• Report from the CEO

A New Company - A New World

Through the acquisitions of the Pahtavaara and the Blaiken processing plants and mines, our Company has, within a short span of time, been transformed into a producing mining company. We were previously only an exploration company, with a number of projects in various stages of development. In the middle of September we were also granted a permit by the Supreme Environmental Court to establish a mine with a processing plant in Fäboliden. We have thereby progressed one more step toward realizing our goal of becoming one of Europe's leading gold producers.

Production

As part of that effort we are now prioritizing getting production fully going in Pahtavaara and Blaiken. Along with this, work on an updated feasibility study for the Fäboliden project is progressing.

Pahtavaara

Through intensive work, we have now identified gold mineralizations in Pahtavaara sufficient for at least three years of operation.  The estimated annual profit, before depreciation and interest, is calculated at SEK 50 million/year starting spring 2009.

 The processing plant of Pahtavaara is located in an area that is very interesting from new deposits perspective, and the gold mineralization of the main deposit in Pahtavaara shows no signs of diminishing toward the depth. 

The purchase of Pahtavaara included a large number of concessions (exploration permits), which we consider to have great potential, although they have not yet been thoroughly explored.

Blaiken

The Blaiken mill, which we now also own, shows good potential for becoming a low-cost processing plant in a highly interesting area from a viewpoint of minerals. The purchase sum of SEK 40 million, as previously stated, will be earned back before the end of 2009. Work is progressing on formulating detailed production plans, with the goal of having planning completed in Blaiken as well, for three years of production, when operations are started.

The plans for Blaiken will be presented as soon as they are completed. The goal is to have the first ore being processed this year.

Blaikenverket is situated in the northern part of the Gold Line, in an area with both gold and lead-zinc targets.  The acquisition also includes a large number of exploration permits and a large geological data-base.

So we are now in possession of a gold extraction facility in Finnish Lapland and a gold, lead and zinc extraction facility in southern Swedish Lapland, with good prospecting areas, and complemented by the areas we previously own in the vicinity.

In Fäboliden we have - after several years of work - showed considerable gold resources. Fäboliden has 1.9 million tr.oz. of gold in ore reserves, of which around 45% is measured reserve, which is the highest category. In addition to the ore reserves, there are around 15 million tons of mineral resources, which we are working on re-classifying as ore reserves. The deposit is open towards depth, and is located in an area with good potential for new deposits.

 In Haveri we have a reported resource of 310,000 tr.oz and for the Ersmarksberget gold mineralization we have a goal of around 100,000 tr.oz.  The Company currently is in possession of 2.5* million tr.oz of ore reserves and mineral resources, with high potential for an increase.

With our new assets, and the new structure of the Company, it is natural that we revise our priorities. We are increasing our focus on creating the long-term requirements necessary for profitable operation of our existing facilities. This is brought about through exploration and ore development. Deposits in the vicinity of the plants, furthermore, have the potential of being brought into production much faster with processing plants already in place.

In September, we were finally able to report that the Supreme Environmental Court had granted us the permit to establish and operate the processing plan and mine at Fäboliden. The ruling was basically the same as what had previously been approved by the Environmental Court, and what we had accepted during the negotiations. It can also be noted that Naturvårdsverket (Swedish EPA) very well could have brought up their viewpoints in the Environmental Court if they had set as a priority to participate. Instead they took the expensive route (both for us and for the community) of appealing and negotiations in the Supreme Environmental Court, which caused a major delay of the project. The environment has a price, but one might ask how high this price should be for an individual company. The ruling by the Supreme Environmental Court does not signify any important change in the guarantees of after-treatment and cleanup - a point, which unfortunately could be misunderstood due to a bad wording in the ruling. This error has now been rectified.

Finally, a word from one of our Directors of the Board, Mr. Tomas Björklund.

Gold Market

The financial crisis the world is now experiencing is without parallel in modern times. There are doubts about just about every financial institution, and many of the worlds’ most well known financial institutions are disappearing at an alarming rate.

In this financial climate the value of almost all assets is depreciated, except for gold. There is a widespread monetization of the various instruments of debt that the banks have been trading with. I can be said the central banks are exchanging these for newly printed money. The governments, on the other hand, are also forced to act, and to take on huge risks, which previously resided with the banks. This will lead to an increase in the budget deficits in the world, while at the same time leading to a decrease in tax income due to the down trending economy. What this means in the long term, is that after a period of lowered interest rates, there will be an upward push on the interest rates and a risk for a dwindling spiral where higher interest rates cause lowered prices on assets.

In the end this could mean that governments will have no other financing available than what they can get from the central banks.In such a scenario, with a strong dilution of the value of money, gold will more and more take on the role of the currency it actually is. Considering the small quantity of gold available in the world, compared to the abundance of paper assets, it is not so speculative to expect an increase in the gold price surpassing all current forecasts. We are already seeing signs of an increased demand for gold, with gold coins being sold out at the American mint and smelting plants worldwide having difficulties meeting the demands for gold bars. Paper gold, so-called gold ETF's, is reporting record inflows. A gold ETF could be said to be a re-creation of the original bill, which was a receipt for gold deposited. The currency of the market has always been gold and other metals. The politicians together with the central banks, have gradually, during the 1900's, taken control over the markets currency and replaced it with their own paper money. The treasury, which ought to be filled with savings in order to support the confidence for such a currency, has however gradually been emptied out, in a misdirected ambition to control the economic cycle and to get re-elected. All that now remains is a pile of debt, and the paper currency is at risk of becoming just paper. Maybe soon a little boy will yell "The emperor has no clothes".

On the supply side, we are also seeing how the sellers are disappearing. Both the Swiss and the German central banks declared in the end of September that they are no longer selling any gold. Maybe they thought of the fact that the reason they are permitted to engage in central bank business to begin with is that they have gold to back the currency with.

That connection was broken when the Bretton-Woods system capsized in 1971. At that point in time the tie of our currency to gold was let go off. Not through some thought-out plan, but through the process of printing too much money. Phase II of this wreckage could be said to have started now. Phase II will probably not end until the establishment of a new World Central Bank with a gold backed world currency.

* The reserves and resources have a grade of between 1.2 and 4 g/t Au depending on project. For further information, please refer to the specific project.

 

[Published Oct 06, 2008. See earlier CEO Report.]