Goldfever3,

You’re not the only one who wanted to ask Dr Webb this question. I asked Dave pretty much the same:

Goldfever3 you ask,

“(1)Why are the economics of the PEA and the PFS so radically different?For example at $750 Gold, the PEA IRR as 21.44% and the NPV was $143,5 million.However, at again $750 Gold, the PFS IRR is -7.7% and the NPV is -$75,1 million. …a $218.6 million difference in the wrong direction.Similar comparisons can be made at other gold prices too.There has been no significant inflation over the last 3 years; in fact oil prices are down substantially.I believe a 5% discount was used in both cases.What happened?I have to ask; was the PEA very inaccurate?”

The similar question that I asked Dave was,

“When you said it is going to cost Tyhee $20/gold ounce resources discovered, realistically, doesn't that roughly translate into a cost of far more than $40/oz to get the reserves that will ultimately be converted from those discoveries to those that get added to the current 810,000 ounces that will go into the Feasibility Study?

And, do you agree with me that one significant reason the market is trading TDC at lower prices post-PFS, is mostly because of how disappointed folks are about how significantly lower are the numbers in the PFS than those figures shown on AGM's slide #26, where if the 2007 preliminary assessment(assuming gold at $1000 and lower input costs) would have had an much higher NPV, IRR, and annual production rate much, with a lower production cost, than the poorer figures delivered last week in PFS at similar gold price assumptions?

Of course I understand that you cannot really know why people buy and sell at whatever price they do, but don't you see how the disparity of those figures on AGM's slide#26 compared to those on the PFS, disappointed and lowered the confidence of investors in Tyhee's ability to meet meet expectations it's made, either by implication or public declaration? “

Here, paraphrased and emboldened, was Dave’s answer:

Yes, reserves are more expensive to find that resources. If we were to only compare companies by their costs of finding reserves, the universe would be a whole lot smaller, but I’m certain the average finding costs would typically go up into TRIPLE DIGITS.

A PFS is not just a PA with more detail. Perhaps it can be said that a Preliminary Assessment (PA) is what might be, a Preliminary Feasibility Study (PFS) is what is. If Tyhee did a PA today the figures would be comparable (or better) to what was shown on slide #26 of May 2010’s AGM presentation.

I don’t know what “expectations” people had for a PFS. Perhaps there was a belief it would be like the PA only better. Maybe Tyhee should have done a better job explaining what a PFS is, and what should be expected. I certainly pointed out very early in the process that we would never achieve 100% conversion of our resources, that we would exclude all of our inferred resources. This has a huge impact. I think to put it into perspective is to consider the following summary (rounded numbers):

ØThe PA considered 1.1 million ounces (out of 1.6 million), had capital costs of US$150 million, and ended up with a discounted NPV of $145 million. So the project generated $295 million ($145 m NPV plus $150 m of capital).

ØThe PFS considered 810,000 ounces (out of 1.6 million),had capital costs of $220 million, and ended up with a discounted NPV of $71 million. So the project generated $291 million ($71 m NPV plus $220 m of capital). Each additional ounce now recovered will add about $400 (gold price minus operating cost) to the NPV of the project. So, at present, the project would now pay for the capital cost, but with another 100,000 ounces of production it will add $40,000,000 or so to the NPV of the project.

Further engineering might convert 40,000 ounces of the Bruce Zones 84,000 ounces or 80,000 ounces of the 160,000 ounces from deep Clan into a reserve. All of our gold zones are open to expansion at DEPTH, Clan and Goodwin are also open along strike. But now we know which of our ounces are most economic and we can focus on building those.

Goldfever3, I did not ask Dave your second question, quoted here, since I think I have a good idea of what he would say.

“In the PFS, it says “Archean gold deposits like the Yellowknife Gold Project are not easy to evaluate due to their limited lateral but significant vertical extent.”Is there any reason to think that Ormsby, or any other Tyhee deposit, is more likely to have gold at depth than “the average” Archean gold deposit?”

The reason, I didn’t ask Dave is that it is my understanding that Archean deposits characteristically, like those mines in parts of Ontario and Quebec, have high grades at greater and greater depths. But to assess their extent by drill bit is very costly, so Tyhee’s focus has been to first estimate, more cheaply, what the resources are closer to the surface and then, drawing up a mining plan by a PFS and FS. Each of the three big Yellowknife mines (Giant,Discovery,Con) showed more and more gold the further down they mined, never having run out of gold at depth. That’s just a fact. Further, the underground Discovery Mine is located on Orsmsy’s property. It when down about 1,000+ feet pulling out an average of one troy ounce of gold per tonne of ore. That’s 31.1 gpt , not too shabby!

Anecdotally, there was a guy, a couple of years ago at the New York Hard Assists show who claimed to have been at the bottom of the discovery mine just prior to its shutdown. He said there was so much gold down there, that it "looked like a jewelry store".

By the way, Dave did tell me recently, that Tyhee plans on doing some DEEP drilling on the Yellowknife Gold Project.

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