Email Recently sent to IGR Management:Attention: Chris Cairns...

Email Recently sent to IGR Management:

Attention: Chris Cairns
Managing Director
Integra Mining

Hi Chris

I am a significant share holder in the company with just under XXXXXXX shares, spread across a couple of private companies. (By the way, we have had email contact before.)

I have to admit to a degree of frustration following the release of the much anticipated BFS and the subsequent immediate heavy sell down in the market.

My frustration relates to the radically different path that the company now faces as it moves forward, compared to what has been telegraphed to the market previously. The current situation appears to be seriously 'under selling' the assets of the company and significantly reducing share holder value.

With the release of the BFS on Friday, there appears to be a diminution in the company's value, and the company's outlook, despite a general strengthening in the gold price and more favourable conditions for setting up a new mine following the washout from the GFC.

BACKGROUND

Over the last 18 months or so, company announcements have conveyed the theme of a competent management group who are creating an excellent framework for the emergence of a highly profitable and significant new mine in the Aldiss-Randalls District of Kalgoorlie - previously regarded as relatively barren in regard to gold resources.

In fact, the following features have been regularly highlighted:

A Solid production profile is emerging – with a revised target of around 120,000 ounces/annum over 5 to 8 years of mining, with throughput of around 1.1M/t per annum.

Excellent mining grades – the proposed new mine will be one of the highest grade open pit mines in Australia

A Low cost mine - healthy/robust operating margins with gold at $950 per ounce

Low strip ratios

Low Capital Costs

Excellent metallurgical characteristics/high recoveries and the mine positioned close to available infrastructure.

A solid resource bank in place of around 1.8 mill ounces contained in satellite deposits with 2mill to 2.2 mill ounces targeted during 2008

Initial profit of around $128 million for the first 4.5 years of production

A mine start up late 2009/early 2010 although June 2010 is the current expectation

Exciting exploration upside ahead with an 8km new trend to explore.

A mining plant and an accommodation block already acquired.

Progress towards mining is well advanced on all fronts.

The company has also drawn attention to flagging worldwide production with existing mines beginning to struggle as they approach use by dates and new mines proving difficult and very costly to bring on stream. Also the opinions of leaders in the world gold industry have been noted, with their acknowledgment of supply demand fundamentals that should eventually lead to much higher gold prices and gold as the business to be involved in.

In recent times the company has flagged a two stage approach to production, with a robust initial mine at Salt Creek morphing into a base for the processing of ore from a range of satellite deposits.

The release of the BFS last Friday, to a certain extent flies in the face of a lot of what has previously been advised to the market.

THE CURRENT SITUATION:

It appears that share holders can no longer factor in production approaching 120,000 ounces/annum over 5 to 8 years, with lots of upside, and now need to focus on a 10 year operation averaging around 65,000 ounces per annum.

The change comes as an unpleasant surprise, although the strong upside potential apparently still remains.

The profitability for the Phase 1 proposal remains at around $128 Mill before Tax, and this is in line with previous guidance. However, disappointingly, costs have risen from $686 per ounce to $823 per ounce (hardly a low cost operation) while the gold price used for the appraisal has needed to be increased from $950 to $1250 per ounce to provide similar returns as suggested by previous guidance. A very significant gold price increase!

In any case, Total Earnings of $248 mill over 10 years, translates to average yearly earnings of about 3.5 cents per share after tax (neglecting provisions for write downs and previous loses etc). Earnings of that magnitude are not what most would consider as 'robust'.

Fortunately, capital costs have been able to be pruned back, otherwise earnings would have been further pressured. Surprisingly, annual production has almost halved to increase the mine life out to 10 years, requiring the plant to work well below its full capacity. One wonders why we need to go down this particular path with so many opportunities to generate mill feed?

The Gold price at the time of writing is actually below the $1250 bench mark used for the BFS, and is currently hovering around $1162 per ounce. The gold price anomaly is somewhat of a concern, and the BFS as a result, can hardly be regarded as 'conservative'. Not only that, it is a markedly different situation than previously advised to share holders with a $950 gold price providing commensurate returns for the first 4 years or so of production.

The IGR approach all along has been to try and err on the side of caution, yet to overstate the case for gold and to suddenly admit to significantly increased costs, is of serious concern. A 'get it right first up approach', is well and good, but share holders are baffled that the company PR has been considerably up market in contrast to what has been actually delivered by the BFS. The company now faces a credibility issue, and no doubt, quite a few disgruntled shareholders.

Quoting from the BFS,

"Integra has taken all possible steps to ensure that the Randalls Gold Project Feasibility Study will prove to be an accurate reflection of actual production outcomes. To this end the company has been cognizant of the need to prepare operating assumptions with an appropriate degree of conservatism so that the market participants can have confidence that anticipated financial outcomes can have confidence that anticipated financial outcomes will be met…..the Phase 1 Project is considered to be sufficiently robust to give potential project financiers a high degree of confidence to fund project development"

While understanding where management is coming from, the following issues still need to be borne in mind.

1. By pursuing an overly cautious approach, share holders interests are being compromised. The project in effect is being undersold to potential financiers.

2. An overly conservative approach in presenting the BFS, will only result in 'low ball' funding offers, as financiers will always pitch below whatever is considered fair and reasonable; especially in the current environment. Also, the slump in the share price following share holder disappointment with the BFS can only exacerbate the situation.

The BFS also states:

"While Integra believes the Mineral Resources for its ‘other’ deposits to be robust and based on work conducted by reputable gold mining companies, it does not have access to technical quality assurance checks required to include these additional mineral resources in the Ore Reserve inventory. This position reflects Integra’s technical conservatism and further reinforces its determination to do it right first time."

Comment
In essence, the company is admitting to reservations about the integrity of some of the data relating to its resource inventory.

The company's resource position (stated as 20 Mt @ 2.7 g/t with 14.067 Mt @ 2.8 g/t in the indicated category and 5.87 Mt @ 2.6 g/t inferred - ie Around 70% of reserves in the indicated category) has previously been marketed as a strength to share holders and the investment community generally.

Management's lack of 'lack of confidence' in some of its resources now comes as a bit of a surprise and share holders need urgent clarification. ie What percentage of the companies gold inventory is related to data that needs to be independently verified by the company?

THE FUTURE

Funding requirements must not be negotiated NOW if they lock the company into unfavourable outcomes that would remove the free flowing benefits of a rapidly escalating gold price; especially after waiting so long for economic circumstances to swing around in favour of gold, and for the company to maneuver itself into a highly attractive position.

It concerns me that the BFS has potentially made the company quite vulnerable. The company's appeal would be impacted significantly if unattractive hedging requirements are locked in place now, or if capital raisings cause excessive dilution. The current situation may even be exposing the company to the threat of an opportunistic take over, with market turbulence, poor sentiment and a slump in the share price destroying value.

A hostile move now would almost certainly rob share holders at a time when gold is finally gaining credibility and acceptance world wide as the 'go to' investment.

In the light of the above wouldn't it be preferable to defer funding proposals until the gold markets fully reflect the supply/demand pressures that will eventually erupt in gold?

After all, the company itself has expressed a belief that market forces will eventually prevail. At least with a buoyant gold price, the BFS would truly be conservative and attract premium funding offers, allowing the company to proceed from a position of strength, and not 'cap in hand' as appears to exist in the current situation.

Jim Sinclair of www.jsmineset.com (one of the very few financial commentators who has called the gold market correctly over the last decade) believes that we only have 3 months or so to wait before the gold market finally launches in earnest. We are seeing signs on a daily basis that fundamental gold favourable changes are already taking place.

Certainly, the depressed nature of the industry cannot persist for too much longer with the current supply demand imbalances and with the world rapidly focusing on gold's safe haven qualities in the after math of the GFC.

IMO, gold assets owned by the likes of IGR will very soon act as magnets for new investment in gold.

The company and its share holders already appreciate how difficult it is to build quality gold assets, so it is imperative that those assets are not jeopardized by acting imprudently at a time when acceptable value is difficult to achieve.

If Sinclair is right, it would be far better to shelve the procurement of financing under the current circumstances, and to simply bide our time while building further value via exploration. At least until the gold markets mature a little more and the BFS becomes the highly valuable document it was intended to be.

If Sinclair is wrong and gold appreciation takes longer than the deadline he has zeroed in on, why not opt for a smaller scale operation while continuing with exploration, and use profits to expand gradually while retaining full control of valuable in ground assets? Or alternatively, accumulate profits with a preparedness to expand rapidly as soon as circumstances justify it.

I would be most interested in the thoughts of management and to hear what the management group is prepared to do to address the very real concerns addressed here, and which have been reflected dramatically by the market over the last couple of days.

Certainly urgent remedial action is needed to address the concerns of stake holders.

Best Regards

XXXXXXXXXXXXXXXX
Share and Option Holder

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Regards
Nev

[email protected]