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LP

Preamble: CLF is a shrew operator who knows how to go about acquiring properties. She knows how to accommodate the actual situations, buy cheap if there is an opportunity (UC RoF property for $6M), and go on a spending spree if the properties are irresistible. KWG and its shareholders (including many of us at various BBs) are trying to paint an irresistible picture (just like a forbidden apple) for CLF. Some arguments are straight forward, some are subtle, some are kind of in-your-face and making life miserable for CLF that finally CLF just throws up her hands and says “enough is enough, let me just take you out”. End of story.­­

Costs breakdown (for BT)

- Mine development: $150M 4% (~same cost for BD, or both)

- Near-mine concentrator: $800M 24% (big ticket item)

- Road (all-season NS) $600M 18% (not that big an item)

- Ferrochrome Processing $1.8 B 54% (big ticket item)

Total: $3.35B 100%

Analyis: The road is not really a big ticket items compared to the concentrator (for BT ore) and the 1.8 B smelter. Mine development, whether BT, BD or both, is a tiny fraction of the total cost, so adding BD is not really a problem and my guess would be that CLF will do both in the end. Economic considerations would dictate that BD should be the first one to be developed (it’s not that difficult to move bulldozers and diggers over and dig up the first pit over BD deposit and continue later with BT. In fact they can start the stripping of the top layers for both pits at the same time. For Bill in Cleveland, this is child’s play. Perhaps, he has a mine model of “BT complex" with all key trimmings: accommodation facility, airstrip, transportation routes, and a few toy bull dozers and diggers for BoD members to play around with in their war room.

Imagine one board member saying: “But, but, we can ship BD DSO either to the ferrochrome processing facility in Capreol (where the hxck is Capreol anyway, looking at other board members), or export them directly to our off-shore friends. BTW, had a good chat with Lin on an Air Canada to Shanghai (hint: first name of a NOT board member) over a bowl of Japanese green soba noodles (tastes good cold, and we should have that served at our next board meeting, looking at Bill, and Bill stuck one thumb up and smiled) on and Lin said something like “you know, we can take all your chromite from BD and BT and more”.

I don’t think that people are pitting BD against BT, but it’s the question of which one to be developed first. I also believe that in the end CLF will get the whole thing BT, BD, and more (BC, BHorse since they would need both PRB and FNC properties for their transportation corridors to the west and south.

The savings in power consumption (60%) with BD chromite ore is an interesting one and this could be a significant card for CLF to play in her negotiation with the provincial government. CLF wants cheap power to make ferrochrome. She also wants to export the DSO qualified ore from BD, at least initially to raise some cash. Ontario wants the processing facility to create some 500 jobs in northern Ontario. There are many other items on the negotiation table, and it boils down to horse trading and optics in the end.

During the meantime KWG the (soon) 30% part-owner of BD would remind CLF, Ontario and the Fed (which is quite willing to claim credit for development of the North) that her RR corridor which can accomodate the RR, roads, power and telecommunication transmission lines, hence this corridor would fit perfectly in the big scheme of things. Of course, KWG wants to be the 30% JV partner with CLF (or taken over at some fair price).

All this may sound complicated, but my take is that this is quite simple if people are willing to work together to create a win-win situation. All the players, including us, know how to work the “Nash equilibrium”...right?

goldhunter