Extract from Grant Samual "Independent Report" related to value...

Extract from Grant Samual "Independent Report" related to value calculation. I'm sure there are a lot of companies that would like to buy into projects at pre development or pre value added costs, that's what seems to be going on here. Note the word - "Subjectivity".


It is not possible to attribute ?value? to the sublease deposits with any confidence
As the sublease deposits are at an early stage of exploration, their value is uncertain. The sublease
deposits are not capable of being ?valued? by applying usual methodologies. While the sublease
deposits do contain JORC Code compliant resources of rare metals and phosphate, they have no
identified JORC Code reserves. More importantly, a processing route to extract the rare metals has
not been identified and there are no estimates of future capital expenditure and operating costs.
There are substantial uncertainties and risks attached to the future exploration, development and
3 Mr Klein?s interest in Forge was acquired for $40,000 in the initial public offering of Forge and he has no involvement in the board or
management of Forge.
4 Mr Curtis? interest in Forge if the Proposal is implemented has been calculated assuming a $31 million capital raising at $1.10 per
share resulting in the issue of 28,181,820 ordinary shares and conversion of the 24 million performance share rights into ordinary
shares. The fully diluted calculation includes options over unissued shares (including the option to subscribe for up to 7 million Forge
shares under the Lynas Options and 7,818,183 options to be issued as part of the capital raising).
5
production of any rare metals and phosphates from the sublease deposits and there is no information
available to enable the preparation of a discounted cash flow analysis.
Grant Samuel has therefore had to rely on less rigorous parameters that involve considerably more
subjectivity and judgement. In particular:
? analysis of historical acquisition cost of the sublease deposits. This involves review of a
number of previous transactions with information only available on the acquisition cost of all
of the Mt Weld tenements including those containing the Mt Weld rare earths project. Only a
proportion of this cost would be allocated to the sublease deposits and there is no reliable basis
on which to make this allocation; and
? analysis of implied multiples of resource provide some guidance but these multiples are very
deposit specific and depend on factors that differ considerably from deposit to deposit, making
direct comparison very difficult. As a result, the implied multiples are at best a crude proxy for
determining value and it would be misleading to place much reliance on them.
Different parties could easily have widely divergent views as to the ?value? of these deposits
depending on their own perceptions of the attributes of the sublease deposits and their appetite for
risk.
􀂃 Notwithstanding the uncertainty in attributing value to the sublease deposits, Grant Samuel
has considered the available valuation benchmarks in determining whether the Proposal is
?fair?
Grant Samuel has considered the following alternative parameters:
? the historical acquisition cost of $15.8-22.6 million for all of the Mt Weld tenements (the range
reflects estimates implied by separate transactions at different times). $15.8-22.6 million is an
assessment of the total historical cost of the Mt Weld tenements and cannot be directly
compared to the sublease deposits which represent only part of the Mt Weld mining tenements.
The balance of the Mt Weld mining tenements includes Lynas? Mt Weld rare earths project
which is currently under development and is expected to commence production by the third
quarter of 2011. The area which Lynas is now developing is likely to have represented the
more prospective and therefore more valuable part of the Mt Weld tenements at the time they
were acquired. On this basis, any appropriate share of the cost attributable to the sublease
deposits would be significantly less than the total historical acquisition cost;