First of all I have to say I was disappointed in the 2Qtr results in so far as I was surprised by the mill down time reported in the MD&A.

“The increase in production during the second quarter was limited because of an unexpected delay to repair the cone crusher. Incorrect parts were sent to the site which turned a 3 day repair mid April into 21 days of subsequent down time.”

As a result we lost the equivalent of a full month of mill production which would have resulted in an additional couple of million dollars in cash flow. This could have possibly allowed us to make that anticipated token payment against the debt.

I was also disappointed to learn of the difficulty in obtaining permitting to allow the Redstone mill to operate at its full capacity of 2,000tpd.Considering that this milling capacity has been the target since its conception several years ago. I understand that there was likely sound rationale for the permitting in stages, but it’s a little to difficult to see how we are at this stage without a reasonable understanding of when to expect approval. Considering that without that approval our chances of success are significantly reduced.

Having said that, I’m personally far from throwing in the towel, as some of our beloved bashers have intimated.

While at work today I did a few calculations based on the released financial information yesterday and I would like to share.

I figure that

Administrative, Interest and Preferred Share Dividends are approx. $0.80/lb

Amortization and Depletion expenses are approx. $3.60/lb

Operational costs are expected to be $4.50/lb when running the mill at 1,500tpd.

Even if we are limited to 1,500tpd milling capacity for the next 12 months we will produce 8.8 million lbs of nickel.

1,500tpd x 365days x .88%grade x 83%recovery x 2205lb/tonne = 8.8M lbs

Cash flow of $32 Million over the next 12 months seems adequate to handle the debt, providing nickel prices remain co-operative.I would also expect the permitting to be resolved within the next 12 months which will provide some upside potential.

Currently we are mining ore grading .88% however when we start mining the Hart deposit at 1.5% in the 12 months following. The mill will be operating at 2,000tpd with better recovery rates resulting in operational costs of around half the current $4.50/lb, the Interest charges will also be gone.

Nickel produced will be closer to 20M lbs with a profit of approx. $2.50/lb. ($0.30 EPS).

At LME $9/lb. Cash Flow will be 20M lbs x $6+/lb = $120 Million per year.

Once the assets are fully amortized in a couple of more years, tack on another few dollars of profit per lb. Hopefully by which time drilling will have expanded the Hart, Redstone and Groves resources.

Yes I know I’m looking at the future will rose tinted spectacles, however all that is needed are some reasonable nickel prices for a few years.

And yes I hold a considerable position in LBE.

BubaBob