Claude Resources, Inc. The Wall Street Analyst Forum Call Transcript

| About: Claude Resources, (CGR)

Claude Resources, Inc. (NYSEMKT:CGR)

The Wall Street Analyst Forum Call Transcript

November 19, 2008, 9:10 am ET


Helen Baud – Host, The Wall Street Analyst Forum

Neil McMillan – President and CEO

Helen Baud

Good morning, ladies and gentlemen. My name is Helen Baud of The Wall Street Analyst Forum and I am your host in this room today. At the registration desk we have Citi Baud [ph] and she will be escorting anyone who wished to attend the breakout session. As a courtesy I would ask anyone who has a cell phone, pager, any other handheld device to please switch them to the either off position or to the silent position. Thank you.

The first company we have presenting this morning is Claude Resources Incorporated. Claude Resources Incorporated is a fully integrated Canadian exploration and mining company with a proven ability to discover, develop, and deliver. Governed by a highly experienced Board of Directors led by a dynamic corporate leadership and through the dedication of skilled employees, Claude is entering a new era in its development.

The company has two primary assets, an expanding gold producing operation at the Seabee mine in Northern Saskatchewan and the Madsen exploration property at Red Lake in Ontario. The Seabee operation, which has produced consistent results over the past 16 years now, has more reserves in front of it than was the case when was the case when it was first put into production.

The Madsen property at Red Lake is an outstanding exploration opportunity, complete with an existing and fully permitted shaft, tailing pond, and mill. The strategic plan adopted by Claude Resources brings into play the company’s experience, its stability and its potential to deliver outstanding shareholder results.

And presenting this morning for Claude Resources is Neil McMillan, President and CEO.

Neil McMillan

Thank you very much, Helen. Thanks everybody for coming. Today, in my view represents an opportunity, an outstanding opportunity for people to invest in the Canadian resource sector and one which I think we will look back on and see as a once-in-a-life time opportunity.

The two reasons for that are firstly that in the short term in any event the Canadian dollar was weakened substantially against the U.S. dollar. So if you are an American investor and have an opportunity to buy Canadian assets, you have an opportunity for a substantive change in your – and to your benefit on the foreign exchange front. And to put that in perspective, within the last 12 months, the Canadian dollar has been trading at 110 dollar 10 US. Today it’s in low 80s – $0.81 or $0.82. On the assumption that we re outside the standard means of deviation there is a real opportunity to see a significant pickup in the foreign exchange front. Much more significantly, however, is the dramatic reduction in the prices that you pay for good quality assets in the Canadian resource sector and most of you are aware of that.

What I want to spend some time talking about today is the Canadian gold scene and in particular our company, which is in the Canadian golden exploration and mining business.

Claude Resources has been around since early 1980s. It’s been in the hands of our – what I would call current management group since 1982. All of our assets are currently in Canada. We have looked all over the world for opportunities but we haven’t found anything outside of Canada that would fall within our comfort zone.

We actually have three assets, principal assets. We are only showing two of them here. That’s the Seabee gold mine in Western Canada. I will talk a bit about what we are doing at that mine and then also talk about our Madsen exploration project in Red Lake, Ontario. And that’s the one I think I think the market is the keenest about.

We also have substantial oil and gas assets in Alberta. We’ve owned those assets since 1983. We are in the process of disposing off some or all of them for a number of reasons, but one is we have excellent opportunities to expand our gold business and that’s a key focus and we are quite prepared to convert our oil assets into revenue and – or into income for applying in the gold sector.

We did make an announcement earlier that we have a signed Purchase and Sale Agreement to sell some of our oil assets for $19.4 million. That transaction is expected to close on or about December 31st of this year.

Our company has 100 million shares outstanding, actually about 102.7 million fully diluted, and we are currently trading at about a market cap of $15 million to $20 million; it’s breathtaking.

Our Seabee mining operation is our core business and as I said the company has been around since – in our hands since 1982. I joined it in 1995. I came out of the investment industry with the Royal Bank of Canada Dominion Securities. I’ve been there for 16 years and I’ve been with Claude Resources now for 13 going on 14 years. We have in 1983 – we purchased the oil and gas assets and the company had cash flow immediately and our principal interest was in hard rock mineral exploration, but the oil and gas assets generated cash flow. And the fact of the matter is since 1983 we have had positive cash flow in our company every year from operation. That represents 24 years of consecutive positive cash flow in the company. This is not a short-term situation. This is a resilient and highly experienced corporation and operation.

Our Seabee mining operation is in northern Saskatchewan. It’s bit of an enigma. We have been in continual production at Seabee for 17 years now. We went into production in November of 1991. We run this operation 365 days a year, 24 hours a day. It’s not a large project. It produces on average 45,000 ounces to 50,000 ounces of gold per year. And that in itself is a particularly challenging situation because fixed costs in the mining business are quite high and 50,000 ounces isn’t large. It has been historically above average (inaudible). The average underground min in Canada has historically been mined at 0.21 ounces of gold per ton. This project’s averaged about 0.24 ounces per ton. So, it’s marginally better than the average in Canada. But I can assure you with the price of gold having fluctuated greatly, dropping to $252 an ounce we never shut this project down. We were able to stay in business.

And that’s principally because we’ve come out of necessity very, very good at mineral vein underground mining. The Seabee operation, the ore body in itself is probably averages six to 10 feet in width and again the grade is average 0.2 to 0.25 ounces per ton, historically. That makes it very, very difficult to make money in the mining business. And certainly with the increase in cost over the last four or five years it’s been an even bigger challenge.

Our costs have gone up 76% in the last four years. Two-thirds of that – almost two-thirds of it is in increase in labor cost. We are starting to see those costs come down and that’s very encouraging for us given our high cost base on this particular operation. Relief on the input cost and the labor cost has a significant impact on our operation.

This is a map of the Seabee mine area. This is an interesting map. This is about 10 miles to 12 miles from the left side to the right side of the slide and the color here represents our view of what is the mineralized shear system or systems that host gold mineralization. Given that 10 mile to 12 mile length here and the fact that there is gold all along the structures that we have found, in most jurisdictions, historically this would have become a mining camp itself. There would be four or five mines along this trend. And if you look at similar (inaudible) or mineralized shear systems in Canada you have the camps develop, the Timmins' camp, Kirkland Lake, Abitibi, Red Lake. And in those camps you’ll have multiple mines. They are materially different in concept from the mineralized shear system that we are on. We control a 100% of it.

There is two small properties that we have 70% and 51% interest in, but we control this entire package of property. We started out mining in the Seabee mine in 1991 and have been mining that one continually. We started out – we had less than a million tons of reserves on the ground. We are now over that after 17 years of mining or 16, we now have more reserve than we had when we started.

But the other thing we’ve done since then and principally only in the last three or four years, we started to explore aggressively outside of the Seabee areas itself. We now have four – what we believe to be significant discovery. Two of them are within two miles of the Seabee mine going north or three miles Porky West, named after the lake it’s discovered on and the Porky Main Zone. And if you go eight miles to the east we have the Santoy 7 Zone and the Santoy 8 Zone. And we are – we have significant additional areas to explore and drill. This one’s called Portage Pond. The red start there indicates a substantial gold discovery that’s seen on our Shane joint venture. We have new discoveries up northwest of Porky Lake with visible gold on surface that we have to drill.

Firstly, it demonstrates the significant potential for additional gold – you can allow gold discoveries along this trend. And secondly we have now advanced all of those with drilling. The Santoy 7 project is in commercial production and supplying supplementary feedstock to the Seabee mill. It’s not a large project. We’ve been mining it for over a year now. We expect it to go until October and November of 2009. We are doing the bulk sample on the Porky West Zone. These are underground again, narrow vein projects. We access them with a ramp. The Porky West we just bought sampling for the next – we’re probably done any day now. We’ll shut it down for winter freeze up.

Santoy 7 continues to operate all winter. Santoy 8 is currently in the permitting phase. This is very important because today Santoy 8 is larger than the Seabee mine was when it went into production 16 years ago. And the grade is the same or slightly higher. We have a road, full infrastructure out here to Santoy 7. We have a road and camped in right here by Santoy 8 and if permitting goes well, we expect this project could be in commercial production before the end of 2009.

That’s again that’s over a million tons there now and measured and indicated and inferred at a cut grade of about 8.5 grams or 0.26 ounces or 0.27 ounces. We had significantly higher intersections than that. And I will be really interested to see when we get in and mine that. It does a number of things for us. It enables us – firstly, we mine here, but we’ll truck the ore back to the Seabee mill and mill it out of central milling facility. So it is possible that what we have today we could be mining from the Seabee, Porky West, Porky Main, and the Santoy 8 Zone over the next two years. We could have four sources of feedstock for this mine contrary to what we’ve had historically. And historically we’ve had only the Seabee mine feedstock to depend on. So, we have a real opportunity here to improve our economics, get our cost down, et cetera.

Santoy 8, we started the Santoy 7 project with diesel power at site. We have a power line that comes in from the north. We pay under $0.06 a kilowatt hour for our power. One of our advantages at the Seabee mine, we are told by others that the three great challenges in the mining business are power, people, and I don’t remember what the other one was. I suppose supplier cost or politics I think maybe it was, permitting, et cetera. We don’t have a power problem in – at the Seabee mine. We have a high line power in there. We have built most of the power line from the Seabee mine along our road to Santoy 8 and we’ll do the balance of that work in 2009 and hook up. So, just to give you an example, if we generate electricity using diesel powered generators that’s $0.25 to $0.30 a kilowatt hour for that power. And we pay under $0.06 for our power at Seabee. So, it’s a big contributor to us finding ways to keep our cost down. And it’s frankly a big advantage in Canada as a whole. Manitoba, Province of Manitoba, Quebec and Ontario have very competitive power rate.

Our gold production at Seabee is starting to increase again. We’ve averaged over the last five years 44,800 ounces of gold a year in production or 11,200. First quarter – we had a weak first quarter and second quarter the production came up substantially. Third quarter was slightly higher again and we expect an outstanding fourth quarter. We are forecasting currently 48,000 ounces to 52,000 ounces of gold production for the full year. And we’ll be challenged to get to that range. It’s possible, but it’s going to be a challenge, but regardless we did 32,000 ounces in the first three quarters to get to 48,000. Obviously, we have to do 16,000 in the fourth quarter. That would be dramatic increase and may in fact – I haven’t checked – maybe a record quarter for us. I am not sure we’ll get to 16,000 ounces in the fourth quarter, but I expect we won't be that far off of it and you can see the trend as result it’s going higher. We’re going to have an excellent fourth quarter.

We expect our production at the Seabee mine to grow by 8% to 12% per year for the next three to four years. Last year, we produced 44,700. We expect to see a nearly a 10% to 12% increase in that production this year and the same going forward.

Our gold reserves have increased steadily. These reserves are just at the Seabee deposit. They don’t – and they are reserves not resources – you can see a steady increase. One of the challenges in a narrow vein mine is drilling off a very large reserve. To call it a reserve it has to be deemed to be – it has to be assessed to be economic, and when you are in a narrow vein underground mine, you can't – you have to be very close to existing infrastructure in a know economic ore body, before you can call it a reserve.

At our current production rate here, obviously with nearly five years of reserves alone we have an additional five years of resources and over the first 16 years at Seabee we have always converted 105% of our resource to reserves and mined it. And that’s the way gold mines work. The great Campbell gold mine in Red Lake, Ontario, which produced well over 10 million ounces went into production with 2.1 years of reserves at 200 tons a day. It did that in the late 1940. It’s never shutdown. It now produces 1800 to 2500 tons per day and at a grade of 0.66 ounces. And I think they are almost irresponsible. I think they have nearly eight years of reserves in front of them.

To spend the kind of money that you have to spend to move a ton of ore from a resource to a reserve becomes an issue if you aren’t going to recover that investment four or five or six or seven years, even at low interest rates the time value of money becomes an issue. But the really encouraging thing is that the reserves at Seabee are increasing. The grade – once they are a lower grade, thought we’ve averaged just under eight grams per ton or 0.24 ounces to 0.24 ounces, historically. We’ve been down to 0.2 for the last couple of years. That’s starting to change dramatically.

The other issue and the really big one for underground miners in particular and everybody in the gold business in general is what the cost that will cover this, these ounces. And our costs have been very high for the last two years. For the first three quarters of this year we are running slightly over $700 an ounce in cash operating cost. Now (inaudible) company, NIC, some of the other major corporations with multiple projects around the world and some very good ones in Canada reporting plus $700 an ounce operating cost, but that doesn’t mean you can stay in business doing that. We have to have some confidence in our case that we can get our cost down and we believe that will happen. If we have – if we were for example to do 15,000 ounces of production in the fourth quarter of this year, and again remember that’s against 12,000 ounces in the third quarter, we would expect our cost to come down substantially for that quarter. In fact, I can see a scenario where our cost will come down to $600 or slightly under $600 an ounce.

And let me tell you, when I started in this business in 1995 the target for operating cost was $250 an ounce. If you couldn’t keep your operating cost below $250 you are considered to not have great assets or not be a great operator. That new threshold is clearly over $500 based on what’s going on in the world. So we are currently, as I said, we are trailing just over $700 cash operating cost and the reality is if we meet our objectives from a production point of view, we’ll see those costs come down dramatically.


Unidentified Participant

Canadian or U.S. dollars?

Neil McMillan

That’s U.S. dollars. Question was is that Canadian or U.S. dollars. It’s U.S. dollar. That’s not an unimportant issue either. I can talk about that a bit.

So we see a reasonably steady growth in Seabee as a result of the two things actually. One is the additional ore coming from satellite ore bodies and the second one is an increase in grade. The mine – the Seabee mine we are operating now we are into an area and we have developed most of it already where the grade is substantially higher than it has been for the past two years. So we’ll see. I appreciate that people want to see if we can deliver on that. There have been expectations in the past that we could do it and we’ve been slow to reach our target. But we have, I think a good handle on where we are going, what the rate now.

The Madsen exploration project is the one that people are most interested in. This is the historic Red Lake camp in northwestern Ontario, Canada. This is the home of Goldcorp, which now owns the – all of the producing assets in the Camp, assets that are in production. Goldcorp, of course bought the Placer Dome Canada assets that were in Red Lake. After Barrick took over Placer Dome they did another deal and sold those assets – Canadian assets to Goldcorp. So Goldcorp now has the richest ore body in the world in the Red Lake mine, which is part of the same ore body that the great Campbell mine of Placer Dome had. This camp has produced well in excess of 20 million ounces of gold and just in some respects getting started.

This Madsen project and you see the head frame here, this is the concrete head frame. I think it was the first one ever put [ph] in North America. This is – and a new mill that you can see a relatively new mill on the hill behind it. That mill is being operated. It was built in the 1990s. We bought this project in 1998 and put it in production, put it back into production and produced 200,000 and some tons of ore through this mil. So we know the mill and head frame and shaft work well.

This is a map of the Red Lake camp and just to show you where our property is. The Yellow property here is owned by Goldcorp and the Goldcorp mine are – get my laser pointer working here – the Goldcorp mine are in this area up here. The Campbell mine and the Red Lake mine. They also made an acquisition recently of the Gold Eagle property, paid $1.3 billion for some ounces on there, we don’t know how many. It’s a very encouraging looking project. But they cannot yet put any ounces in 43-101 category. Certainly demonstrated Goldcorp’s enthusiasm for controlling the camp and acquiring ounces in the area.

The red ground, which is the Rubicon ground – most of you all know who Rubicon is. Again that’s a company I think Robert McEwen, the founder of Goldcorp now owns 32% of Rubicon. They have good property, great operators in the camp.

Our property is in this area on the south edge of the camp. We own 10,000 acres there. We own it 100%. There are four ore producing mines or ore bodies on the property. The principal one is the Madsen ore body. We also had one called (inaudible) and a very significant portion of the community as I will show you.

Madsen itself was the third largest producing property in Red Lake out of 22 producing properties. So the two that were larger than it were the Campbell mine and the Red Lake mine, which used to be called Arthur White Mine, was then referred to as the Dickinson mine and it was Dickinson that Goldcorp bought and ultimately turned into the richest gold mine in the world.

Not an insignificant producer after 38 years, the Seabee mine, to put it into perspective, is operated now for 16 years and produced 800,000 and some ounces. The Madsen mine, 2.4 million ounces and I am told for much of it’s like it was the dominant producer in the Red Lake camp, certainly in the early years, the 40s and early 50s until the Campbell mine started to pick up steam.

We bought this project in 1998. We bought a company on Toronto Stock Exchange that owned it, and we operated it ourselves. We did exploration, we did some production there. It had at the time we purchased it, the mill that you saw, the shaft that you saw or the head frame, a 4000-foot deep five-compartment shaft and five – nearly 500,000 ounces of gold in inventory. That’s what we bought. We paid $15.6 million for it in 1998.

We ran out of money in 2000 with low gold prices and we couldn’t do any exploration on it. We were quite happy to wait until the market recovered, but ended up doing a joint venture or an option agreement with Placer Dome where they could have earned an option in the property. We are very unhappy with some aspects of or relationship with – under that option agreement and we were able to get this project back from Goldcorp in late 2006.

We’ve had the project since then and have been working on the project since early 2007. Again, fully operating mill, 500 ton a day mill, we don’t think it would cost much money to expand that to 1000 tons a day. The shaft itself is spectacular. The five compartments, it has a hoisting capacity with the right hoist on the top of it. It’s 2000 tons a day. It’s fully permitted. The tailing pond environmental monitoring – it would take very little effort on our part to put this back in production in the event that we had an economic resource that was begging to be produced.

We think it would probably cost $200 million to replace this infrastructure in today’s market. It gives us a heck of a leg up here in the – on the project. Again, we inherited it. When we bought it, it already had 480,000 some ounces in inventory. This used to be called a reserve at the time we bought it. 43-101, the change in the national instrument came in after we purchased it and it requires that in order to call ore inventory or gold inventory a reserve you have to have done an economic assessment of it and we have not done that yet.

So it was defaulted initially to a 43-101 resource measured and indicated and inferred. It may not be compliant – I argued that with my VP of Exploration. There is no question in our view that it’s there. We are having SRK Engineering do a full material report for us as we speak. We expect that to be done in the first quarter and that will put that 486,000 ounces in – should easily put it in resource category, 43-101. Again, more than half of it is already measured and indicated.

We have a full team operating at Madsen right now, 11 geos and technicians. We are taking the old information from Madsen and digitizing it, entering into a database, so we can use it for 3-D modeling, et cetera. We are largely done that. We have put 13000 old bore holes. We’ve taken the manual logs and transferred them into software foe modeling. We also are de-watering the shaft. These things flood if you are not operating them and keeping them pumped out.

This mine has 24 levels. From historic mining, we are dewatering it and ultimately to the bottom, to do additional drilling down at the bottom of the mine. We are currently at the 12th level, so about half way there. Slow progress. It takes us a month and a half to two months per level. We want to have it dewatered to the bottom of the mine, I would guess till about the end of 2010. However, that doesn’t prevent us from using the shaft and drilling from underground in the short term as I will show you.

In the interim, we’ve started to drill on surface. We have an excellent drill program going on surface. I will show you that. And we are getting ready to drill from underground at our – one of our top targets, which is 4000 feet below surface and I will talk about it in a bit.

This is the map – surface map, so you are looking down on it from a satellite. The Madsen mine is right here. And this dotted line represents what we call the main Madsen trim. That’s where most of the gold was mined from under the Madsen mine and the (inaudible) mine historically. It averages about 0.3 ounces per ton, so well above the average. The real target here is the mineralization that exists in Campbell mine and the Red Lake mine. As you know, the Red Lake mine has been averaging over two ounces per ton.

And to put it in perspective, we mined 600 tons of ore a day at Seabee and produce 50,000 ounces a year. Prior to the expansion of the Red Lake mine they mined 600 tons a day and produced 500,000 ounces per year. That’s what grades can do for you. Grade is king in the mining business.

This parallel structure here we perceive to be structure host the similar type of mineralization to the high grade mineralization at the Red Lake camp. We know it exists at depth and I will show you that, historically. But at surface, we are now following this trend. We have four targets we’ve been drilling there – the Treasure Box, the Russett Ultramafic, the Fork Zone, and the Starratt Zone. We have released some information on drill results from these three. This will be an open pit target or development should we ever go into production.

These three are really interesting. The Russett Zone we had an outstanding drill result there, but right now we are focused on the Fork Zone and the Starratt Zone. We’ve had extremely high grade results there, over one ounce and over good width. So where this mine historically produced at 0.3 ounces, we have the potential to develop near surface mineralization that’s fairly significant.

This, however, is the target that most people have an interest in. This is the side view. It’s actually a 3-D model of the mine. So there is the shaft at the top. This is 4000 feet deep. This area here and there was extensive mining, historically down at this trend.

This area here is different mineralization than the 2.4 million ounces that were mined. We are told by Placer Dome who spent six years on our property and nearly $9 million that the mineralization here is in their terms identical to the high grade mineralization at the Red Lake mine and at the Campbell mine. It was discovered in late 1969. It was actually mined a bit in the 1970s. We have no old drill (inaudible) from here. It was all destroyed. We only have the records of the logs. Half of the holes that were drilled in this had visible gold in them, which is very unusual. They picked the visible gold out of the assay samples and then assayed it. And it still assayed over half an ounce. Placer Dome’s view and ours is that the uncut grade in this area were probably in excess of two ounces, exactly the same as the Red Lake mine.

Our target is to go in and drill down depth from this, which has not been done. Shouldn’t say there were three holes that were done down here that were off this – what we believe the plunge of the structure and all three of them were outstanding. And we don’t believe they are even right on trend. We are going to drill this target starting from here with a directional drill. That drill is on site now. We are preparing to drill today as we speak. And we expect by the end of November to start that drill up and start to drill this target. We will drill two mother holes and four wedges off of each one or ten pierce points in the first phase of the program here. We are fairly close to the bottom of the original area and going down depth. We have high expectations about what the potential is for this area. And there is no question our existing shareholders are focused on this, unfortunately to the exclusion, it appears, of everything else we are doing.

This is called the number 8 Zone and you’ll see that’s referred to historically and you will see us talking about that. So again the drill is going to start here exactly from the tenth level and it should start in the next two weeks. We’ve moved it ahead. We were going to start from the 16th level but it’s just as easy to start from 10th.


Question-and-Answer Session

Unidentified Participant

(Inaudible Question)

Neil McMillan

Yes. Question is how soon we get to the 16th level. Answer is probably the middle of next year, maybe a little earlier.

Unidentified Participant

(Inaudible Question)

Neil McMillan

We could, but there is not enough of an advantage. We looked at that originally. The reality is with the directional drill technology, it’s about 150 feet between levels. So what we give up is we are drilling further at $120 a meter. We are drilling further but the reality is we can start much earlier. What we’ll do once we get to the 16th level or any level in between or below is look at just moving the drill.

Unidentified Participant

(Inaudible Question)

Neil McMillan

16th level is about half – it’s – no it’s below 2000 feet.

Unidentified Participant

(Inaudible Question)

Neil McMillan

The question is, is there anything in the geology or mineralogy that would give people confidence that this could be a duplicate of what exists in Red Lake and the answer is absolutely. And again, in the words of Placer Dome, who made this comment to me in one of our meetings when they were operating the exploration here, their view was – they started out saying that the geology was ‘strikingly similar,’ was the term that they used. And in the last meeting I had with them about this, they said that from our point of view the geology here is identical to the Red Lake geology. I said to them, do you mind if I repeat that comment publicly and they hesitated and said no, that’s what we believe. That’s certainly our own view, but it was verified by Placer Dome.

This was mined in the early 1970s and our project manager at Madsen Bill [ph] is a geologist and worked in here in the 1970s, early 70s as a young geologist. So we have –

Unidentified Participant

Are there production records showing grades – ?

Neil McMillan

There is production records, but it – interesting enough it doesn’t show the grades because they co-mingled the ore. So we know what the drill intersections where. We have a level plan from the 27th level, which was the lowest level that they mined. And on that level plan, they took chip samples from the face as they were mining it. And everyone of those chip samples that graded over two ounces. We put – on the level plan we put a red star on it and we showed the level plan to some analyst one day and it’s all red stars. The grabbed [ph] samples off the face were up to 60 ounces. We know the mineralization type. It’s a coarse carbonate ore hosted a Mafic/Ultramafic contact. Everything about it is our view was strikingly similar to the same geology and mineralogy at the north end. And in Placer Dome’s words is identical. So, we have very high hopes for this continuing. If you remember the Red Lake story, they made the discovery of that high grade mineralization 4000 feet below surface, exactly where this is. They’ve now traced it to 9000 feet below surface. I was in their mine a month a half ago at the 6300 foot level looking at the mineralization. So at our best, our opportunity here is to duplicate to some degree what Goldcorp did up the road at the Red Lake mine. That took – that single discovery took them from a modest company to a multi-billion dollar company, operating the richest gold mine in the world. That in fact is the potential that exists here. I don’t know where we’ll end up. We have 22 targets on the Madsen property. The 8 Zone is one of them. Yes?

Unidentified Participant

A follow-up to that. I remember (inaudible) ran some kind of contest, you gave away a million dollars of (inaudible) is there anything in that theory that you could use to apply to (inaudible)

Neil McMillan

Good question. It was about the contest Goldcorp ran, which was unique. Robert McEwen is a remarkable human being. He simply put up $500,000 and he made his entire geological database available to anyone in the world that wanted to look at it and submit proposals for where to look for the rest of the ore, additional ore, and then he will give you the money up. So he got, in his view, every brilliant geologist in the world for a maximum of $500,000. The guy who won that was Dick Wall [ph] from Australia and his team. Placer Dome hired Dick Wall after that on contract to come in and review their Campbell mine, which was associated with the Red Lake mine and also to come and review Madsen. I sat with Dick Wall and he put his finger on the Madsen project and said there is the single best exploration target in Red Lake camp on the Madsen property. So there is lots of anecdotal reason for us to be enthusiastic about the quality of this target. And again, we were very close. We will start to drill that in the end of this month and we expect to have results from that in the first quarter. We’ll be receiving this hole, she is a fairly long hole. But again, 4000 feet below surface it’s same as the Red Lake mine. All of the grade history that we can find indicates to us and to Placer Dome that the grade is similar if not exactly the same. And how big it is we have no idea. All we know it’s up the road at Red Lake the same structure, which is the coarse carbonate ore in the mafic ultramafic contact. That structure extended down to 9000 feet now, I understand. So we have immense potential here to develop very, very high grade ounces, very close to infrastructure. We’ll see how it goes, but we are not far away from doing that.

These are some of the results we’ve had from surface, which nobody cares about apparently. There is nearly an ounce over 6.6 feet. The Fork Zone, this is over half an ounce over 34 feet, 250 meters below surface, at ramp accessible. Another one ounce over 6.5 feet down at Starratt. And stay tuned for this project. This is less than two miles from the Madsen mill. Six ounces over a very narrow width. We have got a surface drill working now on both the Fork Zone and Starratt-Olsen Zone. And we also have again – remember, 500,000 ounces underground that already exists at Madsen in inventory.

I said to myself, I am really not that interested in starting up another 50,000 ounce a year producer. That’s a tough gig. Feel free to come to me with a scoping study for 100,000 ounces a year for 10 years with plus 20% internal rates of return that’s kind of my lowest threshold for putting this project in production. That’s a million ounces in inventory at 0.3 ounces at a 1000 tons a day. That’s not a stretch from where we are today. If we can be successful at the bottom of the mine adding ounces in the 8 Zone, as well as additional ounces here, an area that really hasn’t been explored before, we have an opportunity to have a very, very robust project in Madsen Red Lake.

This again is that same slide with the drill targets, et cetera. The Mafic/Ultramafic trend is here, this whole package. This is called the Madsen trend. If you look at the map of the whole camp the north end of the camp with the Red Lake and the Campbell mine is, Goldcorp did a presentation the other day. They had an intersecting line that said there is – it’s the Madsen trend. They have the same name for it at the north end of the camp, which again puts some credence to this view that it’s the same geology. So you have one major structure going this way and you have another one coming across from the north end of the camp.

On the north Madsen structure, over an eight kilometer, five-mile length they produced over 19 million ounces of gold along the Madsen structure up here. We own 10 kilometers or six miles of the Madsen structure here and it produced 2.4 million ounces of gold. There is immense potential along this whole structure. We are demonstrating that with some of the surface drill results that are parallel to the original 0.3 ounce structure.

Moving forward, again, adding ounces to our inventory, very encouraging drill results to-date from surface. The modeling project that we’ve undertaken is really substantial and the underground drilling starts in the fourth quarter. Again, very experienced group of people, good infrastructure, both at Seabee and at Madsen. A good operation at Seabee getting better and the valuation in the company is absolutely breathtaking.

We have 1.4 million ounces of inventory in our company, 900,000 ounces in the Seabee area and 500,000 at Madsen, I would argue premium ounces. We are currently trading for about $10 an ounce of our inventory. Gold Eagle in Red Lake was taken over at somewhere between $200 and $700 an ounce by Goldcorp on ounces that might be wonderful but will be a long time finding that out, I think.

We are trading at three times forecast cash flow for 2008 – three or 3.5 times cash flow. We have a good balance sheet. We never have any cash, because we got great assets to invest in, but at the end of the third quarter we had over $13 million in working capital. We have our oil and gas assets for sale. And should we be able to successfully close that transaction that would add substantially to our balance sheet. So we are one of the companies that can operate going forward without doing an equity issue.

Thank you very much for your attention and if I have time, I’ll answer any additional questions anyone might have.

Yes, sir?

Unidentified Participant

Going back to the Seabee, why aren’t you doing more like Red Lake did? Why don’t you go ahead with that expansion and let the ore catch up with you because it looks like because somebody thought it’s a potential – ?

Neil McMillan

The question, and it’s a good question is, why aren’t we doing more on the exploration front to expand or accelerate Seabee? In the short term, our focus is on our unit cost, which is obviously getting our – either our grade up or operating cost per down to improve unit cost. We are bottlenecked really in how big we can make Seabee right now because it’s only serviced by a winter road. So we have to haul all of our diesel fuel and propane and explosives and reagents in, in January or February and March, which is, as you might know in Canada the water gets very hard then. And we have a 35-mile winter road re-supply mostly down length.

We could and we already have in Seabee area now 900,000 ounces of reserves and resources that we believe will be mined economically. That’s more than we’ve produced in the first 16 years. If we go today given the restriction on how many tons we can mine because of that physical constraint, and we add tons, which we think we could do fairly easily to our inventory, we can't get to it unless we make a change there. And the change is to put a road in. We currently have an engineering study done. We have a route selected and we have an engineering study done and we are going to have some work done to flag [ph] a land route into Seabee this winter. And we may – we’ll start out slow. It would not be an inexpensive proposal, but we are going to start out and look at putting in a road for emergency haul, gets us of the ice for a winter – why we need 34 inches of ice in order to take a semi load of material into Seabee. And we have 400 semi loads we take in each winter, roughly 400. That’s an exciting prospect. And to wait to get 34 inches of ice given the way the weather has been is a dicey proposition.

It’s one of our top risks in our enterprise risk management model. We’d like to take that winter road and move it up the ice on a land route where you are not sensitive to the 34 inches of ice. And we are in the process of doing that. So I think it’s reasonable – we can – I can see us expanding our production at Seabee from 45,000 ounces to 50,000 ounces into the 60,000 ounce to 70,000 ounce range without working off our winter road. But to get beyond that – and at that production level we still have over 10 years of reserves and resources in front of it. So I think it will be dependent on our ability to get a year round heavy good supply before we can really look at the possibility of – if we explore now and we do, it’s to upgrade the quality of the ounce.

You only need to know three things in the mining business. If you are going to invest in the mining business – I will tell you right now, it’s real simple – how much of that rock worth per ton when you take the good stuff out of it? How does it cost to get the good stuff out of it? And how many tons are there? It’s that simple. It doesn’t matter what mine you are looking at, whether it’s open pit or whether it’s base metal or rare earth minerals or precious metals. How much is the rock worth per ton? How much does it cost to get the good stuff out of it? And how many tons are there?

So far us we know at current production levels or gold prices, our ore is worth $200 to $250 a ton. What does it cost to get the good stuff out of it? $200 a ton. And how many tons are there? More than we can access over the next seven or eight years at Seabee. So what’s the opportunity for us is to improve our unit cost, which we have to do. That will happen in one or two ways. Either the grade, the number of ounces in those tons increases, and that’s what happening at Seabee, or your cost per ton goes down. We’ve got enough tons at the moment. So we are working on the unit cost in the near terms because of the fact that the gold prices pulled back and our operating costs have been under pressure. I can tell you they are coming down.

An example, we laid our propane at the Claude – at the Seabee mine last year I think for $0.47 a liter. So I know you guys will be tri-lingual in volumes Imperial metric and U.S. because in U.S. it’s different than Imperial. We just got a quote the other day. We are going to lock in our propane supply for 2009 at $0.37 – $0.38 a liter, landed. So significant reduction there. Diesel fuel, we’ll see and some of – and the labor pressure is starting to ease up. We had terrible time getting and keeping – the trades in particular, heavy duty mechanics, mill rights [ph], electricians, welders. The tar sands operation is not that far from us, huge pressure on – power engineers and trades. And then all of the base metal mines opening up pressure on our experienced miners. That’ reversed. We are starting to see that ease.

Any additional questions? Well, thanks very much for your time then. I will be available for – down, if anybody is interested in additional information and let me say one last thing. If you want an opportunity and I said it earlier that’s going come once in a life time. You can buy grade Canadian resource assets at breathtakingly cheap prices, whether it’s oil and gas assets or gold mining assets or base metal. And our case is no different. You get the added advantage if you are American to be able to buy and get the currency benefit. In the last year the Canadian dollar was at one time $1.10. It’s now in the low 80s. So I think you have an opportunity for a double advantage here both the currency and buying a wonderful assets at inexpensive prices. I can tell you that currency is important to us. We are seeing $730 gold this morning, we are getting Can$900 for it.

Oh, God bless.

Unidentified Participant

(Inaudible Question)

Neil McMillan

God bless the mid east. 762 that’s a 30 some dollar increase. Assuming the Canadian dollar is still stable, that’s a dramatic improvement for us. We’ll be into the 9.50 range Canadian. So, again, a good diversification for anyone. If you don’t – if you think there is a possibility that the U.S. dollar might weaken, going forward against other currencies – (Ends Abruptly)

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