report out!! looks good!!, page-2

Hi all kmn holders,

One of the criteria for mining stocks is whether if their deposit is economical, not just how high the grade is. Grade is important in so far as to the fact that it usually contributes to lower cost but that is only one of the factors behind an economic mine. The important question for the investors is do we have an economic producer at a gold price of say 1000 dollars. Over the last few months one of the main objections expressed by posters is that the grade is too low; this announcement should give us a clearer picture of whether if the grade is indeed too low.

First let’s examine the optimised pit results. Bear in mind that this is done by third party professionals. One of the key parts of this announcement is the part which says mining cost of US$1.85/tonne and administration cost of US$4..36/tonne. I doubt very much if any of us have read that kind of low mining cost, that kind of cost sounds more like digging than mining. And this compensates the low grade.

The next point of interest is the resource which comes to 1.54 million ozs of gold equivalent and they are measured and indicated resource which is much more certain than just resource. If we were to translate this resource to dollars value at US$1000/oz we can easily see that they have 1.54 billion dollars worth of metal in the ground as compare to a market cap of about 100 million. REMEMBER THAT THE RESOURCE REPRESENTED HERE IS ONLY FOR THE GOLD RICH AREA. THE ENTIRE AREA HAS A RESOURCE OF 4.5 MILLION OZ GOLD, 202 MILLION OZ SILVER AND 1.4 BILLION POUNDS COPPER. WORK THAT OUT YOURSELF AND YOU CAN SEE THAT THERE ARE ANYWARE AROUND 10 BILLIONS DOLLARS WORTH OF METALS IN THE GROUND DEPENDING ON WHAT PRICE OF METAL YOU USE.

Next is the low strip ratio of 0.47:1; one can hardly find that kind of strip when one looks around other open pit mine. This is important as the higher the strip the more rubbish you have to dig away before you can dig the ore.

The next important thing is the mining schedule which shows a recovery of 742,289 ozs of gold equivalent in 11 years. Bear in mind that this includes the fact that you can only recover a certain percentage of the metals as shown in the heap leach recovery table. We cannot work out the cash flow etc until the scoping study is out. However we can gauge the economics of the deposit based on the annual report.

On page 9 of the annual report we can have an idea of the capital cost which is projected to be less than 100 million. Of most interest to us would be the heap leach project comparisons on page 15; we can clearly see that El Castilla with 0.47g/t of gold in pit has a cash cost of just $C569/oz; this compare to San Anton with 0.94 g/t gold equivalent with a low strip ratio I would expect a lower cash cost. What’s even more interesting is that Camino with a grade of 0.71g/t has estimated cash cost of just US$385/tonne. Now you can make your judgement whether if San Anton would be low cost economical project or not.

Cheers