Dynacor Gold Mines Inc (TSX: DNG / OTC: DNGDF) – Leading ...

Siddharth Rajeev, B.Tech, MBA, CFA Analyst

June 21, 2017

2017 Fundamental Research Corp. “10+ Years of Bringing Undiscovered Investment Opportunities to the Forefront” www.researchfrc.com

PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT

Dynacor Gold Mines Inc (TSX: DNG / OTC: DNGDF) – Leading Peruvian Gold Ore Processor Expecting Record Year Sector/Industry: Junior Mining www.dynacor.com Market Data (as of June 21, 2017)

Current Price C$1.83 Fair Value C$3.88 Rating* BUY Risk* 3 52 Week Range C$1.83 - C$3.71 Shares O/S 38,856,569 Market Cap C$71.11 mm Current Yield N/A P/E (forward) 11.2x P/B 1.1x YoY Return -10.0% YoY TSX 8.2%

*see back of report for rating and risk definitions

- all the figures are in US$ unless otherwise specified

Highlights Dynacor Gold Mines Inc. (“Dynacor” “DNG” “company”) is the second

largest gold ore processing company in Peru. The company has been producing gold since 1998.

In 2016, Dynacor generated $91 million in revenues through sales of 73 Koz (thousand ounces) of gold. We forecast record revenues of $110 million this year (highest since inception) from gold sales of 89 Koz.

We forecast net profit to increase by 47% to $4.9 million (EPS: $0.12). Our long-term forecast for the company is gold sales of approximately

185 Koz by 2022, reflecting a 151% increase from 2016 production. At the end of Q1-2017, the company had $8.7 million in cash and $6

million in debt, reflecting debt to capital of 11%. The forward Enterprise Value (“EV”) to EBITDA is 4.6x versus the

gold industry average of 8.3x. Dynacor also holds an exploration portfolio with three projects in Peru. We are initiating coverage with a BUY rating and a fair value estimate of

C$3.88 per share. Risks The value of the company is dependent on gold prices. Ability to ramp up production. Long-term consistent ore supply. Like most producers, the company currently holds debt. Heavy rainfall (such as in Q1-2017) may impact operations.

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Overview Brand New Facility in 2016

Dynacor is headquartered in Montreal, Canada. Its predecessor company, Dynacor Mines Inc., was formed in 1994. In 1996, Jean Martineau, Dynacor’s current President and CEO, joined the company as Vice President of Corporate Development. In the same year, the company commenced construction of a 50 tpd gold ore processing plant (named the Acari / Metalex Plant) in Huanca, southern Peru. Subsequently, the facility commenced gold production and the first gold bar was sold in 1998. In 2006, the company acquired a tungsten mine. Subsequently, management decided to spin-off its gold assets, including the Metalex mill and two exploration projects (Tumipampa and Casaden) in Peru, to a newly formed Dynacor Gold Mines Inc. Dynacor Mines’ name was changed to Malaga Inc. Dynacor Gold Mines’ shares started trading on the TSX in October 2007. Metalex’s production capacity was increased from its original 50 tpd to 250 tpd by January, 2014. From 1998 to September 2016, 100% of the company’s production came from this plant. In order to expand capacity, and improve efficiency, margins and accessibility (Metalax is in a remote location), the company built a brand new and modernized 300 tpd gold ore processing facility named the Veta Dorada plant, in Chala, southern Peru. Production from the new plant commenced in October 2016. The Metalex project was subsequently put in care and maintenance. The Veta Dorada plant is in one of the most active gold mining regions in Peru, just minutes away from the Pan American highway. Management expects the new plant to not only result in a significant increase in production, but also result in significant energy and transportation cost savings.

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Source: Company

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Production Growth

The following chart shows the company’s revenues and gold production since 2000. Gold production increased from just 6 Koz in 2000, to 73 Koz by 2016. Revenues increased from $2.46 million to $91.30 million.

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MillionsOunces

Revenues Gold Sales (ounces)

As a result of the move to the Veta Dorada Plant in Q4-2016, Dynacor’s Q1-2017 production increased 8%YoY from 15.8 Koz to 17.1 Koz. Revenues in the quarter increased YoY from $20.43 million to $24.73 million. The following table shows the production profile in the past six years. The average production rate has stayed flat at approximately 200 tpd. However, annual production grew as a result of higher grades in the past few years. In 2016, the average grade was 1.12 opt, or 35 gpt. The average grade from 2010 to 2016 was 0.96 opt, or 30 gpt. The company made a policy in 2017 to not disclose the average grades on a quarterly basis going forward.

The Veta Dorada plant is operating at approximately 250 tpd on average, and management expects to increase the rate to 300 tpd in the coming weeks. Management is also expanding the production capacity to 360 tpd by early Q4-2017 (estimate CAPEX of $0.5 million), to

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Business Model

450 tpd by late 2018 (estimated CAPEX of $3 - $4 million), and to 600 tpd by 2019-2010 (estimated CAPEX of $3 million). The expansion will require additional processing lines and ball mills, and is subject to permitting by the Ministry of Energy and Mines of Peru (“MEM”). Management also believes that they will be able to further improve their bottom line as increases in the recovery rate from the current 93% to 95% -96% are expected before year end. Management’s production guidance for 2017 is 88 koz to 92 koz in 2017, 105 – 108 Koz in 2018, and 130-140 Koz in 2019. The following table shows our forecasts, assuming the company reaches production capacity of 450 tpd by 2019 – 2020, and 600 tpd by 2022.

The above scenario shows potential growth in production to approximately 185 Koz, reflecting a 151% increase from the production in 2016. Dynacor’s Peruvian operations have over 340 full-time employees. Unlike most of the larger companies in South America, Dynacor does not have a unionized work force. This has several advantages for the company. For example, miners in Peru voted for a national strike this month to protest new labour rules in the country. Dynacor has not been impacted by this strike because of its non-unionized workforce. The business model (summarized in the chart below) is to purchases ore from government registered ore producers (primarily small-scale and artisanal miners) from various regions of Peru, process the ore at its milling facility, and sell the produced gold/silver at market prices through offtake agreements.

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Source: Company

The following chart shows the margins. In 2016, the company sold gold at $1,244/oz, and the total direct cost was $1,050 /oz, resulting in a profit margin of $194/oz. The company typically purchases ore from suppliers at approximately 60% to 80% of the gold price.

As shown in the chart above, profit margins are directly proportional to gold prices. The decline in margins in recent years was a result of softer gold prices. Dynacor’s preference is on ore with high-grade gold. According to management, approximately 60% of the ore supply comes from within a 200km radius of the mill. The

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company has regional offices across the country to accept ore from other regions. The sector is competitive, with multiple privately held ore processing facilities in south Peru. Management indicated to us that there are currently 7 - 8 other facility in their region, most of which are smaller and process 100 to 300 tpd. At this time, the largest ore processing facility in the country is privately owned, and has a capacity of approximately 320 tpd (approximately 100% utilization). There are also a few Canadian publicly listed companies in Peru, namely Inca One Gold (TSXV: IO), Montan Mining (TSXV: MNY), Duran Ventures (TSXV: DRV), and Gainey Capital (TSXV: GNC). Inca is operating a 100 tpd facility and the other companies have plans to commence production in the near future. We consider the following as Dynacor’s key strengths: Dynacor has a 19-year track record of production in Peru, and is currently the

second largest custom gold ore - processing company in the country.

They have built a brand in the country. Their reputation and long-standing relationships with small scale miners in the country are key to their success. The company currently purchases ore from over 300 suppliers. Dynacor was voted as Peru’s Top Gold Ore Processing Company, by a jury consisting of Peruvian professional associations, universities and business leaders.

Dynacor’s facility is a new and modernized CIP (carbon in pulp) mill operation and has the ability to accept ore from multiple deposit types.

Another key competitive advantage of Dynacor is that, unlike smaller processing facilities, they pay miners the same day or within 1-2 business days. Dynacor’s healthy balance sheet and operating cash flows give them this capability.

Dynacor also maintains good relationship with neighboring communities through

Corporate Social Responsibility Programs focused on education, health and community. For example, in 2016, the company funded a community and school library. Since 2014, Dynacor has provided computers to more than 60 school children.

As per Peruvian law, Dynacor pays its Peruvian employees a share of profits

(typically 8% of EBT).

As it is not possible to get small-scale and artisanal miners to enter into long-term agreements, the company is exposed to volatility in ore supply, which is primarily driven by gold prices. As shown in the chart below, Dynacor’s production increased along with gold prices from 2000 to 2013. However, the subsequent decline in gold prices impacted production in 2014 and 2015. Although the volatility in gold prices may add volatility to Dynacor’s near-term cash flows, we do not see it is a major long-term

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Artisanal Mining in Peru

concern as miners will continue to mine ore even if gold prices are depressed, as long as their mining costs are lower than gold prices.

Artisanal and small-scale mining – regularly referred to as ASM – is a common practice in developing countries. A wide range of minerals is mined by ASM miners worldwide. ASM produces 15% - 20% of the world's non-fuel minerals.

According to artisanalmining.org, there are over 40 million people from over 76 countries engaged in ASM. The following chart shows the distribution of ASM worldwide.

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Source: CASM

As shown in the chart, ASM is highly prevalent in South America, Africa and Asia. Peru is estimated to have 70,000 - 150,000 ASM workers (0.5% of the country’s population). Gold constitutes almost 100% of ASM production in Peru. ASM in more prevalent in southern Peru. Dynacor’s management estimates that southern Peru ASM miners currently produce at a rate of 15,000 tpd. There are no significant ore processing facilities in northern Peru. Therefore, ore from the north is typically shipped to toll processing facilities located 1,400 km south. The Peruvian government estimates that approximately 6,500 small scale miners are operating in Northern Peru producing 3,000 tpd of high grade gold ore from near surface epithermal vein systems. ASM workers typically work independently, and are not officially employed by mining companies. The ASM industry in Peru was highly unregulated up until 2012. A significant portion of the taxable revenues generated by ASM miners went historically unreported. In 2012, Peru made significant changes to its mining legislation to formalize all informal miners, and reduce or eliminate illegal mining activities in Peru. Dynacor only works with government registered ASM (artisanal small-scale miners). Small scale miners rarely have modern processing options available close by and contribute significantly to environmental degradation through the use of mercury in amalgamation techniques. One of the primary methods of recovering gold on-site requires the use of mercury for amalgamation - a process which discharges toxic mercury into the environment and into the food chain. Third-party ore processing companies, such as Dynacor, positively affect the environment surrounding small scale mining communities, and improve the living conditions of ASM miners. Dynacor also enables miners to receive a higher value for the ore, and capture the value of the lower grade ore (that is currently discarded at the mine site).

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Exploration Projects

Long-term ore supply Although it is considered that over 70,000 small scale miners are operating in Peru producing, there is no information regarding Peru's resource estimate to determine how long ASM miners could continue to mine. The following image shows the key mineral belts in Peru.

Source: GlobeTrotters Resource Group

Despite Peru having long been exploited for its mineral wealth, we believe that the geology, the fact that ASM miners cover a much broader area (as opposed to mining a single property), and that Dynacor is currently targeting up to 600 tpd (in an area which processes approximately 10,000 to 15,000 tpd), indicates the risk of not having sufficient ore supply is low in the near to mid – term. The company’s exploration portfolio has three projects, as summarized in the table below.

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Tumipampa

Tumipampa is the most advanced. The map below shows the locations of the three eprojects.

Source: Company

Oveview Dynacor owns 100% of the project. It is located 500 km southeast of Lima, and 60 km south of the city of Abancay in the Tumipampa region, Abancay province. It is at an average altitude of 4,500 meters above sea level with a mountainous relief. Geology and History The property is located in a region with several gold-silver vein epithermal, porphyry-copper and base metals skarn rich deposits. The key projects in the area are listed below: The Tintaya deposit, located 197 km northeast, a world class skarn deposit with more

than 139 million tonnes of 1.23% Cu and 0.23 g/t Au

Southern Copper Corporation’s (NYSE: SCCO) Los Chancas deposit (545 million

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tons at 0.59% Cu, 0.04%Mo and 0.039g/t Au) MMG Limited’s operating Las Bambas mine

Hudbay’s Constancia mine, which began commercial production in 2015

Since 2001, the company has spent over $8 million on exploration on this project. A polymetallic skarn zone was discovered in 2008, a porphyry zone was discovered in 2015, and four new high-grade gold mineralized structures were also discovered in 2015. The company’s work to date has identified five structures on the project: Manto Dorado: intercepted by 26 drill holes, 9 surface drill holes and 17

underground drill holes Manto Nazareno Disseminated Zone: located in the southern part of the property; has dimensions of

3.5 km in length south-southeast by 2.5 km wide east-west El Potro Porphyry Zone: located approximately 2.3 km to the west of Manto

Dorado; approximately 750 m wide by 1,700 m long Skarn Zone: located in the north part of the property

The locations of the structures are shown below:

Source: Company

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Anta

The company completed a four drill program, totaling 12,616 m, from 2012 to 2015. The following table shows the key work conducted in the past 5 years.

Development Plan Dynacor is currently working on new agreements with the local communities to conduct additional exploratory work. The strategy is to conduct additional drilling which will enable them to produce a NI 43-101 resource estimate. The Anta Property, which is 100% owned by Dynacor, is a silver/gold/copper prospect, comprised of five mining concessions covering 3,800 ha. It is in the district of San Pedro, 72 km west of Nazca, within the Western Andean Cordillera in the Province of Lucanas.

Five Mining Claims

Source: Company

Dynacor has identified six mineralized structures on this property. A mapping and sampling program was completed in 2015. The program showed that structure outcrops had lengths

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Casaden Management and Directors

ranging from 100 to 600 m. High grade silver mineralization was found in three strucutres, high grade gold mineralization was found in one structure, and high grade lead and zinc were found in two structures. The next step is to conduct a surface diamond drilling program to evaluate the depth extensions with economic grades of these structures. This 100% owned property is located 17 kilometers south of the Yanacocha gold mine, the largest gold mine in South America. It is in the district of Magdalena, 890 km north east of Lima.

Source: Company

The property is composed of disseminated epithermal gold deposits and covers five concessions covering 1,900 hectares. Management’s primary focus is on advancing the Tumipampa project. As the primary focus has historically been on the ore processing business, we believe management has been relatively slow in advancing its exploration portfolio. We are not assigning any valuation on these projects at this time. Positive developments at Tumipampa will be a bonus for shareholders. Management and board members hold 0.80 million shares, or 2.05% of the total outstanding shares.

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Brief biographies of the management team and board members, as provided by the company, follow: Jean Martineau - President and CEO, Director Jean Martineau has been the CEO and president of Dynacor Gold Mines since 2006 when the company was founded. Jean Martineau has worked in the Canadian mining industry for more than 25 years as a director of junior exploration companies and as an investment broker. During the last 20 years he has focused on South America and has acquired an in depth knowledge in the management of natural resource companies in South America. His Latin American expertise has been of prime importance in the development of Dynacor Gold Mines’ operations in Peru. Leonard Teoli – VP and CFO Léonard Teoli began his carrier with Price Waterhouse, in 1987 where he served clients in the mining industry until 1996. From 2003 to 2008 he was CFO of Diabras Exploration where he participated in the start-up in 2006 of a pilot mining operation in Mexico. Since then he acted as consultant and CFO for a couple of exploration companies with project in Canada and Morocco. He joined Dynacor’ management team as Vice-President and CFO after cumulating over 20 years of experience as an accounting and finance executive with several Canadian junior mining companies involved in exploration project worldwide. He is a member of the Canadian Institute of Chartered Accountants since 1990. Rene Branchaud – Corporate Secretary René Branchaud has been practicing law since 1983. He is a partner with the law firm Lavery, de Billy and practices in the areas of securities law, mergers and acquisitions and corporate law. He assists companies in connection with their incorporation, corporate structure, shareholders’ agreements, private placements, public offerings, stock exchange listings as well as dispositions and takeovers. He is also on the Board of Directors of several public corporations and also serves on several committees of the board of directors, including corporate governance committees and ad hoc committees created for specific transactions (mergers, takeovers). In addition, he advises directors who sit on ad hoc committees. Alonso Sanchez - Chief Geologist Alonso Sanchez holds a MSc in Geology and a degree in Engineering from the Universidad

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National de Ingeniería (1995). He worked for 11 years for Buenaventura S.A.A. (Peru), the largest mining Peruvian mining company; 5 years as mine geologist and 6 years as exploration geologist. He has an in-depth knowledge of epithermal gold, silver, tin, tungsten and polymetallic deposits, as well as Skarn-type deposits in both Peru and Bolivia. He acts as the qualified person (“QP”) for the Company, and is a geologist affiliated to the American Institute of Professional Geologists (AIPG). Jorge Luis Cardenas - General Manager Jorge Luis Cárdenas is an experienced mining engineer and a member of the Colegio de Ingenieros del Perú. He has more than 15 years’ experience in gold and copper mining and holds a degree engineering (1990) and a Masters in mine management (2006). From 1996 to 2003 he was Plant Superintendent for Minera Dynacor del Perú, a Dynacor Gold Mines Inc. subsidiary. From 2004 to 2007, he was Operations Manager and was promoted to General Manager of Dynacor Gold Mines inc. in Peru in December 2007. Jorge Luis has been the driving force behind the very successful development of the company’s ore processing business in Peru. He is an exceptionally talented top-level executive who has a team of dedicated managers in Peru. Jorge Luis now focused on aggressively growing the company’s custom milling business. Jean Depatie – Chairman Mr. Jean Depatie has over 45 years of national and international experience in economic geology, having acted, directly or indirectly, as consultant for organizations such as the United Nations, the World Bank, the Asian Development Bank, the Commonwealth Agency and the Québec Ministry of Natural Resources. In addition to being a past director of Glamis Gold Ltd. (now Goldcorp Inc.) and Novicourt Inc. (now Xstrata plc), Mr. Depatie was instrumental in the development of Consolidated Thompson through his six-year tenure as a director. Mr. Depatie has also served as officer and/or director to a number of other companies listed on US and Canadian stock exchanges. Mr. Depatie is a former President of the Québec Professional Association of Geologists and Geophysicists (1980-81). Eddy Canova, Director He has more than 30 years of experience in the mining sector. He has also worked outside of Canada, both in Africa and in South America, and has been involved with gold, base metals, uranium and diamond projects. Mr. Canova has been a member of the Ordre des Géologues du Québec since 2002. He focuses on moving projects from the exploration phase to the production phase. He holds a Ph.D. in Environmental Sciences and an MSc in Analytical Chemistry from the University of Geneva, Switzerland. He has also been a researcher and faculty member of the University of Geneva and the Université du Québec. He has worked with several mining companies in Val d’Or (Québec) on the safe handling and long term storage of mine tailings. He has been an independent consultant for more than 20 years. Roger Demers, Director Roger Demers currently serves as Chairman of Dynacor Gold’s Audit Committee and sits on several other Boards of Directors and audit committees. Mr. Demers, FCA, is a Fellow member of the l’Ordre des Comptables Agréés du Québec and has extensive expertise in the financial and public accounting sectors having contributed over the last 30 years as a partner

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at Raymond Chabot Grant Thornton (RCGT). He is also a certified corporate director “Administrateur de sociétés certifié (ASC)”. Pierre Lepine, Director Mr. Lépine is Executive Vice-President and co-founder of Group ABP one of Canada’s leaders in the event industry. He previously acted as Manager Private Placement at la Caisse de dépôt et placement du Québec from 2006 to 2008 and was Vice-President Corporate Development at GL&V Inc. from 1998 to 2005 where he was in charge of all mergers and acquisitions activities. M. Lépine started his career at Price Waterhouse where he spent 7 years from 1989 to 1996 and was assistant VP Corporate Finance. He is a member of l’ordre des comptables professionnels agréés du Québec. Marc Duschesne, Director Marc Duchesne holds a Bachelor of Business Administration, Majoring in Accounting from University of Sherbrooke, obtained in 1981. He is a member of the Order of the Chartered Professional Accountants. Since 2011, he has been a consultant. From 2006 to June 2011, he was senior vice president of Finance for Consolidated Thompson Iron Mines Ltd. Our net rating on the company’s management team is 4.2 out of 5.0 (see below).

The company’s board has six members, of which, five are independent. We believe that the Board of Directors of a company should include independent or unrelated directors who are free of any relationships or business that could materially interfere with the director’s ability to act in the best interests of the company. An unrelated/independent director can be a shareholder. The following table shows our analysis of the strength of the company’s board.

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Financials

The following chart shows a summary of the operating performance since 2000.

Revenues increased from just $2.46 million in 2000, to $91.30 million in 2016. In Q1-2017, revenues were up 21% YoY to $24.73 million. The following table shows the margins. Note that our gross margin calculations are different from the company’s reported figures as we removed depreciation and amortization included in direct costs in our calculations.

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Margins declined in recent years due to the decline in gold prices. 2016 gross margins were 16.1% versus 18.2% in 2015, due to the extremely low margins in Q4-2016 as a result of the new plant startup. Although margins picked up in Q1-2017, they were still lower on a YoY basis, as grades were lower and transportation costs were higher due to heavy rainfall and flooding in the country. Management estimates that they will be able to significantly improve gross margins. Cost savings are expected to come from energy savings ($0.08 kwh from $0.27 kwh), a higher production rate, and tailings savings ($2/ton from $15/ton). EBITDA increased from -$0.13 million in 2000 to $9.47 million in 2016. The company has been profitable every year since 2011. In 2016, net income increased by 4.1% YoY to $3.29 million (EPS: $0.09). In Q1-2017, net income increased by 34.3% YoY to $0.94 million (EPS: $0.02). The following table shows a summary of cash flows since 2011.

The significant increase in CAPEX in 2015, and 2016, was a result of the $18.2 million investment required to construct the new facility. Funding for this expansion came from a $10 million secured credit facility (8.5% - 10% p.a.). The company had used approximately $6 million at the end of Q1, reflecting debt to capital of 11%.

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Valuation and Rating

At the end of Q1-2017, the company had $8.67 million in cash and $17.17 million in working capital. Stock Options and Warrants: The company currently has 2.51 million options (weighted average exercise price of $1.27) and nil warrants outstanding, of which, all the options are in the money. The following chart shows our revenue, EBITDA and net income forecasts:

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Our revenue forecast for 2017 is $109.83 million, with a net profit of $4.85 million (EPS: $0.12). Our revenue forecast for 2018 is $137.41 million, with a net profit of $6.61 million (EPS: $0.17). Our Discounted Cash Flow (“DCF”) valuation on the company is C$4.56 per share.

As shown below, DNG’s shares are trading below all of the industry average metrics.

Our valuation on DNG based on industry average metrics is C$3.19 per share.

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Risks

Based on the above valuation models, we are initiating coverage on DNG with a BUY rating and a fair value estimate of C$3.88 per share (average of DCF and comparables). Note that our valuation does not account for any upside from the company’s exploration projects. We believe the following are the potential upcoming catalysts for the share price. Production growth Increase in margins Exploration success at Tumipampa Lower debt Announce a dividend policy - Based on our free cash flow projections, we believe the

company will be able to comfortably start paying dividends of approximately $3 million a year, or $0.08 per share (implying a 4.2% yield).

The following risks, though not exhaustive, will cause our estimates to differ from actual results: The value of the company is dependent on gold prices. Ability to ramp up production. There is no guarantee that the company will announce dividends. Long-term consistent ore supply. Like most producers, the company currently holds debt. Heavy rainfall (such as in Q1-2017) may impact operations. The company does not enter into hedging contracts. Exploration success.

We rate DNI shares a Risk of 3 (Average).

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Fundamental Research Corp. Equity Rating Scale: Buy – Annual expected rate of return exceeds 12% or the expected return is commensurate with risk Hold – Annual expected rate of return is between 5% and 12% Sell – Annual expected rate of return is below 5% or the expected return is not commensurate with risk Suspended or Rating N/A— Coverage and ratings suspended until more information can be obtained from the company regarding recent events. Fundamental Research Corp. Risk Rating Scale: 1 (Low Risk) - The company operates in an industry where it has a strong position (for example a monopoly, high market share etc.) or operates in a regulated industry. The future outlook is stable or positive for the industry. The company generates positive free cash flow and has a history of profitability. The capital structure is conservative with little or no debt. 2 (Below Average Risk) - The company operates in an industry where the fundamentals and outlook are positive. The industry and company are relatively less sensitive to systematic risk than companies with a Risk Rating of 3. The company has a history of profitability and has demonstrated its ability to generate positive free cash flows (though current free cash flow may be negative due to capital investment). The company’s capital structure is conservative with little to modest use of debt. 3 (Average Risk) - The company operates in an industry that has average sensitivity to systematic risk. The industry may be cyclical. Profits and cash flow are sensitive to economic factors although the company has demonstrated its ability to generate positive earnings and cash flow. Debt use is in line with industry averages, and coverage ratios are sufficient. 4 (Speculative) - The company has little or no history of generating earnings or cash flow. Debt use is higher. These companies may be in start-up mode or in a turnaround situation. These companies should be considered speculative. 5 (Highly Speculative) - The company has no history of generating earnings or cash flow. They may operate in a new industry with new, and unproven products. Products may be at the development stage, testing, or seeking regulatory approval. These companies may run into liquidity issues, and may rely on external funding. These stocks are considered highly speculative. Disclaimers and Disclosure The opinions expressed in this report are the true opinions of the analyst about this company and industry. Any “forward looking statements” are our best estimates and opinions based upon information that is publicly available and that we believe to be correct, but we have not independently verified with respect to truth or correctness. There is no guarantee that our forecasts will materialize. Actual results will likely vary. The analyst and Fundamental Research Corp. “FRC” does not own any shares of the subject company, does not make a market or offer shares for sale of the subject company, and does not have any investment banking business with the subject company. Fees were paid by DNG to FRC. The purpose of the fee is to subsidize the high costs of research and monitoring. FRC takes steps to ensure independence including setting fees in advance and utilizing analysts who must abide by CFA Institute Code of Ethics and Standards of Professional Conduct. Additionally, analysts may not trade in any security under coverage. Our full editorial control of all research, timing of release of the reports, and release of liability for negative reports are protected contractually. To further ensure independence, DNG has agreed to a minimum coverage term including an initial report and three updates. Coverage cannot be unilaterally terminated. Distribution procedure: our reports are distributed first to our web-based subscribers on the date shown on this report then made available to delayed access users through various other channels for a limited time. The distribution of FRC’s ratings are as follows: BUY (70%), HOLD (8%), SELL (5%), SUSPEND (17%). To subscribe for real-time access to research, visit http://www.researchfrc.com/subscribe.php for subscription options. This report contains "forward looking" statements. Forward-looking statements regarding the Company and/or stock’s performance inherently involve risks and uncertainties that could cause actual results to differ from such forward-looking statements. Factors that would cause or contribute to such differences include, but are not limited to, continued acceptance of the Company's products/services in the marketplace; acceptance in the marketplace of the Company's new product lines/services; competitive factors; new product/service introductions by others; technological changes; dependence on suppliers; systematic market risks and other risks discussed in the Company's periodic report filings, including interim reports, annual reports, and annual information forms filed with the various securities regulators. By making these forward looking statements, Fundamental Research Corp. and the analyst/author of this report undertakes no obligation to update these statements for revisions or changes after the date of this report. A report initiating coverage will most often be updated quarterly while a report issuing a rating may have no further or less frequent updates because the subject company is likely to be in earlier stages where nothing material may occur quarter to quarter. Fundamental Research Corp DOES NOT MAKE ANY WARRANTIES, EXPRESSED OR IMPLIED, AS TO RESULTS TO BE OBTAINED FROM USING THIS INFORMATION AND MAKES NO EXPRESS OR IMPLIED WARRANTIES OR FITNESS FOR A PARTICULAR USE. ANYONE USING THIS REPORT ASSUMES FULL RESPONSIBILITY FOR WHATEVER RESULTS THEY OBTAIN FROM WHATEVER USE THE INFORMATION WAS PUT TO. ALWAYS TALK TO YOUR FINANCIAL ADVISOR BEFORE YOU INVEST. WHETHER A STOCK SHOULD BE INCLUDED IN A PORTFOLIO DEPENDS ON ONE’S RISK TOLERANCE, OBJECTIVES, SITUATION, RETURN ON OTHER ASSETS, ETC. ONLY YOUR INVESTMENT ADVISOR WHO KNOWS YOUR UNIQUE CIRCUMSTANCES CAN MAKE A PROPER RECOMMENDATION AS TO THE MERIT OF ANY PARTICULAR SECURITY FOR INCLUSION IN YOUR PORTFOLIO. 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Dynacor Gold Mines Inc (TSX: DNG / OTC: DNGDF) – Leading ...

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