My first attempt ended up with the loss all of my hard work due to the boards bombing out and my Back button returning me to an empty message box, so my apologies for the delay (I had to conjure up the energy to retype it).

Underlying assumptions:

Redstone average yield: 2.32% (200 tpd)
McWatters average yield: 0.94% (1,300 tpd)
Average recovery rate: 88%
Net smelter return: 79% (Xstrata/JJNICL)
G&A Expenses: $3,000,000 per quarter (this may be a significant underestimate of our true G&A at full production)
Mine depletion cost (non cash, amortized): $2.50/lb
Mining cost: $3.50/lb (per numerous company forecasts)
CDN Dollar: $0.94 USD (note that some corporate expenses are in USD and this is not reflected in these estimates (as I have no idea what the proportion is), so expenses are probably a tad higher with a weakened CDN dollar)
90 days/quarter of full production

At $9.00 USD nickel ($9.57 CDN):

Revenue: $22.2mm (close to 3 million lbs of nickel sold, net of smelter return)
Mining cost (cash): $10.3mm

Cash from operations: $11.9mm

Mine depletion (non-cash): $7.4mm
G&A Costs (some cash, some not): $3.0mm

Profit: $1.5mm (before taxes, which won't be a factor for a while)
EPS: $0.02

Cash:
$11.9mm - $2.5mm for cash G&A = $9.4mm.

There has been talk of ramping production from McWatters above 1,300 tpd, but I'd like to see full production before we even talk about going beyond it. An extra 200 tpd would add around $0.5mm in profit and $1.3mm in cash per quarter at $9.00 nickel. Not huge, but it helps. Note that in the MD&A for Q2-08 (pg 2) they state only reaching 1,400-1,500 tpd for combined operations. I guess we'll see.

Sensitivities:

* Nickel prices: Add or subtract roughly $2.5mm for each dollar nickel is above or below $9 for the above calculations for both profit and cash. Thus, we are likely unprofitable at $8.00 nickel, but cash flow positive until around $5-$6 nickel.
* Cash mining costs: A $0.50 change from $3.50 in cash mining costs would decrease/increase profits and cash flow by $1.5mm per quarter. With the sharp increase in energy costs, $3.50 might be hard to reach (again, we'll see).
* Depletion costs: A $0.50 change from $2.50 would impact profits (but not cash) by $1.5mm per quarter.
* CDN dollar: A $0.01 change in the exchange rate impacts cash and profits by around $200,000 (a weaker Canadian dollar benefits us from a sales perspective).
* 90 days/quarter: A brief shutdown/slowdown for whatever reason (weather, accident, technical issue, etc) will cost us dearly.

There are a lot of permutations that occur once you start manipulating all of the variables and this can quickly take the company from a significant profit to a significant loss.

There is little doubt that we will generate healthy cash flow at $9.00 nickel and at $7-$8 nickel the cash will probably still roll in fairly well. We have some heavy debt repayment obligations by next summer and beyond, so the cash is essential for this purpose. How much excess cash is left available to develop Hart and our other properties is the biggest worry; if nickel prices weaken to below $8/lb, we'll struggle to meet our debt payments and our mines may run dry before we have a chance to develop the next ones to full production.

Until we have a couple of cash flow positive (and hopefully also profitable) quarters under our belt, I wouldn't expect our share price to react much to a small positive EPS figure and instead expect it to continue to hinge on nickel prices, both current and future anticipated, and our perceived ability to meet our short term debt repayment obligations.

Hopefully I have provided enough data to allow you to manipulate the figures according to your own forecasts on company costs and future nickel prices. I have likely missed a thing or two, but hopefully I have captured the guts of our financial operations and the key variables. If anyone sees a flagrant error in my calculations, let me know and I will investigate and correct.

For fun, calculate what our profits and cash flow would have been at $15.00 nickel. (hint: add $15 million to the above profit and cash = EPS of $0.20, debt repaid in a quarter and a share price that would probably be $5-$10!)