Investment Approach

Investment Strategy

The Partnership’s investment strategy is to invest in flow-through shares of resource issuers that:

1. have experienced and reputable management with a defined track record in the energy, mining or alternative energy industries;

2. have exploration programs or exploration and development programs in place;

3. have shares that are suitably priced and offer capital appreciation or income potential; and

4. meet certain market capitalization and other criteria set out in the investment guidelines section of the Partnership’s prospectus.

The Investment Advisor proactively manages the Partnership’s investment portfolio with the objective of providing capital appreciation for the Partnership after the initial investment period. This may involve the sale of flow-through shares and other securities and the reinvestment of the net proceeds from such dispositions in securities of resource issuers.

The investment portfolio includes a number of junior resource issuers. The Partnership can invest no less than 70% of the gross proceeds at the time of investment in flow-through shares of resource issuers which are listed on a stock exchange and at least 25% of the gross proceeds at the time of investment in flow-through shares of resource issuers which are listed and posted for trading on the Toronto Stock Exchange, the New York Stock Exchange, the American Stock Exchange or the Nasdaq National Market.

Investment Approach

The investment portfolio is managed using the same investment approach as the Investment Advisor applies to the energy and materials sector investments of Connor, Clark & Lunn Investment Management Ltd.’s small capitalization and ‘‘Growth at a Reasonable Price’’ (‘‘GARP’’) Canadian equity portfolios, which the Investment Advisor has been managing for more than 20 years.

The Investment Advisor utilizes an active fundamental based approach which involves disciplined monitoring of the sector. Before an initial investment is made a management interview is conducted to determine the important future drivers for shareholder value creation. In addition to the issuer’s strategic corporate plan, the strength and weakness of the issuer’s management, board, and technical teams are assessed. The willingness of the management team to take different levels of risk to achieve their long term goals and the ability of the issuer to meet its stated goals and key financial metrics are also examined. If an issuer’s securities are added to the Partnership’s portfolio, regular visits are made with the management team to monitor whether it is meeting the milestones set for the issuer at the initiating meeting. Target prices are set for the stocks based on the expectation for growth and value creation potential and are used to assess relative opportunity amongst the universe of investments. In support of the bottom up stock selection process, an understanding of the macro environment is developed using a wide range of industry contacts.

The Investment Advisor uses many of the traditional industry efficiency metrics in its analysis of company-specific risk. For example, when assessing the quality of assets, the Investment Advisor will evaluate the level of production risk by examining how long wells have been in production, how much of the overall production is made up of wells with less than two years production, and geographic concentration of the wells. Exploration and development costs are also considered by the Investment Advisor to be important measures of efficiency of the management team as are netbacks (revenue less production costs), operating costs and selling, general and administration expenses on a per share basis.