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Company Profile Northern Superior Resources (SUP‐V)
Sector
Ticker
Game On! Drilling at TPK Yields Bonanza Grades Revenue
(US$M)
nm
nm
nm
nm
CFPS
(US$/sh)
nm
nm
nm
nm
Gold Production
(Koz)
nm
nm
nm
nm
P/CF (x)
nm
nm
nm
nm
Spec. Buy
Stock Rating
Closing Price (C$)
12‐Mth Target (C$)
Potential ROR
Financial Summary (US$M) (end-Dec)
FY10e
FY11e
FY12e
FY13e
Gold
SUP‐V
Cash Costs
(US$/oz)
nm
nm
nm
nm
$0.89
$1.50 
69%
Shares O/S Bsc (M)
Shares O/S FD (M) *
Mkt Cap, Bsc (C$M)
Mkt Cap, FD (C$M)
147.8
168.8
$132
$150
* financed scenario (includes assumed future financing for construction capex
$1.24 
$0.03
$0.00
NAV/sh **
Working Capital/sh
Debt/sh
All figures in US$, unless otherwise noted. Source: Company filings, Paradigm Capital Inc. Investment Thesis. Northern Superior is an exploration company with several gold and diamond projects in Ontario and Quebec. The current primary focus of the company is its TPK Gold Property in Ontario – a project that looks very reminiscent of the early “pre‐discovery” exploration at Rainy River Gold Project (now a 5M oz resource and still growing), so we believe it is conceptually TPK is a multi‐million‐ounce target. The company has recently signed an agreement with Rainy River has recently signed a JV under which RR can earn‐in to a 51% interest in the eastern half of the TPK Project. The TPK‐JV Partners (SUP and RR) began drilling the property in late October, and initial results have been very encouraging. ** Per sh figures are per diluted sh NAV@ 5% DCF rate, spot gold price ($1,394/oz)
Company Description
Details Northern Superior is an exploration company with the primary asset being its TPK Property in northern Ontario, Canada. The Company currently holds 100% interest in the project, but Rainy River Resources has an option to earn‐in to a 51% interest on the eastern block of the TPK claims. The Company also holds several early‐stage exploration properties for gold and diamonds in Ontario and Quebec. 
Research Team
Event Northern Superior and Rainy River Resources (RR‐V, Spec Buy, $14.40 TP) announced assay results for the first seven diamond drill holes on the TPK Project. The best result was a very impressive 13.5 metres grading 25.9 g/t gold. 

Results for seven diamond drill holes drilled on “Target 3” of the TPK Project were released yesterday (Dec 13). The best result was Hole TPK‐10‐004, which intersected 13.5 metres averaging 25.9 g/t gold, which consisted of three very high‐grade (40+ g/t) sub‐intervals interspersed with low‐grade (<0.5 g/t) material. Most of the remaining holes had negligible amounts of gold mineralization, but we do not view this as unusual for the early stage of exploration, while the knowledge of the geological structures is still quite limited. Conclusion This note’s title reflects that the TPK Project has now moved beyond the “conceptual”. It is no longer a question of “if” – it is now proven that there is “ore‐grade” quality gold mineralization in the bedrock. The question now is “how much”? The JV Partners continue to actively drill the property, with more results expected in early Q1/11. We reiterate our Speculative Buy rating and increase our Northern Superior target price to C$1.50 (from $1.00) to reflect the increased confidence and outlook for the TPK Project that these first results afford. Don Blyth, Analyst 416.360.3461
[email protected] Don MacLean, Sr. Analyst 416.360.3459
[email protected] Jon Case, CFA, Analyst 416.363.9567
[email protected] Lauren McConnell, Associate 416.366.7776
[email protected] 1-Year Stock Chart
Northern Superior Resources Inc. (SUP‐CA)
Price (CAD)
1
Volume (Thousands)
9,000
8,000
0.7
0.6
7,000
6,000
0.5
0.4
5,000
4,000
0.3
0.2
3,000
2,000
0.1
0
1,000
0
Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
Volume
Northern Superior Resources Inc.
Source: FactSet Prices
11/30/10 Initiated coverage ($1.00) Paradigm Capital Inc, IIROC/TSX member
1
10,000
0.9
0.8
December 14, 2010
Research Note
First Results from TPK Yield Bonanza Grades at TPK (“Target 3”) To date, Northern Superior and Rainy River (“the TPK‐JV Partners”) have drilled 10 holes totaling 1,945 metres on “Target 3” of the TPK property (note: one hole, TPK‐10‐002 was abandoned due to bad ground conditions). Final assays have been received and were published by the companies yesterday (see Figure 1). All reported holes intersected variably mineralized shears in quartz monzonite, containing disseminated pyrite, arsenopyrite and/or coarse grained visible gold. Shear thicknesses are variable, ranging from 0.1 to 13.5 metres. Shear orientations and true thicknesses are not readily apparent, and will be determined by follow‐up drilling; however, the high‐grade shear zone intersected in TPK‐10‐004 is open both along strike and down dip. The best result came from Hole TPK‐10‐004, in which coarse‐grained visible gold was noted, and assays returned:  13.5 metres grading 25.9 g/t gold (from 149.3 to 162.8 metres) o Sub‐interval: 0.5 metres @ 46.0 g/t (from 153.0 to 153.5 metres) o Sub‐interval: 1.7 metres @ 139.4 g/t (from 156.8 to 158.5 metres) o Sub‐interval: 0.7 metres @ 127.0 g/t (from 162.0 to 162.7 metres) The sum total of the higher‐grade sub‐intervals is 2.9 metres averaging 120.3 g/t, which is almost the entire gold content of the broader 13.5‐metre interval reported. In other words, the other 10.6 metres of the interval contained low grade (sub‐1 g/t). Reporting the broader interval is acceptable, as given the widths involved, it is likely that one would mine the entire width (i.e. diluting with the interspersed low‐grade material) when one actually mines this material. However, it is material to note that the grades truly are “bonanza” style (> 1 oz/ton). If this style of mineralization does continue, this may present some challenges for modeling average grades. But a nice problem to have! Figure 1: Summary of Assay Results, TPK Project
Source: Company filings Paradigm Capital Inc, IIROC/TSX member
2
December 14, 2010
Research Note
Multiple Styles of Gold Mineralization Possible The significant gold mineralization encountered by Hole TPK‐10‐004 is associated dominantly with disseminated pyrite‐bearing mineralization. Arsenopyrite‐rich mineralization, similar to that observed in most of the high‐grade surface boulders discovered on the property, has not yet been encountered in drill core. And clearly, since the mineralization in Hole TPK‐10‐004 is located staring at a vertical depth of ~147 metres below surface, it could not have been the source of the gold grains in the glacial till – there must be significant gold mineralization closer to the surface. It could be a continuation of the mineralization at depth that extends upward toward the surface, but the lack of arsenopyrite suggests there could be more than one style of gold mineralization to be discovered at TPK. Moving To “Target 2” The diamond drill has already moved to “Target 2” to obtain a preliminary test of this partially lake‐covered target prior to winter drilling from the ice. It is anticipated that two diamond drill holes will be completed prior to demobilization for the Christmas break (on Dec. 18/10). The drilling crews are scheduled to re‐mobilize to the site on January 17, 2011. Target 2 is considered by management to be the “best” target, being the largest of four diamond drill targets identified by RC drilling (see Figure 2). It is defined by a distinct gold grain in‐till anomaly that outlines a dispersion train of at least 3 km trending in a NE‐SW direction. The till anomaly is also associated with anomalous arsenic and zinc, and overlies a broad shear fractured leucogranite of the "contact stock". Prospecting during the fall of 2010 produced 41 mineralized boulders, of which 33 (or 80%) were found to be anomalous in gold. Five of the boulders yielded assays between 5 and 10 g/t gold, while one boulder yielded an assay of 42 g/t gold. Figure 2: Four Key Target Areas of TPK Project and Location of Hole TPK-10-004
Source: Company filings Paradigm Capital Inc, IIROC/TSX member
3
December 14, 2010
Research Note
Geophysics Will Hopefully Guide Target Drilling In an effort to aid targeting for the 2011 winter diamond drill program, Abitibi Geophysics of Val‐D'Or, Quebec, has been mobilized to TPK to carry out an 80 line‐
kilometre Induced Polarization (IP)/Resistivity Geophysical Survey. This survey will cover diamond drill Targets 1‐4, with a 100‐metre line spacing. Given that the shear zones appear to contain sulphide mineralization, it is believed the geophysics should be able to identify those sulphides (and thus the location of the shear zones). Line‐cutting crews have also been mobilized to site, to expand the current grid in order to facilitate the ground geophysical survey. Neskantaga crews are assisting in grid re‐
establishment. IP and line‐cutting will break for Christmas, and resume in the first week of January 2011. Valuation, Raising Target Price The bulk of the valuation for Northern Superior rests on the flagship TPK Project, which has no current resources, making hard valuation metrics challenging. In our initiation report (Nov. 30/10), our valuation was based on an estimate of 0.89M oz resource, net to Northern Superior (SUP’s 49% interest, assuming RR has earned in to 51%) being outlined over the next 12–18 months. This is a rate of discovery similar to that experienced by Rainy River on its RRGP project. We then applied an “average” valuation‐per‐resource ounce, using comparable assets for comparison. We are maintaining our outlook for the resource discovery. However, with the bonanza grades encountered in this initial batch of drilling, we are increasing our valuation per ounce to reflect the potentially more valuable higher grades. We have applied a value of $200/oz, and then subtracted this from the current gold price to arrive at an “all‐in” cost of $1,200/oz. This is similar to our “Total Investor Cost”, but includes the cost to discover the resource in addition to the usual costs of building and operating a mine, plus all capex costs. This allows us to calculate a very rough NAV by taking the current gold price and subtracting the $1,200/oz cost (x the 0.89M oz). At current gold prices ($1,394/oz), this equates to an NAV of ~C$1.24/share (fully diluted), which places SUP trading at a 0.72x P/NAV multiple, which is on the lower end of the range of P/NAV multiples for the emerging gold producers. We believe SUP should trade close to this level until the resources are defined to NI 43‐101 standards, and perhaps we begin to get some scoping‐level studies on the project economics. It is, of course, very difficult to accurately estimate project economics without any defined resources, sense of total size, processing method, etc. We use our simplistic NAV calculation at our target $1,550/oz gold price, and apply the same 0.72x multiple to arrive at our new target price of C$1.50 (from C$1.00). We maintain our Speculative Buy rating, and continue to believe the TPK Project to be one of the best North American gold exploration plays active today, with multi‐million‐ounce potential. Paradigm Capital Inc, IIROC/TSX member
4
December 14, 2010
Research Note
Disclaimer Section
1. Paradigm Capital Inc. expects to receive or intends to seek compensation for investment banking
services from the subject companies in the next 3 months.
2. Paradigm’s disclosure policies and research distribution procedures can be found on our website
at www.paradigmcap.com.
3. Paradigm Capital research is available on First Call, Reuters or at www.paradigmcap.com. Issued
by Paradigm Capital Inc.
Research Rating System
Paradigm Capital uses the following rating recommendations in its research:
# of
Companies
% of
B/H/S
Buy
131
69%
Buy – Expected returns of 20% or more over the next 6 to 12 months.
Buy (Spec)
30
16%
Speculative Buy - Expected returns of 20% or more over the next 6 to 12 months on high-risk development
or "pre-revenue" companies, such as junior mining and early stage biotech companies.
Hold
Sell
25
3
13%
2%
Hold - Expected returns of +/-20% over the next 6 to 12 months.
Sell - Expected returns of -20% or more over the next 6 to 12 months.
Total
189
Recommendation
What our ratings mean:
About Paradigm Capital Inc.
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Paradigm Capital Inc, IIROC/TSX member
5
December 14, 2010