hard rock options, page-30

treefeed

You stated:
"It's a rather simple conclusion (and not my pessimistic assessment) that the plant currently continues to severely underperform."

IMO, your pessimistic assessment that the plant CONTINUES to SEVERELY underperform is overly simplified.

In your assessment, you have used AVERAGE daily production rates of 306kg/day and have assumed that these rates are likely to continue but you have failed to take into consideration the fact that on the 24 May, the company announced that production "had SIGNIFICANTLY improved its peak production throughput capability over the previous two weeks."

While the modifications they did to the plant clearly did not completely solve all the problems, surely even you have to agree that using daily production rates after the 24 May would be a more accurate assessment of how the plant is now performing? While we both don't have details of what the production rate is after the 24th May, I think it is safe to assume that it isn't as SEVERE as you have made it out to be.

The other area you have overlooked is the dollar value of the bulk shipment delivered to Mitsubishi. While volumes delivered were below expectations, it is important to remember that grades and recovery were much higher than expected as well. Once again, perhaps if you take that into consideration as well, the results may not be as 'SEVERE' as you initially assumed.

I am in no way trying to defend the company and I am definitely not wearing any rose colored glasses. As I have stated before, the tailings production results to date have been disappointing but to immediately assume that the problems are 'severe' and the repairs will be too expensive for the company to afford without having any actual details or inside info is IMO misguided. You may be right but you could just as easily be wrong.

All companies experience production ramp up problems and what CNQ is experiencing at the moment is nothing unusual or unique to the company and definitely not a major problem in the overall scheme of things.

In fact, it wouldn't surprise me at all if the company has already stopped production from tailings in order to make the necessary changes to the Tailings Plant. No doubt this will make Average Daily Production numbers look terrible again but if they manage to fix the problem, I personally definitely wouldn't be complaining.

In terms of CNQ's cash position, another capital raising is a possibility but not necessarily a definite certainty. As I mentioned before, your assessment of the company's cash position has failed to take into consideration the cash inflows from the bulk shipment post June 2012, other cash inflow items that you may not be aware of, the $2m placement and the outcome of financing discussions with Mitsubishi. You have also assumed that the repairs to the Tailings Plant will cost a fortune which may not necessarily be the case. Time will tell.

In the end, to me, it's all about getting the Hard Rock Mining phase right and things seem to be travelling well on that front as evidenced by Mota-Engil's willingness to become a substantial shareholder of CNQ. What I am hoping for next is a positive financing outcome from Mitsubishi to reinforce the fact that my decision to invest in the company was the right one.