Noront Resources

I'm sorry I left a few of you hanging, with respect to reporting on my meeting with Wes, now nine days past. Life just simply got too hectic in the interim. Had there been any significant information to impart, I'd certainly have given it a higher priority, but I don't think anything I now recount will rise to that threshold.

As Monsieur Glorieux has mentioned, he, myself, and a small handful of others have been invited to a technical presentation by Noront during PDAC. Shareholder-types will represent 1 of every 6 butts in the seats at the presentation, alongside the more typical brokerage analysts. I think that speaks to how highly Mr. Hanson thinks of retail shareholders. Show me any other company that reaches out like that.

As I had only ever spoken to Wes one time before, in the flesh, and that was a brief and very public encounter at the AGM last October, I thought I'd best get in there and do the eyeball-to-eyeball, one-on-one thing before PDAC. He graciously set aside about an hour and a half of his time for me, and I'll try and do that meeting justice here, today. We covered a lot of ground, and some of it only vaguely dealt with Noront's interests. I probed him with some of the rumours I'd heard; I asked him to explain some of Noront's plans; I discussed Noront's place in the markets. Sometimes all I could get was an impression, as certain subjects were quite reasonably material, and thus off limits.

The first thing we talked about was share price/market valuation. With the high (and increasing) level of institutional ownership, and Noront's own management views, the timelines for demonstrating the true value of the Ring of Fire assets are quite long. Notwithstanding the recent publicity arising from the FWR takeover, it might surprise some of us Agoracom adherents that the world at large has still never heard of Noront Resources. Feedback from 'the street' had it that SEDAR filings with respect to the nickel et al had us at around 3 MM tonnes, and that's about as deep into DD as most potential investors would ever dig. Wes feels that current SPs reflect the 3MM tonnes of ore metric. Given that Noront's own estimates would suggest 10-15 MM tonnes of mineralization, it seemed prudent to advance the updating of the 43-101 technical report on Eagle's Nest from Q4 to Q1, in support of the market cap. Wes is aware of the retail shareholder concerns about current SP, but he is unwilling to change his management style to something similar to the "old days", when massive price fluctuations were the norm. Rather, he believes that the SP will build support from solid evidence, from milestones demonstrated.

We also spent some time talking about the single headframe model for underground mining of the Eagle's Nest/Eagle 2/Blackbirds/Triple J complex (I'll just call it the Complex). It hadn't previously occurred to me that the various zones of mineralization were in sufficient proximity for such a plan to be practical, but it quickly became apparent to them that duplication of the surface equipment (if done as a two shaft mine layout) would be far more expensive than extending drifts to the mineralized areas. Development of the Complex via one shaft also significantly reduced any environmental considerations for the project. For example, as a good portion of the chromite is direct-ship ore, voids would be created upon its removal. Those voids would later be backfilled with sulphide tailings from the concentrator, eliminating any need for surface "storage" of this waste material. No tailings pond required. Small footprint mining. The basic plans for single shaft Complex have been submitted to a few outside mine development companies, and each has approved them as being efficient and minimizing costs. Of course, Noront is far from feasibility assessment, but things are looking good so far.

Flowing from the development of the Complex via a single headframe, I also inquired about the recent dyke/sill convergence model illustrated in recent presentations. This model shows the potential for the Eagle's Nest mineralization (dyke) and the E2/Blackbird/JJJ mineralization (sill) converging at approximately 2 km depth (Wes did say they were thinking 'first contact' of the convergence might occur at about 1700 metres). Just as with the single headframe development plan, this new conceptualization flows from "bullsessions" including Jeremy Niemi (3-d modeller extraordinaire), Jim Mungall (genesis of ore deposits) and others. The entire district including the Complex appears to have been overturned as a unit (at least so far, that's what the evidence shows), implying that continuity of mineralization on strike is a fairly reasonable assumption. Of course, those big drills we're waiting on will be required to demonstrate this deep convergence. So far it's only a model.

The really cool thing about this convergence, if it really does exist, is that the single headframe development would actually become more efficient as it went to depth. Usually, costs increase exponentially in deep-rock mining, as with increasing depth, the ore also typically tends to trail away from the shaft (initial capital costs are so high, your shaft generally starts closest to the ore nearest the surface). In this instance, the mineralization would more closely approach the shaft at depth (the E2/BB/JJJ zone extended on strike). Very speculative, at this point, but that's what the model suggests.

Further drilling is planned on the Blackbirds (open at depth; financial projections require upgrade of as much mineralization as possible from inferred category), and the Triple J gold zone. Conceptually, the gold zone is open along the contact, and the contact appears to continue to the convergence. And, the PGE grades at Eagle's Nest are superior to those at Norilsk. More than 30 times those in Sudbury. Heck, they're better than those at an existing PGE mine in Ontario. Eagle's Nest could be a PGE mine, with nickel credits, depending on how you look at things.

AT12. Again, those bullsessions have led to reinterpretation of the mineralization and its form and structure. One of the problems with relying on flow-through financing for exploration work is that the money has to be spent quickly. Vast amounts of core are very quickly accumulated, and core-logging and interpretation is very superficial, relatively speaking. There just isn't time to do it well, and "getting back to it later" just doesn't happen. Until now. Noront has systematically re-examined all the historical core, and it tells a different story now than it did back then. The re-examined core also helps to pull more meaningful interpretations from geophysical data. Obviously, the new data on AT12 is not yet public, but there was in interesting gleam in Wes's eye when we discussed this.

Assays and news releases. The old days of leaks are over. Wes told me that when Jeremy Niemi thinks he has enough info to release news, he writes it up and submits it to Wes and others. That's typically no more than 24 hours before it's released to the public. As to missing holes, there are no missing holes. Assays are reported sequentially, as received, but hole numbers are based on when a hole was started. If a hole ran into problems, then core is not pulled as quickly, and samples obviously cannot be processed as quickly as those from other holes. If daughter/wedge holes are done, the risk of equipment problems increases substantially. Also, the rate of drilling decreases with each metre of depth, due to friction. Even if everything goes well, deeper holes take much more time per metre of depth. Problems are also amplified. Just pulling core takes more time from depth. The bigger drills, with their increased torque, will not slow down as much at greater depths. Initial capital costs and operating costs will be higher, but the results will come at greater efficiency.

First Nations issues, I'm going to break down into two parts: financial issues, and social. They can't be separated, really, as they are absolutely intertwined, but they have different variables. But, I'm going to try. And most of what I say comes from my own experience in working with First Nations, and my own background knowledge. But still, in trying to simplify things to focus on specific issues, I'm going to distort other parts of the complex bigger picture. If anyone has a problem with what I now say, take it up with me, not Noront.

First off, Noront is a business, and its principals (i.e. Wes and his Board of Directors) have fiduciary responsibilities to shareholders. Their duty is to obtain the best outcomes for the assets and capital entrusted to their care. Their willingness to do business with First Nations is legally subservient to their duty to shareholders. Noront has a duty to ensure that a company bidding for work has the capital, experience, and expertise to perform and complete the contracted work in a timely manner.

I've seen a number of posts over the last week that discuss Noront's business relationship with Matrix. Matrix is far more than a helicopter transport broker. They set up and run exploration camps under leasehold agreements. Noront has contracted with Matrix to run their Esker Camp because Wes does not want to be doing something that is not in Noront's field of expertise. Noront is a mineral explorer (and hopefully) a mine developer, not a company running field accomodations. But Matrix was also using their transport brokerage expertise when they got the two Cat D4 bulldozers in last year. See [LINK]. In a sense, the issue of Matrix bringing in Noront's fuel is a bit of a misrepresentation; Matrix would be bringing in their own fuel (in a sense), for Noront's operational performance. The same with transporting the two big drills. Pragmatic and legal issues constrain Noront from selecting contractors who are not qualified (in a business sense) for certain logistical moves. But Matrix doesn't get all of Noront's work. And Noront has brought in third parties who will help the First Nations set up and capitalize businesses so that they can bid competitively on future work. It takes time for businesses to "get their legs" under them. This isn't an all or nothing situation. It simply takes time to make these opportunities a reality.

Another aspect of the business relationship involves the future economic benefits to accrue to the FNs via exploitation of these resources. The local bands are subject to Treaty 9 provisions, and there are no subsurface rights accruing through this treaty. It was the first tripartite treaty (requiring input from the federal and provincial governments, as well as the FNs), so it does provide well for the negotiations from these parties currently underway. But literally speaking, any legal rights to these resources accrue via effects on surface rights: the right to hunt and fish and trap and live on this land. The environmental impact is the value variable. I don't mean to minimize this issue (I've been raising environmental concerns for months now, as that is my professional background), but literal subsurface resource sharing rights by First Nations are not provided for in this treaty.

No one would deny the reality that any development of these resources, let alone continued exploration, will affect the local environment, perhaps profoundly in certain areas. Nor would anyone deny that the resident communities will themselves be profoundly influenced by the changes that are likely to occur. What needs to happen, IMHO, is that First Nations communities will learn more about the legal and business realities of the mineral explorers and developers, and that the explorers and developers will learn about and find solutions for the long-standing need for capital improvements in these communities. If the leverage that the FNs have over the others is via the environment, then that is the way this will be addressed for the good of all. There must be a balance found, though. If the potential economic investments in this district are delayed too long, then that capital will seek and find safer areas for long-term commitment. If that capital flow is suppressed too long, it will be very difficult to re-start that flow. The risk of killing the goose that lays the golden eggs has come to the forefront before the goose has laid that first egg. I just hope that both sides of the discussions can come to understand the pragmatic realities faced by the other, before too much time has passed.

As to the social aspects of the relationship between the explorer developers and the First Nations, my sympathies lie with the First Nations. But that is only because of the historical relationship of these FNs with the outside world. Just year-round freedom of movement alone has been denied them, due to the absence of all-weather roads. There are so many social issues, I will not list the others.

I mentioned this before, and I will bring it up again. There is one single word that recurred on the placards from the blockade site: respect. These people want, need, and deserve respect. Perhaps it was Cliffs' ill-advised trumpeting of billions of dollars of cash-flow (still a dream, I might add), or the lack of consulation of such a basic issue as transportation, or perhaps many such issues in combination which led to the blockade. It doesn't matter why now, the time is now, to begin to address these concerns constructively. As I emphasized with Wes, and as I do now, respect is a fundamental aspect of all my prior relationships with the FNs. Until respect is at the table, you won't have a deal. Of course, that goes both ways. Let us hope that respect has found its way to these negotiations.

Now, finally to Noront and the FNs. As I've already said, the complexity of these relationships does not lend itself well to simplification or to focus on single issues. My impression overall is that Noront management has a firm grasp on the big picture, as well as an understanding and appreciation of every single concern I raised under that broader umbrella. They know they can't make everyone happy, but they are certainly listening intently to every voice. As the negotiations are ongoing, I chose to speak my own mind about the First Nations in the James Bay Lowlands. Specific details of Noront's negotiations are intentionally not reported here.

Okay, so why did I seek this meeting with Wes? I wanted that one-on-one experience, and a chance to challenge him and gauge his reactions. I will summarize by saying that he acquitted himself well. He was appropriately vague when I felt that a vague answer was most appropriate. He was appropriately confident (but not cocky) when discussing the plans and accomplishments of his management team. By and large, I came away with a renewed and enhanced feeling of confidence, just as I had reported after meeting him for the first time at the AGM.

Some have minimized (and will probably continue to do so) the likelihood that Noront Resources will become a producer. Well, maybe the statistical likelihood of that is not so great, and maybe the team to actually do so is not yet fully assembled, but I was unable to discover any critical flaws in those plans, so far. Maybe it is all designed to appear as if they'll transition from explorer to producer, in hopes of creating a take-out premium. I don't know the answer to that, but I don't know that it matters, either.

Lar