Fair Value

Fair value of the shares can be calculated by assuming a forward average of the the gold price of $1430/oz. $CDN.

A total of 211700 grams of production at an assumed grade of 10.25 g/t divided by the production rate of 350tpd gives you a total of 57 days of production. (notable omissions in the news release are the grade dilution and the contribution of the low grade stockpile.)

This would mean absolutely no production during December, January and up until the latter days of February. The company was not producing any gold whatsoever during these months.

Considering that 57 days is about one sixth of a year's worth, you can take the average realized price of gold in Canadian dollars, assuming a $1430/oz. $CDN average gold price over the ensuing year including the previous production and multiply the sum total of 6586 ounces produced by 6.4 times to obtain the forecast for an entire year.

This gives you a total of about ~42,173 oz. per year X 1430/oz. $CDN = ~$60,308,117 CDN. Divided by a fully diluted float of 348,206,928 shares gives you 17.3¢ a share earnings.

On a 10P/E basis, the fair value of the share price should be ~$1.73/share CDN. The share price close yesterday was 42¢. That would mean a 4X+ ROI, or a 400% return on your investment at these prices, at this production rate, with only one mine open at the initial production rate.

Grade Dilution

What you are obliged to accept on the production status of the Roy Lloyd mine is that the grade dilution is anywhere from 35-75% at any given time. Komis had the same problem, with grade dilution up to 70%.

During the 1980's grade dilution above 15% was considered a major obstacle to mining. Considering higher gold prices, the company and shareholders may have to put up with very high rates of dilution.

Lakeshore gold grade dilution is 50%, San Gold only produces about 6g/t despite their exploration successes, Century Mining's grade dilution at depth is excessive, resulting in an overall grade of 4g/t.

Share Dilution

Owing to the excessive share dilution mania going on in the gold stocks, this is the major risk factor in pricing shares in this sector.

-F6