Those of you who have been around for a long time will remember me as "Silver Falcon" over at I-Hub. Lest any of you newcomers mistakenly think I'm a newbie let me explain that there is likely no one here who has been around any longer than I have. I was a significant investor in DICUT which was the original company shell from which SFMI was created. I have been at both the previous SFMI stock holder meetings so I have had the privilege of meeting many of you in person. I have been steadily accumulating shares of SFMI, whenever the price dips, over the last 4 years and now own well over 4 million shares. For a while several years ago I spent significant time helping refute the constant misinformation over at I-Hub but came to the conclusion it was a waste of time and at this point I almost never visit the site. I do however read every post here at Agoracom and have greatly appreciated the thoughtful contributions by so many of you fellow faithful longs.

Before I pose my question for discussion I want to assure everyone that this is a genuine question on my part and in no way intended to stir controversy or dissention. In fact my purpose is rather to listen to the thinking of others and reconsider my own position so that I do not miss out on a good opportunity because of ignorant or being closed minded in some way. There are many of you that I have grown to respect that clearly appear to believe that GHDC is a bargain at 1/2 the price of SFMI. But to be quite frank I have never once read any substantive and logical explanation as to WHY you believe that. I am inviting and asking any of you who are willing to share your factual / logical analysis for why you have come to this conclusion. I am a fairly well educated and experienced (30 years) business man and based on the facts as I understand them this makes no sense to me. I'm inviting this dialogue because I'm beginning to wonder if there is something I'm missing or am unaware of. Many of you have often posted a list of reasons for why you own SFMI but I have never once seen someone post a list, with any real substance, for why to own GHDC at the current price ratio let alone those who have (without any stated reasons) asserted that when a buyout happens GHDC might fetch a higher price than SFMI.

The one often repeated argument that I have heard over and over as to why we should all own GHDC along with SFMI is the PQ owns a major stake in GHDC. I will admit at the outset that this is from my perspective a rather shallow and overly simplistic thought process that completely ignores many of the facts at least as I understand them. If you are willing to keep reading I will explain a few of the reasons why I do not currently understand why so many have concluded that GHDC is worth 1/2 the price of SFMI. I would genuinely appreciate anyone helping me identify where either my information or reasoning is faulty on these points.

1) A significant portion (very possibly the lions share) of SFMI's revenues could result in zero revenue for GHDC. The lease agreement to pay GHDC 15% royalties is only for any ore taken off the several claims up high on the mountain. Based on a conversation I had personally with PQ at last years SHM (which several others heard) any ore taken out of the Sinker Tunnel will not generate any revenue for GHDC. Ore taken from the Sinker will instead result in SFMI owing a 15% royalty to a different entity which I think is called New Vision (someone please correct me if the name is wrong). SFMI has clearly stated in recent PR's that the first drilling and mining is planned to take place in the Sinker Tunnel. So when and how much revenue GHDC will receive in the next few years is very much unknown and could likely be quite modest. As I understand things PQ has no particular reason to care whether ore is mined from the GHDC claims up high on the mountain (which are inaccessible much of the year) or out of the sinker. He is a major stake holder in both GHDC and New Vision so he will get his piece of the pie either way. SFMI also does not care because they will pay the same 15% either way. So, the logical conclusion is that RS will choose as his priority the easiest and best source which recent PR's have suggested is the Sinker.

2) No matter how high the price of gold and silver goes GHDC will always be capped at the 15% gross margin on each oz mined through their claims. SFMI by contrast already has and will continue to experience a major increase in their profit margins per oz as the price of gold and silver continue to climb. The cost of the 15% royalties, the fixed costs of of running the business and the per ton costs of mining are all either absolutely fixed or relatively fixed with only modest increases for inflation. This means that as the prices of gold and silver rise the profit margin (%) that SFMI will receive from each oz will drastically increase. This is not true for GHDC. It's gross profit (before any expenses like executive bonuses etc.) is permanently stuck at 15% no matter what the price of bullion does.

Allow me the freedom to illustrate this point using imaginary numbers. If SFMI sells gold at $1,000 an oz SFMI must deduct (15% royalites ($150), fixed business costs of $150 and mining costs of $300) from each oz leaving a net profit of $400. This is a 40% net profit margin on each oz. Now lets evaluate what happens when the price of gold goes to $1800 an oz even when we assume some inflation in costs (which has not happened). From the $1800 we must deduct the 15% ($270), fixed business costs of $175 and $325 mining costs (assumes 11% inflation overall). At this new higher price of gold we have a net profit of $1030 per oz. This calculates to a 57% net profit margin as compared to the 40% margin at $1000 gold. The higher the price of gold and silver go the higher the net profit margin will be for SFMI. I will invite you to continue this exercise to see how eye popping the percentage of net profit becomes for SFMI when gold reaches several thousand dollars an oz. This concept I have just illustrated is exactly why the respected pundits at places like King World News and LeMetropole Cafe talk about mining stocks being a way to "LEVERAGE" the increase in bullion prices.

Meanwhile no matter what happens to the price of bullion the profit margin for GHDC will never climb. It will always be 15% minus business costs. The GHDC business model does NOT LEVERAGE the increase in bullion prices.

3) Another big reason I have heard for buying GHDC is that they plan to use the profits from the SFMI royalties and acquire addtional properties to explore and develop. No specifics are given but this is supposed to be positive enticement. For me personally this idea is actually a negative that makes me even more cautious. The percentage of "exploration" projects that actually make money is miserably low. We have a huge amount of evidence to assure us that War Eagle MT. contains a significant treasure. Help me understand why I should choose invest my money in an entity that plans to engage in something far more unkown and therefore risky?

4) Is there something I don't know that will help me overcome my concerns about the extremely low trading volume of GHDC especially in real dollar terms? Based on the average daily volumes and prices over the last 10 days GHDC has traded approximately $4,200 of stock each day while SFMI has traded $52,000 per day (1200% more). If any one of the stock holders of GHDC wanted or needed to begin liquidating even a mere $5,000 worth of stock per day it would very quickly have a pronounced negative impact on the stock price.

This is a serious inquiry on my part and these questions and analysis are in no way intended to bash GHDC or pick a fight. I am quite honestly wondering what I have missed here since so many have, as one poster put it a year or so ago, decided that investing in GHDC is a "no brainer". It is no doubt a logical and good investment at some price so I am inviting serious, factual and thoughtful discussion on the matter. I am a genuine truth seeker. So, if any of my information or thinking is wrong (and I am certain at least some parts of it are) then I welcome someone helping me see it.

Respectfully submitted for discussion.

Silver Falcon