Equity Strategy February 28, 2008:

The Asian economies continue to grow at a rapid pace even as the US economy is slowing. The growth rate in China has been in double digits for years now and appears to have the potential to continue for a while yet. The Chinese central bank has been trying to slow the economy making a series of changes to bank reserve requirements and increasing interest rates in an effort to reign in the pace of growth, so far the economy has not responded to these policy changes.

All of Asia has been receiving a positive spinoff effect from the robust growth in China, the creation of millions of middle class families is increasing the demand for consumer goods and housing at a pace never before seen in history. The economy of the entire region is benefiting from this huge expansion in demand.  The economic expansion is also creating additional middleclass families in countries such as Vietnam and Singapore.

In addition to China, India is on a path to growth and modernization which is adding millions more new middleclass families annually. India has been in the forefront of technical changes in the region diversifying the economy of the region. The momentum towards further change is increasing and the number of potential new consumers is staggering. These economic changes will ultimately have an impact on one third of the world’s population which will have a long term impact on the rest of the world.

The ongoing increase in demand for materials to feed the economic growth in Asia will continue for years possibly decades in to the future. This increased demand will affect a number of areas globally including food, energy, precious metals and base metals.

Over the past five years the prices of most base metals have increased and then stabilized at considerably higher levels than seen historically. Many observers are now calling for prices to decline dramatically due to an anticipated economic slowdown in the US. The flaw in this analysis is that prices did not increase solely because of US demand but due to a dramatic increase in Asian demand, so it is unlikely that these prices will fall due to a reduction in US economic growth. One commodity that could be impacted short term by a US economic slow down is energy, but the impact is likely to be short lived and price declines muted due to the acceleration of demand in other regions.

Base metal prices are likely to remain elevated for a considerable length of time due to the lack of substantial increases in supply. During the 1980’s and 1990’s when prices remained low for a sustained period of time, companies were unable to raise the capital required to find and develop new mineral resources. Over this time period very few new mines were opened and many existing mines were shut down as uneconomic at the prevailing commodity prices. The entire industry appeared to be going in to a permanent decline.

The current economic fundamentals continue to support exploration and development of mines globally, but environmental concerns and regulatory hurdles have extended time frame before new discoveries can come into operation as new mines. It now commonly takes ten years from discovery to production and billions are invested in infrastructure before a mine is operational. The long time frames and the huge capital investments required will keep commodity prices high as demand is likely to remain above supply over the long term.

The recent wave of consolidation in the mining industry has reduced the number of proven Canadian producers available for investment, but high commodity prices have increased the viability of a number of smaller emerging producers, offering investors an opportunity to participate in the ongoing base metals bull market going forward.

The Canadian market has a number of globally competitive base metal producers such as Teck Cominco Limited (TCK.B-T) a diversified global mining company and one of the world‘s largest zinc producers. Teck has operations in Alaska, BC, Newfoundland, South America and Australia. Teck Cominco is a very well diversified mining company producing zinc, copper, metallurgical coal, gold and recently acquired a position in the Alberta tar sands adding energy to the mix.

Teck is very well positioned to participate in the continuing growth in Asia, the company is likely viewed as an interesting merger or buyout opportunity by other global miners as well.

Lundin Mining Corporation (LUN-T) is another globally positioned mining company producing copper, zinc, lead and gold from operations in Sweden, Portugal, Ireland, Spain and the Democratic Republic of the Congo (DRC). Over the past year or so Lundin made two strategic acquisitions adding diversification by product and geography positioning the company for further growth over the long term.

HudBay Minerals Inc. (HBM-T) is very well positioned to participate in the long term growth of Asian demand for base metals. The company operates three mining operations producing zinc and copper in Manitoba and Saskatchewan. Hudbay operates refining and processing facilities in Manitoba, Michigan and New York.

Breakwater Resources Ltd (BWR-T) operates four mines in BC, Quebec, Honduras and Chile, producing zinc, copper, lead, silver and gold. The company is forecast to produce over 121,000 tonnes of zinc and 2 million ounces of silver annually. Breakwater is strategically positioned to participate in the long term growth of the Asian economies.