company & operational update out, page-32

This was taken out from the Dean Knights 3rd qtr update 2013


http://www.google.com.au/url?sa=t&rct=j&q=mirabela%20nickel&source=newssearch&cd=1&cad=rja&ved=0CCoQqQIoADAA&url=http%3A%2F%2Fwww.istockanalyst.com%2Fbusiness%2Fnews%2F6638602%2Fdeans-knight-income-corporation-announces-third-quarter-2013-operating-update-unaudited-and-proposal-to-extend-its-termination-date&ei=e0V6UursJImplQXcmYG4BQ&usg=AFQjCNEWl7cTaGtKaFe3Vb2tlTmrUKh2iQ&sig2=vshlUT7kYMcziDr7oqU6GA


In terms of the overall return, the Company's portfolio provided a negative year to date return, predominantly due to events that lowered prices of two of our holdings this year: Northlands Resources, which was discussed in March and has since been sold, and Mirabela Nickel Ltd.

In our June report, we wrote about our position in Mirabela bonds which we originally purchased when issued in April 2011. We owned the bonds as Mirabela has a world class nickel sulphide deposit in Brazil; produces roughly 20,000 tonnes of nickel per annum with relatively low production costs; a solid management team; and a first-class processing plant. Mirabela had cash of $108 million USD on the balance sheet at June 30th and, although cash flow negative after administrative costs and debt servicing costs, had minimized cash burn at the mine site during the second quarter. Mirabela's large cash position on the balance sheet, as well as the low cash burn operationally, gave the Company comfort that, despite slumping nickel prices, the bonds were covered and an investor was being compensated for the risk with a 16% yield at June 30th.

In late September, Mirabela provided a disappointing operational update outlining higher cash costs in July and August, resulting in a reduction of cash on hand to $80 million USD. In addition, Mirabela received notification from one of its two customers, Votorantim Metals, of its intention to close its smelting facilities from November 2013, noting they will only procure a minimal amount of nickel concentrate from Mirabela in 2014. As a result, Mirabela is exploring opportunities for new strategic financing and off-take alternatives in a very challenging environment and bonds have gone from $76.50 at June 30, 2013 to $30.00 at September 30, 2013. The Manager, Deans Knight Capital Management, has been in contact with management and continues to evaluate the Company's options.