Ring of Fire Monitor

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Wednesday, February 16, 2011

Babjak Research

Hi Tim,

I've been thinking of Noront's share price  today and thought I'd provide a summary.

(1) Sept. 9, 2010 , Noront Releases the following:
stand-alone economics of the Eagle's Nest Ni-Cu-PGM deposit, based on the Assumed Metal Prices(1) are:
    <<
    -   after tax NPV at a 6.0% discount factor of approximately $540
        million;
    -   after tax IRR exceeding 20%;
    -   at current spot metal prices, the after tax MPV increases by
        approximately 250 million and the IRR increases by an additional 5%
    -   initial capital investment estimated to be between $600- $625
        million;
    -   sustaining capital estimated to be between $270-$300 million;
    -   operating costs estimated to be between $120-$130 per tonne;
    -   project life of 11 years;
    -   capital expenditure payback between 3 and 4 years; and
    -   average operating cost estimate of approximately $3.00 per pound
        equivalent nickel based on the Assumed Metal Prices(1)
                                                                            Nickel Tubes
 >>
 What should catch your eye here is a MPV (material price variance) of 250 million.So below are the 3 year trailing averages. Noront stated that if we were to use the current spot prices we'd see a difference of 250 million bucks. The PA is based on metal prices derived from the Three Year Trailing Averages as follows:     Nickel $9.08 per pound  Copper $2.92 per pound  Platinum $1,427 per ounce  Palladium $345 per ounce Gold $944 per ounce This NR came out Sept.9, 2010. So, what were the spot prices in early Sept. 2010 that created an extra  250 million difference? And, what are the spot prices now in comparision?
                      3 yr avg.2008-2010   Sept.9, 2010          prices today
Nickel               $9.08                  $10.50                    $12.91
Copper               $2.92                  $3.50                     $4.46 
Platinum             $1,427                 $1,350                   $1,835
 Palladium            $345                   $ 600                    $841
Gold                 $944                   $1,350                   $1,375
Look carefully at the differences in the spot prices Sept.9,2010 and compare to 3 year avg.The change in spot price resulted in an extra 250 million. Now compare the spot prices from Sept.9 to today!
 Look at the additional MPV Do you remember the dundee report last year followed by the Wellington report??Wellington wrote:"Financial success of the project in our view is now more dependent on higher metal prices and/or the ability of third parties to fund infrastructure costs.
Given the less favorable than expected economics in the PA, we see higher long-term metal prices as one optionto improve project economics. Alternatively, we note that other parties, such as
the provincial government or Cliff’s Natural Resources (CLF: NYSE; Not Rated) who hold chromite projects in the vicinity may be two parties that could share in a large portion of the infrastructure costs. At this time however the willingness or ability of Cliffs or the government to fund part of
the required costs are unknown, thus it could result in additional delays to the project start-date."
On Cliff's website we see the following:Base Case for Cilff's Chromite. (on page 8 of 24 in the PDF on website)Cliff's expects to finalize and submit to Gov't in March 2011...Integrated Transportation System including: Air strip, seasonal winter Rd., permanent all season rd.supplies of ore to and from mine and the existing  Ont. road and rail infrastructure.We seen the gov't interest in the Ring of Fire.  Does anyone think that the Unwillingnessor ability of Cliff's or gov't to fund part of the required costs are unknown? Does anyone else see a DRAMATIC change in willingness since Sept. of last year??The current share price of Noront when you factor in these elements is a deal of the century.

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