Quarterly Newsletter

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2007 Q2 Newsletter
June 30, 2007

The second quarter (Q2) of 2007 saw strong performance on both Canadian and American equity markets. The extreme volatility continued but stronger economic performance in both U.S. and Canada restored investor confidence. The fears of recession and prediction of lower central bank interest rates gave way to renewed inflation fears and forecasts of increased interest rates. A sharp reversal in economist’s previous thinking. We adjusted our views based on this new perspective.

Data Table

Overall, Lawrence Decter Investment Counsel Inc. (LDIC) performance was 6.4% in the second quarter. This exceeded the 5.6% gain on the S&P TSX by 0.8%. The Dow Jones Industrial Average gained 9.6% for Q2 and the broader S&P 500 gained 6.9%.

Top 10 Holdings

On average, our top 15 positions experienced a 6.4% gain during the second quarter, twelve were up with a 20.2% gain for Rogers Communications and three were down lead by Tim Hortons with a 6.2% decline.

It is worth noting in the week following June 29th Hudbay Mineral gained a further 23%.

Major Portfolio Changes

Exits

We exited two major positions in Q2.

Alcan Inc.

Alcan is a leading supplier of alumina, aluminum and bauxite as well as, a provider of engineered and packaging materials with market leadership in Europe, the Americas and Asia. When Alcoa made a US$73.25 (US$58.60 in cash and 0.41 Alcoa share) unsolicited offer for Alcan in May, the stock soared from the mid-$60’s to $90 and we decided it would be prudent to exit our position at that point. Our view was that there would be quite a bit of regulatory review required in the US, Canada, Australia, Brazil and even the EU given the strong market positions held by Alcan and Alcoa. We were also uncertain as to whether Alcan would accept the offer since both companies had been in discussions for almost two years which, had fallen apart prior to the bid.

Long-term Zero Coupon Bonds

We had purchased a substantial position in very long term (2030 to 2035) zero coupon or “strip” bonds. Our rationale was to “insure” portfolios in a declining interest rate environment. Our view and the street consensus late last year and early in 2007 was a slowing American economy would result in lower interest rates both in the US and in Canada. By early Q2, it became apparent the U.S. economy was strong enough to not need interest rate reductions. Key bond market analysts switched over their view and we decided to exit our long bond positions in favour of shorter duration bonds or conservative dividend paying equities.

New Positions

We added to four major positions in Q2.

Bayou Bend Petroleum

A member of the Lundin Group of companies, Bayou Bend is a Gulf of Mexico gas exploration company with a solid management team and 19,170 acres of shallow water leases in the Marsh Island area. Bayou Bend is the operator and owns a 35.6% operating interest in the Marsh Island project which, is located in the midst of a prolific gas-producing area and is virtually unexplored because it was under a drilling moratorium until recently. Marsh Island is surrounded by more than 11.5 Trillion Cubic Feet Equivalents (Tcfe) of existing gas discoveries and a lot of existing infrastructure. 3D seismic, the first completed in the island’s history, has identified 24 prospects and leads. We like Bayou Bend because we believe the current stock price only values a small portion of the resource potential. The Company plans to drill at least eight wells by year end to target ~1.24 Tcfe of natural gas potential net to Bayou Bend: success drill results from these wells will be a strong catalyst for the stock price. With the completion of a $200 million financing in February 2007, Bayou Bend is funded for more than two years of exploration so there will not be a need for further financing in the immediate future. We really like the Company for its potential resource base, strong balance sheet and the strength of its management team.

Timminco

Timminco has been a producer of chemical grade silicon (99.9%-99.99% purity) since 1976 and even has its own silicon feedstock from its wholly-owned quartz mine. We bought Timminco recently because it developed a proprietary patent-pending purification process for enhancing its current chemical grade silicon to high purity (99.999%) silicon which, is in high demand by the solar industry for the manufacture of solar electric generation panels and sells for a much higher price. Timminco has proven its process through a 300 metric tonnes (mt) pilot line and is currently ramping up a full scale 4,000 mt per year commercial production line. So far, the Company has announced two new supply contracts: one for 1,000 mt annually for 5 years and the second for a minimum of 1,500 mt and up to 5,000 mt over 5 years. They are in discussions with other solar manufacturers and we expect they will announce at least one more supply contract. At the planned production level of 4,000 mt per year, Timminco will become the 6th largest producer but at a significantly lower cost. We believe strong growth in solar panel demand will continue to drive demand and increase prices for high grade silicon which will benefit Timminco as a low cost producer. Timminco reached our target price of $6 in early July therefore we exited our holding after the quarter end.

Brilliant Mining Corp.

Brilliant Mining owns a 25% interest in Lanfranchi nickel mine in the Kambalda nickel district of Western Australia. Kambalda is a world class district ranked 3rd worldwide in terms of nickel production and Lanfranchi contributes ~10% of the district’s production. We like Lanfranchi because it is host to high grade (2+% up to 4.3% nickel) nickel sulphide and has the potential for a significant increase in resource size through exploration. Due to existing nickel price hedges, Brilliant Mining currently sells its share of the nickel produced at US$5-$6.20. These hedges expire at the end of July 2007 so we expect a significant increase in cash flow once Brilliant Mining is able to sell nickel at the current market price of ~$16.40. Furthermore, the expiration of these hedges will coincide with an increase in nickel production due to the addition of two new deposits. We like the strength of both the Brilliant Mining management team as well as, their partner who operates the Lanfranchi mine (ASX-listed Sally Malay). Brilliant Mining’s share price has weakened recently due to what we believe was a combination of nervousness about the softening in nickel price and some profit-taking from earlier investors. Our view has always been that $23-$24+ nickel was unsustainable and given the correction of copper and zinc prices over the last few months while nickel continued to trade to new highs even as nickel inventory was very gradually increasing, we believe this correction was due. The underlying supply and demand fundamental remains unchanged: global demand for nickel continues to be strong although there has been some substitution. However, on the demand side, almost all the new sizable nickel projects coming online are laterite projects which require $2-$2.5 billion in upfront infrastructure spend (e.g. Goro, Ravensthorpe) and require more complex production processes. We continue to like low-cost producers with strong management teams, growing cash flows and exploration upside like Brilliant Mining.

Rogers Communications

We have owned Rogers since last year and have added significantly to our holdings. We believe Rogers will continue to benefit from the growing Blackberry obsession in our nation. As well and more seriously Rogers recently acquired five Citytv stations as a result of a CRTC ruling requiring the sale of these stations by CTV after they bought CHUM. These stations significantly strengthen Rogers’ television franchise. Rogers’ ability to “bundle”- that is to sell telephone service along with cable TV and high-speed internet will position them for strong, continuing growth and profitability. We also believe the sale of BCE will result in some market disruption which should provide Rogers with an opportunistic window to increase its market penetration.

Outlook

Our outlook for the balance of 2007 is positive. We believe the mining and energy sectors will continue to outperform based on strong Asian demand. As well, we are confident the Canadian economy will continue to benefit from high resource prices.

The major cloud on the Canadian economic horizon is the rise in the Canadian dollar into $0.93-$0.95 range versus the U.S. dollar and interest rate increases that will slow the economy.

Sincerely,

Michael Decter President and CEO