May 24, 2011

Dear Friend,

We raised our price target for Quadra FNX Mining to $19 from $16 while staying at a Neutral rating because (1) the $724 mm proceeds for 45% of Sierra Gorda were larger than we expected, (2) nickel prices have risen and (3) the 12.5 mmt of inferred resources from the Victoria deposit are very rich materials where any one of the three minerals should be enough alone to generate a profit margin. These are big benefits to the company.

The company's excess cash flows should be quite large if it executes its business plans smoothly and the world economy continues to grow with favorable metals prices. We model $4 billion in year-end 2017 cash balances with minimal debt.

Currently investors are hostile towards cyclicals and copper shares, but Quadra FNX should trade up when confidence recovers. We wonder which smaller cap emerging copper stock offers more "muscle" -- Quadra FNX, Mercator, Imperial Metals or some other. A plus for Mercator Minerals is that the new management may be willing to sell the company, but Mercator or its future acquirer has nearly $1 billion of outlays to finance at El Pilar and Creston. Right now we are entering the summer doldrums, Quadra FNX has some business execution ahead of it and we sense a future "better buying opportunity" is possible.

John C. Tumazos, CFA