The problem with a vein hosted deposit is that you have to invest a lot of money for infrastructure to get at the ore. So the ore has to be very rich to pay back all the capital investment, plus the operating costs, factor in the fact that not every ounce will be mined, and that which is mined will not be 100% recovered in real operating conditions... and still you need to make a profit at the end of the day, pay for admin, taxes, non-cash writeoffs, rehabilitation, etc.

I do not think an open pit scenario is going to happen based on what we know so far. Yes the vein is continuous and outcrops right at surface, and in some places it is several meters wide. However, even accounting for all that, you still may have only a hundred thousand ounces of gold or less that is close enough to mine from the surface right now. The problem is that as you go further down in a pit, you have to excavate a wider pit wall to maintain stability. The more waste rock you have to blast and haul out to keep the pit design at optimum dimensions, the more operating cost that has to be paid off from the production. Eventually, you are losing money, and still there is not enough total resource to make it work. An open pit is not going to be a viable mine.

So now we are down to the more expensive underground mining option. Since we have reason to believe that the deposit will go to many hundreds of meters depth, a simple decline ramp will not be sufficient. You must expect that at least one shaft/hoist will have to be built, and several miles of tunneling at various levels extending all the way down to the lowest ore blocks that can be defined. All of that costs a lot of money to develop.

An underground mine in Canada will probably cost around $50-75 per tonnes to blast and haul up the ore. Just on the operating end,If we assume that 2 tonnes of rock will amount to volume equivalent to an easy chair, and even then, much of that rock will come from waste on either side of the vein, then one would think that the minimum grade for breakeven costs will be around 4 g/t. A gram of gold is around $30, so assuming even a high recovery efficiency, and minimum dilution of waste rock, you are getting about 6 grams of gold for that 2 tonnes of volume, which will cost you around $100 to $150 to mine. That is pretty thin.

Now add in your processing costs. That rock will have to be crushed and run through a circuit, and then the tailings will have to be disposed of. Lets assume $25 per tonne for processing.

Add all the costs up and even a well-run operation needs at least 4 g/t to have a shot at making money. But remember, you still need to make enough to pay back tens of millions of dollars in development and capital costs. Maybe hundreds of millions of dollars. So you better have a hell of a lot of gold before you think about mining. And inflation is a big deal, so we have to discount future earning streams on the basis of the lower value that money will have in the future due to inflationary presure. And so it goes...

Lets keep all of the above in mind. Most of the individual intercepts that have been reported will not contribute to a meaningful resource. They are like sign posts on the highway, to tell you that you are getting closer to where you want to go.

KXL is not chasing rainbows. They will continue stepping out lateraly until they stop finding gold. Even the Golden Mile is going to pinch out sooner or later. Hopefully its later. They will also continue to drill to greater depths. I am reasonably confident that they have at least one significant convergence zone to depth that will be a huge hit. But they will drill off in 50m increments until they get there, and maybe hit some surprises along the way too. And that is just the one target. They have several veins on that project, and several projects on that trend. New discoveries and acquisitions are coming in on top of all that.

The sign posts that have been presented in that NR are compelling. Some people are going to take a wrong turn nonetheless.

The mines around Kirkland Lake were in operation for decades, and still they are coming up with huge new zones of high grade ore. Same goes for Red Lake, Val D'Or, etc. Why people expect that all the good zones will be found in the first year is beyond me.

Look if some guys want to talk about millions of ounces so far, just based on narrow vein intercepts and encouraging continuity, thats fine. I think we will get there eventually, and then some. But I try to keep the reality of the situation in hand and just be happy that KXL has accomplished so much so quickly. And those that are disappointed and choose to sell, thats fine too. If KXL dips below $2 again this week, then congrats to the guys that are buyers. Hell, congrats to the guys that bought 2 weeks ago, sold on Friday, and then buy again this week. None of the market behaviour is going to make a difference to how KXL goes forward, and what the future holds. I wont be selling any shares.

cheers!

mike