Ticker: TSX.V: AOX, OTC: AOVTF (Andover Ventures Inc.) Company Overview Andover Ventures Inc. (“Andover” or the “Company”) is a precious and base metals exploration and development company with world-class large scale properties located in the historic East Tintic Mining District in Utah and the polymetallic-rich Ambler Mining District, Alaska. The Company has 78.5% interest in Chief Consolidated Mining Company, with land holdings and mineral rights covering approximately 16,000 acres in the historic East Tintic Mining District of Utah. Andover has 100% interest in its Sun property which spans nearly 45,920 acres with strong volcanogenic massive sulfide (“VMS”) mineralization. Past exploration by Noranda, Anaconda and Cominco confirms high potential for both base and precious metal production. Investment Highlights Targeting global metal values of greater than $7 billion in ground Near-term gold production at Trixie Mine in 4Q11; historical cost of production <$125 per ounce Historical pre-feasibility study done by Anaconda shows potential 50 million ounces of silver and 186 million silver equivalent ounces at Sun deposit or 4.47% copper equivalent Management team experienced in both exploration and precious metal production Partnered with Rio Tinto’s Kennecott on Big Hill copper-gold-molybdenum prospect in the East Tintic Mining District Operating in politically safe jurisdictions Value Propostion Andover is a junior mining company partnered with the third largest mining company in the world, Rio Tinto, to explore and develop a part of the 16,000-acre property in the East Tintic Mining District of Utah. Andover expects to begin production from the Trixie Mine complex in the East Tintic Mining District in the fall of 2011. It expects to produce 20,000 ounces of gold annually within three years and 5,000 ounces in its first full year of production. Additionally, Andover’s Sun Deposit in the Ambler Mining District of Alaska has an estimated $8 billion of copper and silver reserves, located on an 18,000-acre property that sits adjacent to NovaGold's (AMEX: NG) 29,000-acre site. Andover's current market cap of only $60 million does not reflect either its near-term gold production capacity in Utah or the enormous potential upside represented in the Sun Deposit property. Valuation The Company is undervalued, which we believe is due primarily to the fact that the Company, until very recently, had only historic resource estimates for investors to view. However, it recently completed a 43-101 resource estimate on its Burgin deposit and is expected to have a 43-101 resource estimate completed on its Sun deposit by the end of the year. In our view, due to the sheer number of junior mining exploration stocks available to shareholders, many of these securities tend to become mispriced as investors do not have the time to do proper due diligence on all of the available companies. We feel that we have found one of these underpriced securities, and we believe that Andover has strong medium- to long-term potential based on its Burgin and Sun deposits that is not being properly considered by the market when you view the value of some of its public comps. Additionally, the Company has multiple Blue Sky projects that have the potential to add further resources to AOX (in particular the Big Hill and the Ball Park). We have opted to value the Company by looking at the EV/Resources multiples of their 3 comps that have the largest total of resources to date (Gryphon Gold, Shanta Gold, Atna Resources Inc.). Taking into account the Blue Sky opportunities that Andover has (which are not currently present in the Company’s resource total) we have opted to use a EV/Resources multiple that is similar to the multiple being afforded to Shanta Gold, which has the highest multiple of the 3 comps listed above. Using an EV/Resources (Au Equivalent) multiple of 33.0x and taking into account the Company’s long-term diluted shares outstanding of 123,123,687 (we assume cash exercise of all warrants and options) we derive a target price of C$1.29 (representing upside of 193%) and assign the Company a SPECULATIVE BUY rating. We believe that some near-term catalysts for further price appreciation are the start of production at the Trixie Mine and the upgrade to a 43-101 compliant resource estimate for the Company’s Sun deposit. Investment risk Mining exploration companies are dependent upon metal prices. Much like any commodity producer, junior exploration companies are dependent upon metal prices for much of their value. Substantial declines in metal prices could lower the Company’s value. Energy price increases could lower margins. Increases in oil prices would likely further raise costs on miners, which would in turn compress their margins and make them less profitable. AOX has not yet completed a PEA on any of its properties. There can be no guarantee that Andover can profitably produce ore from its projects until further studies are undertaken. However, past production at Trixie and Burgin (at less favorable metal prices) gives an indication that operations at these properties would be economically feasible. Andover has not yet completed an NI 43-101 resource estimate at either Trixie or Sun. As of now, AOX only has historic resource estimates completed on its Trixie and Sun properties. However, we consider these estimates to at least be a relatively accurate representation of the resources present, especially at the Sun, given the substantial drill program that has already been undertaken and the fact that prior resource estimates were done by Swan Wooster Engineering Co. Ltd., Canadian Mine Services Ltd., and Kilborn Engineering (BC) Ltd., which are three very well-known and respected engineering companies. AOX does not currently have any operating mines. Currently, AOX does not have any operating mines and is dependent on external funding to explore its properties. Assuming the Trixie Mine begins production by the end of this year, this risk would be reduced. The Company’s current cash balance is approximately $1.6 million. Historically, AOX has maintained a low cash balance, although the current cash balance of approximately $1.6 million appears to be the highest the cash balance has been during the Company’s history. The Company appears to be using what we would consider “drip” funding throughout its history, which basically involves small cash injections into the Company on an as needed basis. While there is a risk that funding could be shut off (we would become more worried about this scenario if metal prices went into decline), we don’t believe that there are currently problems for the Company in this area (as evidenced by the recent $2.5 million, non-interest bearing convertible note that it issued), which is indicative of the interest that funds have in the Company. The Company has a large warrant and option overhang. Based on AOX’s June 30, 2011 filing, the Company would currently have options outstanding of 7,221,000 (strike prices ranging from $0.20 - $0.90) and warrants outstanding of 12,699,335 (strike prices ranging from $0.30 - $0.40). (Note: We assumed the exercising/expiration of options and warrants that had expiry dates prior to the publication of this report). The options and warrants outstanding likely comprise around 19% of the shares outstanding (considering the above options and warrants and the shares outstanding as of the date of its MD&A of 103,203,352). If share price appreciation occurs, some of these options and warrants may be exercised, which could restrain the Company’s share price.
