Notes on Ivernia and the Lead Mining Industry

Ivernia (IVW.TO) and Apex Silver (SIL) are projected by equity analysts to start up lead-associated operations within the next 6 months, and the stocks have not moved significantly, which may or may not indicate a buying opportunity. As a background, Lead is very attractive currently due to the massive run up (move from approximately $US2000 per ton in 4/07 to $US4000 per ton at 10/07) and very large deficit, driven largely by growth in battery demand in China. I reviewed Ivernia (in particular, haven't looked in detail at Apex Silver), and have noted the following:

- It appears the shut down of shipping for Ivernia is serious and is most likely to last longer than 5-6 months from 10/07 (in this writer's opinion).

- Ivernia's operations at its Western Australian Magellan Mine were shut down at 5/07 due a lack of ability to ship the ore, due to lead contamination at the Esperance Port in South-Western Australia. Mainly, what was occurring was that as the lead was being loaded, it was being blown by the wind to the city, as the lead pellets had been partially broken down into dust over the 700+ km journey from the mine. A sample of about 350 children under the age of 5 showed that 56 had elevated lead levels. A good discussion of the overall issue is here: http://au.messages.yahoo.com/news/localnews-wa/11421/ A reference for the injuries to children is here: http://www.theaustralian.news.com.au/story/0,25197,22376799-2702,00.html

- Apparently the problem is that the Esperance Port was only relatively recently upgraded to shipping metals (only in the last 10 years) from grains, and there were no safeguards for shipping dangerous metals, such as lead. The port is situated closely to the population center, meaning that probably new safeguards will have to be built into the port, as the lead can(and did) adversely impact the city.

- The Magellan mine is relatively new (started up in mid 05) so issues like shipping may not have been fully addressed. Currently Ivernia is trying to ship through other ports -- Fremantle, but the major of Fremantle is against Ivernia's proposal, citing the fact that the lead will pass through a population center of 400,000 people.

- Ivernia and its subsidiary Magellan Mines has submitted a proposal to ship the lead through UN-approved sealed, plastic bags. It will take 1 month for the Western Australian Environmental Ministry to review the proposal and at least an additional 3-4 months to decide whether or not to approve the new shipping method. Originally, in May 07 when the mine was shut down Ivernia thought shipping would resume in 3-4 months, but now (10-07) Ivernia has been told that it will take at least another 4-5 months.

- Overall, the situation is so ugly -- with injuries to children, a nightmarish situation -- such that the Environmental Ministry will likely have to drag its feet and make sure no more lead poisoning of children occurs. This means (in the author's opinion) 6 months is more likely a minimum time frame. Also, I noted Australia may be following the path of Canada, in that Mining-related approvals are taking a ridiculously long time -- I have followed Northgate Minerals (NXG)'s application process to expand its Kemess Mine in BC -- and it has taken over a year longer than anticipated (and currently still has not been approved/disapproved).

- On the bright side for equity holders, eventually Ivernia's application will likely be approved as the sealed bag proposal to ship the lead looks safe (based on the information on the Megellan Mines website: http://www.magellanmine.com). Note that the Magellan Mine and the surrounding areas are world class lead resources -- a simple calculation of the value of the lead in the Magellan Mine valued at $2000 a ton only to the current Market Capitalization of Ivernia is approximately 8%, which is a very low number for a small to intermediate miner. But note that Ivernia is now accruing debt -- standing at more than $C30M with quarterly revenues in 1Q07 at $C20M -- most of the loans have been made using the lead as collateral, and if it proves impossible to ship the lead the banks could wind up the Magellan Mine in the near to intermediate term.