Equity Research Highlights

GMP Securities Morning Research Package October 5, 2017

Target and Rating Changes

ICC International Cannabis Corp. (ICC-TSXV); Speculative Buy, C$2.50 ― Initiating coverage: Emerging global player in
medical marijuana
Kinross Gold Corp. (K-TSX); BUY, C$7.50 ― Tasiast site visit sees more value to come (Increasing target price to C$7.50 from
C$7.20)

Company Comments
K-Bro Linen Inc. (KBL-TSX); BUY, C$50.00 ― New Toronto facility impresses with 25% increased productivity and capacity to
expand
TransGlobe Energy Corporation (TGL-TSX); BUY, C$4.00 ― TransGlobe continues to trade at inexpensive valuation metrics

Sector Comments
Energy Services ― Weekly Western Canadian Rig Activity
Oil & Gas ― Market & Commodity Prices
Oil & Gas ― Weekly Crude Oil Cut
Oil & Gas ― Weekly Refining Margin Review

Yesterday’s Mid-day Comments

Licensed Cannabis Producers ― Amendment for inclusion of cannabis edibles and concentrates in Bill C-45
 Equity Research

ICC International Cannabis Corp.6 Speculative Buy

ICC-TSXV
Last: C$0.94
October 5, 2017 Target: C$2.50

Initiating coverage: Emerging global player in R a tin g SP EC BUY

T a rg e t ( C $ ) $ 2.50
medical marijuana R e v e n u e 2017E (m m ) $0.8
R e v e n u e 2018E (m m ) $16.1
ICC International Cannabis Corporation (“ICC”) is a licensed producer and
R e v e n u e 2019E (m m ) $103.9
marketer of cannabis, cannabis extracts, and industrial hemp products.The EB ITD A 2017E ( m m ) ( $3.0)
company is at an early stage of development having limited revenues and no EB ITD A 2018E ( m m ) $0.2
profitability. ICC's operations are located in Uruguay, where the government EB ITD A 2019E ( m m ) $25.4
legalized recreational marijuana in 2013. ICC has access to 567 acres of land
S h a re D a ta
licensed for hemp cultivation, from which it intends to produce CBD extracts.
S h a re o / s ( m m , b a s i c / f . d . ) 114.1 / 122.3
The unique regulatory structure of Uruguay provides ICC with the ability to 52-w e e k h ig h /lo w 1.76 / 0
cultivate hemp with CBD concentrations which are amongst the highest in the M a rk e t c a p ( f . d . , m m ) ( C $ ) $114.9
world. CBD (cannabidiol) is the second most prominent compound in EV (m m ) $87.1
N e t d e b t (m m ) ( $1.2)
cannabis and is considered to have several therapeutic qualities. In recent
D iv id e n d n .a .
years, the acceptance of the therapeutic benefits of CBD has become more
D iv id e n d y ie ld n .a .
widespread, leading to significant increases in global demand.
P ro j e c t e d re t u rn 166%
Medical marijuana has been legalized in several European and Latin American
countries recently, opening up export opportunities for ICC’s CBD extracts. F i n a n c i a l D a ta
We believe these countries could remain reliant on imports for the next F YE D e c 31 2017E 2018E 2019E

several years, thus providing ICC with highly accessible distribution channels. Re ve n u e (m m ) $0.8 $16.1 $103.9
EB ITD A ( m m ) ( $3.0) $0.2 $25.4
Our positive outlook on ICC is based on the following:
EV / EB ITD A nm f nm f 3.4x
Exposure to rapidly growing CBD extract markets globally. We estimate EP S ( f .d .) ( $0.04) ( $0.02) $0.14
that the global CBD extract market could reach $1b within five years, up P /E nm f nm f 5.4x

from less than $100m currently, when excluding the US and Canada. CFPS ( $0.16) ( $0.06) $0.07
P /CF nm f nm f 10.4x
Strategic location provides cost advantage. In Uruguay, ICC is able to N e t d e b t (m m ) ( $8.4) $4.8 $1.8
grow hemp without CBD concentrations limits while European countries BV PS 0.16 0.17 0.32
are capped at 5% and Canada at 0.3-0.4%. This gives ICC a significant P /BV 4.7x 4.3x 2.4x
yield advantage, given that we estimate its strains have 10-15% CBD. A ll f ig u re s in U S$ u n le s s o th e rw is e n o te d

Appealing risk/reward. With its current acreage, we estimate that under

a bullish case scenario, ICC could generate revenues of $300m and
$100m in EBITDA which could support a valuation in excess of $5 per
Martin Landry, CPA, CA (514) 288-4016
share. In a bearish scenario which excludes the CBD extract opportunity, mlandry@gmpsecurities.com
we estimate ICC’s domestic business could still be valued at $0.50 per
Robert Fagan, CFA (514) 288-0318
share. Hence, with material upside potential and some downside rfagan@gmpsecurities.com
protection, we view ICC’s risk/return profile as being quite appealing.
Andrew Partheniou, B.Eng, MBA (514) 288-2256
Initiating coverage of ICC with a SPECULATIVE BUY rating and a $2.50 target. apartheniou@gmpsecurities.com
We derive our target using a 10-year DCF model with a discount rate of 18%.
Prepared by GMP Securities L.P. See important disclosures on the last page of this report
 Equity Research

Table of Contents
Executive summary .................................................................................................................................... 3
Key catalysts to create shareholder value.................................................................................................. 4
Company overview ..................................................................................................................................... 5
Company strategy ...................................................................................................................................... 7
Earnings potential ...................................................................................................................................... 8
Export distribution channels .................................................................................................................... 10
Forecasts .................................................................................................................................................. 17
Valuation .................................................................................................................................................. 18
Upside/downside valuation scenarios ..................................................................................................... 21
Recommendation ..................................................................................................................................... 21
Risk factors ............................................................................................................................................... 22
Appendix A: Domestic opportunity .......................................................................................................... 22
Appendix B: Uruguay cannabis industry overview ................................................................................... 25
Appendix C: Key company management & directors............................................................................... 27
Appendix D: Financial statements ............................................................................................................ 28

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Executive summary
ICC’s principal strategy is to leverage Uruguay’s favorable regulatory structure permitting
cultivation of hemp with high CBD content, to derive a global cost advantage for the export of
CBD extracts. With access to 567 acres of land, ICC has the potential to produce significant
quantities of CBD extracts, which combined with strong yields, and Uruguay’s low agricultural
costs, positions the company quite well in our view to capitalize on growing global demand for
CBD-based products.
ICC also aims to capture the opportunity provided by the legalization of recreational marijuana in
Uruguay, having been awarded one of two government licenses to commercially produce for, and
supply the domestic market. However, pricing and volume regulations in the Uruguayan
recreational market limit the size of the opportunity making the economics of exporting CBD
extracts derived from hemp a far more attractive proposition.
Hence, ICC’s main focus will be on the opportunity stemming from global exports of CBD-based
products, something we believe is not fully understood by investors given much attention has
been focused on the recent challenges facing Uruguay’s recreational market.
We are initiating coverage of ICC with a SPECULATIVE BUY rating and a $2.50 target. Our
positive stance is supported by the following:
1. Exposure to rapidly growing CBD extract markets globally. We estimate that the global CBD
extract market could reach $1b within five years, up from less than $100m currently,
excluding Canada and the US. We expect this strong growth to mostly stem from emerging
medical marijuana programs in Europe and Latin America. Over the next five years we
estimate that countries such as Germany, Italy, Poland, Argentina, Brazil and Mexico could
substantially ease access to medical marijuana. CBD-focused products already hold a
commanding share of the medical markets in Canada and the US and thus are expected to
have a similar representation globally.
2. Strategic location provides cost advantage. ICC derives a significant competitive advantage
from its location in Uruguay. This is due to Uruguay being the only country in the world
where regulations permit the cultivation of high CBD concentration hemp on a commercial
scale. ICC is allowed to grow hemp with THC concentrations of up to 1% while other
countries are capped at 0.2-0.3%. Given the direct relationship between THC and CBD levels
found in hemp, Uruguay’s favorable regulations enable ICC to derive a significant yield
advantage over global competitors. This yield advantage combined with Uruguay’s favorable
climate results in a significant production cost advantage for ICC.
3. Appealing risk/reward profile. According to our analysis, ICC could have significant earnings
power. Assuming that the company plants the full 567 acres it has access to, we estimate
that under a bullish case scenario, ICC could generate in excess of $300m in revenues and
$100m in EBITDA. Assuming a multiple of 6-8x peak EBITDA, this would represent a potential
valuation of ~$5 per share. ICC also offers some downside protection due to the duopoly the
company currently benefits from in Uruguay’s recreational cannabis market. In a bearish
scenario which excludes the CBD extract opportunity, we estimate that the domestic
business could be still be valued at $0.50 per share. Hence, with material upside potential
and some downside protection, we view ICC’s risk/return profile as being quite appealing.

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We apply a SPECULATIVE rating to ICC to reflect the following:

1. Limited visibility on end markets. ICC does not currently have any definitive agreements
with potential customers to sell its CBD extracts. While we are confident in the strong global
demand for CBD, we have limited visibility on the size of the end markets that are
addressable by the company given many medical marijuana programs are still in their infancy
currently. While we forecast $100m in revenue for 2019, details such as precise timing,
clients and pricing are still unclear.
2. Limited track record. ICC is early in its development having been founded three years ago.
The company has limited revenues and no profitability, currently. While we believe our
forecasts are conservative, ICC will still need solid execution to deliver on our revenue and
profitability estimates.
3. Limited visibility on operating metrics. Given that the company has yet to complete its first
hemp harvest, or fully ramp-up domestic recreational operations, forecasting ICC’s financial
metrics is challenging. We have limited visibility on the company’s cost base, operating
expenses, and what level of sales volumes would be required to begin to generate operating
leverage. Part of our forecasts are based on discussions with management, some of which
are difficult to validate.

Key catalysts to create shareholder value

First plantings in hemp acreage Expected October 2017. ICC’s largest capacity for production
destined for CBD extracts comes from its outdoor acreage licensed for hemp cultivation. The
growing season in Uruguay runs from October to April, hence we expect ICC to conduct its first
hemp plantings in the coming weeks. An announcement to this effect would demonstrate that
ICC is proceeding on track with its CBD extracts business strategy which is expected to account
for ~95% of the company’s sales and profitability in the future.
Announcement of export contracts Fall/Winter. In our view, the most important catalyst to
create shareholder value would be the announcement of a wholesale agreement with an
international partner. This could provide visibility on pricing and demand for CBD extracts
globally. It would also reassure investors on the ability of ICC to tap international markets.
First harvest of hemp acreage Expected April 2018. Harvesting and processing the company’s
first crop should be an important milestone for the company. Successful production of CBD
extracts from the hemp cultivated should provide some visibility into ICC’s extraction efficiency
(an important valuation metric) and should also reassure investors’ on the company’s ability to
execute on their strategy.

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Company overview
ICC International Cannabis Corporation (“ICC”) is a licensed producer and marketer of cannabis,
cannabis extracts, and industrial hemp products with operations in Uruguay. The company is
currently at an early stage of development with its first commercial activities having begun in July
2017. ICC currently operates two greenhouse facilities totaling ~90,000 sq.ft. and a land package
of ~567 acres for which the company has been granted approval to produce cannabinoid extracts
from hemp for medicinal use. ICC was founded in 2014 and went public by way of a reverse
merger with Shogun Capital Corp. on November 23rd, 2016, following which its shares began
trading on the TSX Venture Exchange. ICC’s registered offices are in Vancouver, B.C. and its
corporate headquarters are located in Montevideo, the capital city of Uruguay.
ICC’s principal strategy is to leverage Uruguay’s favorable regulatory structure permitting
cultivation of hemp to export CBD extracts globally. Uruguay allows cultivation of hemp with high
CBD concentrations, which could exceed 10%, much higher than in Canada (0.3-0.4%) and Europe
(3-5%). Hence, Uruguay’s regulatory structure could provide ICC with a global cost advantage in
the production of CBD extracts. The company intends to export its CBD-based products
worldwide to supply expected strong demand from burgeoning medical marijuana and
nutraceutical markets.
CBD (cannabidiol) is the second most prominent compound in cannabis and is considered to have
several therapeutic attributes. According to the Hemp Business Journal, the US CBD market will
grow at a CAGR of ~60% over the next three years. With the US market more mature, this could
point to even higher growth rates outside the US. In our view, solid demand trends combined
with the recent emergence of softened medical marijuana regimes across a multitude of
countries, suggest ICC could have multiple global distribution opportunities for its products going
forward.
Uruguay first to legalize cannabis. Uruguay became the first country in the world to legalize and
regulate cannabis with the enactment of Law No. 19,172 in December 2013. Comparable to
Canada’s recreational legislation, the purpose of Law 19,172 is to prevent abusive consumption,
educate the population about potential harms, and combat drug trafficking. Under Law 19,172,
the Uruguayan government controls all aspects of the supply chain, including production,
imports/exports, storage, marketing, and distribution of cannabis and its derivatives.
Financing history. Union Group International Holdings Ltd. (“Union Group”), a diversified holding
company with investments in agriculture, infrastructure, and natural resources in Latin America,
has been an advisor and provider of financial support to ICC. In August 2014, ICC entered into an
agreement whereby Union Group would provide a US$4m financing facility at a rate of 10%, as
well as accounting and legal consulting services. The facility was repaid in April 2016 with the
issuance of shares, resulting in Union Group becoming ICC’s largest shareholder. In September
2016, ICC completed a brokered private placement for gross proceeds of C$13m, through the
issuance of 26m common shares at $0.50/share.

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Union Group is ICC’s largest shareholder and a strategic partner. Following the conversion of the
financing facility to equity, Union Group now owns 40m shares of ICC, or ~33% on a fully diluted
basis. Union Group is privately-owned and has Dundee Corporation as an ~40% owner. The
company was founded in 2006 by Juan Sartori as a blueberry farming business, and subsequently
expanded into other areas of agriculture (e.g., rice, soya bean, cattle and sheep) before moving
into other sectors from 2008 onwards. As of 2015, the company oversaw a portfolio of assets
valued at over US$1b according to Dundee. Union Group focuses on establishing long-term
partnerships with investee companies to whom it provides support in the areas of operations,
strategy, and capital funding. Given Union Group’s agricultural expertise and management style,
we consider them a strategic partner for ICC, despite not having a board seat.
Land and facilities for hemp production. ICC has two available land packages on which it has
obtained approval to cultivate hemp; one which is company-owned, and another leased. ICC’s
company-owned property consists of 67 acres, which was acquired in August 2016 for total
consideration of $3.3m, financed through $2.3m in cash, and a $1.0m loan. ICC’s second, larger
land package is leased and consists of a ~500 acre property for which the Uruguayan regulatory
authorities granted approval to produce cannabinoid extracts on June 6th, 2017. ICC intends to
grow outdoors in this acreage, which results in a single harvest per year, with plantings being
done in October, and harvests occurring in April of each year. ICC also operates a 21,500 sq.ft.
greenhouse growing facility dedicated to hemp.
Figure 1. View of ICC’s 67-acre location for hemp production

Source: Company reports

Extraction facility and laboratory. ICC is currently constructing a ~16,000 sq.ft. CBD extraction
facility and laboratory located in Uruguay’s “Science Park Free Trade Zone” which is expected to
permit tax-free exporting/importing of cannabis extracts. The $10m facility is targeted for
completion in April 2018, and should have capacity to process 50,000kg of hemp into CBD extract
on an annual basis using supercritical fluid CO2 equipment sourced from Europe. The facility is
intended to be constructed to be fully GMP compliant under international GMP standards. The
commissioning of the extraction facility is expected to coincide with ICC’s first harvest of outdoor
hemp flower in April 2018, thus allowing for international sales of CBD extracts to begin in Q2/18.

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Product formats adapted to markets addressed. We anticipate ICC will initially offer three
different product formats described in more detail below.
1) Bottle-form. Currently in Latin America, medical and nutraceutical markets are at an earlier
stage of development with fewer intermediary players. As such, we expect ICC will formulate
its CBD extracts destined for Latin America with a carrier oil and create a bottled product for
wholesale to either governments, or potential large distributors such as pharmacies.
2) Extract-form. We expect ICC should be able to market its unrefined CBD extract products
directly to either licensed dealers for global medical markets, or as a white-label product to
consumer product manufacturers in Europe for nutraceutical markets where permitted.
3) Isolate-form. ICC also intends to commercialize a CBD isolate product which has been refined
and highly purified into crystal form. This product form would be best suited for
nutraceutical companies with larger volume requirements, or active pharmaceutical
ingredient (API) markets for pharma players to use in formulation of new products.
Figure 2. CBD product forms
CBD oil bottle CBD extract CBD isolate crystal

Source: GMP Securities

Company strategy
ICC has two very different end markets. The domestic recreational market, which opened
recently, is a duopoly where ICC seems to have a dominant share. However, this market is
expected to be small in comparison to the potential opportunity from exporting CBD extracts
derived from hemp. Hence, the main focus of our analysis will be on ICC’s CBD extract operations.
We believe this strategy could represent a large opportunity with potential to generate revenues
of up to $300m at gross margins of ~75% at maturity.
Leveraging favorable regulations to drive yield advantage. Uruguay’s regulations for industrial
hemp farming provide ICC a significant advantage over competitors in Canada and Europe. In
Uruguay, ICC is able to produce hemp strains with CBD content in excess of 10%. This compares
to current Canadian regulations which prevent hemp processors from using any part of the plant
aside from stalks and seed hulls to produce CBD extracts, which restricts CBD yield to 0.3-0.4%. In
Europe, regulations over THC content effectively limit CBD concentrations given their direct
relationships in the hemp plant. This effectively restricts yields to ~3-5%. As a result, ICC is able to
derive a significant yield advantage over global competitors.

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Figure 3. ICC’s estimated yields could be 3x higher than European hemp processors
Canada Europe ICC
Low High Low High Low High
Usable part of hemp plant only stalks & seed shells whole plant whole plant
Hemp input material yield (kg/acre) 175 200 300 300 300 300
CBD concentration % 0.3% 0.4% 3.0% 5.0% 10.0% 15.0%
Extraction efficiency % 50% 75% 50% 75% 50% 75%
CBD extract yield (kg/acre) 0.2 0.6 4.5 11.3 15.0 33.8
Source: Company reports, European Industrial Hemp Association (EIHA), Alberta Agriculture and Forestry, GMP Securities

Competitive pricing to penetrate global markets. With a cost advantage to most global
competitors outside of China, we believe ICC should be able to offer attractive wholesale pricing.
Furthermore, discussions we held with industry participants suggested there are important
quality concerns over Chinese products. Hence, with ICC pricing its CBD extracts at ~$20/gram, an
average discount of ~45% to the wholesale pricing of global competitors, this should facilitate
penetration of emerging medical marijuana markets across various countries.
Figure 4. Global wholesale pricing of CBD extracts
Wholesale price per
gram of CBD extract ICC Canada USA Europe China
Price range/gram (in US$) $20 $35 $28 $36 $30 $50 $30 $65 $13 $35
Avg. price/gram $20 $32 $40 $48 $24
ICC's pricing discount -38% -50% -58% -17%

Note: Pricing calculated using exchange rates of 1.25 USD/CAD, and 1.20 USD/EUR
Source: Company reports, industry reports/websites, Hemp Business Journal, CBD Bureau, Alibaba, GMP Securities

Other product advantages. We note as well that with robust profit margins, ICC could lower
pricing if necessary. Having the stamp of approval from the Minister of Health of Uruguay should
provide customers reassurance on product quality. ICC’s products should have another advantage
in that they are expected to be produced according to international GMP standards, potentially
easing access of exports to international jurisdictions.

Earnings potential
Revenue opportunity could exceed $300m at maturity. To in-part mitigate risks associated with
scaling-up, we expect ICC will start by planting in an area of ~400 acres with the ability to increase
to the full 567 acres over time dependent on the company conducting additional soil preparation
work. In addition, the company will conduct a gradual ramp-up of its CBD extraction activities by
installing extraction capacity of only 50,000kg for 2018. Hence our scenario analysis reflects
revenues which we believe ICC could potentially generate at maturity once sufficient extraction
capacity is installed sometime over the next three years.
Hemp is known to be a resilient plant which does not require pesticides to flourish, hence we
assume flower yields could be stable across scenarios at 300kg/acre. We assume CBD
concentration of hemp at 10%, except for in our BULL case which contemplates the possibility for
higher yielding hemp strains at 12.5%. Extraction efficiency is assumed in a range of 50%–75%,
conservative in the sense that the top end of this range represents an industry average metric.
Combining the above with selling prices between ~US$15-18.50/gram to reflect the potential for
pricing pressure over time, this translates into a potential revenue opportunity range of ~$135–
300m at maturity for ICC’s extraction business.

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Figure 5. CBD extraction revenue scenarios at maturity

BEAR Case BASE Case BULL Case
Acreage planted 567 567 567
Yield/acre 300 300 300
Flower production (kg) 170,100 170,100 171,000
CBD concentration % 10% 10% 12.5%
Extraction efficiency % 50% 65% 75%
CBD extract produced (kg) 8,916 11,125 16,083
Selling price/kg $15,000 $17,500 $18,500
Revenue potential ~$134,000,000 ~$190,000,000 ~$300,000,000
Source: Company reports, GMP Securities

Production cost consideration. With outdoor growing and the ability to harvest with industrial
farming equipment (combines), ICC’s cost to produce a gram of hemp flower will be structurally
lower than production costs associated to greenhouse operations. ICC has reported its
production costs for greenhouse-grown product (discussed in Appendix) at ~$0.50/gram
(excluding license fees), mainly owing to Uruguay’s relatively lower labor and heating costs.
Hence, production costs/gram for hemp flower should be considerably lower, which we
conservatively estimate at ~$0.25/gram, or 50% of the ~$0.50/gram cost for greenhouse
production.
Cost of CBD extract could be ~US$4.00/gram. We then calculate the number of hemp flower
grams required to produce one gram of CBD extract. Using a CBD concentration level of 10% for
ICC’s hemp flowers, and assuming an extraction efficiency of 60%, this implies ~0.06 grams of
CBD can be extracted from each gram of hemp flower. Hence, in order to produce one gram of
CBD, it should require ~16 grams of hemp flower, which at an assumed production cost of
~$0.25/gram, suggests a total production cost of ~$4.00 per gram for ICC’s CBD extracts. This
compares to an estimated cost of ~C$20–30 for Canadian LPs to produce a gram of pure CBD
assuming the use of marijuana flower as input material.
Figure 6. Methodology for estimation of CBD extract production cost/gram
Cost/ gram for greenhouse flower $0.50
Cost/ gram for hemp flower @ 50% $0.25 a.
Hemp CBD concentration 10% b.
Extraction efficiency 60% c.
Hemp grams required for 1 gram CBD 16 d. = 1/(b x c)
Cost/ gram for CBD extract $4.00 d. x a.

Source: GMP Securities

Potential for gross margins of ~75%–80%, but visibility is limited. Our BASE case scenario
incorporates a production cost of ~$4.00/gram for ICC’s CBD extracts which suggests the
company could generate gross profit levels near ~$145m from its CBD extraction operations at
maturity, representing a gross margin of ~77%. However, our visibility on ICC’s CBD extract
production cost is limited by a lack of similar companies to draw comparison data from,
combined with ICC having yet to complete their first hemp crop and extraction cycle. Factors such
as extraction capacity bottlenecks, unplanned equipment downtime, or increased direct labor
could all increase production costs. Meanwhile, should ICC be able to make use of hemp plants
carrying CBD concentrations higher than 10%, this could significantly reduce production
costs/gram, translating into higher gross margins closer to ~85%.

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Figure 7. CBD extraction gross profit scenarios at maturity

BEAR Case BASE Case BULL Case
CBD extract produced (kg) 8,916 11,125 16,083
Revenue potential ~$134,000,000 ~$190,000,000 ~$300,000,000
Cost/gram CBD extract $5.00 $4.00 $3.00
Cost/kg $5,000 $4,000 $3,000
Total production costs $44,579,808 $44,498,160 $48,247,650
Gross margin $89,420,192 $145,501,840 $251,752,350
Margin 67% 77% 84%

Source: Company reports, GMP Securities

Export distribution channels

Addressable CBD extract market could be ~$1b within five years. With global CBD end-markets
still in their infancy, and governed by varying complex and rapidly evolving regulatory
frameworks, identifying reliable CBD market data remains challenging. We define the addressable
CBD extract market for ICC as primarily including developing medical marijuana markets in select
European and Latin American (LATAM) countries (discussed in greater detail below), but
excluding similar markets in the US and Canada due to current regulatory hurdles. For
addressable markets, we incorporate the following set of assumptions;
1. Patient penetration levels of 0.5% of population (similar to Canada)
2. Consumption of 0.5–0.7 grams/day per patient
3. Retail pricing from $3.00–18.00/gram depending on geography (lower pricing in LATAM)
4. Wholesale pricing discount of 50%
5. Proportion of CBD dominant products at ~30%
These assumptions reflect our market outlook once burgeoning medical regimes reach a maturity
level on par with that of Canada, sometime over the next five years. Our analysis suggests a
global potential addressable market of ~$1b by 2022, comprised of a ~$800m–1b European
market, and a ~$175-235m LATAM market.
Figure 8. Potential evolution of addressable global CBD extract markets
Est. European Wholesale CBD Extract Market Est. Latin America Wholsesale CBD Extact Market
$1,400 $350
High estimate
$300 High estimate
$1,200

$1,000 $250
US$, mm
US$, mm

Low estimate $200

$800
Low estimate
$600 $150

$400 $100

$200 $50

$0 $0
2016 2018 2020 2022 2024 2026 2028 2030 2016 2018 2020 2022 2024 2026 2028 2030

Source: GMP Securities estimates, Nova-Institute & HempConsult

Global distribution channels to service expected strong demand. Demand growth trends for CBD
extracts have been strong and are expected to continue for the foreseeable future. Demand for
cannabis oil in Canada grew by ~300% over the past year leading to shortages in some CBD strain
varieties. In addition, the Hemp Business Journal expects the US CBD market will grow at a CAGR
of ~60% over the next three years (as per a 2016 report). With the US CBD market more mature,

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this could suggest the potential for even higher growth rates abroad. In our view, solid demand
trends combined with the recent emergence of medical marijuana regimes across a multitude of
countries, suggest ICC should have multiple global distribution opportunities for its products
going forward. We describe these further below.
Figure 9. Countries with federally-legal medical cannabis access, or those exploring

Legalized
Exploring
Limited access
Recreationally
decriminalized

Source: GMP Securities, industry reports

1. Latin American markets

ICC is expected to have certain trade and transport advantages in distribution of its
products to Latin American countries, several of which have recently instituted federally
sanctioned medical marijuana regimes. With few competitors operating directly in these
regions, we believe ICC is well positioned as a relative first-mover which could facilitate
penetration of markets in Brazil, Argentina, Columbia, Chile, and Mexico among others,
which collectively represent a population base of more than 400m.
a. Argentina medical program provides free access to patients. In March 2017,
Argentina’s senate passed legislation to legalize the use of cannabis oil and other
derivatives for medical purposes. The legislation guarantees “free access” for
patients and authorizes government agencies to grow cannabis in order to supply the
medical program and conduct research. In the interim before local production is
established, imports will be conducted to cover demand. We believe ICC could have
privileged access to the Argentina market (population 44m) given its transport
advantages and stamp of approval from the Uruguayan federal government.
b. Brazil has approved some imports of cannabis oils. With small quantities of cannabis
oil having successfully made their way into Brazil since 2015, we believe this has
established a pathway for hemp-derived CBD extracts to enter the conceivably large
Brazilian market (211m population). We note however that Brazil has yet to institute
a country-wide medical program, with current imports being approved by the
country’s National Health Surveillance Agency (ANVISA) only in relation to a limited
list of indications (i.e.: schizophrenia, epilepsy, multiple sclerosis and others),

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seemingly on a patient-by-patient basis. In addition, Brazil has not yet, to our

knowledge, communicated an intent to issue domestic production licenses.
As such, we believe importation will remain the principal means of supplying local
demand for the foreseeable future. Given the above, while it will likely take time to
develop, we consider Brazil an attractive market for ICC as the company’s low
production costs and transport advantage should enable a competitive product
offering to that of other suppliers trying to gain access to the country.
c. Mexico regulations could favor CBD-based products. On June 19th, 2017, Mexican
president Enrique Nieto signed the bill which officially legalized the use of medical
cannabis. Access to products is restricted to those which contain 1% THC or lower
and the country’s Ministry of Health has now been tasked with developing a
regulatory framework. The Ministry of Health will be responsible for studying the
therapeutic effects of cannabis before creating the medical program infrastructure,
which could suggest a less rapid development for the program. However, this should
also result in a long lead time before domestic production will be established. Hence,
we believe the potentially large Mexican market (127m population) will be reliant on
imports for the foreseeable future presenting ICC with an attractive distribution
opportunity. We note as well with ICC’s CBD extracts expected to contain 0.7% THC
or less, they should fit well with Mexico’s regulatory restrictions capping THC at 1%.
d. Columbia likely to be more competitive, but interesting. Medical marijuana was
legalized in Colombia in December 2015 with the government authorizing
commercial cultivation, processing and exports (excl. flower). In August 2017, the
Ministry of Health began accepting applications for domestic production licenses and
indicated review times would be quite rapid, as little as 30 days. A Canadian-based
company, PharmaCielo was granted the first processing/extraction license in 2016
and the company submitted its application for a domestic production license in
August. Similar to ICC, PharmaCielo’s strategy is to produce high volumes of low-cost
flower to convert into oil and other extract products. ICC’s intention is to apply for
various licenses in Columbia through a domestic subsidiary (ICC Colombia S.A.S.).
With several companies vying for licenses and Colombia not expected to be reliant
on imports long-term, this suggests a more competitive environment in our view.
Nevertheless, Colombia should still represent an interesting opportunity for ICC given
its large population base of ~49m and likely rapid licensing process.
e. Chile represents small but strategic opportunity. Medical marijuana was legalized in
Chile in 2015, and in May 2017 a pilot program was launched to begin distributing
products in a limited number of pharmacies. Currently the medical program is
supplied by Chilean licensed producer Alef Biotechnology, which imports its products
from Canadian partner Tilray, as well as by several domestic farms operated by a
charitable foundation. With a limited number of domestic producers, we believe
additional imports will be required to service Chile’s estimated patient population of
~80,000–100,000. Hence, Chile could represent a small, but interesting distribution
opportunity for ICC particularly considering ICC’s potential transport advantage.

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f. Peru progessing towards medical legalization. In September 2017, Peru took an

important first step towards legalization of medical cannabis with the congress
approving a bill permitting production and importation for therapeutic purposes. A
final debate and vote in parliament will be required before the bill becomes law,
however the proposed plan would seek to grant patient access to cannabis oil only,
and not dried flower or concentrates. The government would also seek to license and
oversee domestic production within a two-year timeframe. To gain access, patients
would be required to receive approval from a physician and register with the state.
With a lack of domestic production capacity for the foreseeable future, an exclusive
focus on cannabis oil, large population base of 32m, and geographical proximity to
Uruguay, we believe Peru could develop into an ideal market opportunity for ICC
assuming medical legalization is achieved.
Figure 10. Current status of selected global medical marijuana programs
Latin America
Country Medical marijuana program description Effective date Population (m)
Mexico Legal for products with THC < 1% Jun-2017 127
Argentina Legal for cannabis oils+derivatives Mar-2017 44
Columbia Legal in all forms Dec-2015 49
Chile Legal, pharmacy distribution began in 2017 Since 2015 18
Brazil Case-by-case access with approval from ANVISA Since 2015 211
Peru Legislation introduced, awaiting parlimentary vote n/a 32
Europe
Country Medical marijuana law description Effective date Population (m)
Germany Legal, government mandated insurance coverage Mar-2017 81
Italy Legal, prescription required as last resort Jan-2013 60
Poland Legal with prescription, various forms allowed Jul-2017 39
Greece Legal with prescription Jul-2017 11
Czech Republic Legal with prescription, limits on quantities Since 2013 11
Croatia Legal with prescription, limits on quantities Oct-2015 4
France Only cannabis-based medicines as last recourse Jun-2013 65
UK Only cannabis-based medicines Since 2010 66
Spain Recreationally legal in Catalonia, largely decriminalized Jun-2017 46
Netherlands No medical, but possession and cultivation allowed NMF 17
Finland Legal, prescription required, limited indications Since 2008 6
Ireland Sativex allowed, but medical cannabis bill recently rejected, Apr-2013 5

Source: GMP Securities, industry reports

2. Other global markets

a. Germany expected to represent large but competitive market. Since federal law
changes took effect in March 2017 liberalizing medical cannabis access, the number of
German patients has grown rapidly, rising tenfold from 1000 to ~10,000 in five months
according to estimates from various industry reports. Germany is in the process of
issuing domestic cultivation licenses, however resulting production is not expected to
become available until early 2019. In addition, the aggregate capacity currently
contemplated by these licenses is only 2,000kg, which is likely to result in substantial
shortages should participation and consumption patterns of German medicinal users
mirror those of Canada. In our view, the above suggests there should be considerable
import demand from Germany for the next several years.

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In light of federally mandated insurance coverage and a large population base of 82m,
Germany is expected to be an attractive export market for all producers of medicinal
cannabis products globally. As such, we believe ICC could face greater competition in
attempting to access the German market. We expect this to be partly offset however
by ICC’s ability to price CBD extracts at a meaningful discount to competing Canadian
and European suppliers. As such, ICC could have an attractive offering in our view to
help penetrate the potentially large German market opportunity.
b. Other European medical marijuana markets. While medical marijuana has been
technically legal in several European countries for a number of years, inconsistencies
in supply chain regulations across countries have created uncertainties for investment
and thus prevented the development of meaningful production scale. As such,
countries such as Italy, Poland, Greece, Croatia and the Czech Republic are likely to
remain reliant on imports for the foreseeable future making them potentially
attractive end-markets for ICC.
We note that medical marijuana markets in the UK, France, Ireland, Spain and the
Netherlands could be less addressable for ICC given that in the UK and France, the
only cannabis-based medicine currently licensed for prescription is GW Pharma’s
Sativex product. Ireland’s medical marijuana legislation was recently rejected by
government, while some recreational access is already available in Spain and the
Netherlands suggesting less reliance on imports in our view.
c. Nutraceutical markets in Europe. According to United Nations (UN) conventions, THC
is a Schedule 1 substance, therefore production and refining activities must be
authorized by federal permits. CBD however, is not a scheduled substance under UN
conventions (except in Canada and US). As a result, this presents an opportunity for
federally-licensed cultivators (such as ICC) to legally access most European
nutraceutical markets through wholesale activities as long as the CBD extracts being
marketed contain sufficiently low levels of THC (generally 0.2% and less). Addressable
nutraceutical end-markets in Europe currently include cosmetics, novel food and
animal feed supplements, and e-liquids for vaping. Through purification processes, ICC
should be able to dilute the THC content of their hemp extracts to below 0.2% and
create isolated CBD, thus opening up opportunities to wholesale to consumer product
manufacturers in Europe.
d. Australia imports will likely require high quality. In December 2016, regulations were
modified to permit domestic production and there have since been a total of 17
licenses issued. We note however, cannabis cultivation is still in its infancy in Australia,
and as such production is expected to ramp up only gradually. As a result, we expect
Australia’s medicinal program could remain reliant on imports for quite some time.
The government approved bulk importation (beyond a patient-by-patient basis) in
February 2017, and there have been ~30 import permits granted already for products
emanating from Canada, Switzerland and the Netherlands. Cannabis products
imported to Australia are subjected to stringent quality tests, hence if ICC is successful
in earning a GMP certification, it could facilitate the company’s penetration, in our
view, of an attractive market with a population base of 24m.

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3. Canadian market
Low visibility on potential import volumes to Canada. Health Canada’s official position is
to operate cannabis import/export permits within the context of international drug treaty
obligations. In practice however, we have seen limited import activity thus far despite a
domestic shortage of CBD products at times in recent years. Vague ACMPR import/export
regulations limit our visibility as to the potential volumes of cannabis which could be
legally imported into Canada. Despite the above, ICC has developed some potential in-
roads to access the Canadian market which we describe below.
a. Possible access point through agreement with Avanti Rx Analytics. On April 18th, ICC
entered into an importation agreement with Avanti Rx Analytics (Avanti), a licensed
dealer under the Health Canada Controlled Drug and Substances Act (CDSA). We
believe ICC will need to partner with a Canadian laboratory in order to validate
product quality and thereby open the opportunity for imports. Sales to other LPs could
thus be subsequently routed through Avanti. As such, we believe the agreement with
Avanti could provide a stepping stone for ICC to gain entry to Canadian markets.
b. Pre-sale agreement with Emblem. On February 27th, 2017 ICC announced a pre-sale
agreement with Emblem Corp [EMC1,7:TSXV, HOLD rated, $1.75 target], establishing
another potential distribution point for the company’s products in Canada. Subject to
regulatory approvals from Health Canada, the agreement provides for the sale of 10%
of ICC’s expected 2018 CBD extract production to Emblem. While the agreement is
favorable in that it provides an endorsement of the competitiveness of ICC’s product
offering, the ability for the agreement to be executed remains unclear.

Export market risks

1. Future competition from Canadian hemp processors
a. Potential regulatory changes could dramatically improve yields. Under existing
regulations, Canadian industrial hemp processors are prohibited from processing the
leaves and flowers of their plants which contain higher CBD concentrations, thus
making production of CBD from hemp largely uneconomical in Canada currently. We
note however that the Cannabis Task Force issued a recommendation in their
December 2016 report to soften existing industrial hemp regulations, opening the
door for potential authorization of “whole crop” utilization. Our industry sources
suggest the probability of this regulation change has increased since the bill to legalize
recreational cannabis was introduced. An ability to make use of the entire plant could
translate into yield improvements in CBD extraction for Canadian hemp processors.
b. Improved economics could increase Canadian production. Given the poor economics
of CBD extraction from hemp in Canada currently, there is little hemp cultivation
destined to producing CBD extract. Under the proposed changes by the Canadian
Hemp Traders Association, the economics of producing CBD extracts from hemp
would improve significantly, up to a point where Canadian production could be
competitive on a global level. Given the large acreage (80,000 –100,000 acres as per
Health Canada) available for hemp growing in Canada, this potential additional supply
could put pressure on global prices.

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Figure 11. Evolution of hemp-licensed production acreage in Canada

Source: Alberta Agriculture and Forestry

2. Future competition from European hemp processors

a. Cost reductions from potential alignment of regulatory restrictions in Europe.
Regulations for most European countries currently prohibit production of industrial
hemp with THC content in excess of 0.2%. Our industry sources suggest however that
alongside increased legalization of medical marijuana in Europe, there is mounting
pressure on regulators to permit an increase in hemp THC content to 0.3%, in
alignment with current Canadian, US and Chinese regulations. Higher authorized THC
content would permit European hemp farmers to grow strains with higher CBD
concentrations, potentially leading to yield improvement and cost reductions for
processors.
b. Significant scale of hemp farming already in place. According to the European
Industrial Hemp Association (EIHA), total European hemp cultivation is currently at
~75,000 acres, suggesting significant scale is already in place. With only ~1% currently
devoted to CBD extracts, this points to significant runway to expand CBD production in
our view. Hence should regulations change, it could allow European processors to
significantly improve the competitiveness of their CBD products.
Figure 12. Usage of total European hemp production by category for 2013
Seeds
13%
CBD applications
1%

Other uses
6%
Shivs
51%

Fibre
29%

Source: European Industrial Hemp Association (EIHA), GMP Securities

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Forecasts
Forecasting 2017 revenues of $0.8m. ICC’s large-scale CBD extraction equipment is only expected
to be operational in Q2/18, hence our 2017 forecasts stem entirely from the company’s
anticipated recreational market activities in Uruguay. We expect ICC to sell ~865kg in the
domestic market at $0.90/gram translating to revenues of $0.8m. With an expected cost of
$0.60/gram (incl. IRCCA license fees), we expect 2017 recreational sales to generate a gross
margin of ~33%. However with the recreational program in its first year, we project a build-up in
operating expenses translating into a 2017 EBITDA loss of –$3m.
Near-term financing may be needed to expand. ICC exited Q2/2017 with $2.6m in cash, however
we forecast negative EBITDA of $1.6m for the remainder of the year as ICC ramps up operations.
In addition, we expect ICC will require ~$1.5m to purchase extraction equipment and will also
need to fund working capital requirements. The above suggests ICC will require additional near-
term funding. This additional funding could come in the form of upfront payments from
customers or also from equipment financing. However our visibility on these two modes of
financing is limited and hence for conservativeness purposes we have assumed that ICC will
finance its expansion though equity financing.
Forecasting 2018 revenues of $16m. We expect ICC to begin generating revenues from CBD
extracts in 2018, which are expected to represent the vast majority (95%+) of sales and profits
going forward. In 2018, we forecast CBD extract revenues of $13m (described in more detail
below) and recreational market sales of $3m as we project ICC to double recreational production
capacity. We note that the Uruguayan government will act as an off-taker for all of ICC’s
recreational production. Our 2018 CBD extract revenue assumptions are as follows:
1. Initial hemp plantings expected at 400 acres. We forecast 400 acres of hemp plantings
to be completed in October 2017, generating a harvest of ~120,000kg of hemp flower in
April 2018, at an assumed yield of ~300kg/acre. ICC has up to 567 acres available to
plant hemp, but we expect the company will ramp-up slowly to this level over time in
order to manage risk. Production of hemp flower in excess of extraction capacity can be
stored for up to two years.
2. CBD extract sales of 650kg. We expect ICC’s CO2 extraction facility (50,000kg capacity)
to come on-line in Q2/18, and ramp-up over the course of the year. Therefore, we
forecast effective extraction capacity of ~25,000kg of hemp flower for 2018. We assume
extraction efficiency at 50% in the initial years as ICC will need to progress up the
learning curve. With hemp strain CBD concentration of 10%, and a three-month sales
cycle, this should result in 2018 CBD extract sales volumes of 650kg (yield of ~2kg/acre).
3. Assuming selling price of $20/gram. We have assumed wholesale selling prices of
$20/gram for ICC’s pure CBD extracts, representing a sizable discount from the average
wholesale pricing of ~$30–40/gram observable from other global competitors. As a new
entrant to the industry, we expect ICC to price its products competitively in order to
facilitate market penetration. The above should translate into 2018 CBD extract
revenues of $13m.

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Expecting 2018 EBITDA at break-even. We expect ICC will need to spend time in 2018 optimizing
its CBD extraction process, hence we forecast production costs to remain elevated and average
~$8.50/gram, translating into CBD extract gross margins of ~63%. As CBD extract production
capacity increases going forward, we see the potential for COGS/gram to decrease to the ~$4.00
level and lower over time. We expect operating expenses will need to be scaled up to
accommodate the first year of CBD extract sales, hence we do not expect ICC to generate
meaningful operating leverage in 2018. As a result, we forecast 2018 EBITDA at roughly break-
even level of $0.2m.
Forecasting 2019 EBITDA at $25m. We expect ICC to harvest ~150,000kg of hemp flower in
Q2/19, stemming from plantings of 500 acres in October 2018. CBD extract yield is forecast to
rise to ~10kg/acre reflecting higher extraction capacity utilization. The above should generate
~5,000kg in CBD extracts, which at stable $20/gram pricing should translate to ~$100m in
revenue. As for domestic recreational sales, we forecast ~$5m for 2019. Production costs are
expected to decline to an average of ~$4.50/gram based on increased process optimization,
resulting in gross margins of 78%. Operating leverage is also forecast to improve with increased
volumes, with OPEX decreasing to ~50% of sales and translating into EBITDA of $25m.
Expecting subsequent $10m financing in 2018. We estimate extraction capacity will need to at
least double in 2019 in order to accommodate the increased hemp acreage we expect to be
planted in October 2018. This combined with expected working capital requirements to support
projected growth suggests ICC will need additional funding in 2018. Hence, we forecast ICC will
issue $10m in debt sometime before the end of 2018. We also assume the exercise of all
outstanding warrants and options, providing ~$5m of additional liquidity.

Valuation
Deriving a target price of $2.50. We value ICC using a discounted cash flow approach as we
believe this is the best method to capture: 1) the long-term opportunity stemming from growing
demand for CBD as medical marijuana programs across various global countries evolve and
expand, and 2) the capital expenditures expected to be required of ICC to increase capacity in
support of future growth. Our DCF assumptions include: 1) a discount rate of 18%, 2) two-stage
average revenue growth of ~28%, 3) average EBITDA margin of 40%, 4) exchange rate of 1.25
CAD/USD, and 5) a terminal growth rate of 0%.

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Figure 13. ICC’s DCF analysis

ICC Internationsl Corp., FYE Dec 31 Forecasts Stage 1 Stage 2
US$ 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029
CBD Extracts
Acreage planted (acres) 400 500 567 667 767 867 967 1,017 1,217 1,417 1,617 1,817
CBD extract yield (kg/acre) 1.6 10.0 15.0 20.0 20.0 20.0 20.0 25.0 25.0 25.0 25.0 25.0
Number of kilos sold 649 4,949 8,505 13,340 15,340 17,340 19,340 25,425 30,425 35,425 40,425 45,425
Average price per kilo ($/kg) $20,000 $20,000 $17,920 $16,056 $14,386 $12,890 $11,550 $9,771 $8,266 $6,993 $5,916 $5,005
Revenues - CDB extracts 12,979,952 98,977,446 152,409,600 214,191,309 220,688,338 223,517,292 223,370,859 248,428,472 251,501,950 247,737,067 239,167,148 227,361,432
Recreational market
Number of grams sold 3,416,667 5,416,667 5,525,000 5,635,500 5,748,210 5,863,174 5,980,438 6,100,046 6,222,047 6,346,488 6,473,418 6,602,886
Average price per gram ($/gram) $0.90 $0.90 $0.92 $0.94 $0.96 $0.98 $1.00 $1.02 $1.04 $1.06 $1.08 $1.10
Revenues - Recreational market 3,075,000 4,875,000 5,083,000 5,297,370 5,518,282 5,745,911 5,980,438 6,222,047 6,470,929 6,727,278 6,991,292 7,263,175
Total revenues 16,054,952 103,852,446 157,492,600 219,488,679 226,206,620 229,263,203 229,351,296 254,650,520 257,972,879 254,464,345 246,158,440 234,624,607
COGS per gram - CBD extracts $7.31 $4.49 $4.07 $3.68 $3.33 $3.02 $2.73 $2.47 $2.23 $2.02 $1.83 $1.66
COGS of CBD extracts 4,744,229 22,244,362 34,596,853 49,109,633 51,107,518 52,282,592 52,773,155 62,786,480 67,996,152 71,649,339 73,994,755 75,247,907
Gross profit - CBD extracts 8,235,723 76,733,085 117,812,747 165,081,676 169,580,820 171,234,701 170,597,703 185,641,993 183,505,798 176,087,728 165,172,393 152,113,525
Gross margin - CBD extracts 63% 78% 77% 77% 77% 77% 76% 75% 73% 71% 69% 67%
Gross profit - Recreational market 1,039,167 1,659,167 1,779,050 1,854,080 1,931,399 2,011,069 2,093,153 2,177,717 2,264,825 2,354,547 2,446,952 2,542,111
Gross margin - Recreational market 34% 34% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35%
Total gross profit 9,274,890 78,392,251 119,591,797 166,935,756 171,512,218 173,245,769 172,690,856 187,819,709 185,770,623 178,442,275 167,619,345 154,655,636
Total gross margin 57.8% 75.5% 75.9% 76.1% 75.8% 75.6% 75.3% 73.8% 72.0% 70.1% 68.1% 65.9%
Total OPEX 9,049,463 52,964,747 70,871,670 87,795,472 79,172,317 68,778,961 68,805,389 70,182,177 71,067,639 70,039,107 67,665,931 64,387,518
% of sales 56% 51% 45% 40% 35% 30% 30% 28% 28% 28% 27% 27%
EBITDA 225,427 25,427,504 48,720,127 79,140,284 92,339,901 104,466,808 103,885,468 117,637,532 114,702,984 108,403,169 99,953,414 90,268,117
margin 1.4% 24.5% 30.9% 36.1% 40.8% 45.6% 45.3% 46.2% 44.5% 42.6% 40.6% 38.5%
Depreciation & amortization 1,908,919 2,497,355 2,822,355 2,895,639 3,058,468 3,229,022 3,317,754 3,367,754 3,417,754 3,467,754 3,656,039 3,903,286
Net finance costs & other 633,099 914,349 822,914 740,623 666,561 599,904 539,914 485,923 437,330 393,597 354,238 318,814
EBT (2,316,591) 22,015,799 45,074,858 75,504,023 88,614,873 100,637,882 100,027,799 113,783,855 110,847,900 104,541,817 95,943,138 86,046,018
Cash taxes - 3,806,470 11,268,714 18,876,006 22,153,718 25,159,471 25,006,950 28,445,964 27,711,975 26,135,454 23,985,784 21,511,504
NOPAT (1,683,492) 19,123,678 34,629,057 57,368,640 67,127,715 76,078,316 75,560,764 85,823,814 83,573,255 78,799,960 72,311,591 64,853,327
+ Depreciation & amortization 1,908,919 2,497,355 2,822,355 2,895,639 3,058,468 3,229,022 3,317,754 3,367,754 3,417,754 3,467,754 3,656,039 3,903,286
- Net increase in working capital (8,338,533) (11,512,547) (10,728,031) (12,399,216) (1,343,588) (611,317) (17,619) (5,059,845) (664,472) 701,707 1,661,181 2,306,767
- CAPEX (9,500,000) (6,500,000) (1,465,667) (3,256,589) (3,411,077) (1,774,643) (1,000,000) (1,000,000) (1,000,000) (3,765,698) (4,944,942) (1,000,000)
Free cash flow to the firm (17,613,106) 3,608,487 25,257,715 44,608,474 65,431,518 76,921,378 77,860,899 83,131,724 85,326,537 79,203,723 72,683,868 70,063,380

PV factor 1.0000 0.8443 0.7129 0.6019 0.5083 0.4291 0.3623 0.3059 0.2583 0.2181 0.1842 0.1555
PV of Free Cash Flows (17,613,106) 3,046,808 18,006,692 26,852,033 33,255,749 33,010,092 28,212,335 25,433,512 22,041,625 17,275,277 13,385,586 10,894,577

Valuation CDB Extracts - Stage 1 key assumptions CDB Extracts - Stage 2 key assumptions
PV of Free cash flow to the firm 213,801,180 CBD flower yield (kg/acre) 300 A CBD flower yield (kg/acre) 325
Terminal value 59,097,245 CBD concentration % 10% B CBD concentration % 10%
Enterprise value 272,898,424 Extaction efficiency % 65% C Extaction efficiency % 75%
FY18 net debt 4,848,483 CBD extract yield (kg/acre) 20.0 =(A*B*C) CBD extract yield (kg/acre) 25.0
Equity value (US$) 268,049,941 Pricing of CBD extract ($/kg) -10% Pricing of CBD extract ($/kg) -15%
Exchange rate (CAD/USD) 1.25 CBD extracts COGS per gram -10% CBD extracts COGS per gram -10%
Shares O/S (fully diluted) 132,273,010 OPEX % of sales 36% OPEX % of sales 28%
Equity value /share (C$) $ 2.53

Terminal Value Recreational - Stage 1 key assumptions Recreational - Stage 2 key assumptions
Terminal FCFF 70,063,380 Growth in grams sold 2.0% Growth in grams sold 2.0%
Terminal growth rate 0% Growth in avg. $/gram 2% Growth in avg. $/gram 2%
WACC 18% Gross margin 35.0% Gross margin 35.0%
WACC - g 18% OPEX % of sales 10.0% OPEX % of sales 10.0%
TCF/(WACC-g) 380,056,304
Present value 59,097,245

Source: GMP Securities

Assumptions underlying our DCF model. The following summarizes the key assumptions of our
10-year DCF model. Where our forecasts necessitate the addition of new extraction capacity, we
have assumed a cost of $20/kg of hemp flower.
1. Planted acreage to increase steadily over time. To manage expansion risks, we forecast
ICC will gradually increase hemp plantings by 100 acres/year with an expectation of
reaching 567 acres in 2020. Thereafter we expect acreage to increase at a slightly faster
rate, reaching ~1,817 acres by 2029. This should help to align ICC’s production with the
steady but measured demand growth we expect to emanate from developing medical
marijuana regimes in various countries across the globe.
2. CBD extract yield improvements to drive cost reductions. We forecast steady
improvements in ICC’s CBD extract yield per acre mainly due to increasing extraction
efficiency as the company perfects its process. We forecast extraction efficiency to
increase from 50% in 2018 to 65% during stage 1, and further improve to 75% during
stage 2. The above should generate production cost efficiencies allowing COGS/gram to
decline to an average of ~$3.30 for stage 1, and ~$2.00 during stage 2.
3. Assuming ongoing pricing declines. With potential regulation changes in Canada
combined with attractive economics, we expect new entrants into the CBD extracts
industry over time, bringing on new supply. Hence we model 10% annual pricing

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contraction during stage 1, accelerating to a 15% annual pricing decline during stage 2 as
competitive pressures are expected to increase.
4. Projecting margin contraction during second stage. With increasing competition and
pricing pressure offsetting yield enhancements, we expect margins to contract during our
second stage. We forecast gross margins to decline from 76% to the 69% level. We expect
operating expenses to remain mostly flat during stage two, which combined with the
above, should translate into EBITDA which is expected to decline slightly through 2029.
ICC trades at a significant discount to its closest peers. Based on our estimates, ICC is currently
trading at a 2019 EV/EBITDA multiple of ~3.5x, representing a ~65% discount to the average of its
closest peers amongst publicly-listed Canadian LPs. We believe ICC should trade at a discount to
larger, more established peers such as Canopy Growth, MedReleaf, Aphria and Aurora. However
as compared to the average of its closer comparables (market capitalization lower than $500m),
we view ICC’s 1) similar stage of development, 2) similar growth prospects and execution risks,
and 3) potential strong competitive cost advantage as justification for a slight premium in
valuation multiple.
Figure 14. List of publicly traded comparable licensed producers
Basic Market Cap EV Current EV / sales EV/EBITDA
October 4, 2017 Ticker Price Shares O/S
(m) ($m) ($m, f.d.) TTM CY17 CY18 CY19 CY18 CY19
Select publicly listed licensed marijuana producers
ABCANN GLOBAL CORP ABCN-CA 1.02 111 114 146 n.a. n.a. n.a. n.a. n.a. n.a.
APHRIA INC APH-CA 7.28 139 1,009 926 52.9x 38.6x 15.0x 7.9x 36.9x 22.7x
AURORA CANNABIS INC ACB-CA 2.92 372 1,085 1,029 nmf 30.9x 9.8x 4.7x 42.2x 15.9x
BELEAVE INC BE-CNQ 1.77 27 47 52 n.a. n.a. 10.4x n.a. n.a. n.a.
CANNIMED THERAPEUTICS INC CMED-CA 11.17 23 252 232 12.6x 10.8x 4.9x 2.7x 16.6x 6.0x
CANNTRUST HOLDINGS INC TRST-CNQ 3.65 71 260 278 63.4x 14.4x 3.9x 2.5x 10.3x 5.9x
CANOPY GROWTH CORPORATION WEED-CA 11.74 167 1,960 1,908 63.0x 26.1x 15.7x 4.8x nmf 23.3x
CRONOS GROUP INC MJN-CA 2.77 139 386 484 nmf nmf 23.8x 4.8x nmf 16.9x
EMBLEM CORP EMC-CA 1.86 85 158 175 nmf 47.0x 14.8x 4.1x nmf 30.4x
EMERALD HEALTH THERAPEUTICS EMH-CA 1.34 93 125 86 nmf nmf 16.0x n.a. nmf n.a.
HARVEST ONE CANNABIS INC HVST-CA 0.78 89 70 89 n.a. n.a. n.a. n.a. n.a. n.a.
HYDROPOTHECARY CORPORATION THCX-CA 2.23 75 168 186 nmf 15.2x 5.1x 2.4x 24.6x 9.1x
ICC INTERNATIONAL CANNABIS CORP ICC-CA 0.94 114 107 87 n.a. nmf 5.4x 0.8x nmf 3.4x
INVICTUS MD STRATEGIES CORP IMH-CA 1.19 59 71 53 n.a. 15.7x 2.2x 0.8x 7.9x 2.3x
MARICANN GROUP INC MARI-CA 1.50 73 109 n.a n.a. 24.7x 6.3x 1.4x 29.5x 4.0x
MEDRELEAF CORP LEAF-CA 9.23 90 834 810 22.0x 17.9x 10.0x 4.8x 28.7x 12.3x
ORGANIGRAM HOLDINGS INC OGI-CA 2.93 101 297 269 36.6x 21.3x 6.2x 2.1x 21.8x 5.5x
SUPREME PHARMACEUTICALS INC FIRE-CA 1.48 177 261 274 n.a. 14.4x 3.7x 1.9x 15.9x 5.6x
THC BIOMED INTERNATIONAL LTD THC-CNQ 0.87 103 90 91 n.a. n.a. n.a. n.a. n.a. n.a.
WEEDMD INC WMD-CA 0.90 42 38 32 n.a. 18.1x 2.1x n.a. nmf n.a.
Overall average 386 395 41.8x 22.7x 9.4x 3.5x 23.5x 12.3x
Average of closest peers 163 175 37.5x 20.2x 8.3x 2.5x 18.1x 9.5x
ICC premium (discount) to all peers n.a. -42% -76% n.a. -72%
ICC premium (discount) to closest peers n.a. -34% -67% n.a. -64%

Source: Company reports, FactSet, Bloomberg, GMP Securities

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Upside/downside valuation scenarios

Blue sky valuation scenario suggests potential ~100% upside to target price. In order to manage
execution risks, we believe ICC will gradually increase its extraction capacity to be able to process
the hemp crop from its 567 acres. However under a scenario where ICC significantly increase its
extraction capacity, it could translate into much higher inventory available for sale than expected.
Assuming ICC can sell all it produces at market pricing of $30/gram for its CBD extracts, and
generate extraction efficiency of 75% beginning in the second year of hemp harvests (2019) due
to increased scale, our model suggests a potential valuation of ~$5.00, representing ~100%
upside to our current target price of $2.50.
Pessimistic downside scenario points to valuation of ~$0.50. We envision a pessimistic downside
scenario which excludes ICC’s CBD extract operations, leaving only its domestic recreational
business to derive profitability. For this scenario we forecast a domestic market size of ~18,000kg
based on ~74,000 users, and we assume ICC’s market share at ~80%. Using EBITDA margins of
~35%, this translates into EBITDA of ~$5m, on which we place a multiple of 10x given the
recurring nature of the business which is largely insulated from competition. This calculation
yields a target price of ~$0.50 suggesting a downside of ~45% in a pessimistic scenario.

Recommendation
We are initiating coverage on ICC with a SPECULATIVE BUY rating and a C$2.50 target price.
Our positive outlook on ICC is based on the following:
1. Exposure to rapidly growing CBD extract markets globally. We estimate that the global CBD
extract market could reach $1b within five years, up from less than $100m currently,
excluding Canada and the US. We expect this strong growth to mostly stem from emerging
medical marijuana programs in Europe and Latin America. Over the next five years we
estimate that countries such as Germany, Italy, Poland, Argentina, Brazil and Mexico could
substantially ease access to medical marijuana. CBD-focused products already hold a
commanding share of the medical markets in Canada and the US and thus are expected to
have a similar representation globally.
2. Strategic location provides cost advantage. ICC derives a significant competitive advantage
from its location in Uruguay. This is due to Uruguay being the only country in the world
where regulations permit the cultivation of high CBD concentration hemp on a commercial
scale. ICC is allowed to grow hemp with CBD concentrations in excess of 10% while other
countries are capped at 5%. This yield advantage combined with Uruguay’s favorable climate
results in a significant production cost advantage for ICC.
3. Appealing risk/reward profile. According to our analysis, ICC could have significant earnings
power. Assuming that the company plants the full 567 acres it has access to, we estimate
that under a bullish case scenario, ICC could generate in excess of $300m in revenues and
~$100m in EBITDA. Assuming a multiple of 6-8x peak EBITDA, this would represent a
potential valuation of ~$5 per share. ICC also offers some downside protection due to the
duopoly the company currently benefits from in Uruguay’s recreational cannabis market. In a
bearish scenario which excludes the CBD extract opportunity, we estimate that the domestic
business could be still be valued at $0.50 per share. Hence, with material upside potential
and some downside protection, we view ICC’s risk/return profile as being quite appealing.

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Risk factors
Execution risk of large-volume hemp cultivation. A key determinant of ICC’s valuation will be its
ability to successfully conduct large-scale hemp cultivation to generate expected flower yields as
input for extraction activities. While hemp has historically not been a notoriously difficult plant to
cultivate, given it does not require pesticides, there is the potential for unforeseen issues to occur
which could create challenges for management in light of their lack of extensive experience in
farming activities. Disruptions in harvests could create lower available input materials for CBD
extract processing and potentially delay realization of our forecasts, translating to potential
reductions in our valuation.
Execution risk of large-scale extraction operations. With a limited extraction capacity at the
outset, ICC will need to operate their extraction facility at near full capacity for extended periods
in order to process the large volumes generated from the company’s first hemp harvest. Our
forecasts incorporate a low extraction efficiency of 50% at the outset to account for the learning
curve ICC should face in conducting their first large-scale extraction operation. However, factors
such as temporary bottlenecks, unplanned equipment downtime or increased labor requirements
could negatively impact extraction performance and thus, ICC’s financial results.
Seasonality and weather-related impact to harvests. As ICC’s hemp is to be grown outdoors, the
company’s business is inherently seasonal based on expected planting, growing and harvesting
cycles. As such, there is potential for weather-related impacts on production yields, and planting
and harvesting schedules, which could in-turn disrupt availability of input materials for ICC’s
extraction operations. This could negatively impact the company’s revenue generation
capabilities without the opportunity to recover until the following season.
Rapidly evolving cannabis regulations. Cannabis laws and regulations are dynamic and subject to
evolving interpretations which could result in ICC incurring substantial costs associated with
compliance or require a change in the company’s business plan. ICC cannot predict the nature of
any future regulations or their application and hence, the extent to which their business may be
impacted. With ICC expected to channel exports to multiple international jurisdictions, the
company will necessarily be exposed to a large number of differing regulatory structures, whose
rapid changes may result in unforeseen negative impacts to the business.
Ability to establish and maintain bank accounts: There is a risk that banking institutions in the
countries in which ICC operates may not accept cannabis related payments. Should ICC’s
customers experience difficulties in establishing and maintaining bank accounts, it could have an
impact on the company’s revenue generation capabilities.

Appendix A: Domestic opportunity

Recreational market a relatively small, but insulated opportunity for ICC. With the Uruguayan
government controlling selling prices, maximum consumption quantities and restricting access of
non-residents, we believe this is likely to limit the opportunity size stemming from domestic
recreational cannabis sales. We estimate ICC may only generate EBITDA of ~$1–5m from the
recreational market in Uruguay once at maturity. Notwithstanding the above, we consider the
recreational opportunity should be quite well insulated for ICC given limited risk of price
deflation, and low competition with only one other significant player vying for market share.

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Estimating recreational market demand at ~5,000–18,000kg at maturity. According to the latest

Household Survey of Drug Consumption published by Uruguay’s National Drug Board, there were
~161,000 people aged 15–65 who consumed cannabis at least once during 2016, with ~21,000
considered as “daily” users. By aggregating data from the report on daily, weekly and monthly
users, and adjusting for those below the legal age limit of 18, we have devised three scenarios of
market demand based on daily consumption quantities of 0.5–1.32 grams/day (maximum
allowable). Our analysis suggests an estimated market size in the range of ~5,000–18,000kg at
maturity, which we believe could be realized at some point over the next three years.
Figure 15. Recreational market size scenarios
User types BEAR Case BASE Case BULL Case
Daily Users 19,400 19,400 19,400
grams/day 0.50 0.75 1.25
Kg/year 3,541 5,339 8,851
Weekly users 26,000 26,000 26,000
Frequency/week 2 3.5 5.0
grams/occasion 0.50 0.75 1.25
Kg/year 1,352 3,609 8,518
Monthly users 28,500 28,500 28,500
Frequency/month 1 2 3
grams/occasion 0.50 0.75 1.25
Kg/year 171 567 1,283
Total consumption (Kg/year) ~5,100 ~9,600 ~18,700

Source: Uruguay National Drug Board, GMP Securities

Domestic greenhouse with current capacity of 2,000kg has the ability to scale up to 10,000kg. In
December 2016, ICC completed construction of its ~70,000 sq.ft. greenhouse facility located on
government-owned land in Montevideo, which is purposed for recreational cannabis. The facility
includes ~40,000 sq.ft. of flowering space, ~15,000 sq.ft. of vegetative and propagation space,
and the remainder devoted to processing, packaging and drying areas. The facility has been in
operation since February of 2017 and has since produced ~325kg which is currently being
distributed to pharmacies. ICC is targeting to increase production capacity to 2,000kg by the end
of 2017, and has the ability to scale up to 10,000kg without additional capital investment should
domestic demand warrant it.
Figure 16. ICC’s recreational hybrid greenhouse

Source: Company reports

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Recreational production costs of US$0.60/gram. Due to its hybrid structure, combining sunlight
with supplemental lighting, ICC’s recreational greenhouse is able to generate healthy production
yields of ~250 grams/ sq.ft. This combined with Uruguay’s relatively lower labor and heating costs
translates into an attractive production cost of ~US$0.60/ gram (~US$0.50/gram excluding
IRCCA’s license fees). We note that should future increases in domestic demand warrant an
increase in capacity, we could see associated decreases in production costs. Domestic selling
prices are regulated by the Uruguayan government, currently at $0.90 per gram, but could be
indexed to inflation in the future.
Estimating EBITDA opportunity of ~$1 –5m from recreational market at maturity. With ~13,800
Uruguayans registering for recreational use since the process began in early May 2017, we
believe it could take ~2–3 years for users to reach the ~74,000 level implied by our market
demand analysis. However, once at maturity, with regulated selling prices, we believe ICC should
be able to earn an EBITDA margin of 33% under our base case scenario, and higher margins of
~45% under a scenario where larger volumes generate scale efficiencies. With only one other
competitor, Simbiosys, supplying the recreational market, we believe this should position ICC
favorably to garner at least a 50% share of the market, with potential to gain additional share
given its public structure, and resulting easier access to development capital.
Figure 17. Recreational EBITDA scenarios at market maturity
BEAR Case BASE Case BULL Case
Total consumption (Kg/year) ~5,100 ~9,600 ~18,700
Market share 50% 50% 80%
ICC share of volumes (kg) 2,550 4,800 14,960
Revenue/gram $0.90 $0.90 $0.90
Production cost/gram $0.60 $0.60 $0.50
EBITDA $765,000 $1,440,000 $6,058,800
Margin % 33% 33% 45%

Source: Company reports, GMP Securities

Limited competition risks. The IRCCA regulated pricing structure insulates ICC against price
competition from Simbiosys, and positions licensed recreational cannabis products competitively
against black market products in Uruguay. In addition, prohibition on advertising should not
present a significant issue for ICC given they have only one competitor, hence product
differentiation is not likely to be an important driver of market share.

Domestic market risks

Low THC levels and product variety could limit consumer interest. Uruguay’s recreational products
are currently restricted to THC levels of 2%, and the IRCCA maintains discretion over permitted strain
varieties. It is anticipated that greater product variety with THC levels up to the 15% maximum could
eventually be introduced, however in the interim should available cannabis products not prove
satisfactory, registered users could migrate to homegrowing or cannabis clubs, which could dampen
the market opportunity for pharmacy distribution where ICC channels its products.
Limited participation by pharmacies could constrain market opportunity. There are only 11
pharmacies currently distributing recreational cannabis in Uruguay, which compares to greater
than 50 pharmacies which initially demonstrated interest when registration opened in June 2016.
In addition, ~25% of registered pharmacies are located in the Montevideo area of Uruguay, which
appears somewhat under-indexed given greater than 30% of users currently reside in this area as

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per the Household Survey of Drug Consumption. An inability to effectively service demand due to
lack of distribution points could cause frustration, and incentivize users to grow at home, or use
the black market, both of which could limit the market opportunity for ICC.

Appendix B: Uruguay cannabis industry overview

No framework for medical cannabis. Despite a focus on public health during the implementation of
the recreational law, the Uruguayan government has not prioritized medical marijuana. The outgoing
President Mujica signed a set of regulations in 2015 that provided a framework for doctors to
prescribe cannabis products, however the Minister of Health has not yet authorized the
development of cannabis-based medication for sale in Uruguay. As a result, patients seeking access
to promising treatments for conditions such as epilepsy have to seek special permission to import
these medications from abroad, which carry significantly higher costs than locally produced products.
Few restrictions on exports from Uruguayan authorities. To receive approval to export medicinal
cannabis products, Uruguayan producers need only apply to the Ministry of Health for an
import/export authorization, and provide documentation of the import license issued by the relevant
authorities of the importing country. Current Uruguayan legislation does not specifically require that
any exported cannabis-based product meet any minimum required quality standards. Hence, in our
view, this suggests that any onerous quality restrictions governing the export of CBD extracts are
likely to emanate from the regulations of the importing country, rather than from Uruguay.
Domestic recreational market. In January 2016, ICC was granted its recreational cannabis license
by the Cannabis Regulation and Control Institute (IRCCA) of Uruguay, authorizing the company to
produce and distribute psychoactive cannabis. ICC received one of only two licenses awarded by
the regulatory body after a tender process which had included 22 applicants. The recreational
license is granted for a period of 5-years (expiring in January 2021), and carries an annual fee of
$20,000 plus a 10% royalty on retail sales to licensed pharmacies.
Slow progression to implementation. Following the passing of Law 19,172 in December 2013, it
was not until August 2014 when registrations first opened for homegrowing. It then took until
March 2016 for decrees to be passed to enable pharmacies to begin registering. Uruguay’s
Institute for Regulation and Control of Cannabis (IRCCA) began registering people for pharmacy
purchases in May 2016, and legal sales finally began on July 19th, 2017, three and a half years
after the law enactment. The slow progression to implementation is in-part explained by less
than optimal coordination among institutions responsible for regulation, as well as the
constrained resources of the IRCCA due to a relatively small staff.
Recreational consumption restricted to 480 grams/year. All users of legalized cannabis are
required to register with the IRCCA, and can choose between accessing products at licensed
pharmacies, or growing at home, but not both simultaneously. In any case, consumption is
restricted to 480 grams/year, either through a maximum purchase quantity of 10 grams/week
(up to 40 grams/month) from pharmacies, or a 6 plant maximum grow per household with a limit
on annual production of 480 grams. A third option to join a cannabis growing club of 15-45
people is also made available but with a maximum production of 99 plants per club.
Advertising prohibited, no cannabis tourism. The vision for Uruguay’s legalization framework
was to allow but not promote use of cannabis, hence the regulations prohibit all forms of
advertising or public promotion, as well as sponsorships. Smoking cannabis is also banned in

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restaurants, bars, or anywhere else where people are banned from smoking tobacco. In addition,
only Uruguay citizens and permanent residents are permitted to purchase or grow cannabis,
thereby eliminating most incentives for cannabis tourism.
Program participation appears low. As of September 20th , the IRCAA reported having ~13,800
users (“acquirers”) registered to access pharmacy distributed products, which appears low in our
view as compared to statistics from Uruguay’s recent household survey of drug consumption
which suggest that ~6.5% of the adult population (15-65 years), or ~112,000 people have used
cannabis in the past 30 days. Given pricing levels which are comparable to the black market, we
suspect the current low participation could be in-part attributable to 1) limited strain selection
with only two varieties offered for sale and low THC levels of 2% and 2) slow implementation of
laws and only recent opening of registration for pharmacy access in May 2017.
Figure 18. Number of participants in Uruguay’s legal cannabis program
License Type Number
Acquirers 13,815
Self-cultivators 7,142
Membership clubs 64
Source: IRCCA

Limited participation by pharmacies thus far. The ultimate goal of the Uruguayan government
was to have 1200 pharmacies distributing cannabis, however in June 2016 soon after registration
opened, only 50 pharmacies had signed on. Over the past year, the number of registered
pharmacies has further dwindled, so that currently only 11 pharmacies are distributing cannabis.
The limited participation of pharmacies can be explained by the restrictions imposed by
international financial institutions, as well as increased costs required to conduct IRCAA-required
administrative work while only receiving a portion of the US$0.40/gram profit margin.
Strain variety and THC levels regulated by government. ICC is currently only permitted to
produce two strain varieties for the recreational market which have been provided to the
company by the IRCCA. These include the Indica strain “ALFA 1”, and the Sativa strain “BETA 1”,
both of which carry similar cannabinoid profiles with 2%THC/7%CBD and 2%THC/6%CBD,
respectively. While this initial strain selection is somewhat limited, the IRCAA has stated that
their goal is to eventually provide strains with low, mid and high levels of THC up to the legal limit
of 15%. Currently, ALFA 1 and BETA 1 are only sold in packages of five grams, with larger 10
grams packages expected to be made available in coming months.
Figure 19. Currently available recreational cannabis products

Source: IRCCA, Industry Reports

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Pricing limited to US$0.90/ gram. Pricing for recreational cannabis is fixed by the Uruguayan
government, in order to remain competitive with black market pricing. The retail price is
currently set at US$1.30/ gram. This permits ICC to wholesale its recreational products at
US$0.90/gram with the remaining US$0.40/gram split between the pharmacies and the IRCAA.
Pricing is expected to be adjusted annually in-part to reflect the rate of inflation.

Appendix C: Key company management & directors

Alejandro Antalich – Chief Executive Officer. Mr. Antalich was appointed CEO of ICC on June 26,
2017. He brings over 25 years of leadership and operations experience in the healthcare and
pharmaceutical industry in Uruguay. Mr. Antalich’s first position at ICC was Senior Operations
Manager which he began in March 2017. He oversaw all research and development team
initiatives in this role. To date, he and his team successfully constructed the first CBD extraction
and oil formulation laboratories in South America. Mr. Antalich took over the role of CEO from
Mr. Guillermo Delmonte.
Ravi Sood – Director. Mr. Sood joined ICC as a Director on May 24, 2016 and is based out of
Toronto, ON. He is a financier and venture capitalist who has been the founder of and principal
investor in several businesses. Currently, he serves as an Executive Director of Feronia Inc.,
Director and Chairman of Galane Gold Ltd. and Transeastern Power Trust. He also founded
Navina Asset Management Inc., in 2001 and served as CEO until he sold the firm in 2010. Mr.
Sood attended the University of Waterloo and graduated with a B. Mathematics.
Michael Galego – Director. Mr. Galego has been a member of ICC’s Board of Directors since
November 23, 2016. Mr. Galego concurrently serves as CEO of the Stronach Group’s Agricultural
Division, and previously served as Deputy General Counsel and Secretary of Pacific Exploration &
Production Corp., and Director, General Counsel and Secretary of CGX Energy Inc. In 2015, he was
a member of the Board of Directors of Woulfe Mining Corp. and instrumental in its sale to
Almonty Industries Inc., by way of plan of arrangement. Additionally, Mr. Galego is a lawyer with
over ten years of M&A and corporate finance experience and is a member of the TSXV’s Ontario
Advisory Committee. Mr. Galego previously acted as legal counsel to several public and private
companies operating in the Latin American resource sector, including Gran Colombia Gold Corp.,
Pacific Infrastructure Inc. and PetroMagdalena Energy Corp.
Michael Young – Director. Mr. Young joined ICC’s Board of Directors on March 9, 2017. He brings
extensive senior level executive management and trading experience in the Canadian and U.S.
capital markets to ICC’s board. Throughout his career in finance and banking, he built a strong
network of Canadian, American and international investors. Mr. Young began his career as an
Equities Trader at GMP Securities in 2003. At the time of his departure from GMP Securities, he
held the position of Managing Director and Co-Head of Trading.

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Appendix D: Financial statements

Figure 20. Income statement
FYE Dec 31 (US$) 2015 2016 Q1/FY17 Q2/FY17 Q3/FY17E Q4/FY17E 2017E 2018E 2019E
CBD extract revenues - - - - - - - 12,979,952 98,977,446
Domestic recreational revenues - - - - 291,600 487,500 779,100 3,075,000 4,875,000
Total revenues - - - - 291,600 487,500 779,100 16,054,952 103,852,446
Growth YoY % 1961% 547%
COGS (excluding IFRS adj.) - 232,534 175,257 84,107 196,160 324,583 780,107 6,780,062 25,460,195
Adj. gross margin - (232,534) (175,257) (84,107) 95,440 162,917 (1,007) 9,274,890 78,392,251
Gross margin % 32.7% 33.4% -0.1% 57.8% 75.5%
Operating expenses 36,748 1,313,508 355,810 742,992 928,740 975,000 3,002,542 9,049,463 52,964,747
% of sales nmf nmf nmf nmf 318.5% 200.0% 385.4% 56.4% 51.0%
Adj. EBITDA (36,748) (1,546,042) (531,067) (827,099) (833,300) (812,083) (3,003,549) 225,427 25,427,504
Margin % -285.8% -166.6% -385.5% 1.4% 24.5%
Stock-based compensation - 1,942,528 20,622 85,300 100,000 100,000 305,922 400,000 400,000
Depreciation & amortization - 634,917 285,698 400,528 360,081 356,079 1,402,386 1,908,919 2,497,355
EBIT (36,748) (4,123,487) (837,387) (1,312,927) (1,293,381) (1,268,162) (4,711,857) (2,083,492) 22,530,148
Financial expenses (income) 2,984 241,826 (78,135) (192,570) 16,087 16,087 (238,530) 233,099 514,349
EBT (39,732) (4,365,313) (759,252) (1,120,357) (1,309,468) (1,284,250) (4,473,327) (2,316,591) 22,015,799
Income taxes - - - - - - - - 3,806,470
Tax rate (%) - - - - - - - - 17.3%
Adj. net income (39,732) (4,365,313) (759,252) (1,120,357) (1,309,468) (1,284,250) (4,473,327) (2,316,591) 18,209,329

EPS (f.d.) ($0.99) ($0.07) ($0.01) ($0.01) ($0.01) ($0.01) ($0.04) ($0.02) $0.14
Total one-ti me i tems (a fter-tax) - (26,130,145) 109,264 190,162 101,742 171,485 572,653 294,969 150,205
Reported net i ncome (39,732) (30,495,458) (649,988) (930,195) (1,207,726) (1,112,765) (3,900,674) (2,021,622) 18,359,534
Reported EPS (f.d.) ($0.99) ($0.53) ($0.01) ($0.01) ($0.01) ($0.01) ($0.03) ($0.02) $0.14
Sha res outs tandi ng (f.d.) 40,000 66,184,162 122,123,010 122,273,010 122,273,010 132,273,010 124,735,510 132,273,010 132,273,010

Source: Company reports, GMP estimates

Figure 21. Balance sheet

FYE Dec 31 (US$) 2015 2016 Q1/FY17 Q2/FY17 Q3/FY17E Q4/FY17E 2017E 2018E 2019E
ASSETS
Cash and cash equivalents 3,751 5,897,620 3,543,369 2,663,015 1,698,825 9,873,167 9,873,167 6,581,498 9,675,635
Short-term investments - - 1,000,000 - - - - - -
Trade and other receivables 105,780 574,311 819,219 1,848,059 1,993,859 2,062,424 2,062,424 5,488,049 13,301,799
Inventory - 99,462 161,292 275,544 318,997 391,591 391,591 7,233,040 14,619,899
Biological assets - 85,883 133,317 209,227 310,969 482,454 482,454 777,423 927,628
Total current assets 109,531 6,657,276 5,657,197 4,995,845 4,322,650 12,809,635 12,809,635 20,080,010 38,524,962

Property, plant and equipment - 6,489,247 6,554,846 6,403,240 6,243,159 6,487,080 6,487,080 14,878,161 19,680,806
Licenses and authorizations 2,400,000 3,416,000 3,236,000 3,032,000 2,832,000 2,632,000 2,632,000 1,832,000 1,032,000
Total assets 2,509,531 16,562,523 15,448,043 14,431,085 13,397,809 21,928,715 21,928,715 36,790,171 59,237,767

LIABILITIES
Accounts payable and accrued liabilities 2,515,479 2,299,569 419,977 328,793 403,243 446,914 446,914 2,375,456 6,063,518
Total current liabilites 2,515,479 2,299,569 419,977 328,793 403,243 446,914 446,914 2,375,456 6,063,518

Other payables & long-term debt - 692,500 2,086,978 1,429,981 1,429,981 1,429,981 1,429,981 11,429,981 11,429,981
Total Liabilities 2,515,479 2,992,069 2,506,955 1,758,774 1,833,224 1,876,895 1,876,895 13,805,437 17,493,499

SHAREHOLDERS EQUITY
Share capital 50,000 41,909,414 41,909,414 42,724,356 42,724,356 52,224,356 52,224,356 56,778,892 56,778,892
Share based payment reserve - 1,942,528 1,963,150 2,025,560 2,125,560 2,225,560 2,225,560 2,625,560 3,025,560
Retained earnings (deficit) (55,948) (30,551,406) (31,201,394) (32,131,589) (33,339,315) (34,452,080) (34,452,080) (36,473,702) (18,114,168)
Warrants - 269,918 269,918 53,984 53,984 53,984 53,984 53,984 53,984
Total equity (5,948) 13,570,454 12,941,088 12,672,311 11,564,585 20,051,820 20,051,820 22,984,734 41,744,268
Total liabilities and shareholders equity 2,509,531 16,562,523 15,448,043 14,431,085 13,397,809 21,928,715 21,928,715 36,790,171 59,237,767

Source: Company reports, GMP estimates

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Figure 22. Cash flow statement

FYE Dec 31 (US$) 2015 2016 Q1/FY17 Q2/FY17 Q3/FY17E Q4/FY17E 2017E 2018E 2019E
Operating Activities
Net earnings (39,732) (30,495,458) (649,988) (930,195) (1,207,726) (1,112,765) (3,900,674) (2,021,622) 18,359,534
Interest expense - - - (39,594) - - - - -
Amortization and depreciation - 634,914 285,698 396,813 360,081 356,079 1,398,671 1,908,919 2,497,355
Share-based compensation - 1,942,528 20,622 85,300 100,000 100,000 305,922 400,000 400,000
Loss on debt settlement - 23,451,599 - - - - - - -
Unrealized change in FV of biological assets - - - (40,062) (101,742) (171,485) (313,289) (294,969) (150,205)
Interest paid/received - - - 47,656 - - - - -
Non-cash listing costs - 2,498,157 - - - - - - -
Operating cash flow before changes in NWC (39,732) (1,968,260) (343,668) (480,082) (849,387) (828,171) (2,501,308) (7,672) 21,106,684
Changes in working capital items 1,243,483 1,512,372 (839,286) (1,967,183) (114,802) (97,488) (3,018,760) (8,338,533) (11,512,547)
Cash flows related to operating activities 1,203,751 (455,888) (1,182,954) (2,447,265) (964,190) (925,659) (5,520,067) (8,346,205) 9,594,138

Investing Activities
Purchases of property, plant and equipment - (6,520,161) (151,297) (29,207) - (400,000) (580,504) (9,500,000) (6,500,000)
Purchases of licenses and authorizations (1,200,000) (820,000) (20,000) 20,000 - - - - -
Purchases of short-term investments - - (1,000,000) 1,000,000 - - - - -
Cash flows related to investing activities (1,200,000) (7,340,161) (1,171,297) 990,793 - (400,000) (580,504) (9,500,000) (6,500,000)

Financing Activities
Financing facility drawdown - 5,123,963 - - - - - - -
Payments on behalf of ICC & other - 2,902,599 - - - - - - -
Settlement - (3,213,973) - - - - - - -
Net issuance (payments) of long-term debt - - - - - - - 10,000,000 -
Proceeds from warrant/options exercise - - - - - - - 4,554,536 -
Proceeds from issuance of common shares - 8,877,329 - 576,118 - 9,500,000 10,076,118 - -
Cash flows related to financing activities - 13,689,918 - 576,118 - 9,500,000 10,076,118 14,554,536 -

Net increase (decrease) in cash 3,751 5,893,869 (2,354,251) (880,354) (964,190) 8,174,341 3,975,547 (3,291,669) 3,094,138
Cash, beginning of period - 3,751 5,897,620 3,543,369 2,663,015 1,698,825 5,897,620 9,873,167 6,581,498
Cash, end of period 3,751 5,897,620 3,543,369 2,663,015 1,698,825 9,873,167 9,873,167 6,581,498 9,675,635

Source: Company reports, GMP estimates

29
 Equity Research

Disclosures
The information contained in this report is drawn from sources believed to be reliable but the accuracy or completeness of the information is not
guaranteed, nor in providing it does GMP Securities L.P. (“GMP”) assume any responsibility or liability whatsoever. Information on which this report is based
is available upon request. This report is not to be construed as a solicitation of an offer to buy or sell any securities. GMP and/or affiliated companies or
persons may as principal or agent, buy and sell securities mentioned herein, including options, futures or other derivative instruments thereon.

The superscript(s) following the issuer name(s) mentioned in this report refers to the company-specific disclosures below. If there is no such superscript,
then none of the disclosures are applicable and/or required.

Company-Specific Disclosures:
1 GMP has, within the previous 12 months, provided paid investment banking services or acted as underwriter to the issuer.
2 RESERVED
3 GMP owns 1% or more of this issuer’s securities.
4 GMP Securities, LLC (“GMP LLC”), an affiliate of GMP, discloses the following in relation to this issuer as required by the Financial Industry Regulatory
Authority (“FINRA”) Rule 2241: as applicable.
5 The analyst is related to an officer, director or advisory board member of this issuer, but that related individual has no influence in the preparation of this
report.
6 The analyst has viewed the operations of this issuer and the issuer paid all or a portion of the travel expenses associated with the analyst’s site visit to its
operations.
7 The analyst has viewed the operations of this issuer.
8 The analyst has a position in this issuer's securities.
9 A member of the Board of Directors of this issuer is also a member of the Board of Directors of GMP Capital Inc., but that individual had no influence in the
preparation of this report.
10 The analyst owns this issuer's securities in a managed account but has no involvement in the investment decisions for that managed account.

Each research analyst and associate research analyst who authored this document and whose name appears herein certifies that:
(1)the recommendations and opinions expressed in the research report accurately reflect their personal views about any and all of the securities or issuers
discussed herein that are within their coverage universe; and (2) no part of their compensation was, is or will be, directly or indirectly, related to the
provision of specific recommendations or views expressed herein.

GMP Analysts are not registered and/or qualified as research analysts with FINRA and may not be associated persons of GMP LLC and therefore may not be
subject to FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst
account as defined by FINRA but are subject to the applicable regulatory rules as mentioned below.

All relevant disclosures required by The Investment Industry Regulatory Organization of Canada (“IIROC”) Rule 3400, GMP’s recommendation statistics and
research dissemination policies can be obtained at www.gmpsecurities.com or by calling GMP’s Compliance Department.

GMP Analysts are compensated competitively based on several criteria. The Analyst compensation pool is comprised of several revenue sources, including
secondary trading commissions, new issue commissions, investment banking fees, and directed payments from institutional clients. GMP prohibits any
director, officer or employee of GMP from holding any office in publicly traded companies or any office in non-affiliated private companies in the financial
services industry.

The GMP research recommendation structure consists of the following ratings:

Buy: A Buy rating reflects 1) bullish conviction on the part of the analyst; and 2) typically a 15% or greater return to target.
Speculative Buy: A Speculative Buy rating reflects 1) bullish conviction on the part of the analyst accompanied by a substantially higher than normal risk,
including the possibility of a binary outcome; and 2) typically a 30% or greater return to target.
Hold: A Hold rating reflects 1) a lack of bullish or bearish conviction on the part of the analyst; and 2) typically a return of 0 to 20%.
Reduce: A Reduce rating reflects 1) bearish conviction on the part of the analyst; and 2) typically a 5% or lower return to target.
Tender: Clients are advised to tender their shares to a takeover bid or similar offer.

Country Specific Disclaimers:

Canada: GMP is a member of IIROC and a participant of the TSX, TSX Venture and the Montreal Exchange. 145 King Street West, Suite 300 Toronto, Ontario
M5H 1J8 Tel: (416) 367-8600 Fax: (416) 943-6134.
UK and Europe: This material is distributed by FirstEnergy Capital LLP to persons who are eligible counterparties or professional clients. FirstEnergy Capital
LLP is authorised and regulated by the Financial Conduct Authority. 85 London Wall, London, EC2M 7AD Tel: +44 (0)20 7448 0200
Other countries: circulation of this report may be restricted by laws and regulations in other countries and persons in receipt of this document must satisfy
any relevant legal requirements in that country.

© GMP. All rights reserved. Reproduction in whole or in part without permission is prohibited.

30
 Equity Research

Kinross Gold Corp.1,6 BUY

K-TSX
Last: C$5.38
October 5, 2017 ▲ Target: C$7.50

Tasiast site visit sees more value to come W h a t' s C h a n g e d O ld New

R a tin g BUY n .c.
T a rg e t C $7.20 C $7.50
This week, we had a chance to visit the Tasiast mine site and discuss the
G o l d P ro d u c t i o n 2 0 1 6 A ( k o z ) 2,789 n .c.
operation with management. Overall the site visit and discussions with the G o l d P ro d u c t i o n 2 0 1 7 E ( k o z ) 2,603 2,612
project and technical team gives us confidence that the company should G o l d P ro d u c t i o n 2 0 1 8 E ( k o z ) 2,695 2,583

successfully execute on both Phase I and II expansions. While on site, we

S h a re D a ta
viewed the Piment pit, West Branch pit and leach pad, and front end of the S h a re o / s ( m m , b a s i c / f . d . i t m ) 1,247/ 1,252
mill, all of which showed well. 52-w e e k h ig h /lo w C $6.29/ C $3.87
M a rk e t c a p ( m ) $5,377
Projects update; Tasiast progressing well EV (m ) $6,050
N e t d e b t (m ) $673
Tasiast Phase I (12,000 tpd) is ~70% complete and is expected to be P ro j e c t e d re t u rn 39%
operational by Q2/18. Capital costs for the project are trending lower than the N A V 5 % / s h a re $4.74
P / N A V 5% 0.91x
$300 mm estimate with none of the $50 mm contingency consumed to date.
Reserves did not change with the Phase II feasibility study but there is F i n a n c i a l D a ta
potential to upgrade some of the 3.1 Moz M&I resource if future operating YE D e c. 31 2016A 2017E 2018E
G o l d p ro d u c t i o n ( k o z ) 2,789 2,612 2,583
costs justify a lower cut-off grade.
C a sh co sts ($/ o z) $712 $682 $658
Cap e x (m ) $618 $826 $1,087
Operational optimization F re e c a s h f l o w ( m ) $469 -$10 $138
EP S $0.05 $0.10 $0.25
Mining costs at Tasiast have benefited from lower consumables and
CFPS $0.82 $0.74 $0.98
productivity while milling costs have decreased as a result of upgrades and P /E 78.6 42.0 17.2
increased availability in the crushing circuit. Over the last two years this has P /CF 5.3 5.9 4.4
E V / E B IT D A 5.8 5.4 4.0
allowed the mill to achieve a throughout of 8,500 tpd (an increase of 20%)
A ll f ig u re s in U S$ u n le s s o th e rw is e n o te d
despite a trend towards harder ore. The operation is on track for a slight beat
of its production budget with mining costs coming in lower than the first half of
the year.

Valuation and recommendation

Steven Butler (416) 943-6651
After incorporating the results of the Round Mountain Phase W and Tasiast sbutler@gmpsecurities.com
Phase II expansion study, our USD NAV5%/$1,350 Au increases to $4.74/sh from
Stephen Soock, P.Eng. (416) 941-0184
$4.57/sh previously. We now have a target of C$7.50/sh from C$7.20/sh and ssoock@gmpsecurities.com
maintain our P/NAV target multiple of 1.2x. The ramp up of Phase I by Q2/18 is
an important catalyst and any ongoing cost or productivity improvements will
position the shares for increased market valuation of the mine.

Prepared by GMP Securities L.P. See important disclosures on the last page of this report
 Equity Research

Tasiast ramp up on track

This week, we had a chance to visit the Tasiast mine site and had an opportunity to discuss the
operation with Kinross management. What we saw gives us confidence that the company should
successfully execute on both Phase I and II expansions.
Tasiast Phase I (12,000 tpd) is ~70% complete and is expected to be operational by Q2/18.
Specifically, it is advancing toward mechanical completion by February and 80% of incremental
production (12,000 - 8,000 tpd) is expected to be attained by mid-2018. Capital costs for the
project are trending lower than the $300mm estimate with none of the $50 mm contingency
consumed to date.
Figure 1. Tasiast Mill expansion production estimates

Source: Company presentation

While reserves did not change with the Phase II feasibility study, there is potential to upgrade a
portion of the 3.1 Moz M&I resource if future operating costs justify a lower cut-off grade. This
could convert lower grade in-pit ounces into economic material and/or justify a deeper pit. In
addition, Tasiast Sud represents potential additional mine life or incremental mill and heap leach
production. The official resource currently stands at 355 koz at Tamara with an additional 500 koz
potential in the C6.13 and C6.15 areas.
While at site, we had the chance to view the Piment pit, which contains some 600k oz grading 1.7
g/t at a strip ratio of 7:1. This material would be scheduled for back end of mine life or potentially
displaced by any better material from other sources including Tasiast Sud. We also saw the West
Branch pit which has gotten into more consistent ore in the past six months and the associated
dump leach. This portion of the operation represents upside to the company’s stated numbers as
much of this material has been mined outside reserve boundaries. On the processing side, we
toured the new primary crusher, reclaim area and SAG mill (all of which will be utilized in both
Phases I and II of mine plan).

2
 Equity Research

Figure 2. Tasiast site pictures - pit and mill construction

Source: Tasiast site visit

The ramp up of Phase I by Q2/18 is an important catalyst and any ongoing cost or productivity
improvements (including the delivery of Tasiast Sud prefeasibility study by mid-18) will position
the shares for increased market valuation of the mine.
Operational efficiencies have been substantial at the current operation at Tasiast. Mining costs
have benefitted largely from productivity improvements with some contribution from lower
consumables (fuel and blasting supplies). Milling costs have decreased as a result of upgrades and
increased availability in the crushing circuit, leading to a 20% increase in mill throughout (since
August 2015) to 8,500 tpd despite a trend towards harder ore. The operation is tracking modestly
above budget for 2017 based on tonnes mined/milled, grade and dump leach production. Mining
costs in September also appear to be tracking at or below H1/17 actuals (i.e. $1.97/tonne). We
expect Kinross to continue to eke out more of these efficiencies while the expansion activities
continue.

Tasiast valuation improves and sensitivity analysis to upside scenario

We have improved our Tasiast valuation for the benefit of lower life-of-mine mining and milling
costs in the feasibility study versus last year's PFS. Our 5%/$1,350 NPV has increased by 22% to
US$1.81 billion ($1.45/sh), worth 30% of consolidated NAV5%. We conducted a sensitivity analysis
on our updated model for potential future developments. In the first scenario, we modeled a
reserve addition of 1Moz which bumps our NAV5% by 1-2%. We also ran the model assuming the
mill operates at a 10% expanded capacity. This milling increase could increase our NAV5% by ~2%,
and combining both scenarios would produce a NAV5% increase of ~4%. The aforementioned
scenarios represent potential future additions and are not reflected in our current model.

3
 Equity Research

Round Mountain Phase W

We have also incorporated the results from the Round Mountain Phase W into our model. On an
incremental basis, it will extend the mine life by five years, producing 1.5 Moz from 2020-2024.
The project expansion produces an incremental IRR of >17% at $1,350/oz Au, however, the
expansion capital and capitalized stripping costs came in higher than we expected. Round
Mountain contributes 10% to our NAV5%/$1,350 Au.

Overall impact
Combining the effects of Round Mountain Phase W with Tasiast Phase I and II expansions
increases our USD NAV5%/$1,350 Au to $4.74/sh from $4.57/sh previously. We are increasing our
target to C$7.50/sh up from C$7.20/sh while maintaining our P/NAV target multiple of 1.2x and
CAD/USD assumption of 0.76.

4
 Equity Research

Kinross Gold Corp. (K:TSX, KGC:NYSE) Rating BUY Target C$7.50

Price US$ 4.31 Net Debt $ 673 mm
Sh O/S 1,247 mm EV $ 6,050 mm
Mkt Cap $ 5,377 mm Div Yld 0.00%

Metal Prices 2016a 2017e 2018e 2019e Reserves (P&P) YE15 YE16 % chg
Gold $/oz 1,250 1,240 1,350 1,350 Moz 33.2 31.0 -7%
Gold
Silv er $/oz 17.14 18.00 20.75 20.75 g/t 0.71 0.70 -2%
Production Summary Moz 41.0 37.4 -9%
Silv er
Au Production Moz 2.789 2.612 2.583 2.327 g/t 4.1 4.1 +0%
Total Cash Costs (by -product) $/oz Au 712 682 658 694 Resources (MI&Inf) YE15 YE16 % chg
AISC $/oz 984 942 903 944 Gold Moz 66.0 67.7 +3%
Silv er Moz 123.5 118.0 -4%
2016a 2017e 2018e 2019e
Income Statement US$mm NAV Summary $mm @5% $/share %
Rev enues 3,472 3,210 3,486 3,142 Paracatu, Brazil 1,937 $1.55 33%
EBITDA 1,036 1,127 1,516 1,336 Tasiast, Mauritania 1,813 $1.45 31%
Depreciation 870 859 983 958 Kupol, Russia 966 $0.77 16%
G&A 137 121 116 104 Round Mountain, NV 573 $0.46 10%
Ex ploration 94 95 95 85 Bald Mountain, NV 618 $0.49 10%
Interest (135) (103) (95) (95) Other Assets 616 $0.49 10%
Earnings Adj 69 129 312 205 Subtotal 6,523 $5.21 110%
Cash Flow (pre-WC) 1,015 920 1,225 1,094
Shares fully diluted mm 1,231 1,250 1,248 1,248 Working Capital 1,710 $1.37 29%
EPS Adj US$ 0.05 0.10 0.25 0.16 Total LT Debt (1,735) ($1.39) (29)%
CFPS Adj US$ 0.82 0.74 0.98 0.88 Other (569) ($0.45) (10)%
NAV 5,930 $4.74 100%
Cash Flow Statement US$mm
Operating 1,099 826 1,225 1,094 Production Outlook
Inv esting (1,270) (577) (1,087) (990) 2016a 2017e 2018e 2019e
Financing (48) (34) - - 3,000
Paracatu ## 398 476 $1,000
476
Net Cash (217) 216 138 104 Tasiast ## 232 306 301
Cash end of period 827 1,043 1,181 1,286 Kupol ## 578 537 445
Production (koz)

Total Cash Costs ($/oz)

Free Cash Flow 469 (10) 138 104 Round Mtn
2,000 ## 410 332 $800 332
Bald Mtn ## 247 281 189
Balance Sheet US$mm Other ## 747 650 584
Cash 827 1,043 1,181 1,286 Total cash costs ## 682 658 694
Total Debt 1,750 1,750 1,750 1,750 AISC1,000 ## 942 903 $600 944
Net Debt 923 707 569 465
Shareholders Equity 4,146 4,375 4,687 4,892
0 $400
Valuation Multiples 2016a 2017e 2018e 2019e
P/E 78.6 x 42.0 x 17.2 x 26.3 x Paracatu Tasiast
P/CF 5.3 x 5.9 x 4.4 x 4.9 x
Kupol Round Mtn
EV/EBITDA 5.8 x 5.4 x 4.0 x 4.5 x
Bald Mtn Other
Net Debt/EBITDA 0.9 x 0.6 x 0.4 x 0.3 x
P/NAV 5% ------------ 0.91 x ------------ Total cash costs AISC

Source: GMP estimates

5
 Equity Research

Disclosures
The information contained in this report is drawn from sources believed to be reliable but the accuracy or completeness of the information is not
guaranteed, nor in providing it does GMP Securities L.P. (“GMP”) assume any responsibility or liability whatsoever. Information on which this report is based
is available upon request. This report is not to be construed as a solicitation of an offer to buy or sell any securities. GMP and/or affiliated companies or
persons may as principal or agent, buy and sell securities mentioned herein, including options, futures or other derivative instruments thereon.

The superscript(s) following the issuer name(s) mentioned in this report refers to the company-specific disclosures below. If there is no such superscript,
then none of the disclosures are applicable and/or required.

Company-Specific Disclosures:
1 GMP has, within the previous 12 months, provided paid investment banking services or acted as underwriter to the issuer.
2 RESERVED
3 GMP owns 1% or more of this issuer’s securities.
4 GMP Securities, LLC (“GMP LLC”), an affiliate of GMP, discloses the following in relation to this issuer as required by the Financial Industry Regulatory
Authority (“FINRA”) Rule 2241: as applicable.
5 The analyst is related to an officer, director or advisory board member of this issuer, but that related individual has no influence in the preparation of this
report.
6 The analyst has viewed the operations of this issuer and the issuer paid all or a portion of the travel expenses associated with the analyst’s site visit to its
operations.
7 The analyst has viewed the operations of this issuer.
8 The analyst has a position in this issuer's securities.
9 A member of the Board of Directors of this issuer is also a member of the Board of Directors of GMP Capital Inc., but that individual had no influence in the
preparation of this report.
10 The analyst owns this issuer's securities in a managed account but has no involvement in the investment decisions for that managed account.

Each research analyst and associate research analyst who authored this document and whose name appears herein certifies that:
(1)the recommendations and opinions expressed in the research report accurately reflect their personal views about any and all of the securities or issuers
discussed herein that are within their coverage universe; and (2) no part of their compensation was, is or will be, directly or indirectly, related to the
provision of specific recommendations or views expressed herein.

GMP Analysts are not registered and/or qualified as research analysts with FINRA and may not be associated persons of GMP LLC and therefore may not be
subject to FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst
account as defined by FINRA but are subject to the applicable regulatory rules as mentioned below.

All relevant disclosures required by The Investment Industry Regulatory Organization of Canada (“IIROC”) Rule 3400, GMP’s recommendation statistics and
research dissemination policies can be obtained at www.gmpsecurities.com or by calling GMP’s Compliance Department.

GMP Analysts are compensated competitively based on several criteria. The Analyst compensation pool is comprised of several revenue sources, including
secondary trading commissions, new issue commissions, investment banking fees, and directed payments from institutional clients. GMP prohibits any
director, officer or employee of GMP from holding any office in publicly traded companies or any office in non-affiliated private companies in the financial
services industry.

The GMP research recommendation structure consists of the following ratings:

Buy: A Buy rating reflects 1) bullish conviction on the part of the analyst; and 2) typically a 15% or greater return to target.
Speculative Buy: A Speculative Buy rating reflects 1) bullish conviction on the part of the analyst accompanied by a substantially higher than normal risk,
including the possibility of a binary outcome; and 2) typically a 30% or greater return to target.
Hold: A Hold rating reflects 1) a lack of bullish or bearish conviction on the part of the analyst; and 2) typically a return of 0 to 20%.
Reduce: A Reduce rating reflects 1) bearish conviction on the part of the analyst; and 2) typically a 5% or lower return to target.
Tender: Clients are advised to tender their shares to a takeover bid or similar offer.

Country Specific Disclaimers:

Canada: GMP is a member of IIROC and a participant of the TSX, TSX Venture and the Montreal Exchange. 145 King Street West, Suite 300 Toronto, Ontario
M5H 1J8 Tel: (416) 367-8600 Fax: (416) 943-6134.
UK and Europe: This material is distributed by FirstEnergy Capital LLP to persons who are eligible counterparties or professional clients. FirstEnergy Capital
LLP is authorised and regulated by the Financial Conduct Authority. 85 London Wall, London, EC2M 7AD Tel: +44 (0)20 7448 0200
Other countries: circulation of this report may be restricted by laws and regulations in other countries and persons in receipt of this document must satisfy
any relevant legal requirements in that country.

© GMP. All rights reserved. Reproduction in whole or in part without permission is prohibited.

6
 Equity Research

K-Bro Linen Inc.1,7 BUY

KBL-TSX
Last: C$38.73
October 5, 2017 Target: C$50.00
New Toronto facility impresses with 25% What’s Changed Old New
Rating BUY n.c.
increased productivity and capacity to expand Target C$50.00 n.c.
Revenue F2017E (mm) $166.3 n.c.
Revenue F2018E (mm) $183.3 n.c.
Plant at only 60% capacity as K-Bro looks to fulfill EPS f.d. F2017E $1.09 n.c.
EPS f.d. F2018E $1.43 n.c.
We attended a tour today at K-Bro's new Toronto plant, which follows
another tour at the Edmonton plant earlier this year. We continue to be Share Data
impressed with the quality of operations and strength in the business. K- Share o/s (mm, f.d.) 9.5 / 9.5
52-week high/low 45.0 / 36.7
Bro is positioned well to capture additional business in the GTA market, Market cap (mm) $388.0
which will contribute greater profit as operations scale. There also exists Enterprise value (mm) $420.4
Dividend $1.20
consolidation opportunities as smaller competitors struggle to survive with
Dividend yield 2.9%
higher cost structures and less efficient operations. K-Bro has plenty of Projected return 26%
debt capacity to acquire with a recent equity raise. Key highlights:
Financial Data
25% increased productivity at plant: This is accomplished through greater FYE Dec. 31 2016 2017E 2018E
Revenue (mm) $159.1 $166.3 $183.3
automation, 50% less water usage and 10% lower electrical consumption. EV/Revenue 2.3x 2.2x 2.0x
EBITDA (mm) $28.2 $27.3 $33.5
K-Bro now has the lowest cost structure in the GTA: Competitors simply do EV/EBITDA 12.9x 13.3x 10.8x
not have the volume to justify large capital purchases that enables K-Bro to EPS f.d. $1.44 $1.09 $1.43
have significantly more efficient operations. K-Bro can offer quality service at P/E 26.9x 35.6x 27.2x
FCFPS -$1.73 -$1.83 $0.34
a lower price than competitors but still make more money. Closest P/FCF nm nm 113.2x
competitor, Booth Centennial has a 20 year old plant and much higher costs. Net debt $25.8 ($1.9) $6.3
Net debt/EBITDA 0.9x nm 0.2x
New hospitality wins are likely in the near term: K-Bro is receiving several Book value $116.7 $172.9 $176.7
P/BV 3.2x 2.1x 2.1x
inbound calls to supply services for new hospitality customers. K-Bro is
being selective and was focused on plant efficiency first but will now change All figures in CDN$ unless otherwise noted
to a sales focus. We expect to see new wins in Q4/2017 and Q1/2018.
Healthcare organic growth is expected to be strong: Ontario is dealing with
a crisis bed shortage, described by government officials as the occupancy
rate approaches 100% with an aging population. K-Bro’s contacts are
volume based and it benefits as more beds are added through expansion.
Justin Keywood, CFA (416) 943-6658
Distribution at hospitals could add revenue: K-Bro offers porter functions jkeywood@gmpsecurities.com

to its hospital customers for linens, which could save 10-50% of costs in this Ruben Sahakyan, CFA (416) 941-0895
area. This offering also enables K-Bro to boost customer relationships and rsahakyan@gmpsecurities.com
it’s not offered by competitors. Unions might present an obstacle here.
Last quarter: K-Bro reported improved Q2/F17 results with in-line revenue
but better profitability than expected. Revenue was up 2.6% YoY. Adj.
EBITDA was strong at 19.5% margin and above our estimate at 17%.
Rating: $50.00 target is unchanged and based on 13.5x F2018 EBITDA. BUY.
Prepared by GMP Securities L.P. See important disclosures on the last page of this report
 Equity Research

Disclosures
The information contained in this report is drawn from sources believed to be reliable but the accuracy or completeness of the information is not
guaranteed, nor in providing it does GMP Securities L.P. (“GMP”) assume any responsibility or liability whatsoever. Information on which this report is based
is available upon request. This report is not to be construed as a solicitation of an offer to buy or sell any securities. GMP and/or affiliated companies or
persons may as principal or agent, buy and sell securities mentioned herein, including options, futures or other derivative instruments thereon.

The superscript(s) following the issuer name(s) mentioned in this report refers to the company-specific disclosures below. If there is no such superscript,
then none of the disclosures are applicable and/or required.

Company-Specific Disclosures:
1 GMP has, within the previous 12 months, provided paid investment banking services or acted as underwriter to the issuer.
2 RESERVED
3 GMP owns 1% or more of this issuer’s securities.
4 GMP Securities, LLC (“GMP LLC”), an affiliate of GMP, discloses the following in relation to this issuer as required by the Financial Industry Regulatory
Authority (“FINRA”) Rule 2241: as applicable.
5 The analyst is related to an officer, director or advisory board member of this issuer, but that related individual has no influence in the preparation of this
report.
6 The analyst has viewed the operations of this issuer and the issuer paid all or a portion of the travel expenses associated with the analyst’s site visit to its
operations.
7 The analyst has viewed the operations of this issuer.
8 The analyst has a position in this issuer's securities.
9 A member of the Board of Directors of this issuer is also a member of the Board of Directors of GMP Capital Inc., but that individual had no influence in the
preparation of this report.
10 The analyst owns this issuer's securities in a managed account but has no involvement in the investment decisions for that managed account.

Each research analyst and associate research analyst who authored this document and whose name appears herein certifies that:
(1)the recommendations and opinions expressed in the research report accurately reflect their personal views about any and all of the securities or issuers
discussed herein that are within their coverage universe; and (2) no part of their compensation was, is or will be, directly or indirectly, related to the
provision of specific recommendations or views expressed herein.

GMP Analysts are not registered and/or qualified as research analysts with FINRA and may not be associated persons of GMP LLC and therefore may not be
subject to FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst
account as defined by FINRA but are subject to the applicable regulatory rules as mentioned below.

All relevant disclosures required by The Investment Industry Regulatory Organization of Canada (“IIROC”) Rule 3400, GMP’s recommendation statistics and
research dissemination policies can be obtained at www.gmpsecurities.com or by calling GMP’s Compliance Department.

GMP Analysts are compensated competitively based on several criteria. The Analyst compensation pool is comprised of several revenue sources, including
secondary trading commissions, new issue commissions, investment banking fees, and directed payments from institutional clients. GMP prohibits any
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services industry.

The GMP research recommendation structure consists of the following ratings:

Buy: A Buy rating reflects 1) bullish conviction on the part of the analyst; and 2) typically a 15% or greater return to target.
Speculative Buy: A Speculative Buy rating reflects 1) bullish conviction on the part of the analyst accompanied by a substantially higher than normal risk,
including the possibility of a binary outcome; and 2) typically a 30% or greater return to target.
Hold: A Hold rating reflects 1) a lack of bullish or bearish conviction on the part of the analyst; and 2) typically a return of 0 to 20%.
Reduce: A Reduce rating reflects 1) bearish conviction on the part of the analyst; and 2) typically a 5% or lower return to target.
Tender: Clients are advised to tender their shares to a takeover bid or similar offer.

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2
 Equity Research

TransGlobe Energy Corporation BUY

TGL-TSX
Last: $1.80
October 5, 2017 Target: C$4.00

TransGlobe continues to trade at inexpensive Rating & target

Rating
Old
BUY
New
n.c.
valuation metrics Target
Dividend yield
$4.00 n.c.
0%
Total project return 122%
Since mid-September 2017, TransGlobe’s stock price has appreciated Share Data 2016 2017e 2018e
35% from its historic lows. The company continues to trade at a Shares dil., mm 75 75 75
Mkt Cap, US$mm $127 $109 $110
discount to many of its international E&P company peers. EV, US$mm $144 $137 $143
TransGlobe has near-term catalysts, which if successful, would Financial Data 2016 2017e 2018e
Liquids, bbl/d 12,067 15,044 15,258
continue to provide positive momentum to the stock price. In Egypt, Gas, mmcf/d 0.2 7.2 8.1
the Boraq 2 well is currently in testing, and will be followed by the Total boe/d (6:1) 12,105 16,250 16,600
Boraq 5 well. In Canada, the company is drilling and completing three CFO, US$mm -$14 $35 $47
Cardium wells. Preliminary results could be available with the 3Q17e Net Capex, US$mm $74 $41 $50
Net Debt, US$mm $17 $28 $33
operational update and financials.
CFPS dil., US$/shr -$0.18 $0.47 $0.62
TransGlobe management is evaluating a London listing, which could EPS dil., US$/shr -$1.18 -$0.96 $0.04
potentially expose the company to new investors into the stock. Valuation 2016 2017e 2018e
EV/DACF n.a. 3.4x 2.8x
Since September 15, 2017 and the company’s stock price low of C$1.33 per Target EV/DACF n.a. 6.7x 5.4x
EV per boe/d $11,867 $8,414 $8,589
share, TransGlobe’s share price has appreciated 34%. While this is no doubt
Net asset value
strong performance, TransGlobe continues to trade at a discount to its CNAV, $/shr $3.89
international E&P company peers. RENAV, $/shr $4.13
ENAV, $/shr $4.23
In Egypt, TransGlobe has worked over and is currently testing the Boraq 2 P/CNAV 0.5x
discovery well, which previously tested at approximately 1,600 bbl/d from P/RENAV 0.4x
two zones. Following Boraq 2 well operations, the company will drill and test P/ENAV 0.4x
All figures in C$ unless otherwise noted
the Boraq 5 well. We expect a field development plan to be submitted in the
near term followed by first commercial production in early 2018e. There are
three additional permitted wells, as well as exploration prospects on the
South Alamein Concession that could potentially be drilled in 2018e, which
Darren B. Engels, CA, CFA (403) 262-0689
we currently do not value. dbengels@gmpfirstenergy.com

In Canada, TransGLobe is drilling and completing three Cardium wells from

the same well pad. First production from the three wells is imminent.

Recommendation: BUY and target price of C$4.00 per share

Our target price of C$4.00 per share is based on our risked NAV estimate of
C$4.13 per share. We reiterate our BUY rating given that TransGlobe
continues to trade at a steep discount to its peer group, as evidenced in the
following charts.

Prepared by GMP Securities L.P. See important disclosures on the last page of this report
 Equity Research

Figure 1. Financial & operating information

TransGlobe Energy Corporation @ Futures Strip**
Financial & Operating Information 2015 2016 2017e 2018e 2017e 2018e
Commodity Prices
Brent US$/bbl $53.62 $45.09 $53.30 $59.51 $53.63 $55.96
WTI US$/bbl $48.77 $43.41 $50.03 $56.01 $50.01 $51.93
UK NBP US$/mcf $6.53 $4.66 $5.65 $6.04 $5.74 $6.05
USD/CAD US$/C$ 0.78 0.76 0.78 0.80 $0.78 0.80
GBP / USD £/US$ 1.53 1.35 1.30 1.36 1.296 1.36
Production
Oil and Liquids bbl/d 14,511 12,067 15,044 15,258 15,044 15,258
Natural Gas mmcf/d 0.0 0.2 7.2 8.1 7.2 8.1
Total (6 mcf = 1 boe) boe/d 14,511 12,105 16,250 16,600 16,250 16,600
% Oil and Liquids % 100% 100% 93% 92% 93% 92%
Netbacks
Realized Price US$/boe $35.43 $27.62 $37.81 $42.69 $37.87 $39.74
Royalties US$/boe $18.02 $13.37 $16.34 $18.28 $16.41 $17.03
Production & Transport Costs US$/boe $10.81 $9.30 $8.82 $9.03 $8.82 $9.03
Operating Netback US$/boe $6.47 $4.73 $12.67 $15.39 $12.53 $13.68
Taxes US$/boe $4.81 $3.49 $3.64 $3.95 $3.66 $3.72
Cash Flow Netback US$/boe ($2.70) ($3.09) $5.90 $7.73 $5.74 $6.25
Government Take % 64% 61% 53% 52% 53% 52%
Financials
Cash Flow (CFO) US$mm ($14) ($14) $35 $47 $34 $38
CFPS - diluted US$/shr ($0.19) ($0.18) $0.47 $0.62 $0.45 $0.50
EBITDAX a US$mm $17 $8 $62 $75 $61 $65
E&D Capex US$mm $44 $26 $41 $50 $41 $50
A&D Capex,Net US$mm ($2) $48 $0 $0 $0 $0
Total Net Capex US$mm $43 $74 $41 $50 $41 $50
E&D Capex/CFO x -3.1x -1.9x 1.2x 1.1x 1.2x 1.3x
Leverage
Net Debt US$mm ($90) $17 $28 $33 $29 $43
Net debt/CFO (Trailing) x n.a. -1.2x 0.8x 0.7x 0.9x 0.9x
Entry Net Debt/CFO x n.a. n.a. 0.5x 0.6x 0.5x 0.8x
Capital Structure
Basic Shares o/s @ YE mm 72 72 72 72 72 72
Diluted Shares o/s @ YE mm 74 75 75 75 75 75
Market Capitalization US$mm $139 $127 $109 $110 $107 $107
Enterprise Value US$mm $49 $144 $137 $143 $136 $150
Dividends & Sustainability
Dividends US$mm $13 $0 $0 $0 $0 $0
Dividends $/shr $0.17 $0.00 $0.00 $0.00 $0.00 $0.00
Dividend Yield % 7% 0% 0% 0% 0% 0%
Free Cash Flow US$mm ($70) ($88) ($6) ($3) ($7) ($12)
Cash Use/CFO % n.a. n.a. 118% 107% 122% 132%
Performance
Prod. Per Shr Growth (Y/Y) - dil. % -7% -15% 33% 2% 33% 2%
PPS Growth (Y/Y) DDA - dil. b % 23% -70% 19% -1% 18% -7%
CFPS Growth (Y/Y) - dil. % -112% -3% n.a. 33% n.a. 11%
CFPS Growth (Y/Y) DDA - dil. b % -116% n.a. n.a. 30% n.a. 2%
ROCE % -20% -20% -20% 1% -20% -3%
Net Asset Value c

CNAV - diluted $/shr $2.31 $4.83 $3.89 $3.87

TransGlobe is trading at RENAV - diluted $/shr $2.40 $5.16 $4.13 $4.03
ENAV - diluted $/shr $2.61 $5.30 $4.23 $4.09
a 2018e DACF multiple P/CNAV % 109% 47% 46% 47%
of 2.8x (3.5x strip on P/RENAV % 105% 44% 44% 45%
strip pricing), versus the P/ENAV % 96% 43% 43% 44%
MENA group average of Valuation
Share Price, YE/Current $/shr $2.51 $2.27 $1.80 $1.80 $1.80 $1.80
2.6x (2.9x on strip P/CF x n.a. n.a. 3.9x 2.9x 3.9x 3.5x
pricing) and our entire EV/DACF x n.a. n.a. 3.4x 2.8x 3.4x 3.5x
international universe Target EV/DACF x n.a. n.a. 6.7x 5.4x 6.8x 6.7x
EV per boe/d US$/boepd 3,362 11,867 8,414 8,589 8,388 9,040
average of 4.1x (4.5x on EV per 2P boe US$/boe 1.70 2.87 2.74 2.73
strip pricing). EV per 2P boe, with FDC US$/boe 2.72 5.67 5.54 5.53
a)
EBITDAX = Pre-Int. & Pre-Tax Cash Flow; b) DDA = Debt-and-Dividend-Adjusted
c)
CNAV incl. 2P reserves, RENAV incl. 2P reserves + risked exploration upside, ENAV incl. 2P reserves + unrisked exploration upside
**Futures strip as of 29-Sep-17

Source: GMP FirstEnergy, Company disclosures

2
 Equity Research

Figure 2. Core and Risked NAV estimate

TransGlobe Energy
Core and Risked NAV
GMP FE Price Deck Strip Pricing
Financial C$mm C$/share C$mm C$/share
Cash 12 0.16 11 0.15
Working capital 69 0.92 68 0.91
Long-term debt -104 -1.39 -104 -1.39
Net debt -35 -0.47 -36 -0.48
Decommissioning liabilities -16 -0.21 -16 -0.21
Reserves mmboe C$/boe C$mm C$/share C$/boe C$mm C$/share
Egypt
PDP reserves 13 10.68 138 1.83 10.68 138 1.83
1P reserves 18 10.33 188 2.50 10.33 188 2.50
2P reserves 29 9.71 283 3.76 9.71 283 3.76

TransGlobe is trading at Canada

PDP reserves 7 7.16 47 0.63 7.16 47 0.63
a price to core NAV ratio
1P reserves 12 2.20 26 0.34 2.20 26 0.34
of 46%, versus the 2P reserves 21 2.90 60 0.80 2.90 60 0.80
MENA group average of Core NAV 292 3.89 291 3.87
111% and our entire
Risked Exploration Potential
international universe of Recoverable Resource NPV NPV
109%. Gross Net Net
Unrisked Unrisked Risked
WI % COS % mmbbl mmbbl mmbbl C$/boe C$mm C$/share C$/boe C$mm C$/share
Western Desert, South Alamein
Boraq structure 100% 70% 6 6 4 4.63 18 0.24 2.97 12 0.15
Risked NAV 310 4.13 302 4.03
Unrisked NAV 318 4.23 307 4.09

Source: GMP FirstEnergy, Company disclosures

Figure 3. TransGlobe Energy’s stock price performance

TransGlobe Energy Stock Price Performance

$3.00 $70.00

$60.00
$2.50
TransGlobe YTD
performance is -21%, $50.00
TransGlobe Energy (C$/share)

and the stock has $2.00

disconnected to Brent.
Brent oil (US$/bbl)

Over the past month, $40.00

the stock has returned $1.50

13, but continues to $30.00
trade at a discount to its
international E&P peers. $1.00
$20.00
.

$0.50
$10.00

$0.00 $0.00
1/1/2017

2/1/2017

3/1/2017

4/1/2017

5/1/2017

6/1/2017

7/1/2017

8/1/2017

9/1/2017

10/1/2017

GMP FirstEnergy, Bloomberg TransGlobe Energy Brent crude oil

Source: GMP FirstEnergy, Company disclosures

3
 Equity Research

Figure 4. Price to core NAV ratios

Price to core NAV ratio Price to core NAV ratio
GMP FirstEnergy Price Deck Strip Pricing
225% 500%
897%
200% 450%

400%
175%

350%
150%

300%
125%
250%
100%
200%

75%
150%

50%
100%

25% 50%

0% 0%
TGL

Average

Average

Average

Average

Average

Average

TGL

Average

Average

Average

Average

Average

Average
Min

Max

Min

Max

Min

Max

Min

Max

Min

Max

Min

Max

Min

Max

Min

Max

Min

Max

Min

Max

Min

Max

Min

Max
Source: GMP FirstEnergy
Africa MENA Europe FSU SE Asia South America Source: GMP FirstEnergy
Africa MENA Europe FSU SE Asia South America

Source: GMP FirstEnergy, Company disclosures

Figure 5. Price to risked NAV ratios

Price to risked NAV ratio Price to risked NAV ratio
GMP FirstEnergy Price Deck Strip Pricing
150% 300%

275%

125% 250%

225%

100% 200%

175%

75% 150%

125%

50% 100%

75%

25% 50%

25%

0% 0%
TGL

Average

Average

Average

Average

Average

Average
Min

Max

Min

Max

Min

Max

Min

Max

Min

Max

Min

Max

TGL

Average

Average

Average

Average

Average

Average
Min

Max

Min

Max

Min

Max

Min

Max

Min

Max

Min

Max
Source: GMP FirstEnergy
Africa MENA Europe FSU SE Asia South America Africa MENA Europe FSU SE Asia South America
Source: GMP FirstEnergy

Source: GMP FirstEnergy, Company disclosures

Based on the GMP FirstEnergy price deck, for TransGlobe to trade at the average price to core
NAV ratio of 109% for the entire international coverage universe, the company’s stock would
need to increase 136% to C$4.24 per share.
Based on strip pricing, for TransGlobe to trade at the average price to core NAV ratio of 177% for
the entire international coverage universe, the company’s stock would need to increase 281% to
C$6.85 per share. Conversely, the core NAV could theoretically decrease to approximately
C$1.00 per share for TransGlobe to come in line with the sector average price to core NAV ratio.
At C$1.00 per share, the market would be valuing the company’s 2P reserves at approximately
US$0.64/boe, versus currently valuing the reserves at US$2.73/boe.

4
 Equity Research

Figure 6. 2018e EV/DACF multiples

2018e EV/DACF Multiple 2018e EV/DACF Multiple

GMP FirstEnergy Price Deck Strip Pricing
10.0 10.0

9.0 9.0

8.0 8.0

7.0 7.0

6.0 6.0

5.0 5.0

4.0 4.0

3.0 3.0

2.0 2.0

1.0 1.0

0.0 0.0
TGL

Average

Average

Average

Average

Average

Average

TGL

Average

Average

Average

Average

Average

Average
Min

Max

Min

Max

Min

Max

Min

Max

Min

Max

Min

Max

Min

Max

Min

Max

Min

Max

Min

Max

Min

Max

Min

Max
Source: GMP FirstEnergy
Africa MENA Europe FSU SE Asia South America Source: GMP FirstEnergy
Africa MENA Europe FSU SE Asia South America

Source: GMP FirstEnergy, Company disclosures

Figure 7. 2018e EV per boe/d

2018e EV per boe/d 2018e EV per boe/d
GMP FirstEnergy Price Deck Strip Pricing
100,000 100,000

90,000 90,000

80,000 80,000

70,000 70,000

60,000 60,000

50,000 50,000

40,000 40,000

30,000 30,000

20,000 20,000

10,000 10,000

0 0
Average
TGL

Average

Average

Average

Average

Average
Min

Max

Min

Max

Min

Max

Min

Max

Min

Max

Min

Max

Average
TGL

Average

Average

Average

Average

Average
Min

Max

Min

Max

Min

Max

Min

Max

Min

Max

Min

Max
Africa MENA Europe FSU SE Asia South America MENA
Source: GMP FirstEnergy
Source: GMP FirstEnergy
Africa Europe FSU SE Asia South America

Source: GMP FirstEnergy, Company disclosures

Based on the GMP FirstEnergy price deck, TransGlobe is trading at a 2018e DACF multiple of 2.8x,
versus the MENA group average of 2.6x and the entire international universe average of 4.1x.
TransGlobe is trading in line with the MENA group. However, the company’s weighting to Canada
In relation to our
international coverage (17% of production, 42% of 2P reserves) could potentially indicate a premium valuation is
universe, TransGlobe warranted, given the perception of less geopolitical risk in Canada. For TransGlobe to trade at
offers investors greater the average 2018e DACF multiple of 4.1x, the stock price would need to increase to
upside potential, versus approximately C$3.00 per share, which implies a 64% return from the current trading level.
downside risk on both
the GMP FirstEnergy Based on strip pricing, TransGlobe is trading at a 2018e DACF multiple of 3.5x, versus the MENA
price deck and strip group average of 2.9x and the entire international coverage universe average of 4.5x. TransGlobe
pricing.
stock would need to increase 36% to C$2.45 per share to trade at the average 2018e DACF
multiple of 4.5x on strip pricing.

5
 Equity Research

Figure 8. Quarter information

Quarterly Info^ 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17e 4Q17e 1Q18e 2Q18e 3Q18e 4Q18e
Liquids, bbl/d 14,886 15,064 14,683 13,426 12,058 11,472 11,733 12,998 15,551 15,266 14,860 14,512 15,771 15,445 15,084 14,744
Gas, mmcf/d 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.9 7.1 7.2 7.3 7.4 7.5 7.9 8.2 8.6
Total, boe/d 14,886 15,064 14,683 13,426 12,058 11,472 11,733 13,151 16,731 16,464 16,074 15,745 17,024 16,758 16,456 16,172
CFO, US$mm ($5) $6 ($3) ($13) ($4) $1 $1 ($11) $1 $15 $8 $11 $11 $11 $12 $13
CFPS dil., US$/shr ($0.06) $0.08 ($0.04) ($0.17) ($0.06) $0.01 $0.01 ($0.15) $0.01 $0.20 $0.10 $0.15 $0.15 $0.15 $0.16 $0.17
E&D Capex, US$mm $14 $22 $4 $5 $4 $5 $9 $9 $11 $8 $13 $10 $13 $13 $13 $13
A&D Net, US$mm $0 $0 $0 ($2) $0 $0 $0 $48 $0 $0 $0 $0 $0 $0 $0 $0
Net Capex, US$mm $14 $22 $4 $3 $4 $5 $9 $57 $11 $8 $13 $10 $13 $13 $13 $13
Net Debt, US$mm ($142) ($104) ($101) ($90) ($75) ($65) ($53) $17 $35 $23 $29 $28 $30 $32 $33 $33
*Bank Debt & Working Capital Deficit, $mm ^For annual estimates see the FinOp table on page 2

Source: GMP FirstEnergy, Company disclosures

Figure 9. Commodity price scenarios

Low Mid-Low Mid-High High
C$, before royalties, unless noted 2017e 2018e 2017e 2018e 2017e 2018e 2017e 2018e
Commodity Prices
Brent US$/bbl 46.83 30.00 49.35 40.00 51.87 50.00 54.39 60.00
WTI US$/bbl 44.48 30.00 47.00 40.00 49.52 50.00 52.04 60.00
Edmonton Light C$/bbl 57.02 42.02 59.84 53.22 62.28 62.89 64.40 71.32
Henry Hub US$/mcf 2.79 2.00 2.91 2.50 3.04 3.00 3.16 3.50
Aeco C$/mcf 2.20 2.12 2.32 2.62 2.43 3.05 2.53 3.43
USD/CAD US$/C$ 0.73 0.63 0.74 0.68 0.76 0.73 0.77 0.78
Key Financial & Operating Information
Total Production (6 mcf: 1 boe) boe/d 16,250 16,600 16,250 16,600 16,250 16,600 16,250 16,600
Operating Netback US$/boe 12.18 7.48 11.82 11.66 12.14 13.41 12.54 15.69
Cash Flow (CFO) US$mm 35 11 31 32 32 39 34 48
CFPS, dil. US$/shr 0.46 0.14 0.42 0.43 0.43 0.52 0.45 0.65
EBITDAX US$mm 59 27 57 53 59 63 61 77
Net Capex US$mm 41 50 41 50 41 50 41 50
a
Cash Use/Cash Flow % 120% 462% 132% 156% 128% 129% 123% 103%
Net Debt US$mm 29 69 32 51 31 44 29 32
Net Debt/Cash Flow (Trailing) x 0.8 6.4 1.0 1.6 0.9 1.1 0.9 0.7
DACF Multiple
b
EV/DACF x 2.8 10.1 3.3 3.9 3.4 3.3 3.4 2.6
b
Target EV/DACF x 5.4 16.9 6.4 7.0 6.6 6.1 6.7 5.0
a) 'Cash Use' Net of any DRIP; b) Current Share Price at 3-Oct: $1.78; Target Price: $4.00; * Go-forward price deck scenarios for current year are equal to the price deck shown for Year 2
See page 2 for metrics at FirstEnergy's price deck and the Futures strip

Source: GMP FirstEnergy, Company disclosures

6
 Equity Research

Disclosures
GMP FirstEnergy is a trade name and division of GMP Securities L.P. (“GMP”), and a trade name of FirstEnergy Capital LLP (together with GMP referred to as
“GMP/FirstEnergy”).
The information contained in this report is drawn from sources believed to be reliable but the accuracy or completeness of the information is not
guaranteed, nor in providing it does GMP/FirstEnergy assume any responsibility or liability whatsoever. Information on which this report is based is available
upon request. This report is not to be construed as a solicitation of an offer to buy or sell any securities. GMP/FirstEnergy and/or affiliated companies or
persons may as principal or agent, buy and sell securities mentioned herein, including options, futures or other derivative instruments thereon.

The superscript(s) following the issuer name(s) mentioned in this report refers to the company-specific disclosures below. If there is no such superscript,
then none of the disclosures are applicable and/or required.

Company-Specific Disclosures:
1 GMP/FirstEnergy has, within the previous 12 months, provided paid investment banking services or acted as underwriter to the issuer.
2 RESERVED
3 GMP/FirstEnergy owns 1% or more of this issuer’s securities.
4 GMP Securities, LLC (“GMP LLC”), an affiliate of GMP/FirstEnergy, discloses the following in relation to this issuer as required by the Financial Industry
Regulatory Authority (“FINRA”) Rule 2241: as applicable.
5 The analyst is related to an officer, director or advisory board member of this issuer, but that related individual has no influence in the preparation of this
report.
6 The analyst has viewed the operations of this issuer and the issuer paid all or a portion of the travel expenses associated with the analyst’s site visit to its
operations.
7 The analyst has viewed the operations of this issuer.
8 The analyst and/or a member of their household has a position in this issuer's securities.
9 A member of the Board of Directors of this issuer is also a member of the Board of Directors of GMP Capital Inc., but that individual had no influence in
the preparation of this report.
10 The analyst owns this issuer's securities in a managed account but has no involvement in the investment decisions for that managed account.

Each research analyst and associate research analyst who authored this document and whose name appears herein certifies that:
(1) the recommendations and opinions expressed in the research report accurately reflect their personal views about any and all of the securities or issuers
discussed herein that are within their coverage universe; and (2) no part of their compensation was, is or will be, directly or indirectly, related to the
provision of specific recommendations or views expressed herein.

GMP/FirstEnergy Analysts are not registered and/or qualified as research analysts with FINRA and may not be associated persons of GMP LLC and therefore
may not be subject to FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research
analyst account as defined by FINRA but are subject to the applicable regulatory rules as mentioned below.

All relevant disclosures required by regulatory rules (including The Investment Industry Regulatory Organization of Canada, and Financial Conduct
Authority), GMP/FirstEnergy’s recommendation statistics and research dissemination policies can be obtained at www.gmpsecurities.com or by calling
GMP’s Compliance Department.

GMP/FirstEnergy Analysts are compensated competitively based on several criteria. The Analyst compensation pool is comprised of several revenue
sources, including secondary trading commissions, new issue commissions, investment banking fees, and directed payments from institutional clients.

The GMP/FirstEnergy research recommendation structure consists of the following ratings:

Buy: A Buy rating reflects 1) bullish conviction on the part of the analyst; and 2) typically a 15% or greater return to target.
Speculative Buy: A Speculative Buy rating reflects 1) bullish conviction on the part of the analyst accompanied by a substantially higher than normal risk,
including the possibility of a binary outcome; and 2) typically a 30% or greater return to target.
Hold: A Hold rating reflects 1) a lack of bullish or bearish conviction on the part of the analyst; and 2) typically a return of 0 to 20%.
Reduce: A Reduce rating reflects 1) bearish conviction on the part of the analyst; and 2) typically a 5% or lower return to target.
Tender: Clients are advised to tender their shares to a takeover bid or similar offer.

Country Specific Disclaimers:

Canada: GMP is a member of IIROC and a participant of the TSX, TSX Venture and the Montreal Exchange. 145 King Street West, Suite 300 Toronto, Ontario
M5H 1J8 Tel: (416) 367-8600 Fax: (416) 943-6134.
UK and Europe: This material is distributed by FirstEnergy Capital LLP to persons who are eligible counterparties or professional clients. FirstEnergy Capital
LLP is authorised and regulated by the Financial Conduct Authority. 85 London Wall, London, EC2M 7AD Tel: +44 (0)20 7448 0200
Other countries: circulation of this report may be restricted by laws and regulations in other countries and persons in receipt of this document must satisfy
any relevant legal requirements in that country.

© GMP. All rights reserved. Reproduction in whole or in part without permission is prohibited.

7
 Equity Research
Energy Services October 5, 2017

Weekly Western Canadian Rig Activity

Figure 1. Current and comparable periods Figure 2. Most active operators

Current and comparable periods Most active operators

Operator Rigs
Oil Gas Other % Gas Total Total Total %
Active Down Rigs Active TOU 14
03-Oct-17 82 94 21 48% 197 437 634 31% CPG 10
26-Sep-17 93 93 14 47% 200 434 634 32% PEY 9
04-Oct-16 80 79 13 46% 172 492 664 26% CVE 9
Yearly 2% 19% 62% 14.5% -11.2% -4.5% HSE 8
% Change ECA 6
CNQ 5
RDS 5
DVN 4
Figure 3. Rig activity by province by depth capability VES 4
VII 4
Rig activity by province by depth capability
STR 4
MOD 3
0-1850m 1851- +2451m Total Total Total Rigs Active Active BNP 3
2450m Active Down 3Q17 REP 3
AB 6 3 127 136 302 438 31% 31%
SK 4 2 25 31 88 119 26% 26% Total of Top 15 91
BC 0 0 25 25 42 67 37% 37% % of current act. 46%
MB 3 1 1 5 5 10 50% 50%

Figure 4. Individual contractor activity levels (Western and Northern Canada)

Individual contractor activity levels (Western and Northern Canada)

Company Ticker Active Down Total Active this Active Active

Week 3Q17 3Q16
Akita Drilling Ltd. AKT.A 12 16 28 43% 35% 15%
CWC Energy Services Corp. CWC 6 3 9 67% 68% 40%
Ensign Energy Services Inc. ESI 21 34 55 38% 41% 17%
Nabors Industries Ltd. NBR 11 36 47 23% 28% 15%
Patterson-UTI Drilling Co. PTEN 1 6 7 14% 33% 17%
Precision Drilling Corporation PD 52 81 133 39% 36% 24%
Total Energy Services Inc. TOT 18 63 81 22% 28% 19%
Trinidad Drilling Ltd. TDG 27 43 70 39% 40% 22%
Western Energy Services Corp. WRG 18 33 51 35% 39% 24%
Total/Average 166 315 481 35% 39% 21%
% of Industry 84% 72% 76%
Sources for figures above: GMP FirstEnergy, Junewarren-Nickle’s Rig Locator, Junewarren-Nickle's Data Central

Ian B. Gillies (403) 262-0626

ibgillies@gmpfirstenergy.com
Cole J. Pereira (403) 262-0642
cjpereira@gmpfirstenergy.com

Prepared by GMP Securities L.P. See important disclosures on the last page of this report
 Equity Research
Figure 5. Western Canada active drilling Figure 6. Canadian oil vs. gas rig count: Trailing 12-month
average
Active W Canadian Oil vs. Gas Rig Count
Rigs % Utilization Trailing 12-Month Average
Active Rigs (TTM) Active Today % Utilization 300 500
500 100% Total (RHS) Oil (LHS) Gas (LHS)
450
450
444 250
400 80% 400
380
350 350
200
300 60% 300

250 150 250

197
200 40% 200
188 142 100
150 150

100 20% 100

50
50 50
0 0% 0 0
15-Dec-15
26-Nov-13

24-Jun-14

25-Oct-16
12-Jul-16
2-Oct-12

30-Apr-13

7-Oct-14

5-Sep-17
13-Aug-13

12-May-15
1-Sep-15

7-Feb-17
23-May-17
15-Jan-13

11-Mar-14

27-Jan-15

29-Mar-16

May-08

May-09

May-10

May-11

May-12

May-13

May-14

May-15

May-16

May-17
Aug-07
Nov-07
Feb-08
Aug-08
Nov-08
Feb-09
Aug-09
Nov-09
Feb-10
Aug-10
Nov-10
Feb-11
Aug-11
Nov-11
Feb-12
Aug-12
Nov-12
Feb-13
Aug-13
Nov-13
Feb-14
Aug-14
Nov-14
Feb-15
Aug-15
Nov-15
Feb-16
Aug-16
Nov-16
Feb-17
Aug-17
Source: GMP FirstEnergy, Nickle's Data Central

Figure 7. Canadian oil rig count: Trailing 12-month Figure 8. Canadian gas rig count: Trailing 12-month
average Canadian Oil Rig Count average Canadian Gas Rig Count
Trailing 12-Month Average Trailing 12-Month Average
160 300 200 300
Total Oil (RHS) Alberta Oil (LHS) Saskatchewan Oil (LHS) Bitumen (LHS) Total Gas (RHS) Alberta Gas (LHS) B.C. Rig Count (LHS)

140 180
250 250
160
120
140
200 200
100
120

80 150 100 150

80
60
100 100
60
40
40
50 50
20 20

0 0 0 0
May-08

May-09

May-10

May-11

May-12

May-13

May-14

May-16

May-17
Aug-07
Nov-07
Feb-08
Aug-08
Nov-08
Feb-09
Aug-09
Nov-09
Feb-10

Nov-11
Aug-10
Nov-10
Feb-11
Aug-11
Feb-12
Aug-12
Nov-12
Feb-13
Aug-13
Nov-13

Feb-15
May-15
Feb-14
Aug-14
Nov-14

Aug-15
Nov-15
Feb-16
Aug-16
Nov-16
Feb-17
Aug-17
May-08

May-11

May-12

May-13

May-14
Aug-07
Nov-07

Feb-09
May-09

May-10

Feb-15
May-15

May-16

May-17
Feb-08
Aug-08
Nov-08

Aug-09
Nov-09
Feb-10
Aug-10
Nov-10
Feb-11
Aug-11
Nov-11
Feb-12
Aug-12
Nov-12
Feb-13
Aug-13
Nov-13
Feb-14
Aug-14
Nov-14

Aug-15
Nov-15
Feb-16
Aug-16
Nov-16
Feb-17
Aug-17

Source: GMP FirstEnergy, Nickle's Data Central Source: GMP FirstEnergy, Nickle's Data Central

Source: GMP FirstEnergy, Junewarren-Nickle's Rig Locator, Nickle's Data Central

2
 Equity Research

Disclosures
GMP FirstEnergy is a trade name and division of GMP Securities L.P. (“GMP”), and a trade name of FirstEnergy Capital LLP (together with GMP referred to as
“GMP/FirstEnergy”).
The information contained in this report is drawn from sources believed to be reliable but the accuracy or completeness of the information is not
guaranteed, nor in providing it does GMP/FirstEnergy assume any responsibility or liability whatsoever. Information on which this report is based is available
upon request. This report is not to be construed as a solicitation of an offer to buy or sell any securities. GMP/FirstEnergy and/or affiliated companies or
persons may as principal or agent, buy and sell securities mentioned herein, including options, futures or other derivative instruments thereon.

The superscript(s) following the issuer name(s) mentioned in this report refers to the company-specific disclosures below. If there is no such superscript,
then none of the disclosures are applicable and/or required.

Company-Specific Disclosures:
1 GMP/FirstEnergy has, within the previous 12 months, provided paid investment banking services or acted as underwriter to the issuer.
2 RESERVED
3 GMP/FirstEnergy owns 1% or more of this issuer’s securities.
4 GMP Securities, LLC (“GMP LLC”), an affiliate of GMP/FirstEnergy, discloses the following in relation to this issuer as required by the Financial Industry
Regulatory Authority (“FINRA”) Rule 2241: as applicable.
5 The analyst is related to an officer, director or advisory board member of this issuer, but that related individual has no influence in the preparation of this
report.
6 The analyst has viewed the operations of this issuer and the issuer paid all or a portion of the travel expenses associated with the analyst’s site visit to its
operations.
7 The analyst has viewed the operations of this issuer.
8 The analyst and/or a member of their household has a position in this issuer's securities.
9 A member of the Board of Directors of this issuer is also a member of the Board of Directors of GMP Capital Inc., but that individual had no influence in
the preparation of this report.
10 The analyst owns this issuer's securities in a managed account but has no involvement in the investment decisions for that managed account.

Each research analyst and associate research analyst who authored this document and whose name appears herein certifies that:
(1) the recommendations and opinions expressed in the research report accurately reflect their personal views about any and all of the securities or issuers
discussed herein that are within their coverage universe; and (2) no part of their compensation was, is or will be, directly or indirectly, related to the
provision of specific recommendations or views expressed herein.

GMP/FirstEnergy Analysts are not registered and/or qualified as research analysts with FINRA and may not be associated persons of GMP LLC and therefore
may not be subject to FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research
analyst account as defined by FINRA but are subject to the applicable regulatory rules as mentioned below.

All relevant disclosures required by regulatory rules (including The Investment Industry Regulatory Organization of Canada, and Financial Conduct
Authority), GMP/FirstEnergy’s recommendation statistics and research dissemination policies can be obtained at www.gmpsecurities.com or by calling
GMP’s Compliance Department.

GMP/FirstEnergy Analysts are compensated competitively based on several criteria. The Analyst compensation pool is comprised of several revenue
sources, including secondary trading commissions, new issue commissions, investment banking fees, and directed payments from institutional clients.

The GMP/FirstEnergy research recommendation structure consists of the following ratings:

Buy: A Buy rating reflects 1) bullish conviction on the part of the analyst; and 2) typically a 15% or greater return to target.
Speculative Buy: A Speculative Buy rating reflects 1) bullish conviction on the part of the analyst accompanied by a substantially higher than normal risk,
including the possibility of a binary outcome; and 2) typically a 30% or greater return to target.
Hold: A Hold rating reflects 1) a lack of bullish or bearish conviction on the part of the analyst; and 2) typically a return of 0 to 20%.
Reduce: A Reduce rating reflects 1) bearish conviction on the part of the analyst; and 2) typically a 5% or lower return to target.
Tender: Clients are advised to tender their shares to a takeover bid or similar offer.

Country Specific Disclaimers:

Canada: GMP is a member of IIROC and a participant of the TSX, TSX Venture and the Montreal Exchange. 145 King Street West, Suite 300 Toronto, Ontario
M5H 1J8 Tel: (416) 367-8600 Fax: (416) 943-6134.
UK and Europe: This material is distributed by FirstEnergy Capital LLP to persons who are eligible counterparties or professional clients. FirstEnergy Capital
LLP is authorised and regulated by the Financial Conduct Authority. 85 London Wall, London, EC2M 7AD Tel: +44 (0)20 7448 0200
Other countries: circulation of this report may be restricted by laws and regulations in other countries and persons in receipt of this document must satisfy
any relevant legal requirements in that country.

© GMP. All rights reserved. Reproduction in whole or in part without permission is prohibited.

3
 Market & Commodity Prices October 5, 2017

Canadian Energy News

Market News Market Close Change YTD Change Commodity News
Oct 4 Close Change YTD Chg Natural Gas (C$/mcf) Oct 4 Close Change
Dow Jones Industrial Average 22,661.64 +19.97 +14.7% Aeco Spot $0.42 -$1.08
NASDAQ 6,534.63 +2.91 +21.4% Differential (H. Hub/Aeco) $3.09 +$1.19
S&P 500 2,537.74 +3.16 +13.4% Aeco Near Month Nov 17 (NGX) $2.22 +1¢
Amex Oil Index 1,218.04 -0.78 -3.9% Aeco 12 Month Strip (NGX) $2.18 -5¢
S&P/TSX Composite Index 15,721.00 -7.51 +2.8% Aeco Calendar Strip 2018 (NGX) $2.22 -5¢
Station 2 $0.89 +23¢
S&P/TSX Cdn. Energy Index 188.35 -1.19 -14.7%
Alliance ATP $0.66 -14¢
S&P/TSX Oil & Gas Producers 1,607.33 -16.15 -17.4% Dawn $3.49 +18¢
S&P/TSX Oil & Gas Services 822.92 -11.79 -20.9% (US$/mmbtu)
Can-US Exchange Rate (US ¢) 80.15 -0.01 +7.6% Henry Hub Spot $2.81 +9¢
10Yr Gov't Canada Bond 2.12% +0.00 +0.40 New York Citygate $1.62 +67¢
Chicago Citygate $2.73 +18¢
Rockies Average $2.38 +3¢
NYMEX Nov17 $2.940 +4.5¢
TSX Energy Index vs GMP FE Services & NYMEX 12 Month Strip $3.030 +3.0¢
Energy Infrastructure Indexes NYMEX 2018 Strip $3.040 +2.8¢
Daily Close; 12-Month History UK NBP (Day Ahead) $6.19 +1¢
145
Netherlands TTF (Day Ahead) $6.05 +5¢
Zeebrugge (Day Ahead) $6.03 +19¢
135
Crude Oil (C$/bbl)
Synthetic Crude $66.98 -$1.04
125 Edmonton Mixed Sweet $60.80 -98¢
Western Canada Select $48.39 -79¢
Points (03/10/2016 = 100)

Edmonton Condensate $64.61 -67¢

115 Differential (WTI/WCS) $13.97 +25¢
Differential (WTI/Synthetic) -$4.62 +50¢
(US$/bbl)
105 WTI Cushing Spot $49.98 -44¢
Nymex WTI Nov17 $49.98 -44¢
Nymex WTI 12 Month Strip $50.74 -25¢
95 Nymex WTI 2018 Strip $50.83 -19¢
ICE Brent Dec17 $55.80 -20¢
ICE Brent 12 Month Strip $55.15 -13¢
85
ICE Brent 2018 Strip $55.05 -11¢
TSX Energy Index Oilfield Services Energy Infrastructure
75
04-Oct-16 04-Dec-16 04-Feb-17 04-Apr-17 04-Jun-17 04-Aug-17

Source for all data: AESO, Bloomberg, Enerdata, NGX

Prepared by GMP Securities L.P. See important disclosures on the last page of this report
 Market & Commodity Prices
North American Natural Gas Spot Prices C$/mcf Differential H. Hub-AECO
Daily Close; 12-Month History Daily Close; 12-Month History
$4.50
$4.00

$4.00
$3.50

$3.50
$3.00
$3.00
$2.50
$2.50

$2.00
$2.00

$1.50
$1.50

$1.00
$1.00

$0.50 $0.50
Aeco Price (C$/mcf)
Henry Hub (US$/mmbtu)
$0.00 $0.00
04-Oct-16 04-Dec-16 04-Feb-17 04-Apr-17 04-Jun-17 04-Aug-17 04-Oct-17 04-Oct-16 04-Dec-16 04-Feb-17 04-Apr-17 04-Jun-17 04-Aug-17 04-Oct-17

Crude Oil Prices WTI Differentials

Daily Close; 12-Month History Daily Close; 12-Month History
$65 $30
WTI-Brent (US$/bbl) WTI-SCO (US$/bbl)
$60 WTI-WCS (US$/bbl) WTI- Edmonton Condensate (US$/bbl)
$25 WTI- Edmonton Light (US$/bbl)
$55
$20
$50

$15
$45

$40 $10

$35
$5

$30
$0
$25

-$5
$20
Syncrude Synthetic (US$/bbl) Western Canada Select (US$/bbl)
WTI (US$/bbl) Brent (US$/bbl) -$10
$15
04-Oct-16 04-Dec-16 04-Feb-17 04-Apr-17 04-Jun-17 04-Aug-17 04-Oct-17 04-Oct-16 04-Dec-16 04-Feb-17 04-Apr-17 04-Jun-17 04-Aug-17 04-Oct-17

Source for all data: AESO, Bloomberg, Enerdata, NGX

2
 Market & Commodity Prices
Disclosures
GMP FirstEnergy is a trade name and division of GMP Securities L.P. (“GMP”), and a trade name of FirstEnergy Capital LLP (together with GMP referred to as “GMP/FirstEnergy”).
The information contained in this report is drawn from sources believed to be reliable but the accuracy or completeness of the information is not guaranteed, nor in providing it does GMP/FirstEnergy assume any
responsibility or liability whatsoever. Information on which this report is based is available upon request. This report is not to be construed as a solicitation of an offer to buy or sell any securities. GMP/FirstEnergy and/or
affiliated companies or persons may as principal or agent, buy and sell securities mentioned herein, including options, futures or other derivative instruments thereon.

The superscript(s) following the issuer name(s) mentioned in this report refers to the company-specific disclosures below. If there is no such superscript, then none of the disclosures are applicable and/or required.

Company-Specific Disclosures:
1 GMP/FirstEnergy has, within the previous 12 months, provided paid investment banking services or acted as underwriter to the issuer.
2 RESERVED
3 GMP/FirstEnergy owns 1% or more of this issuer’s securities.
4 GMP Securities, LLC (“GMP LLC”), an affiliate of GMP/FirstEnergy, discloses the following in relation to this issuer as required by the Financial Industry Regulatory Authority (“FINRA”) Rule 2241: as applicable.
5 The analyst is related to an officer, director or advisory board member of this issuer, but that related individual has no influence in the preparation of this report.
6 The analyst has viewed the operations of this issuer and the issuer paid all or a portion of the travel expenses associated with the analyst’s site visit to its operations.
7 The analyst has viewed the operations of this issuer.
8 The analyst and/or a member of their household has a position in this issuer's securities.
9 A member of the Board of Directors of this issuer is also a member of the Board of Directors of GMP Capital Inc., but that individual had no influence in the preparation of this report.
10 The analyst owns this issuer's securities in a managed account but has no involvement in the investment decisions for that managed account.

Each research analyst and associate research analyst who authored this document and whose name appears herein certifies that:
(1) the recommendations and opinions expressed in the research report accurately reflect their personal views about any and all of the securities or issuers discussed herein that are within their coverage universe; and (2)
no part of their compensation was, is or will be, directly or indirectly, related to the provision of specific recommendations or views expressed herein.

GMP/FirstEnergy Analysts are not registered and/or qualified as research analysts with FINRA and may not be associated persons of GMP LLC and therefore may not be subject to FINRA Rule 2241 restrictions on
communications with a subject company, public appearances and trading securities held by a research analyst account as defined by FINRA but are subject to the applicable regulatory rules as mentioned below.

All relevant disclosures required by regulatory rules (including The Investment Industry Regulatory Organization of Canada, and Financial Conduct Authority), GMP/FirstEnergy’s recommendation statistics and research
dissemination policies can be obtained at www.gmpsecurities.com or by calling GMP’s Compliance Department.

GMP/FirstEnergy Analysts are compensated competitively based on several criteria. The Analyst compensation pool is comprised of several revenue sources, including secondary trading commissions, new issue
commissions, investment banking fees, and directed payments from institutional clients.

The GMP/FirstEnergy research recommendation structure consists of the following ratings:

Buy: A Buy rating reflects 1) bullish conviction on the part of the analyst; and 2) typically a 15% or greater return to target.
Speculative Buy: A Speculative Buy rating reflects 1) bullish conviction on the part of the analyst accompanied by a substantially higher than normal risk, including the possibility of a binary outcome; and 2) typically a
30% or greater return to target.
Hold: A Hold rating reflects 1) a lack of bullish or bearish conviction on the part of the analyst; and 2) typically a return of 0 to 20%.
Reduce: A Reduce rating reflects 1) bearish conviction on the part of the analyst; and 2) typically a 5% or lower return to target.
Tender: Clients are advised to tender their shares to a takeover bid or similar offer.

Country Specific Disclaimers:

Canada: GMP is a member of IIROC and a participant of the TSX, TSX Venture and the Montreal Exchange. 145 King Street West, Suite 300 Toronto, Ontario M5H 1J8 Tel: (416) 367-8600 Fax: (416) 943-6134.
UK and Europe: This material is distributed by FirstEnergy Capital LLP to persons who are eligible counterparties or professional clients. FirstEnergy Capital LLP is authorised and regulated by the Financial Conduct
Authority. 85 London Wall, London, EC2M 7AD Tel: +44 (0)20 7448 0200
Other countries: circulation of this report may be restricted by laws and regulations in other countries and persons in receipt of this document must satisfy any relevant legal requirements in that country.

© GMP. All rights reserved. Reproduction in whole or in part without permission is prohibited.

3
 Equity Research
Oil & Gas Sector October 5, 2017

Weekly Crude Oil Cut U.S. Weekly Petroleum Report

For the week ending Sep 29, 2017
The comments below were prepared following the release of the U.S.
Crude Oil Inventories (thou. bbls)
Department of Energy’s weekly report on the United States petroleum market.
464,963
Analysis is for data reported for the week ending September 29, 2017. The
(6,023) vs. last week
purpose of this report is to provide a general commentary by drawing on recent (4,145) vs. last year
data and developments in the United States and global crude oil markets. (500) consensus
Initial market reaction. Price neutral. Gasoline Inventories (thou. bbls)
218,936
Price direction. Higher. The data is calling you to the starting blocks. The latest
+1,644 vs. last week
round of weekly data was all-round price bullish in our view. Crude oil and (8,469) vs. last year
refined product exports reached record highs again, confirming what we have +1,000 consensus
been saying for months: that another backlog of crude oil and refined products
Distillate Inventories (thou. bbls)
in the United States is most unlikely, even during the downtime created by the
135,439
refinery maintenance season. Commercial crude oil inventories took a big
(2,606) vs. last week
tumble and which could have been closer to 7 million barrels if not for another (25,279) vs. last year
Harvey-related release of 950 thousand barrels from the strategic petroleum (1,500) consensus
reserve (SPR). The market remains fearful of any sustained period of +US$50
Crude Oil Imports (thou. bbl/d)
per barrel prices for WTI, seemingly worried that another surge in Lower 48 U.S.
7,214
oil supply will be waiting in the wings to drown the market. Nonsense, we say, (213) vs. last week
as the plateauing of the oil rig count and the long running rollover in oil rig (496) vs. last year
productivities is a sign that U.S. supply growth is decelerating. The latest week-
Refinery Runs (thou. bbl/d)
to-week reading for Lower 48 supplies of no change may be reflecting what we
16,029
suggested last week: that recent supply levels are overstated in the weekly
(145) vs. last week
data versus the more complete monthly data. It might take multiple weeks of (3) vs. last year
flat to slightly lower figures for Lower 48 supplies before the market begins to
Domestic Supply (thou bbl/d)
embrace the concept that U.S. supply growth is not the ever rising price bearish
9,561
monster than many seem to fear.
+14 vs. last week
+1,094 vs. last year

Martin King (403) 262-0625

mking@gmpfirstenergy.com

Nate J. Heywood (403) 262-0622

njheywood@gmpfirstenergy.com

Prepared by GMP Securities L.P. See important disclosures on the last page of this report
 Equity Research

United States Weekly Petroleum Market

Crude Oil & Refined Product Inventories Crude Oil & Refined Product Imports
Week Ending Change Versus Week Ending Change Versus
thousand bbls Sep-29-17 Sep-22-17 Sep-30-16 Last Week Last Year thousand bbls/d Sep-29-17 Sep-22-17 Sep-30-16 Last Week Last Year
Crude Oil 464,963 470,986 469,108 (6,023) (4,145) Crude Oil 7,214 7,427 7,710 (213) (496)
PADD 1 11,344 13,008 15,226 (1,664) (3,882) From Canada 3,559 3,467 3,305 +92 +254
PADD 2 149,349 145,893 142,148 +3,456 +7,201 From Mexico 247 456 561 (209) (314)
Cushing 62,462 60,937 62,652 +1,525 (190) From Saudi Arabia 612 637 1,038 (25) (426)
PADD 3 236,679 241,100 239,924 (4,421) (3,245) From Kuwait 106 188 440 (82) (334)
PADD 4 20,920 21,050 22,062 (130) (1,142)
From Iraq 617 133 399 +484 +218
PADD 5 46,671 49,936 49,748 (3,265) (3,077)
From Venezuela 573 492 731 +81 (158)
SPR Holdings 673,649 674,601 695,091 (952) (21,442)
Refined Products 2,560 2,915 2,258 (355) +302
Total Gasoline 218,936 217,292 227,405 +1,644 (8,469)
PADD 1 56,936 55,808 59,797 +1,128 (2,861)
Gasoline 862 1,041 1,003 (179) (141)
PADD 2 50,397 51,943 49,099 (1,546) +1,298 Distillates 72 84 103 (12) (31)
PADD 3 76,092 74,214 83,876 +1,878 (7,784)
PADD 4 6,854 6,646 6,846 +208 +8 Crude Oil & Refined Product Exports
PADD 5 28,657 28,681 27,788 (24) +869 Week Ending Change Versus
Distillates 135,439 138,045 160,718 (2,606) (25,279) thousand bbls/d Sep-29-17 Sep-22-17 Sep-30-16 Last Week Last Year
Heating Oil 11,272 11,118 12,327 +154 (1,055) Crude Oil 1,984 1,491 440 +493 +1,544
Diesel 124,168 126,927 148,391 (2,759) (24,223) Refined Products 5,039 4,594 4,850 +445 +189
Gasoline 640 550 727 +90 (87)
Domestic Crude Oil Production Distillates 1,366 1,093 1,278 +273 +88
Week Ending Change Versus
thousand bbls/d Sep-29-17 Sep-22-17 Sep-30-16 Last Week Last Year
Total United States 9,561 9,547 8,467 +14 +1,094
Lower 48 9,064 9,064 8,005 +0 +1,059
Alaska 497 483 462 +14 +35

Refinery Inputs & Utilization

Week Ending Change Versus
thousand bbls/d Sep-29-17 Sep-22-17 Sep-30-16 Last Week Last Year
Total Refinery Inputs 16,029 16,174 16,032 (145) (3)
PADD 1 1,003 1,108 1,068 (105) (65)
PADD 2 3,598 3,622 3,461 (24) +137
PADD 3 8,204 8,148 8,439 +56 (235)
PADD 4 675 679 658 (4) +17
PADD 5 2,549 2,617 2,406 (68) +143
Total Utilization 88.1% 88.6% 88.3% (0.5) (0.2)

Implied Demand
Week Ending Change Versus
thousand bbls/d Sep-29-17 Sep-22-17 Sep-30-16 Last Week Last Year
Total Demand 20,243 20,304 19,860 (61) +383
Gasoline 9,456 9,436 9,332 +20 +124
Distillates 4,019 4,033 3,589 (14) +430
Residual Fuel Oil 269 264 375 +5 (106)
Jet Fuel 1,636 1,670 1,646 (34) (10)
Total ex. Other Oils 15,379 15,403 14,941 (24) +438
Source: GMP FirstEnergy, U.S. DOE/EIA

2
 Equity Research

Figure 1. Nymex WTI near month crude oil price Analysis. The latest weekly data confirms, or at least partially
confirms, some of the recent pronouncements and outlooks
US$/bbl that we have been writing about in this analysis. We think this
$70 $70
latest data is undeniably price bullish for WTI, but so far, the
$60 $60
market’s reaction is more of a yawn than a shout. Crude oil
prices have retrenched on profit taking after the surge of the
$50 $50 last two weeks topped out late last week. For the moment,
prices have tilted back below the psychological level of US$50
$40 $40
per barrel for WTI and US$55 per barrel for Brent (Figures 1
$30 $30 and 2).
There is much to be bullish about in the latest data. Foremost
$20 2015 2016 2017 $20
is not the drop in crude oil inventories, but the surge in crude
$10 $10 oil exports to an all-time week high just below 2 million bbl/d
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan (Figure 3). This is a level that many market watchers thought
impossible to reach. However, the ready availability of U.S.
Figure 2. ICE Brent near month crude oil price crude oil supplies, especially in PADD 3 (Gulf Coast), and the
very attractive price spreads to the international price
US$/bbl
$70 $70 benchmark of Brent, has been irresistible. As is so often the
case, when there is an opportunity to make money, the market
$60 $60 will figure out some way to get there. In this case, record
export levels of crude oil have been the result. As to whether
$50 $50
this level is sustainable is a different question but we think
$40 $40 such export strength has to be undermining the notion that
seasonal slowdowns in refinery activity during the fall and
$30 $30
spring will automatically result in another surge in U.S. crude
$20 $20
oil supplies. The United States is now fully integrated as an
2015 2016 2017
importer and exporter of crude oil. Crude oil inventories are
$10 $10 likely to slip lower throughout the fall, despite slower refinery
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
runs ahead of the winter (Figure 4).

Figure 3. U.S. weekly crude oil exports

thou. bbl/d
2,250 2015 2016 2017 2,250

2,000 2,000
1,984
1,750 1,750

1,500 1,500

1,250 1,250

1,000 1,000

750 750

500 500

250 250

0 0
Jan-6 Feb-24 Apr-14 Jun-2 Jul-21 Sep-8 Oct-27 Dec-15

Source for figures above: GMP FirstEnergy, U.S. DOE/EIA, Bloomberg

3
 Equity Research

Figure 4. U.S. weekly crude oil inventories Furthermore, despite all the worries over gasoline inventories
and the seasonal slowdown in driving, exports of refined
million bbls products have hit another near record high, north of 5 million
560 5 Yr Hi-Lo 2015 2016 2017 560
bbl/d (Figure 5). Between crude oil and refined product
540 540
520 520 exports, the United States sent a staggering 7 million bbl/d of
500 500 petroleum products to the rest of the world last week. This
480 465.0 480
rivals some of world’s biggest players such as Russia and Saudi
460 460
440 440 Arabia. Jumping back to gasoline, negative fears are overrated
420 420 again partly based on the export opportunities mentioned that
400 400 can clear the backlog, but also because demand still remains
380 380
360 360
strong for this time of year with days of gasoline inventory
340 340 cover, rarely mentioned, actually heading to the bottom of the
320 320 historic range (Figure 6). This measure of the relative comfort
300 300
Jan-6 Feb-24 Apr-14 Jun-2 Jul-21 Sep-8 Oct-27 Dec-15
level of gasoline inventories is saying the gasoline market is
getting tighter not more loose.
Figure 5. U.S. weekly refined product exports So if all this data is so bullish, what is holding back WTI prices
Figure 16: United States Exports of Refined Products (and spooking Brent as well)? We think there are two factors.
thou. bbl/d
The first is the still high levels of crude oil inventories at
5,700 5 Yr Hi-Lo 2015 2016 2017 5,700
Cushing (Figure 7), the physical delivery point for the Nymex
5,300 5,300
WTI contract. Yes, these levels are high, but remain well
4,900
5,039 4,900
below the effective capacity level of 77 million barrels and are
4,500 4,500
still well below the record levels reached earlier this year.
4,100 4,100
Moreover, the recent price discounts of WTI to Brent, with
3,700 3,700 Brent being a benchmark for imported crude oil into the U.S.
3,300 3,300 East Coast, is resulting in more railing of Midwest and Bakken
2,900 2,900 barrels to the East Coast. There are anecdotal indications that
2,500 2,500 more Midwest crude is being shipped to the Gulf Coast
2,100 2,100 because of the recent discounts. This crude could be refined
Jan-6 Mar-3 Apr-28 Jun-23 Aug-18 Oct-13 Dec-8
Source: FirstEnergy Capital Corp., U.S. DOE/EIA. domestically or exported. This type of action will slow the
tendency for Cushing inventories to rise.
Figure 6. U.S. weekly days of gasoline inventory cover
Second, we believe there is still overstated fears that prices
Days Figure 13: U.S. Motor Gasoline Days of Stock Cover north of US$50 per barrel on a sustained basis will result in
(Four Week Moving Average)
31 31
5 Yr Hi-Lo 2015 2016 2017 some kind of surge in U.S. crude oil production. We think this
30 30
to be more fiction than reality. In our previous analysis we
29 29
took great pains to point out that the U.S. oil rig count has
28 28
recently plateaued, with a small pop higher last week, but also
27 27
that U.S. oil rig productivities rolled over months ago. These
26 26
two pieces of information should be sufficient to dispel any
25 25
fears that supplies will be rocketing higher to swamp the U.S.
24 24
market with crude oil. Besides, it can be exported almost as
23 23
23.0 fast as it can be produced. The rig productivities and little net
22 22
gain in oil rig counts in recent months all suggest a
21 21
Jan-6 Feb-24 Apr-14
Source: FirstEnergy Capital Corp., US DOE/EIA.
Jun-2 Jul-21 Sep-8 Oct-27 Dec-15 deceleration in crude oil supply growth, not some magical
resurgence.
Source for figures above: GMP FirstEnergy, U.S. DOE/EIA

4
 Equity Research

Figure 7. U.S. weekly crude oil inventories at Cushing Last week, we also suggested that there was some possibility
that the weekly Lower 48 supply estimates could be
mm bbls recalibrated lower if there was a poor showing by the U.S.
80 80
Effective Capacity production data for July (posted at the end of last week).
75 75
70 70 Turns out, July did punch up a strong gain overall (Figure 8),
65 62.5 65 but a good portion of that was from the offshore Gulf of
60 60
55 55 Mexico, with a modest gain for Lower 48 onshore supplies.
50 50 Well, a massive downward recalibration to the Lower 48
45 45
40 40 supply numbers did not occur in this latest weekly data given
35 35 the big jump in July supplies, but there was no change in week-
30 30
25 25
to-week Lower 48 supplies. Does this reflect some
20 20 recalibration to slow down the weekly growth to be more in-
15 5 Yr. Hi-Lo 2015 2016 2017 15
10 10
line with the monthly data (Figure 9)? Perhaps, but we will
Jan-6 Feb-24 Apr-14 Jun-2 Jul-21 Sep-8 Oct-27 Dec-15 need to see more weekly data points with flat to very small
upward or downward supply numbers to be sure. Such data, if
Figure 8. U.S. monthly Lower 48 crude oil supply it does come about, might also be what is needed for the
market to overcome its fear of the U.S. supply growth monster
Figure 11: United States Lower 48 and take it down a few notches in size.
thou. bbl/d Onshore Monthly Crude Oil Production
9,250
Finally, the recent emergency draws from the SPR, as these
9,000 relate to Hurricane Harvey, have likely concluded. It appears
that roughly 5.1 million barrels was released from the reserve
8,750
to deal with requests from Gulf Coast refiners that were
8,500 temporarily cutoff from pipeline or imported tanker supplies
of crude. We should mention that these barrels are eventually
8,250
a net zero in the data as emergency releases have to be repaid
8,000 to the reserve (in barrels) by the refiners at some point within
one year from the initial receipt.
7,750
Jan-15 Jul-15
Source: FirstEnergy Capital Corp., U.S. DOE/EIA.
Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 We have detailed in Figure 10 the recent and near term
planned releases from the SPR. BBA 404 is part of a broader
Figure 9. U.S. weekly versus monthly crude oil supply process of raising funds to refurbish the SPR. BBA 403 is a
general revenue raising exercise with the funds to be
thou. bbl/d deposited into the U.S. treasury. The Cures Act is part of a
9,400 9,400 process to raise money for federal funding of medical
Monthly
9,200
Weekly
9,200 research. Based on the latest announcements for the SPR, the
9,000 Weekly 4W Mov. Avg. 9,000 upcoming sale of 14 million barrels for BBA 403 and the Cures
8,800 8,800
Act will be taking place at some point in fiscal year 2018 (starts
October 1, 2017). Given a detailed announcement from the
8,600 8,600
DOE on September 14 about the exact sales volumes and the
8,400 8,400
buyers, we believe this next sale from the SPR is imminent and
8,200 8,200 will be staged in over the next 10 to 12 weeks. This is not
8,000 8,000 necessarily price bearish, as these barrels have no restrictions
7,800 7,800 on them and can be exported, but could be a factor in holding
Jan-15May-15Sep-15 Jan-16May-16Sep-16 Jan-17May-17Sep-17 back WTI prices temporarily until the sales are complete. Also
note that more sales to fund the SPR refurbishment (BBA 404)
Source for figures above: GMP FirstEnergy, U.S. DOE/EIA
are due up at some point in the current fiscal year, but no

5
 Equity Research

Figure 10. Recent and planned releases from the U.S. SPR timeline has yet been announced. Moreover, the
11 million barrels for BBA 404 is something of a
moving target and could be a bit less or a bit more
depending on the price at which the barrels are
million barrels sold, as BBA 404 sets a revenue target not a volume
Sold To Date BBA 404 BBA 403 Cures Act Harvey
target.
Mar17-May2017 6.2
May17-Jul17 10.0 Recent crude oil prices may have consolidated and
Aug17-Sep17 5.1 drifted lower on profit taking. However, we think
Upcoming the data is again calling for more bullish price
Oct17-Dec17 (est.) 5.0 action. Despite the noise and disruptions created
Oct17-Dec17 (est.) 9.0 by Hurricane Harvey, the rebalancing in the United
Fiscal 2018* 11.0 States and globally remains very much on track,
and U.S. supply growth is not going to stop that
from occurring.
Source: GMP FirstEnergy, U.S. DOE

6
 Equity Research

Disclosures
GMP FirstEnergy is a trade name and division of GMP Securities L.P. (“GMP”), and a trade name of FirstEnergy Capital LLP (together with GMP referred to as
“GMP/FirstEnergy”).
The information contained in this report is drawn from sources believed to be reliable but the accuracy or completeness of the information is not
guaranteed, nor in providing it does GMP/FirstEnergy assume any responsibility or liability whatsoever. Information on which this report is based is available
upon request. This report is not to be construed as a solicitation of an offer to buy or sell any securities. GMP/FirstEnergy and/or affiliated companies or
persons may as principal or agent, buy and sell securities mentioned herein, including options, futures or other derivative instruments thereon.

The superscript(s) following the issuer name(s) mentioned in this report refers to the company-specific disclosures below. If there is no such superscript,
then none of the disclosures are applicable and/or required.

Company-Specific Disclosures:
1 GMP/FirstEnergy has, within the previous 12 months, provided paid investment banking services or acted as underwriter to the issuer.
2 RESERVED
3 GMP/FirstEnergy owns 1% or more of this issuer’s securities.
4 GMP Securities, LLC (“GMP LLC”), an affiliate of GMP/FirstEnergy, discloses the following in relation to this issuer as required by the Financial Industry
Regulatory Authority (“FINRA”) Rule 2241: as applicable.
5 The analyst is related to an officer, director or advisory board member of this issuer, but that related individual has no influence in the preparation of this
report.
6 The analyst has viewed the operations of this issuer and the issuer paid all or a portion of the travel expenses associated with the analyst’s site visit to its
operations.
7 The analyst has viewed the operations of this issuer.
8 The analyst and/or a member of their household has a position in this issuer's securities.
9 A member of the Board of Directors of this issuer is also a member of the Board of Directors of GMP Capital Inc., but that individual had no influence in
the preparation of this report.
10 The analyst owns this issuer's securities in a managed account but has no involvement in the investment decisions for that managed account.

Each research analyst and associate research analyst who authored this document and whose name appears herein certifies that:
(1) the recommendations and opinions expressed in the research report accurately reflect their personal views about any and all of the securities or issuers
discussed herein that are within their coverage universe; and (2) no part of their compensation was, is or will be, directly or indirectly, related to the
provision of specific recommendations or views expressed herein.

GMP/FirstEnergy Analysts are not registered and/or qualified as research analysts with FINRA and may not be associated persons of GMP LLC and therefore
may not be subject to FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research
analyst account as defined by FINRA but are subject to the applicable regulatory rules as mentioned below.

All relevant disclosures required by regulatory rules (including The Investment Industry Regulatory Organization of Canada, and Financial Conduct
Authority), GMP/FirstEnergy’s recommendation statistics and research dissemination policies can be obtained at www.gmpsecurities.com or by calling
GMP’s Compliance Department.

GMP/FirstEnergy Analysts are compensated competitively based on several criteria. The Analyst compensation pool is comprised of several revenue
sources, including secondary trading commissions, new issue commissions, investment banking fees, and directed payments from institutional clients.

The GMP/FirstEnergy research recommendation structure consists of the following ratings:

Buy: A Buy rating reflects 1) bullish conviction on the part of the analyst; and 2) typically a 15% or greater return to target.
Speculative Buy: A Speculative Buy rating reflects 1) bullish conviction on the part of the analyst accompanied by a substantially higher than normal risk,
including the possibility of a binary outcome; and 2) typically a 30% or greater return to target.
Hold: A Hold rating reflects 1) a lack of bullish or bearish conviction on the part of the analyst; and 2) typically a return of 0 to 20%.
Reduce: A Reduce rating reflects 1) bearish conviction on the part of the analyst; and 2) typically a 5% or lower return to target.
Tender: Clients are advised to tender their shares to a takeover bid or similar offer.

Country Specific Disclaimers:

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LLP is authorised and regulated by the Financial Conduct Authority. 85 London Wall, London, EC2M 7AD Tel: +44 (0)20 7448 0200
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any relevant legal requirements in that country.

© GMP. All rights reserved. Reproduction in whole or in part without permission is prohibited.

7
 Equity Research
Oil & Gas Sector October 5, 2017

Figure 1. U.S. Inventories

Weekly Refining Margin Review U.S. Inventory Changes Week ending 29-Sep-17
Crude Gasoline Distillates Refinery
The latest weekly EIA petroleum report showed continued healthy mbbl mbbl mbbl Util.
demand for both gasoline and distillates (Figures 12 & 13), and Actual 29-Sep (6,023) 1,644 (2,606) 88.1%
Expected (455) 1,038 (1,273) 89.5%
relatively low inventory cover (Figures 14 & 15). Actual vs. Expected (5,568) 606 (1,333) -1.4%
5-Yr AVG 745 781 (2,616) 88.6%
New York Harbor crack spreads remain healthy (Figure 2), as diesel
Actual vs. 5-Yr AVG (6,768) 863 10 -0.5%
margins remain very strong (Figure 11). Chicago light oil crack U.S. Inventories & Demand Week ending 29-Sep-17
spreads are strong (Figure 5), as local prices are now at a slight Inventories (mmbbl) Implied Demand (4-wk Avg)
premium to NY Harbor prices (Figures 18a & 18b). The U.S. refined 29-Sep Y/Y vs. 5Y avg mb/d Y/Y vs. 2015
Crude 465.0 -0.9% 22.6% 15,363 -6.4% -4.3%
product market is still trying to replenish inventories after Gulf Coast
Gasoline 218.9 -3.7% 1.8% 9,456 1.3% 4.5%
refinery capacity went offline in September due to Hurricane Harvey Distillates 135.4 -15.7% -1.7% 4,019 12.0% 2.0%
(Figure 3). Jet Fuel 43.4 -1.4% 3.8% 1,636 -0.6% 5.5%
Total Products 1,294.4 -4.1% 9.8% 20,243 1.9% 5.0%
The Edmonton synthetic crude-based crack spread is lower than Source: GMP FirstEnergy, Bloomberg, U.S. DOE/EIA (based on weekly data)

normal (Figure 4), owing to premium pricing for SCO (Figure 9), Figure 2. NY Harbor 3-2-1 Crack (Brent)
given oilsands upgrader downtime. Ontario crack spreads remain $25
5-yr Max/Min
robust (Figure 6).
2017
$20 4-Oct-17
According to data provided by the National Energy Board, Ontario 2015
3-2-1 Margin* (US$/bbl)

2016
saw a 27% reduction in refinery throughput for the week ending $15
th
September 26 (Figure 36).
$10
Statistics Canada data for Canadian refined product sales and
inventories in June is now available (Figures 23 to 34). Motor
$5
gasoline and diesel sales both eclipsed prior five-year highs in June
while inventories were near five-year lows, with the $-
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Ontario/Quebec market looking especially tight in June (Figures 31
Source: GMP FirstEnergy, Bloomberg *Brent, Gasoline, Diesel
& 32).
Figure 3. U.S. Refinery Utilization
100

95

90
Utilization (%)

85

80

5-yr Max/Min
75
2014
70 2015
2016
2017
65
1 5 9 13 17 21 25 29 33 37 41 45 49
Week #
Source: GMP FirstEnergy, Bloomberg, U.S. EIA/DOE

Michael P. Dunn, CFA (403) 262-0643

mpdunn@gmpfirstenergy.com

Jason B. Yan (403)

(403)262-0661
262-0643
jbyan@gmpfirstenergy.com

Prepared by GMP Securities L.P. See important disclosures on the last page of this report
 Equity Research

Figure 4. Edm. 3-2-1 Crack Spread (SCO) Figure 5. Chicago 3-2-1 WTI Crack Spread

$70 $50
5-yr Max/Min
5-yr Max/Min
$45
$60 2017
2017
$40 4-Oct-17
4-Oct-17
2015
2015

3-2-1 Margin* (US$/bbl)

$50 2016
3-2-1 Margin* (C$/bbl)

2016 $35

$40 $30

$25
$30
$20
$20 $15

$10
$10

$5
$-
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec $-
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: GMP FirstEnergy, Bloomberg * SCO, Reg. Gasoline, On-Road Diesel. Incl. Rack margins (~$1-$2/bbl).
Source: GMP FirstEnergy, Bloomberg *WTI, Gasoline, On Road Diesel

Figure 6. Sarnia 3-2-1 Crack Spread * (SCO) Figure 7. Chicago 3-2-1 WCS Crack Spread

$60 $80
5-yr Max/Min

$70 2017
$50
4-Oct-17
$60 2015
3-2-1 Margin* (US$/bbl)
3-2-1 Margin* (C$/bbl)

$40 2016
$50

$30 $40

$30
$20 5-yr Max/Min

2017 $20
$10 4-Oct-17
2015 $10
2016
$- $-
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: GMP FirstEnergy, Bloomberg * SCO, Includes Rack margins (~$1-$2/bbl), excludes SCO transportation costs from Edmonton
Source: GMP FirstEnergy, Bloomberg *WCS (excl. transportation costs) , Gasoline, On Road Diesel

Figure 8. U.S. Gulf Coast 3-2-1 LLS Crack Spread Figure 9. Oil Price Differentials vs. Brent (US$/bbl)

WTI SCO WCS Edm. Lt Bakken*

$50 $5
5-yr Max/Min
Premium (discount) to Brent, US$/bbl

SCO
$45
2017
4-Oct-17 $0
$40
2015
3-2-1 Margin* (US$/bbl)

$35 2016
($5) WTI
$30
Edm. Lt
$25
($10)
$20

$15 ($15)
WCS
$10

$5 ($20)
May-15
Jan-15

Jul-15
Sep-15
Nov-15
Jan-16

May-16
Jul-16
Sep-16
Nov-16
Jan-17

May-17
Jul-17
Sep-17
Mar-15

Mar-16

Mar-17

$-
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: GMP FirstEnergy, Bloomberg *Bakken Light @Clearbrook MN, SCO & Edm. Lt. @Edmonton, WCS @Hardisty
Source: GMP FirstEnergy, Bloomberg *LLS,Gasoline, On Road Diesel

2
 Equity Research

Figure 10. New York Harbor Figure 11. New York Harbor
Gasoline Cracking Margin (Brent) Diesel Cracking Margin (Brent)

$35 $35
5-yr Max/Min 5-yr Max/Min

$30 2017 $30 2017

4-Oct-17
4-Oct-17

Diesel* Margin (US$ /bbl)

2015
Gasoline Margin (US$/bbl)

$25 2015 $25 2016

2016

$20 $20

$15 $15

$10 $10

$5 $5

$-
$-
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: GMP FirstEnergy, Bloomberg Source: GMP FirstEnergy, Bloomberg *On-Road Diesel Rack Prices vs. Brent

Figure 12. U.S. Gasoline Figure 13. U.S. Distillates

Implied Demand 4-Week Average Implied Demand 4-Week Average
10,000 4,400

9,800
4,200
9,600
000s barrels per day

000s barrels per day

9,400 4,000
9,200
9,000 3,800

8,800
3,600
8,600
8,400 2017 2016 3,400
2017 2016
8,200
2015 2014 2015 2014
8,000 3,200
1 5 9 13 17 21 25 29 33 37 41 45 49 53 1 5 9 13 17 21 25 29 33 37 41 45 49 53
Week # Week #
Source: GMP FirstEnergy, Bloomberg, U.S. EIA/DOE Source: GMP FirstEnergy, Bloomberg, U.S. EIA/DOE

Figure 14. Figure 15.

U.S. Gasoline Inventory Demand Cover
U.S. Gasoline Inventory Demand Cover
U.S. Distillates Inventory Demand Cover
U.S. Distillates Inventory Demand Cover
5-yr MAX/MIN 2015 2016 2017 5-yr MAX/MIN 2015 2016 2017
32 55

30 50
Days of Demand Cover
Days of Demand Cover

28 45

26 40

24 35

22 30

20 25

18 20
1 5 9 13 17 21 25 29 33 37 41 45 49 53 1 5 9 13 17 21 25 29 33 37 41 45 49 53
Week # Source: GMP FirstEnergy, Bloomberg, U.S. EIA/DOE
Week #
Source: GMP FirstEnergy, Bloomberg, U.S. EIA/DOE

3
 Equity Research

Figure 16. Figure 17.

U.S. Gasoline Inventories U.S. Distillate Inventories
270,000 180,000

170,000
250,000

Distillates Inventories (000s bbl)

160,000
Gasoline Inventories (000s bbl)

150,000
230,000
140,000
210,000 130,000

120,000
190,000
5-yr MAX/MIN 110,000
5-yr MAX/MIN
170,000 2015 100,000
2016 2017
2017
90,000 2016
150,000 2015
80,000
1
3
5
7
9
11
13
15
17
19
21
23
25
27
29
31
33
35
37
39
41
43
45
47
49
51
53
1 5 9 13 17 21 25 29 33 37 41 45 49 53
Source: GMP FirstEnergy, Bloomberg, U.S. EIA/DOE Week # Source: GMP FirstEnergy, Bloomberg, U.S. EIA/DOE Week #

Figure 18a. Figure 18b.

Chicago Gasoline Price vs. NY Harbor Chicago Diesel Price vs. NY Harbor

5-yr High/Low 2015 2016 2017 Forecast 5-yr High/Low 2015 2016 2017 Forecast
Premium (Discount) vs. NYH ULSD, US$/bbl
Premium (Discount) vs. NYH RBOB, US$/bbl

$30 $30
$25 $25
$20 $20
$15 $15
$10 $10
$5 $5
$0 $0
($5) ($5)
($10) ($10)
($15) ($15)
($20) ($20)
27-May

8-Jul

30-Sep
12-Feb

9-Sep
1-Jan
22-Jan

4-Mar
25-Mar
15-Apr
6-May

17-Jun

29-Jul
19-Aug

21-Oct
11-Nov
2-Dec
23-Dec
1-Jan

25-Mar
15-Apr
12-Feb

8-Jul

19-Aug
22-Jan

4-Mar

6-May

9-Sep
30-Sep
27-May
17-Jun

29-Jul

21-Oct
11-Nov
2-Dec
23-Dec

Source: GMP FirstEnergy, Bloomberg Chicago prompt month CBOB differential Source: GMP FirstEnergy, Bloomberg Chicago prompt month differential

Figure 19a. Figure 19b.

Edmonton Gasoline Price vs. NY Harbor Edmonton Diesel Price vs. NY Harbor

5-yr High/Low 2015 2016 2017 Forecast 5-yr High/Low 2015 2016 2017 Forecast
Premium (Discount) vs. NYH ULSD, US$/bbl
Premium (Discount) vs. NYH RBOB, US$/bbl

$30 $30
$25 $25
$20 $20
$15 $15
$10 $10
$5 $5
$0 $0
($5) ($5)
($10) ($10)
($15) ($15)
($20) ($20)
6-May
1-Jan
22-Jan
12-Feb
4-Mar
25-Mar
15-Apr

9-Sep
27-May

8-Jul

30-Sep
17-Jun

29-Jul
19-Aug

21-Oct
11-Nov
2-Dec
23-Dec

21-Oct
1-Jan

12-Feb

9-Sep
30-Sep
22-Jan

4-Mar
25-Mar
15-Apr
6-May
27-May

8-Jul
17-Jun

29-Jul
19-Aug

11-Nov
2-Dec
23-Dec

Source: GMP FirstEnergy, Bloomberg Unbranded rack price of regular conventional gasoline at Edmonton
Source: GMP FirstEnergy, Bloomberg Unbranded rack price of ultra-low sulfur diesel at Edmonton

4
 Equity Research

Figure 20a. Figure 20b.

Sarnia Gasoline Price vs. NY Harbor Sarnia Diesel Price vs. NY Harbor
5-yr High/Low 2015 2016 2017 Forecast 5-yr High/Low 2015 2016 2017 Forecast
Premium (Discount) vs. NYH RBOB, US$/bbl

$30

Premium (Discount) vs. NYH ULSD, US$/bbl

$30
$25 $25
$20 $20
$15 $15
$10 $10
$5 $5
$0 $0
($5) ($5)
($10) ($10)
($15) ($15)
($20) ($20)
12-Feb

30-Sep
1-Jan
22-Jan

4-Mar
25-Mar
15-Apr
6-May
27-May

8-Jul

9-Sep
17-Jun

29-Jul
19-Aug

21-Oct
11-Nov
2-Dec
23-Dec

22-Jan
12-Feb

8-Jul
1-Jan

4-Mar
25-Mar
15-Apr
6-May
27-May
17-Jun

29-Jul
19-Aug
9-Sep
30-Sep
21-Oct
11-Nov
2-Dec
23-Dec
Source: GMP FirstEnergy, Bloomberg Unbranded rack price of regular conventional gasoline at Sarnia Source: GMP FirstEnergy, Bloomberg Unbranded rack price of ultra-low sulfur diesel at Sarnia

Figure 21a. Figure 21b.

Montreal Gasoline Price vs. NY Harbor Montreal Diesel Price vs. NY Harbor
5-yr High/Low 2015 2016 2017 Forecast 5-yr High/Low 2015 2016 2017 Forecast
Premium (Discount) vs. NYH ULSD, US$/bbl
Premium (Discount) vs. NYH RBOB, US$/bbl

$30 $30
$25 $25
$20 $20
$15 $15
$10 $10
$5 $5
$0 $0
($5) ($5)
($10) ($10)
($15) ($15)
($20) ($20)
6-May
12-Feb

9-Sep
1-Jan
22-Jan

4-Mar
25-Mar
15-Apr

27-May

8-Jul

30-Sep
17-Jun

29-Jul
19-Aug

21-Oct
11-Nov
2-Dec
23-Dec
6-May
1-Jan
22-Jan
12-Feb
4-Mar
25-Mar
15-Apr

27-May

8-Jul

9-Sep
30-Sep
17-Jun

29-Jul
19-Aug

21-Oct
11-Nov
2-Dec
23-Dec

Source: GMP FirstEnergy, Bloomberg Unbranded rack price of regular conventional gasoline at Montreal Source: GMP FirstEnergy, Bloomberg Unbranded rack price of ultra-low sulfur diesel at Montreal

Figure 22a. Figure 22b.

Colorado Gasoline Price vs. NY Harbor Colorado Diesel Price vs. NY Harbor
5-yr Max-Min 2017 2016 2015
5-yr High/Low 2015 2016 2017
$30
$30
Premium (Discount) vs. NYH ULSD, US$/bbl

$25
Premium (Discount) to NYH RBOB, US$/bbl

$25
$20 $20
$15 $15

$10 $10

$5 $5
$0
$0
($5)
($5)
($10)
($10)
($15)
($15) ($20)
1-Jan

25-Mar
12-Feb

17-Jun
8-Jul
22-Jan

4-Mar

29-Jul
19-Aug
9-Sep
30-Sep
15-Apr
6-May
27-May

21-Oct
11-Nov
2-Dec
23-Dec

($20)
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: GMP FirstEnergy, Bloomberg, EIA EIA monthly avg Colorado wholesale regular gasoline rack price vs. NY Harbor RBOB Source: GMP FirstEnergy, Bloomberg Unbranded rack price ULS diesel at Suncor's Commerce City West (Denver) terminal

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Figure 23. Canada Figure 24. Canada

Motor Gasoline Domestic Sales Motor Gasoline - Inventories*

5-yr Range 2017 2016 2015 5-yr Range 2017 2016 2015

900 22,000

850 20,000

800 18,000

mbbl
mbbl/d

750 16,000

700 14,000

650 12,000

600 10,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: GMP FirstEnergy, Statistics Canada (CANSIM) *end of month
Source: GMP FirstEnergy, Statistics Canada (CANSIM)

Figure 25. Ontario & Quebec Figure 26. Ontario & Quebec
Motor Gasoline Domestic Sales Motor Gasoline - Inventories*
5-yr Range 2017 2016 2015 5-yr Range 2017 2016 2015
510 12,000

490
11,000
470
10,000
mbbl/d

450
mbbl

430 9,000

410
8,000
390
7,000
370

350 6,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: GMP FirstEnergy, Statistics Canada (CANSIM) Source: GMP FirstEnergy, Statistics Canada (CANSIM) *end of month

Figure 27. Western Canada Figure 28. Canada Excl. Ontario & Quebec
Motor Gasoline Domestic Sales Motor Gasoline - Inventories*
5-yr Range 2017 2016 2015 5-yr Range 2017 2016 2015
360 10,000
340 9,500
320 9,000
300 8,500
mbbl/d

280
mbbl

8,000
260 7,500
240
7,000
220
6,500
200
6,000
180
5,500
160
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 5,000
Source: GMP FirstEnergy, Statistics Canada (CANSIM) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: GMP FirstEnergy, Statistics Canada (CANSIM) *end of month

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Figure 29. Canada Figure 30. Canada

Diesel Domestic Sales Diesel - Inventories*
5-yr Range 2017 2016 2015 5-yr Range 2017 2016 2015
600 18,000

16,000
550

14,000
mbbl/d

mbbl
500
12,000
450
10,000

400
8,000

350 6,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: GMP FirstEnergy, Statistics Canada (CANSIM) Source: GMP FirstEnergy, Statistics Canada (CANSIM) *end of month

Figure 31. Canada Excl. Alberta Figure 32. Ontario & Quebec
Diesel Domestic Sales Diesel Inventories*

5-yr Range 2017 2016 2015 5-yr Range 2017 2016 2015
500 10,000

9,000
450
8,000

7,000
mbbl
mbbl/d

400
6,000

350 5,000

4,000
300
3,000

250 2,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: GMP FirstEnergy, Statistics Canada (CANSIM) Source: GMP FirstEnergy, Statistics Canada (CANSIM) *end of month

Figure 33. Alberta Figure 34. Canada Excl. Ontario & Quebec
Diesel Domestic Sales Diesel - Inventories*

5-yr Range 2017 2016 2015 5-yr Range 2017 2016 2015
10,000
180

160 9,000

140 8,000

120 7,000
mbbl
mbbl/d

100
6,000
80
5,000
60
4,000
40

20 3,000

0 2,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: GMP FirstEnergy, Statistics Canada (CANSIM) Source: GMP FirstEnergy, Statistics Canada (CANSIM) *end of month

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Figure 35. Figure 36.

Western Canada Refinery Throughput Ontario Refinery Throughput
5-Yr Hi-Lo 2014 2015 2016 2017
5-Yr Hi-Lo 2014 2015 2016 2017
700 500

650 450
600
400
550

500 350

mbbl/d
mbbl/d

450 300
400
250
350

300 200

250 150
Jul-4
Jan-3

Apr-25
Jan-17
Jan-31

Apr-11
Feb-14
Feb-28

May-9
May-23
Jun-6
Jun-20

Jul-18
Aug-1
Aug-15
Aug-29
Sep-12
Sep-26
Oct-10
Oct-24
Nov-7
Nov-21
Dec-5
Mar-14
Mar-28

Dec-19

Jan-3
Jan-17
Jan-31

Apr-11
Apr-25
Feb-14
Feb-28

May-9
May-23
Jun-6
Jun-20
Jul-4
Jul-18
Aug-1
Aug-15
Aug-29
Sep-12
Sep-26
Oct-10
Oct-24
Nov-7
Nov-21
Dec-5
Dec-19
Mar-14
Mar-28
Source: GMP FirstEnergy, National Energy Board.
Source: GMP FirstEnergy, National Energy Board.

Figure 37. Figure 38.

Eastern Canada* Refinery Throughput Total Canada Weekly Refinery Throughput
5-Yr Hi-Lo 2014 2015 2016 2017
5-Yr Hi-Lo 2014 2015 2016 2017
950 2,000

900 1,900
850
1,800
800
1,700
750
700 1,600
mbbl/d
mbbl/d

650 1,500
600
1,400
550
1,300
500
450 1,200
400 1,100
Nov-7
Jan-17
Jan-31

Apr-11
Apr-25
May-9
May-23

Dec-5
Jan-3

Feb-14
Feb-28

Jun-6
Jun-20
Jul-4
Jul-18
Aug-1
Aug-15
Aug-29
Sep-12
Sep-26
Oct-10
Oct-24

Nov-21

Dec-19
Mar-14
Mar-28

Nov-7
Jan-17
Jan-31

Apr-11
Apr-25

May-23
Jan-3

Feb-14
Feb-28

May-9

Jun-6
Jun-20
Jul-4
Jul-18
Aug-1
Aug-15
Aug-29
Sep-12
Sep-26
Oct-10
Oct-24

Nov-21
Dec-5
Dec-19
Mar-14
Mar-28

Source: GMP FirstEnergy, National Energy Board. *Quebec & Maritimes provinces
Source: GMP FirstEnergy, National Energy Board.

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Figure 39.
Factors Driving Canadian Refining Margins

Western Canada (Edmonton) Ontario (Sarnia)

1. NYH 3-2-1 Brent Crack Spread '03-'15 Avg NYH 3-2-1 Brent Crack Spread '03-'15 Avg
$20 $20
US$/bbl

US$/bbl
Global $15 $15
Refining $10 $10
Margins
$5 $5
2003 2005 2007 2009 2011 2013 2015 2017e 2019e 2003 2005 2007 2009 2011 2013 2015 2017e 2019e

2. Brent-SCO Brent-Edm. Light Avg '03-'15 Avg Brent-SCO Brent-Edm. Light Avg '03-'15 Avg
Crude $40 $40
Feedstock
US$/bbl

US$/bbl
$20 $20
Prices vs.
Global $0 $0
Crude ($20) ($20)
Prices 2003 2005 2007 2009 2011 2013 2015 2017e 2019e 2003 2005 2007 2009 2011 2013 2015 2017e 2019e

3. Edm-Edm Pipeline Tolls**, US$/bbl (ZERO) Edm-Sarnia Pipeline Tolls**, US$/bbl

Less: $5 $5
Feedstock
US$/bbl

US$/bbl

$0 $0
Pipeline
Delivery ($5) ($5)
Costs to ($10) ($10)
Refinery 2003 2005 2007 2009 2011 2013 2015 2017e 2019e 2003 2005 2007 2009 2011 2013 2015 2017e 2019e

4. Gasoline: Edm-NYH Diesel: Edm-NYH 2:1 Avg '03-'15 2:1 Avg Gasoline: Sarnia-NYH Diesel: Sarnia-NYH 2:1 Avg '03-'15 2:1 Avg
$20 $20
Local
Products $15 $15
US$/bbl

US$/bbl

Prices vs. $10 $10

Global $5 $5
Products $0 $0
Prices 2003 2005 2007 2009 2011 2013 2015 2017e 2019e 2003 2005 2007 2009 2011 2013 2015 2017e 2019e

Combine Sum of 4 Factors, US$/bbl '03-'15 Avg, US$/bbl C$/bbl Sum of 4 Factors, US$/bbl '03-'15 Avg, US$/bbl C$/bbl
All 4 $40 $40
Factors =
$/bbl

$/bbl

$30 $30
Proxy for
Refinery $20 $20
Gross $10 $10
Margins 2003 2005 2007 2009 2011 2013 2015 2017e 2019e 2003 2005 2007 2009 2011 2013 2015 2017e 2019e
*Sum of: (Brent_price - Crude_Feedstock_Price) + (NYH 321 Brent Crack) + (Local_Product_Prices - NYH_Product_Prices) - (Feedstock Pipeline Tolls)
** go-forward pipeline tolls assumed to be unchanged vs. current toll rates, in US$/bbl terms. Tolls are for light oil on Enbridge mainline system
^ Refinery expansions/closures: PCA Oakville ON (-83 mbd, '04/'05), Shell Mtrl (-126 mbd, '10), Fed Co-op Regina (+~30 mbd, '12), IMO Dartmouth (-82 mbd, '13) Shell Edmonton (+14 mbd, '16/'17e), NW Redwater Edm (+~45 mbd, 1H18e)
Source: GMP FirstEnergy, Bloomberg, NEB, Company disclosures

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Disclosures
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“GMP/FirstEnergy”).
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the preparation of this report.
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(1) the recommendations and opinions expressed in the research report accurately reflect their personal views about any and all of the securities or issuers
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The GMP/FirstEnergy research recommendation structure consists of the following ratings:

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including the possibility of a binary outcome; and 2) typically a 30% or greater return to target.
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