I haven’t seen Salman’s analysis and estimates, but it doesn’t make a lot of sense that they expect earnings to decline from 2008 thru 2010. The mill will not be running at full tilt until the 4th quarter 2008 and will continue to run that way through to the end of 2010 with existing anticipated (NI 43-101) reserves from McWatters and Hart.

The following is the way I see this playing out.

There will be a few small investors who will sell out of fear, due to a lack of understanding. And there will be those that will take there tax losses prior to year end knowing that the stock price will probably be suppressed for the 1st qtr 2008 and they can likely get back in. But the overall volume to trade at these low prices will not be enough to sell a large position and be confident that it will go lower. And those that realize what they have are not going to take the risk of being left out. Those that have sold will be scurrying to get back in as the share price steadily moves up and levels off in Jan-Mar 2009.

The following is calculated assuming ni $12.00lb and the new NI 43-101 proves this possible.

2008
1st qtr.........Redstone........@ 200 tpd @ 2.32%
.....Cash Flow $3.4M

2nd qtr.........Redstone........@ 200 tpd @ 2.32%
................McWatters.......@ 400 tpd @ 0.60%
.....CF $5.9M

3rd qtr.........Redstone........@ 200 tpd @ 2.32%
................McWatters.......@ 500 tpd @ 0.60%
................................@ 400 tpd @ 2.77%
.....CF $17.4M

4th qtr.........Redstone........@ 200 tpd @ 2.32%
................McWatters.......@ 500 tpd @ 0.60%
................................@ 800 tpd @ 2.77%
.....CF $33M

I expect Hart to be fully permitted in the 1st qtr of 2009 and the new NI 43-101 for both McWatters and Hart will show that there is enough high grade ore to supply the mill at capacity (1500tpd) through to the end of 2010, generating cash flow of approximately $125 million per year. There is definitely enough lower grade ore and I have used that lower grade ore in my projection.

The Redstone shaft will be completed in 2009 and will be mined at 300tpd but the shaft has a capacity of 1200tpd so there is some flexibility to ensure the mill is run at optimum capacity.

When the mill is at capacity the operational costs per lb will be nearly half of what they are currently and means that our break even point will be LME @ $4.50/lb

My projection shows EPS using 80,542,506 shares(as per the TSE website) as follows
$04.50/lb…….$0.00
$10.00/lb…….$0.83
$12.00/lb…….$1.12
$14.00/lb…….$1.41
$16.00/lb…….$1.72
$18.00/lb…….$2.00

I expect nickel prices to remain strong through 2008 with a possible decline in 2009. But prices are staying relatively high despite a 5yr LME inventory high, which implies to me that prices are not going down, especially in the new year when supplies begin to dwindle.

FNX had EPS of $1.12 as of the 12 months ended Sep 30, 2007 and a share price of approximately $30.00. That’s a P/E ratio in excess of 26. It’s been a long time since I’ve looked at FNX in detail but as I recollect they have well in excess of 10Million tonnes of resource. Which obviously accounts for their P/E.

I think it is fair to expect a P/E of 4-7 for LBE, which equates to a share price estimate of $4.48-$7.84 at full production, when nickel is at $12.00/lb

Unfortunately we currently don’t have the reserves to support a higher P/E, but we do have enough for the next 3-5 years which gives us plenty of time and cash to prove up, acquire or partner up, with the likely hood of increasing those reserves and our P/E ratio.

I believe this to be almost a given, considering the success we have had over the last 2 years. You can perhaps fault GN for being a little to aggressive and optimistic about setting timeframes that may not have been attainable, but you can’t fault him for what has actually been accomplished in such a short time frame. You also can’t fault GN for forecasting cash flow requirements and PP based on LME nickel prices that were negatively impacted by LME changing the rules in the middle of the game. Perhaps GN could have taken the long hole approach with McWatters from the start and he possibly could have started the permitting process sooner in anticipation of a faulty bureaucratic system, but I don’t know all the details. I hope that the Hart permitting timeline has some fudge factoring in it to ensure it is ready when needed. However, I’m personally very pleased with the progress that has been made to date, just not with the current share price.

It seems hard to imagine how anyone would give up their shares at this price, when they are in for at least a triple(conservatively) in the next 12-15 months, with little or no risk. And if you hold for 3-5 years while the mill keeps generating huge cashflow, GN has the time to surprise us with an additional few million tonnes of resource, at which time you can expect a higher P/E.

And don’t forget about McAra, with the available cash flow in 2009 this could quickly become a reality, considering the high Cobalt price this could significantly increase EPS as would re-permitting the Redstone mill for 2000tpd.