Last week a fellow forum member asked me to comment on the following. After having reviewed my response, he suggested that I consider sharing it with other members. So here goes, after all this is a discussion forum! Before you read it, please remember that I am a staunch NOT supporter.

Geo - I am curious what a take out by a major may shape up as for NOT.
Given the land mass and many targets, do you think that there are potentially many spinoffs to majors or will majors take an all or nothing approach on the ring?



Good question. I'll have to get my crystal ball out of the closet and dust it off. Oh boy!

Here are my thoughts on the matter, for what they are worth. I did work for a Canadian major for a good number of years.

The majors and other 2nd tier companies, should have been interested and have been probably sniffing around for some time since the discovery of VMS mineralization a few years ago in the McFauld's Lake area. However, the size of the discoveries combined with the remote location would have made them less than fully enthusiastic. The junior exploration companies found the area, as expected, fertile ground as they are much more risk takers than the majors. The trend of letting juniors spend the high risk, up front, grass-roots exploration $ from flow-through shares and the majors waiting in the shadows to swoop in after a "significant" discovery has been made by a junior is well documented (e.g. Voiseys Bay). The situation at McFaulds is somewhat similar except, that here, I believe that there are many more juniors with properties in the area than there were at Voiseys Bay which the majors will have to deal with. In addition, I think that the nature and style of the Voiseys Bay mineralization was much more easily understood as it pretty well conformed with well accepted, "conventional Naldrett-type" Ni/Cu models. NOT's Double Eagle mineralization can be explained through Naldrett's "billiard ball" model, but the "scale" of what we have seen to date is unprecedented-i.e. the high ratio of sulphides to peridotite and the presence of massive chromite layers, both closely associated with perhaps only one, very long primary mineralization event. Again, one can find numerous examples of disseminated Ni/Cu sulphide mineralization associated with concentrations of chromite (e.g. Bushveld, Stillwater, etc), but not on the scale we are observing at McFaulds Lake.

Now step back and imagine yourself a major. You really don't fully understand what has produced the observed mineralization, you, like us can only speculate. There is probably only room for one company to develop whatever is there into a mine and it will cost over $1B to do so. You do not yet have enough confidence that sufficient tonnage and grade will be found to make a mine. You are also faced with having to independently deal with many juniors to acquire a major land position to make it worth your while and you do not want to get into a major bidding war with other majors. You do not want to take them all out at Voiseys Bay prices (remember Falconbridge dropped out of the bidding and a few years later INCO took about a $1.5B write-off of the Voiseys Bay property). So why not sit back and hope that within the short time the list of juniors will get smaller as more drilling is done that will eliminate certain properties or attempt to negotiate "reasonable" (their words, not mine) J/V deals in the meantime? So far I think that the juniors' demands might have been "stratospheric", based on the one off Voiseys Bay $4.3B(?) deal between INCO and Diamondfields. The majors are hoping to avoid that situation, but they will have to come to the table soon if DE2, DE3......7,8... are major hits. Amongst the majors, Xstrata and Vale Inco are the most logical, however, both have been and are continuing to discuss a possible takeover of the former by the latter. A lot on one's plate.

Some have suggested slow takeovers of the juniors by purchasing shares in the open market. I would think that it wouldn't work because once an entity owns more than a "threshold" amount, maybe say 10% of the outstanding shares, by regulations they would have to make their position known to the public.

A lot to contemplate, however, the reaction from the impending assays on DE2 drilling combined with the 43-101 on DE1 may trigger the start of the race. I remain very optimistic that if NOT shareholders remain patient for a little longer, they will be more than adequately compensated for their loyalty.

Logic would dictate Xstrata or Vale Inco, or both, would be the ideal suitors. Both have smelters and one a refinery relatively close by. However, until both sort out their future relationship, both will probably not come to the table right now. Think of the $ involved in the takeover. Vale has indicated, I think, an offer of their shares and cash, the latter by taking on considerably more debt.

Another potential suitor maybe Sheritt, although I am not up to date with their financial situation, nor do I know if their facility in Fort Saskatchewan could treat a Ni/Cu concentrate of the type likely to be produced from the McFaulds area.

Teck Cominco made a run at INCO, but has no experience in smelting and refining Ni/Cu concentrates. They needed INCO's entire facilities, especially their smelters and refineries.

Now who's left-BHP Billiton, Rio Tinto, China Minmetals and Norils'k Nickel. To construct a smelter/refinery complex would be in the order of several 100's of M or even several B $. How would they ever supply enough power to run the complex? Ontario Hydro, I don't think so. Manitoba Hydro, maybe. The alternative is to ship concentrate to a smelter/refinery off shore. I have no idea of the transportation costs involved in that scenario, but if Xstrata can profitably ship a concentrate from Raglan to Sudbury, anything seems possible.

What about a 2nd tier company, say FNX. They have been very successful with their strategy as essentially a contract miner/explorer in Sudbury and have recently expanded with the purchase of Dynatec's mining services division. They have first class management, a solid financial position and have demonstrated an aggressive nature.

Food for thought.