Coal Indices - Dow Jones US Coal Index and Stowe Global Coal Index both signal an opportune time to establish strategic long positions in coal.      The Stowe Global Coal Index incorporates the equities of companies involved in many segments of the global coal industry. Coal is indeed a global industry, with coal mined commercially in over 50 countries and used in over 70. The coal industry is defined and measured in various ways, but essentially comprises the businesses of coal mining (exploration, development, preparation, and marketing), coal transportation (railroads, trucking, barges, ports and terminals), equipment and services (mining and processing equipment, analytical, engineering, and environmental services), and emerging coal technologies (coal-to-liquids, gasification, clean coal, carbon capture and sequestration). [Constituents & Weights of the Index may be found here] Metallurgical Coal Prices Chinese met coal consumers are demanding price cuts. Spot met coal prices are off sharply from summer highs; current US$98-$140 metallurgical coal price is still strong relative to a marginal cash cost of production of approximately US$120/mt. Global steel production fell in the second half of 2008 and is projected to post another +10% decline in 2009. This includes a roughly 10% fall in Chinese output, following many years of double-digit increases. Poor demand for steel products has caused hefty declines in worldwide metallurgical coal demand. Before the worldwide economic crisis hit, seaborne trade volume of hard coking coal (including semi-hard coking coal) in calendar 2008 was projected to grow 5.6% year over year. However, it will likely shrink about 1% in 2008 and 13% in 2009. China's coking coal imports surged to 1.33 million tons in March, as lower international prices drew Chinese buyers. Major exporters to China include Mongolia, Australia, Canada and Indonesia. China's economic growth was supporting demand for coking coal, closures of small mines had caused a slump in domestic supply, prompting a surge in imports.       Factors Supporting Met Coal Prices Reduced coal production in attempt to stabilize market; Peabody Energy, Xstrata Coal, Alpha Natural Resources, Macarthur Coal Ltd., Walter Industries, Western Canadian Coal Corp., Elk Valley and many others have reduced production. Aggressive capex cutting and delaying of long-term expansions (indefinitely) is being practiced by most producers. Difficult credit conditions and the present lower-price environment should reduce current and longer-term production of met coal.   Thermal Coal Prices General consensus is that thermal coal prices have bottomed.  Dwindling Chinese and Indian stocks, coupled with production cuts, could be offset with surplus U.S. stocks and the diversion of unloved PCI (pulverised coal injection) metallurgical coal into the thermal market. Prices have been affected by three interrelated factors; 1) shrinking demand for grid power, 2) weak global environment, 3) lower oil prices; coal often trades off the energy complex. It is important to keep an eye on the energy complex as higher oil prices and a clear bottoming in the coal indices as seen to the top right signal an opportune time to establish strategic long positions in coal.   Mergers & Acquisitions in the Coal Sector - Increased M&A activity is anticipated and noticeable Alpha Natural to buy Foundation for $1.5 billion in stock (note this creates the third largest coal stock). Xstrata, Peabody eye $1 billion buy of Berau Coal. Arch Coal announced an agreement to purchase Rio Tinto’s Jacobs Ranch mine in the Powder River Basin for $US761 million. Australia’s Gloucester Coal has announces a friendly offer to purchase White-haven Coal and is itself under a takeover bid by major shareholder and commodity trading company Noble Group. Mechel’s purchase of privately held Bluestone Coal. Peabody Energy has invested in a JV with Polo Resources.   Investment Strategy The economic turndown appears to be been fully priced into the share prices of coal producers. Stocks seem to be discounting long-term coal prices far below current levels and make coal stocks in general ripe for accumulation. Triggers to watch for potentially higher share prices: Stabilizing GDP. Falling coal and steel inventories. Improved global steel capacity utilization. Rise in the energy complex. ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------   Coal Technology Insight: Carbon capture and storage (CCS) technology movement gaining strength Carbon capture and storage (CCS) technology involves capturing industrial emissions and storing them in the earth's crust. The technology is being spurred on in the USA by the Obama administration pushing climate legislation, including cap and trade, to generate $650 billion between 2012 and 2019 and cut emissions by 14 percent.   Shell Oil is a leader in the use and application of CCS technology currently pumping CO2 into oil and gas reservoirs, pressurizing them to increase output. Shell currently has seven test-phase CCS projects underway and are looking to fund future projects through lucrative carbon credits. Shell is developing the technology to become an industry leader in storing not only its own but other companies' carbon emissions too. Such a move will allow them to profit from financial perks given for lowering emissions. In a conference call on May 7, 2009 Shell CEO Jeroen van der Veer said "We think (CCS) is one of the few technologies that has the potential to become very big." Building CCS projects now would cost Shell around $2 billion for each million tons a year of emissions. The U.S. emits ~7 billion tons a year. "No one knows the cost if you start to do it on a large scale," Van der Veer said.   The future implications of CCS technology for the coal industry are important since coal based energy production in conjunction with large scale CSS technology application would provide a solution to the issue of clean coal energy production.   ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------   Market Equities Research Group - Case Study Abridged Report Copy     Category: Coal Exploration – Top Selection;   Cloudbreak Resources Ltd. (TSX-V: CDB) (Frankfurt: C6K) (US Listing: CUDBF)   Synopsis: Risk-reward characteristics are highly advantageous for investors establishing a long position in Cloudbreak Resources Ltd. Cloudbreak Resources has one of strongest land packages for coal exploration in Saskatchewan and is ideally positioned in the coal trend with superior technical characteristics conducive to finding a deltic-sequence for quality thermal coal similar in size or even larger than what Goldsource Mines found on the same trend. Permits to drill up to 40 coal exploration test holes at their "Dowd Lake Coal Property" near the town of La Ronge, in Central Saskatchewan have been approved and granted by the Saskatchewan Ministry of Environment. The "Dowd Lake Coal Property" is comprised of a total of 96 Coal Prospecting Permits covering approximately 182,000 acres of prospective coal bearing lithologies. Each of the planned diamond drill holes targets the near surface expression of the Cretaceous Mannville Formation which is the target stratigraphy of Goldsource's "Durango Trend". CDB.V drill program set for this Q3 2009 on their 100% owned Dowd Lake Coal Property will begin by effectively twinning a historic 145m variable coal seam intercept that is indicated in government reports as Sub Bituminous C coal, the drill program will then build off analysis of the first hole. CDB.V appears undervalued with only ~84M shares outstanding and trading under CDN$0.10.          Figure 1. Dowd Lake Coal Property & Region CDB.V Dowd Lake Coal Property, directly adjacent to Goldsource's Ballantyne Property, is the target of Cloudbreaks 2009 Q3 drill program. The first drill target will effectively twin a historical 145m variable coal seam intercept that a Geological Society report indicates as Sub Bituminous C coal. The potential to locate a solid seam of coal is high as geologists believe the coal trend runs through (see 'TREND' in map below)...   Figure 2.  Coal Trend -  The coal trend zone runs SE through Manitoba, towards the US border. Coal is significantly closer to surface on the northwestern side, where Cloudbreak properties are, and deeper in the southeast. Most of the CPPs (coal processing permits) granted in the province to a myriad of companies follow that trend. The Certaceous Mannville Formation runs its length and the discovery by Goldsource of coal in two drill holes, 1,600 metres apart, suggests the potential for a much larger coal system; coal seams of Cretaceous age are believed to be generally very large and can encompass several thousand square kilometres.        Cloudbreak Resources has ~475,000 acres of coal exploration permits, totaling 21 full or partial townships in Saskatchewan, making Cloudbreak one of the largest landholders in the area. The properties cover the Mannville Formation of Cretaceous age, the same lithology as the Goldsource Border Coal Discovery located on the same coal trend. Cloudbreak's properties are believed to contain basinal and depositional similarities to that of the Border Coal Project area. The CDB.V Dowd Lake Coal Property, directly adjacent to Goldsource's Ballantyne Property, is the target of Cloudbreaks 2009 Q3 drill program. The first drill target will be effectively twin a historical 145m variable coal seam intercept that a Geological Society of Canada report indicates as Sub Bituminous C coal. Many intercepts, such as the aforementioned 145m intercept, were not logged in detail by past operators as they were focused on kimberlite found 'beneath' the Cretaceous lithologies within the Precambrian basement; and not within the overlying Mannville Formation -- Cloudbreak has identified through historic research, the location of drill holes where data indicates that coal exists.   Richard Macey, President & Director of Cloudbreak, offered the following synopsis of the upcoming drill program, "It is a known fact that there is coal in the ground in the region. We have quite a strong land position and feel comfortable that we are going to hit coal. Past historical drill results suggest that this is inevitable, and the Dowd Lake Coal Property is only one of our six properties of interest."   The area covered by the Dowd Lake Coal Property, which lies south of Wapawekka Lake, has been identified in GSC paper 89-4 (G.G.Smith, 1989) as an area prospective for containing coal which has been potentially misidentified as Lignite. Smith identified coal sampled from the area (within the Wapawekka Coal Pit) as Sub Bituminous C ranked coal. This area has also been identified by Pearson (1961) as hosting "Cretaceous Age, Silica Sand and Coal Occurrences on Wapawekka Lake". Within this Pearson report it is stated "The coal outcrops at Wapawekka Lake...may indicate the northern edge of a coal field lying to the south, southwest and west of Wapawekka Lake." The Dowd Lake Coal Property lies south and southwest of Wapawekka Lake. Subsequent to these reports, in 2000, Golconda Resources intercepted 145 meters of "coal seams of varying thickness intercalated in unconsolidated sandstones of medium grained composition from 17.5 meters to 163.06 meters". In 1993, Consolidated Pine Channel intercepted 30 feet (9.15 metres) of coal seams of varying thickness. The coal intersected with the drill hole was described as "Lignite: largely intermixed with silt in the centre part of the section from 278 feet to 308 feet (84.76 metres to 93.9 metres)".   Mr. Richard Macey, President, reports, "We are extremely pleased that Phase I of the Dowd Lake Coal Exploration drilling program has been approved and we expect to commence the exploration work in July 2009. The Dowd Lake Property is well positioned in an area among Goldsource's "Ballantyne Property", Geo Minerals (TSX VENTURE:GM) "Wapawekka Lake Property" where they recently announced (April 30, 2009) a coal intercept of 52 feet (16 metres), and the historic Golconda Resources "145 metre coal property". The Company also looks forward to the drill testing of its additional Saskatchewan Coal Properties in 2009."   The Dowd Lake Property is one of the Company's six coal exploration projects in Saskatchewan. Drill testing permits on the remaining five projects are currently being reviewed and prioritized towards permit filing.   Cloudbreak did an inordinate amount of research in selecting the properties they have, making use of geologists in the know, including government geologists who are familiar with the coal trend, fault lines, history, and nuances of the region. Richard Macey purposefully staked these properties, not only based on the opinion of geologists that they are highly prospective for coal discovery, but because they are just south of the Canadian Shield, where the coal is relatively close to surface, giving the company the opportunity to drill economically.   The properties were also specifically selected for year-round road access and minimal disturbance. Geologist Paul Gray pointed out how CDB.V projects are 'high and dry' properties that can be drilled year-round, unlike the swampy low-land properties of many other companies, which would require an expensive helicopter supported program or a winter freeze-up, the building of ice roads, and the creation of a large amount of disturbance, thus adding to permitting time and cost. CBD.V President, Richard Macey, personally drove the back roads into all the properties prior to staking to ensure shareholders would benefit from minimal disturbance and related cost savings.   What became evident in our conversations with geologists intimately familiar with the area and the properties Cloudbreak possesses is the superior calibre of the land package, the contributed insight that went into selecting the properties, and how CBD.V can benefit going forward. Not only is Cloudbreak able to build on published historic project results, from those that searched for kimberlite, but as Geologist Paul Gray said, "Not every company who'd been there in the 50s, 60s, and 70s had made their information public. They kept their cards close to their chest back then and that is what will build on too, the ability to find some of those drill holes and work it from there." When pressed to explain what he believes CDB.V will find, Paul explained how large coal intercepts originate and how there were basins of attraction in the Mannville in which thickening of coal occurs. "What you are looking for are old bays and/or old depressions which would allow thick concentrations of coal to deposit, like what Goldsource has identified. There is nothing indicating there isn't another deltic-sequence somewhere further north that may hold the same, or even larger targets, and that really blows everything wide open - because the best thing about where Cloudbreak's  northern projects are located, is that the target coal lies almost at surface, just beneath the glacial till. You are not looking 80m depth, you are looking merely 20m down, and that makes all the difference in economics."   Overview of Cloudbreak's 100% Owned Saskatchewan Coal Properties Some of Cloudbreak’s permitted townships are located in east-central Saskatchewan, approximately 80 kilometres NW of the recent Goldsource Mines Inc. discovery. The discovery by Goldsource of significant coal in two drill holes, 1,600 metres apart, suggests the potential for a much larger coal system. Goldsource reported that it believes the coal it encountered is from the Mannville/Swan River group of Cretaceous age. Coal seams of Cretaceous age are believed to be generally very large and can encompass several thousand square kilometers. Other lands in Cloudbreak’s portfolio directly abut Goldsource’s `Ballantyne’ property to the west. That company is “currently permitting a drill program for the Ballantyne prospect, with approximately 20 holes to be completed in 2009” - (source:Goldsource news release Jan 12/09). Directly adjoining Weststar Resources’ property known as the "18 Metre Property" to the north, you will find another series of Cloudbreak exploration permitted townships. During a 1994 exploration program conducted by Consolidated Pine Channel Gold Corp., an approximately 18.84-metre-thick coal interval between 47.70 metres and 66.54-metre depth was identified at the property. The discovery was made while testing a magnetic geophysical anomaly for kimberlite. The historical drill log (TL02-2, assessment report 63E-0004) indicates: 47.70 metres to 55.32 metres (7.62 metres) -- coal, massive; 55.32 metres to 66.54 metres (11.22 metres) -- coal breccia, from 20 per cent to 60 per cent angular coal clasts, mixed with varying amounts of clay, silt and sand. Neither the rank nor the grade of the coal has been determined. It should also be noted that core recoveries in the coal intersection were as low as 15 per cent, and average less than 50 per cent for the 7.62-metre interval. Hence, the massive nature of the coal as stated in the drill log may not be accurate. This historic resource calculation is based on data developed prior to implementation of NI 43-101, and as such should be treated as a historic estimate and should not be relied upon as if it were compliant with NI 43-101. A National Instrument 43-101 compliant report is forthcoming.   Although the coal was not analyzed at the time, the magnitude of coal reported within the aforementioned interval is similar to the Goldsource discovery (26 metres and 32.5 metres in thickness) and confirms the regional potential for significant thickness of coal within Mannville-aged rocks of east-central Saskatchewan. In a news release dated January 12/09, Weststar states: “The Company will initiate an abbreviated first phase of drilling to consist of 5 to 8 holes from 50 to 100 meters in depth. This drill plan is designed to both 'twin' and validate the discovery hole drilled in 1994 identifying the 62 foot (18 meter) coal zone, including the 25 foot (7 meter) continuous coal seam at 156 to 181 feet (48 to 55 meters); while also serving to locate direction and limits of the coal seam as a means to better optimize and finalize a design and drill plan for a second phase.”