Hi Tau!

KXL is an exploration stock and they have done exactly what they need to do to be successful. We all know the historic cliches where some companies worked for years before hitting the motherload, and some others failed trying before another operator took over and hit big. Some never hit anything. That is the game.

I think the important thing is to start thinking in 3-D on the deposit geometry. Sure there are some fat zones that have been outlined so far, where multi-ounce multi-metre intervals were encountered. In a block model those zones will account for some nice chunks of gold resource. The trouble is that they step out the drilling by 50m in either direction and come up with marginal stuff - there is not enough continuity. If we look at some of the old NRs from the Golden Mile, what stands out to me after the big intervals are lots of sections where the grade is pretty low (below 4gm/t) and/or the vein widths are pretty thin (less than a metre). And that is the problem because I doubt the cutoff grade for this type of deposit is going to be below 4 grams so a lot of that stuff is not going to factor into the resource.

Also, real world mining requires at least 1.5m of blast zone for even the most efficient operators, so anything less than that will be effectively diluted in a mining operation. So that 5 g/t rock across 1m is the same as 3.75 gram rock when all of the waste muck is mixed in, and its marginal at best. Strip all of those low grade narrow intervals out. Now remember they amount for at least 50m in either direction to the next hole in the drill fence, so when you start dropping some of the data points, a big chunk of your vein disappears from the resource. Thats the way it is.

I do not see it as economic now. Do you want to spend $100 million to develop this project to run a lot of marginal rock where you will make a thin operating profit and probably never recover your development cap-ex? That is what the bottom line will be. They can come up with a pretty report and document a lot of ounces, but not much is going to be mined in the real world unless prices go way higher.

So here is what I see to keep me interested:

Given the distribution of gold showings they have documented so far, including some very high grade intervals, I do not believe there is that much gold in a system without ever hitting a fat zone of enrichment somewhere along the way. Its that simple to me.

Secondly, the veins probably go on for more than a thousand meters, so they have a lot of potentially productive geology yet to explore.

Third, they have acquired most of the district, and have generated numerous targets, anyone of which could become a company maker.

Fourth, they have the ability to raise large chunks of cash, and are not afraid to spend it on exploration. I have seen too many 'explorers' sit on money and bleed the treasury out on admin and management expenses. KXL is going to keep trying.

Lastly, lets keep in mind that this is a gold bull market. 7 years ago I did not believe gold would ever go above $1000. Now I do not think it will ever go below that level again. And the upside could easily be $5000, at which point even the marginal gold in the system so far would probably warrant a mining decision. Who knows the future?

cheers!

mike