The right assets for a successful future

Jay Taylor Refreshes His Buy Recommendation For Calico Resources

TAYLOR HARD MONEY ADVISORS, INC.

Review

Calico Resources Corp.

Business: Exploration and development of gold properties in B.C. and Oregon

Traded TSX: CKB US OTC: CVXHF

Shares Outstanding (1): 26,607,369

Insider Ownership (approximately): 19%

Initial Recommendation 4/14/11: $0.46

Price 3/27/12: US$0.35

Market Capitalization: $9.3 Million

Cash as of 12/31/11: $1.4 Million

NI 43-101 Gold Oz. Resource (2): 1.57 Million

Non 43-101 Silver Oz. Resource (2): 5.2 Million

Phone: 604-681-6855

Web Site: www.calicoresources.com

Calico Resources Corp. has made a great deal of progress on its Grassy Mountain Project in Oregon since I first added this stock to my list about one year ago. In fact, the recommendation to buy this stock was made largely on the intention to acquire the Grassy Mountain Project in western Oregon. That deal was closed and subsequently considerable progress has been made in terms of project development. Here are some of the company’s accomplishments since

I first told you about this stock in April of 2011:

• Increased its resource significantly to 1.57 million oz. of gold and 5.2 million oz. of silver. The resource is contained.

• Drilled a number of very impressive holes, the results of which have not yet been factored into the increased resource. Some of the more noteworthy holes were 38 meters grading 8.77 g/t, 109.7 meters grading 2.51 g/t, and 37.4 meters grading 1.05 g/t.

• Doubled its claim areas, expanding its exploration potential significantly. The company has identified 17 additional drill targets, four of which have a geological resource. The remainder have not yet been drilled.

• Commenced metallurgical studies and environmental planning.

• Started mine permitting process with the Oregon Department of Geology and Mineral Industries for an underground mine and surface milling.By June, the company expects to have completed its metallurgical test work, commence exploration on some of those above-noted additional 17 targets, and commence its 2012 drill program.

Plans now are to initiate production from underground. The advantage of mining underground is a higher grade. From underground, 42% of the existing mineral resource is contained within just 8.5% of the global tonnage in the company’s resource. Moreover, permitting of underground operations figures to be easier than or an open-pit operation. I believe Calico Resources is likely to succeed in moving its Grassy Mountain Project forward and into production. Adding to my confidence for this company is its strong management team, headed by its chairman,

 

Buck Morrow, who has had a successful track record. Buck was known and highly regarded back in the 1990s by the mining engineers I worked with in the metals and mining section of ING Barings. I expect he and his team will be successful with Grassy Mountain, as he was at Northland Resources, which we also profited from in this letter.

As with all non-project generator exploration companies, the major risk that early shareholders face is one of dilution, especially in markets like the present, when both producers and exploration companies are not enjoying higher multiples seen in stronger markets. Even before the recently announced plan to raise over $5 million by the issuance of 14.75 million shares with a ó warrant, the number of shares outstanding for this company increased by 41.2%, to 26.6 million shares. Add another 14.75 million shares, and shareholders have been diluted by 120%. Most importantly as an investor, the price of the stock has declined by 21.7% since we recommended it. Because of my confidence in management, I believe this stock will be an ultimate success, but the headwinds of dilution in a lackluster market like this are also obvious. If you do not own this stock now, you may do well to pick it up at a discount from our initial recommendation.