Lets imagine that we are Xstrata. We are a major producer and marketer of Ni/Cu/PGEs, Cu/Zn, and chromite concentrates/ferrochrome from our operations in Sudbury, Timmins and South Africa respectively. We know that it will cost > $1B to set up a mining operation in the McFaulds area. It will include open pit and underground developments. It will include three concentrators….one for the Ni/Cu ore, one for the Cu/Zn ore and one for the chromite ore, all located in a “central hub” with individual mines connected to the hub, like spokes of a wheel, by either rail lines or all seasons roads. Transportation to and from the hub to an existing rail line to the south which runs E-W will be via a new dedicated N-S rail line. The return on investment (ROI) needs to be in excess of 20% with a mine life of >25 years. A Ni/Cu concentrate will be shipped to Sudbury. A Cu/Zn concentrate will be shipped to Timmins. A chromite concentrate(s) will be shipped either to our new ferrochrome smelter in northern Ontario and/or to our existing facilities in South Africa or shipped directly to consumers.

Estimated Ni, Cu, Zn and PGE prices will be incorporated into any calculations for the life of the operation. Expected value of chromite depends on its specs……determines the proportion of chemical, refractory and metallurgical grades…critical that full analysis, including trace elements in chromite ore be known. Anticipate no problems in metallurgical processing of either the Ni/Cu or Cu/Zn ores. Expect recoveries of base metals in excess of 85% and PGEs in excess of 75%.

Critical Issues

What are the minimum tonnages/grades required? What is the probability of these being eventually obtained? What will the markets look like over the long term? How is the ROI affected by the additional cost of a new ferrochrome smelter vs shipping to our existing facilities? How do we acquire the properties at minimal cost? What are we prepared to pay to acquire 100% ownership and still maintain an acceptable ROI? What are the potential road blocks? What is the near-term time frame for action? Who are our potential competitors and what are their strengths and weaknesses? How will we be able to finance the acquisition and the operation?

Other Considerations

Threshold tonnages/grades can be calculated for input into DCF models to yield various ROIs.

Unlike Voiseys Bay, there are a multitude of property owners to deal with.

By focussing on only a few juniors, acquisition costs may be minimized. Which ones????

Take over is preferred as partners are not wanted. May have to settle initially for % ownership of properties and/or companies.

Potential competitors – Vale/Inco, BHP, RTZ, Norilsk Nickel, Outokumpo, Teck Cominco

Lots to think about. Doable? 50:50?

Have a great weekend

Respectfully yours

geoprof