I am in the commercial real estate industry where we too use the discount cash flow model (DCF) to determine value/cost. In most cases, this analysis is justified based on the time value of money where you discount future cash flows of a fixed investment to provide current value. However, this model assumes that money will make money over time. Often this discount model uses a range of discount rates, in our case with CUU, 5% & 8%. In this economy, an 8% rate is imo highly unreasonable, particularly given the stance taken by the FED yesterday in keeping rates at extremely low levels through 2015. A 30 year US treasury bond yields below 3%, and this rate should relect more of the time value of money in a discounted cash flow analysis. (I know, don't get me going on the Fed here)

In the mining industry, the dicotomy here is the fact that our minerals in the ground are inherently tied to inflation and the time value of money. The fact that a fixed/ave. price for our minerals is used in this analysis (correct me if I'm wrong here), then discounted to determine net present value, makes no sense from a financial perspective. If the rate of price appreciation of these minerals over the past 30 years is then incorporated into the analysis, along with cost expectations using the same trending analysis, then our NPV discounted at 3%-5% would be more logical. Certainly if inflation took hold and we averaged say 10% over the next 30 years, the value of the minerals in the ground would also increase based on this trend change, which would self correct any inaccuracy in the NPV model.

I understand the mining industry is looking at different valuation models and Elmer did mention this as I recall. The link below from Ernst & Young provides examples of optional models that mining companies are looking at to better evaluate deposits and mitigate risk. In our case it would be reward. I would be interested in hearing from those on the board who have an accounting/finance background who may be able to support or refute what I believe to be a fundamental inconsistency in valuing deposits like Schaft Creek.

http://www.ey.com/CA/en/Newsroom/PR-activities/Articles/2010-CMJ-Mining-Valuation

DC14