from Dr. Jim Oliver,P.Geo. Within his report, Dr. Oliver concludes: “Geological, geophysical and geochemicalvectors clearly demonstrate that several, strong exploration targets exist within the Kenaland package. Kena is a very significant and likely undervalued gold-copper occurrence.”

We also visited the Kena Property during the site visit and observed suitable access to theproperty by logging roads. Further access throughout the property was sufficiently obtainedin passenger vehicles on cleared single lane exploration trails. At the time of the site visit,trenching was underway to test the copper potential of the Kena Gold zone.

Additional zones of gold mineralization on the property are: South Gold zone, Great Westernzone and Starlight Trend. All of the properties have known gold anomalies implyingsignificant exploration potential.

Frank Lang, B.A., M.A., P.Eng.–Chairman and DirectorMr. Lang is a Professional Engineer, and has been involved in the operation and financing ofjunior resource companies for over 40 years. He is also Chairman and Director of CreamMinerals Ltd., and Chairman and Director of Acrex Ventures Ltd. Mr. Lang was involvedwith the discovery of the Ferderber Gold Mine, the Beacon Two Gold Mine and the SleepingGiant Gold Mine in the Val D'Or area in Quebec. He and his former partner, Dick Hughes,shared the Developer of the Year Award for the discovery of the Golden Giant Mine, thefirst gold mine in production in the Hemlo area in Ontario.

Arthur G. Troup, P.Eng–President and DirectorMr. Troup has served as President and Chief Executive Officer of Sultan Minerals Inc. sinceJune 1997 and has been a Director of the Company since June 1995. Mr. Troup has alsoserved as Vice President, Exploration and Director of Cream Minerals Ltd. since 1987, VicePresident, Exploration of Emgold Mining Corporation from September 1993 to June 2005and Vice President, Exploration of ValGold Resources Ltd. from June 1996 to January 2005.Prior to this, Mr. Troup was President of Archean Engineering Ltd., a firm offering projectmanagement and mineral exploration services, from 1981 through to 1996. Mr. Troup




ManagementRating

graduated from McMaster University in Hamilton, Ontario with a M.Sc. in Geology. He hasover 30 years experience in the mining industry in North and South America, Southeast Asiaand North Africa working for Rio Algom, Teck Corporation, Canada Nickel Corporation andPlacer Dome Canada Limited, and the Geological Survey of Canada.

Ben Ainsworth, M.A. (Oxon), F.G.S., P.Eng. (BC)–DirectorMr. Ainsworth graduated with an Honours Degree in Geology and has been active in mineralexploration for 40 years. A Senior Geologist with Placer Development Ltd (the formerowner operator of Sultan’s Salmo mineral projects), he held assignments as ChiefGeochemist, Exploration Manager - Eastern Canada, Exploration Manager during more than20 years with that company. He carried out extensive exploration work in Canada andYukon, which lead to the discovery, in 1972, of the world class Howards Pass lead - zincdeposit, and the re-discovery of the Clea tungsten deposit. In 1986, he formed aninternational mineral exploration consultancy and serves as “Qualified Person” on the board of several junior mining companies, working with a wide range of commodities.

Sargent H. Berner, B.A., LL.B–DirectorMr. Berner practiced corporate, securities, and natural resources law as a partner in theVancouver law firm of DuMoulin Black from 1976 until 2004. He is currently Co-Chairmanand CEO of Emgold Mining Corporation. Mr. Berner is a graduate of the University ofBritish Columbia where he received his B.A. in 1963 and his LL.B. in 1966. He alsoreceived the degree of Master of Laws from the London School of Economics, London,England in 1967.

Shannon Ross, B.Comm, C.A.–CFO, Corporate SecretaryMs. Ross brings more than 25 years of accounting and financial management experience toSultan Minerals. Ms. Ross began her career in public practice, moved to mining industry asan internal auditor for Cominco Ltd., and has served as controller and chief financial officerfor several mining companies. She holds a Bachelor of Commerce degree and is a registeredChartered Accountant.

We believe that one of the most important aspects of a junior mining company is itsmanagement. Therefore we have developed a management rating system as a quantitativeway to rate management based on a number of factors, including technical experience, theability to raise financing, and the management’s time commitment to the company. We also analyzed trading records to identify for evidence of unusual trading by management. Ournet rating for Sultan (see below) is 3.4 out of 5.0, which we have rated average.




Strength ofBoard

Outlook onTungsten

Management Rating

3.4

5.0

3.3

3.4

3.5

3.5

3.4

0% 20% 40% 60% 80% 100%

Net Rating

Any unusual insider trading in the past 12 months

Team's focus on the company

Experience in projects similar to the current project

Track record in raising capital/working for public companies

Experience in putting mines to production/generatingprospects

Technical Experience

NO

The Toronto Stock Exchange recommends that the Board of Directors of every companyinclude independent or unrelated directors who are free of any relationship or business thatcould materially interfere with the director’s ability to act in the best interest of the company. An unrelated/independent director can be a shareholder.

In this section, we present our strength of board rating for Sultan Minerals Inc., which usesinformation available from the company’s annual “Management Information Circular” to ensure that the company has an independent Board of Directors, Audit Committee, andCompensation Committee.

Sultan Minerals Inc.’sBoard of Directors is made up of 4 individuals: Arthur Troup, SargentBerner, Frank Lang, Benjamin Ainsworth. None of the directors have filed for personalbankruptcy. All of the directors hold shares in the company. The related/non-independentdirector is Arthur Troup as he is an executive officer of the company and receivescompensation. The Audit Committee and Compensation Committee are made up of SargentBerner, Frank Lang and Benjamin Ainsworth.

Pure tungsten is a steel-grey to tin-white metal and falls under the “minor metals”category.Tungsten is primarily used for industrial applications because of its following distinctiveproperties–

highest melting temperature of all metals (3,422°C);hardest of all metals;high electrical conductivity, high thermal and chemical stability;extremely corrosive resistant and environmentally friendly metal

Due to these properties, tungsten is used in a wide range of industrial applications, includingmetal-cutting tools, light bulb filaments, high temperature alloys (aircraft manufacturing),military uses (armour plating and armour piercing projectiles), chemical applications, and




military uses (armour plating and armour piercing projectiles), chemical applications, andelectronic contacts.

About 55-65% of the global demand comes from its use in the production of hardmetals/cemented carbides (that are used for cutting and drilling purposes), 10–15% from its use inspecial steel alloys, and 10-15% from its use in mill products. China is the number oneconsumer of primary tungsten (approximately 33% of global consumption), followed byEurope (27%), US (15%) and Japan (13%). Our research indicates that the globalconsumption of tungsten from 1998-2007 increased at a rate of 5.4% per annum.

On the supply side, China is the number one producer of tungsten, and in 2007, as shown inthe graph below, accounted for 86% of tungsten production worldwide. Russia and Canadaare the other two major suppliers of tungsten but their production is significantly lower thanthat of China. Recycling is another significant contributor as it is estimated that about 30%of the global supply comes from recycling.

Source: U.S. Geological Survey

In terms of reserves, China is estimated to hold about 60% of global reserves, while Canadaand Russia are estimated to hold 8.7% and 8.3%, respectively (according to the USGS).According to the USGS, global tungsten production is estimated to have increased by only0.2% YOY in 2008. Production in China in 2008 remained stable.

Tungsten Prices - The following chart shows tungsten prices from 1997 to 2008. Prices arequoted in US$ per metric ton unit (MTU) of contained tungsten trioxide (WO3). One MTUholds 10 kg of WO3, or 7.93 kg of tungsten (W).




Source - USGS

Note the significant price difference between pre and post 2004 levels. The primary reasonfor the jump in prices in 2005 was that supply was not keeping pace with demand. Prices,however, have dropped in recent times due to the global economic slowdown and financialcrunch. The following chart shows recent prices of Ammonium Paratungstate (APT), whichis an intermediate product in the production of tungsten metal. Note that APT, being a morerefined product than tungsten concentrates, receives a higher price.

APT prices have dropped from over US$250/MT in early 2008, to its current price ofUS$190/MT.

Long-term price drivers: The following factors, we believe, will keep prices well abovepre 2004 levels.

Steady demand growth for tungsten, along with steel, especially from China: Economic




Outlook on Gold

Financials

recovery in China, along with its US$586 billion stimulus package, has led to a strongerthan expected recovery in Chinese steel production. According to the World SteelAssociation, although total steel production (based on the 66 countries reporting to theWSA) dropped by 18% YOY in the first eight months of 2009, Chinese productionincreased by 5.2% YOY (22% YOY in August 2009). Production in India was also up by1.5% YOY during the same period.

Production in China has not been able to keep up with increasing demand due toexhaustion and low-grade supply.

In order to protect its mineral resources, China recently cut export quotas, and raisedexport taxes on tungsten products.

Tungsten supply is highly concentrated in China; which makes the global tungsten markethighly susceptible to risks associated with just one country.

We believe the average WO3 concentrate price in the past five years (US$175/MTU) is agood indicator of the average long-term price going forward.

We have maintained our positive near-term outlook on gold prices, and believe prices willstay strong primarily because we expect investment demand to continue to stay strong. Thereason why we believe investment demand will stay strong is because we expect the US$ todepreciate with respect to major global currencies due to the recession, and negative realinterest rates in the U.S., and as we believe inflationary pressures in the U.S. will beinstigated by large stimulus packages, and low interest rates. Our short-term forecasts areUS$925/oz for 2010, and US$850/oz for 2011. We expect prices to converge to our long-term (2012+) forecast of US$750/oz, as the US economy recovers and investor confidenceimproves. Both these factors will result in a drop in the investment demand for gold asinvestors move their capital from ‘capital preservation’ assets to investments with higher expected returns.

At the end of Q2-2009 (quarter ended June 2009), the company had $1.89 million in cashand short-term investments. Working capital was $1.87 million. We estimate the companyhad a burn rate (cash spent on operating and investing activities) of $0.09 million per monthin the first six months of FY2009, compared to $0.20 million per month in FY2008 (12-month period). The following table shows the cash and liquidity position at the end of Q2-2009.

Liquidity (C$) 2008 2009 (6 mo)Cash + ST Inv. 1,904,070 1,893,845Working Capital 1,903,058 1,865,084Monthly Burn Rate (incl. Exploration) (203,088) (89,577)Current Ratio 9.44 7.76LT Debt - -Total Assets 10,938,037 11,239,860

Stock Options and Warrants: We estimate the company currently has about 15.37 millionstock options (weighted average exercise price - $0.20), and 21.91 million warrants(weighted average exercise price –$0.14, and maturity dates between December 2009 andJune 2014) outstanding.




Valuation

Conclusion: We believe the company is in a sound cash position, and do not foresee anyneed for external financing in the next 12 months.

Valuation of Kena Gold –Based on an average enterprise value (EV) to resource ratio of$49.8/oz, we estimate the value of Kena Gold’s current resource estimate is$0.23 per share.

EV /

Resources

1 Silverado Gold Mines Ltd. OTCBB: SLGLF $102.92 US Gold Corporation AMEX: UXG $96.93 J-Pacific Gold Inc. TSXV: JPN $59.54 NioGold Mining Corporation TSXV: NOX $55.55 Golden Band Resources Inc. TSXV: GBN $39.16 Harvest Gold Corp. TSXV: HVG $38.17 Garson Gold Corp. TSXV: GG $34.08 Sutter Gold Mining Inc TSXV: SGM $32.19 Rye Patch Gold Corp. TSXV: RPM $23.2

10 Midway Gold Corp. TSXV: MDW $16.2

Average EV / Resources $49.8

Fair Value of Kena Gold Property $0.23* Resources include all measured and indicated, and half of inferred and historical resources

Company SYM

Valuation of Jersey Emerald –Our DCF valuation model on the Jersey Emerald projectsuggests that the project is not economic based on its current resource estimate. Our base-case scenario was based on a WO3 concentrate price of US$175/MTU, an operating cost of$50/t, and capital costs of $65 million. However, this valuation does not reflect the truepotential of the project as the current resource estimate does not reflect any of the potentiallyrecoverable molybdenum (although a small molybdenum resource estimate was completedby Wardrop for the Dodger molybdenum zone), lead and zinc. Our comparables valuationmodel on the project gave a fair value estimate of $0.01 per share (based on an average EVto resource ratio of $0.06/lb).

EV /

Resources

1 Playfair Mining Ltd. TSXV:PLY $5,331,900 64.7 $0.082 Geodex Minerals Ltd. TSXV:GXM $13,559,558 192.1 $0.073 Adex Mining Inc. TSXV:ADE $7,741,160 125.6 $0.064 Largo Resources Ltd. TSXV:LGO $34,498,804 795.6 $0.045 North American Tungsten Corp. TSXV:NTC $18,940,980 781.0 $0.02

Average EV / Resources $0.06

Fair Value of Jersey Emerald $0.01* Resources include all measured and indicated, and half of inferred and historical resources

Company SYMResource

(Pounds ofWO3)

EnterpriseValue (C$)




Conclusions &Rating

Risks

Therefore, based on our valuation models and review of the company’s projects, we assign a BUY rating, and a fair value estimate of $0.26per share on Sultan’s shares.

Valuation Summary Value VPSKena Gold $28,633,894 $0.231Jersey Emerald $1,548,359 $0.013Working Capital net LT Debt $1,417,197 $0.011

Fair Value $31,599,451 $0.255

The following risks, though not exhaustive, may cause our estimates to differ from actualresults:

The value of the company is dependent on commodity prices (primarily gold andtungsten).

The success of drilling, project development and resource expansion are important long-term success factors.

Access to capital and share dilutionThe company does not have any operating mines.




Fundamental Research Corp. Equity Rating Scale:Buy–Annual expected rate of return exceeds 12% or the expected return is commensurate with riskHold–Annual expected rate of return is between 5% and 12%Sell–Annual expected rate of return is below 5% or the expected return is not commensurate with riskSuspended or Rating N/A— Coverage and ratings suspended until more information can be obtained from the company regarding recent events.

Fundamental Research Corp. Risk Rating Scale:1 (Low Risk) - The company operates in an industry where it has a strong position (for example a monopoly, high market share etc.) or operates in a regulated industry.The future outlook is stable or positive for the industry. The company generates positive free cash flow and has a history of profitability. The capital structure isconservative with little or no debt.

2 (Below Average Risk) - The company operates in an industry where the fundamentals and outlook are positive. The industry and company are relatively less sensitiveto systematic risk than companies with a Risk Rating of 3. The company has a history of profitability and has demonstrated its ability to generate positive free cash flows(though current free cash flow may be negative due to capital investment). The company’s capital structure is conservative with little to modest use of debt.

3 (Average Risk) - The company operates in an industry that has average sensitivity to systematic risk. The industry may be cyclical. Profits and cash flow are sensitiveto economic factors although the company has demonstrated its ability to generate positive earnings and cash flow. Debt use is in line with industry averages, andcoverage ratios are sufficient.

4 (Speculative) - The company has little or no history of generating earnings or cash flow. Debt use is higher. These companies may be in start-up mode or in aturnaround situation. These companies should be considered speculative.

5 (Highly Speculative) - The company has no history of generating earnings or cash flow. They may operate in a new industry with new, and unproven products.Products may be at the development stage, testing, or seeking regulatory approval. These companies may run into liquidity issues, and may rely on external funding.These stocks are considered highly speculative.

Disclaimers and DisclosureThe opinions expressed in this report are the trueopinions of the analyst about this company and industry. Any “forward looking statements” are our best estimates and opinions based upon information that is publicly available and that we believe to be correct, but we have not independently verified with respect to truth or correctness.There is no guarantee that our forecasts will materialize. Actual results will likely vary. The analyst and Fundamental Research Corp. “FRC” does not own any shares of the subject company, does not make a market or offer shares for sale of the subject company, and does not have any investment banking business with the subjectcompany. Fees have been paid by SUL to FRC. The purpose of the fee is to subsidize the high costs of research and monitoring. FRC takes steps to ensureindependence including setting fees in advance and utilizing analysts who must abide by CFA Institute Code of Ethics and Standards of Professional Conduct.Additionally, analysts may not trade in any security under coverage. Our full editorial control of all research, timing of release of the reports, and release of liability fornegative reports are protected contractually. Distribution procedure: our reports are distributed first to our web-based subscribers on the date shown on this report thenmade available to delayed access users through various otherchannels for a limited time. The performance of FRC’s research is ranked by Investars. Full rankings and are available at www.investars.com.

The distribution of FRC’sratings are as follows: BUY (69%), HOLD (10%), SELL (5%), SUSPEND (16%).To subscribe for real-time access to research, visit http://www.researchfrc.com/subscription.htm for subscription options.

This report contains "forward looking" statements. Forward-looking statements regarding the Company and/or stock’s performance inherently involve risks and uncertainties that could cause actual results to differ from such forward-looking statements. Factors that would cause or contribute to such differences include, but arenot limited to, continued acceptance of the Company's products/services in the marketplace; acceptance in the marketplace of the Company's new product lines/services;competitive factors; new product/service introductions by others; technological changes; dependence on suppliers; systematic market risks and other risks discussed inthe Company's periodic report filings, including interim reports, annual reports, and annual information forms filed with the various securities regulators. By makingthese forward looking statements, Fundamental Research Corp. and the analyst/author of this report undertakes no obligation to update these statements for revisions orchanges after the date of this report. A report initiating coverage will most often be updated quarterly while a report issuing a rating may have no further or less frequentupdates because the subject company is likely to be in earlier stages where nothing material may occur quarter to quarter.Fundamental Research Corp DOES NOT MAKE ANY WARRANTIES, EXPRESSED OR IMPLIED, AS TO RESULTS TO BE OBTAINED FROM USING THISINFORMATION AND MAKES NO EXPRESS OR IMPLIED WARRANTIES OR FITNESS FOR A PARTICULAR USE. ANYONE USING THIS REPORTASSUMES FULL RESPONSIBILITY FOR WHATEVER RESULTS THEY OBTAIN FROM WHATEVER USE THE INFORMATION WAS PUT TO. ALWAYSTALK TO YOUR FINANCIAL ADVISOR BEFORE YOU INVEST. WHETHER A STOCK SHOULD BE INCLUDED IN A PORTFOLIO DEPENDS ON ONE’S RISK TOLERANCE, OBJECTIVES, SITUATION, RETURN ON OTHER ASSETS, ETC. ONLY YOUR INVESTMENT ADVISOR WHO KNOWS YOURUNIQUE CIRCUMSTANCES CAN MAKE A PROPER RECOMMENDATION AS TO THE MERIT OF ANY PARTICULAR SECURITY FOR INCLUSION INYOUR PORTFOLIO. This REPORT is solely for informative purposes and is not a solicitation or an offer to buy or sell any security. It is not intended as being acomplete description of the company, industry, securities or developments referred to in the material. Any forecasts contained in this report were independently preparedunless otherwise stated, and HAVE NOT BEEN endorsed by the Management of the company which is the subject of this report. Additional information is availableupon request. THIS REPORT IS COPYRIGHT. YOU MAY NOT REDISTRIBUTE THIS REPORT WITHOUT OUR PERMISSION. Please give proper credit,including citing Fundamental Research Corp and/or the analyst, when quoting information from this report.

Fundamental Research Corp is registered with the British Columbia Securities Commission as a Securities Adviser which is not in any way an endorsement from theBCSC. The information contained in this report is intended to be viewed only in jurisdictions where it may be legally viewed and is not intended for use by any personor entity in any jurisdiction where such use would be contrary to local regulations or which would require any registration requirement within such jurisdiction.

Sultan Minerals Inc. (TSXV: SUL) Valuation Reportuntil 1926, when it closed due to low metal prices,...

Documents

Transcript of Sultan Minerals Inc. (TSXV: SUL) Valuation Reportuntil 1926, when it closed due to low metal prices,...