confidence, page-7

Hi FK,

Well, we would all certainly like to value companies by that method!! As we tick off the steps to become an actual mining company, the valuation will move from a purely resource based value (as you have done), to a operational based valuation.

You have to start looking at the EPS, and value RIV on that basis. From the announcements, that you have also mentioned above, the 946 block is even bigger. We currently have 4 B resource; judging from the size of the 946 (and knowing nothing of the depth of the resource in block 946), it may be an additional 6-8 B tonnes of coal. Doubling the resource will not move the SP much, in this market. We have seen this previously, with other resource upgrade announcements.

The RIV EPS will not be restricted by the resource, but by the infrastructure to mine that, and get that to port. RIV are up against a gorilla when competing for the infrastructure - VALE. And it is this point, that Mac Bank alluded to, in their low, $4.85 (?) valuation.

We all know that the Mac Bank valuation was pathetic , in the depth of its review of RIV, but the infrastructure problems remains a salient point to ponder. VALE will be pulling all the punches to ensure that they get first bight at all rail and port loading capacity!

RIV is not only about a resource, but also about developing the infrastructure. You can see this in the RIV reports, and the proposed development of the power station and the barging option. If the barging option is a goer, then RIV will be able to leapfrog the rail and port infrastructure capacity bottlenecks, and go straight from barges to transloaders (see last announcement).

The benefits of the barge option are twofold:
(1) Scalability: Increasing no. of barges and transloaders, as operational profits allow
(3) Significant transport cost reductions: Rail is something like $25, and barging would cost $10. Probably not these figures, but the proportion is correct. (See previous reports)

I would suggest that the success of the barging option has more potential for increasing the sp of RIV, than a doubling of the resource. Stay tuned to this!

The second point I'd like to make about block 946, if it is that big, where the hell is RIV going to get the $$$ to set up the mining infrastructure? I mean, block 946 would be a company maker all on its own! There is no way RIV could handle the development by themselves. There are several options:

RIV could sell it off, but that just increases competition for the infrastructure.

Sit on it, but the government will not like this;

Bring on another JV partner, like they did with TATA.

Or, we may just get taken over before all this happens. Sometimes the resource is too big!!! In any scenario above, RIV has to be worth $20+, and it will be a very interesting 12 months!

Cheers, Skip