Highlights:

McWatters is not expected to reach full production until November 2008. We will be producing 300-500 tpd low grade ore by July 2008, but I imagine there will be little economic benefit to Liberty from processing this ore.

Given this, we probably won't see a profit from operations until Q1-2009. At this point, the cost efficiencies we achieve through higher production should generate decent profits.

We will likely see the next two quarters generate results similar to Q1-2008, in around a $1mm loss per quarter. Q4 might improve a bit if we can achieve our Nov 2008 target date for McWatters, but given the delays thusfar, I'm more inclined to think that we won't see full production until Spring of 2009.

Right now our mine depletion/amortization costs are in the $5/lb range. This cost per pound will decrease with increased production, as our amortization of the mill will remain constant under higher production. Redstone is depleting at a cost of $2.50 per pound, and with expected costs of McWatters coming in around $19 million for 9.6 million pounds of nickel, McWatters' depletion cost will be around $2.00 per pound. At full production, our mill amortization cost per pound could land around $0.50/lb. Add to this around $0.25/lb for equipment amortization for the two mines. Combined with the $3.50/lb target cost for mining and processing costs, this puts us around $6.50/lb for total production costs. At $12.50/lb nickel, a $6.00/lb gross profit can produce decent profits at full production, but limited profits at 50%.

Doing some quick math:

We seem to be getting about 1.6% nickel out of our Redstone ore for the last two quarters. This ratio will change over the life of the mine depending on what grade of ore we are extracting.

Redstone: 200 tpd x 90% x 2% x 2,200 lb/t = 7,920 lb Ni/d x 90 days = 710,000 lb/quarter
McWatters: 1,200 tpd x 90% x 0.9% x 2,200 lb/t = 21,384 lb Ni/d x 90 days = 1,925,000 lb/quarter
(given that the NI 43-101 stated 9.6 million pounds of Ni for McWatters, 1.925 million per quarter is too high, so I am over-estimating by 20%)

Total Nickel at full production = 2.6 million pounds

Estimated Gross Margin @ $12.50 Ni = 2,600,000 lb x $6.00/lb = $15,600,000

After G&A expenses, all going well, we may be able to see a profit in 2009 of about $12-$13mm per quarter at full production = $0.15 EPS. For the 2009 year, that gives us about $50mm profits, $0.60 EPS for the year. I am over-estimating returns from McWatters (and not including events which always occur to delay/halt production, etc), so this may be more around $40mm profits and $0.50 EPS.

For each dollar nickel is above $12.50/lb, it could add about $10mm to our yearly profits (about $0.12 EPS). And likewise, each dollar below $12.50 will lower it by $10mm. This means that at around $8/lb nickel, we will be barely breaking even at full production (generating positive cash, but just using it to offset the initial cash costs of building our mines and mill).

All totalled up, with us not expecting profits in 2008 and $0.50 EPS for 2009, don't expect to see a lot of upward movement in our share price until our mill is finally up and running at or near full production, likely early 2009.

All eyes remain on nickel prices (which are hovering right around $12/lb currently).

Other than that, there really isn't much of note in the financial statements. Pretty much what we expected.