ANDREW RACZ:   For the point of view of identification, we are talking to Mr. Jim Davis, president of Leeward Capital Corporation. Mr. Davis, in the last few weeks almost every mining exploration company has lost 50 percent of its value. What was the high for your stock in June?

JIM DAVIS:   I would say in June we were around 32 cents.

Q:   And currently what's the bid price?

A:   I think it's 23 cents.

Q:   So in other words, you lost 50 percent of your value. What has happened in Canada that precipitated this decline?

A:   Well, you've seen a general market decline in Canada over the summer months, the summer doldrums, when people are not that much interested in buying stocks or are on vacation. Holidays and everything and they do not pay attention to the market. The big selling was triggered by this subprime loan crisis. Investors liquidate everything they can find in order to cover their positions in other types of issues.

Q:   So in other words, what you are saying is that there was an asset liquidation all around Calgary, Toronto, Vancouver, and New York City.

A:   That's correct.

Q:   At the same time, your principal interest is molybdenum, correct?

A:   That is correct.

Q:   Molybdenum is a base metal, correct?

A:   It is a base metal. It's often referred to as the energy metal because applications in the industry, pipelines to refineries, are being used as a catalyst. It's not just new and replacement pipelines, which might create an avalanche of demand for the silvery medal. Molybdenum's applications are wide, diverse and expanding. The metal is used in paint pigments, lubricants, catalysts and prosthetic legs; the radioisotope Molybdenum-99 is used in cancer treatment. A percent molybdenum is also used in stainless steel for higher pressure piping in ore than 30 desalination plants (sea water reverse osmosis) now operating in ten countries. As abrupt climate change impacts fresh water supply, a great demand for desalination plants could emerge.

Because of the nuclear energy renaissance, condensers in the hundreds of planned and proposed nuclear power plants may need up to one million meters four- to six-percent molybdenum stainless steel. The number of power plants under construction, planned or proposed, rises weekly or monthly, and now approaches nearly 300. Aging U.S. reactors could require replacement over the next two decades. About 30 new reactors are in various stages are being moved forward in the United States. Not all will be of the size requiring a vast quantity of molybdenum, but sufficient growth in the nuclear sector should firm demand for the metal.

According to a recent article published by IMOA, "Molybdenum containing alloy sales for FGD applications are booming. "The U.S. Clean Air Interstate Rule (CAIR) set a deadline of 2010 for many coal-fired power plants to install FGD, or Flue Gas Desulfurization, systems. Basically, there are air pollution systems, which remove acid-causing sulfur dioxide from the exhaust gases of coal-fired electrical plants.

The nickel-based alloy C-276, which includes 16 percent molybdenum, is a corrosive-resistant component in piping and component upgrades in Flue Gas Desulfurization (FGD) systems. During 2006, it was estimated more than $1 billion was spent on molybdenum bearing alloy. IMOA believes the FGD systems could rack up $168 billion in worldwide sales between 2006 and 2020, of which about $15 billion would be used for moly-bearing alloys. This assumes two-thirds of the world's coal-fired generators install the FGD systems by 2020.

On the books, the U.S., China and India propose to build another 800 coal-fired power plants to met energy needs before 2020. New plants would likely require the FGD systems, which could potentially increase the amount of molybdenum.

Q:   What you are saying is that for molybdenum there is a natural buyer, people who need molybdenum to carry out their daily business. Correct?

A:   That's absolutely correct.

Q:   So in other words, if you compare molybdenum with gold, which happens to be my principal interest but still, when you compare it to gold, in gold you have speculators, you have the lunatic fringe who was always there for gold, and there are a few natural buyers, probably not more than one-third of the total. And there is a big hoarding of gold. There natural sellers and a small amount of natural buyers. Correct?

A:   That is correct.

Q:   In molybdenum there is no molybdenum hoarding. Nobody has been putting aside molybdenum for bad times and inventorying it in some isolated places.

A:   That's largely true at the present time. A "Spot Moly" fund has actually been buying physical moly and putting it aside, but they're the only exception that I know of.

Q:   It's Sprout, if I'm correct, who did it. Correct?

A:   That is right.

Q:   And do you have any idea how big it is?

A:   I don't recall precisely but it's several hundred thousand pounds of molybdenum.

Q:   And since one pound is about $30-35, 400,000 pounds is a meaningful amount of money, amount of value, but it's not going to shake the market.

A:   That's correct. Most of their investments have been in moly exploration and development companies. They just handle small inventories of moly that actually hasn't been delivered yet that they're holding aside.

Molybdenum has corrosive resistance to many acids, such as sulfuric, hydrochloric, hydrofluoric and many organic acids. Because its melting point exceeds 4700 degree F., molybdenum acts as a strengthener in the turbine blades and jet engines. It is because of these factors that higher molybdenum percentages may provide the world's first line of defense against pipeline corrosion in conjunction with the new generation of corrosion inhibitors. Molybdenum prices should remain strong for a number of years to come. Increased demand and under investment in the molybdenum sector for a lengthy period. It also costs a fortune to build a new mine, some $500 to $700 million. It's kind of a risky proposition for a commodity you can't sell forward.

Q:   Can I ask you at this stage if you can describe, as far as you see the molybdenum market, how big is it, yearly delivery, price structure. Can you say a few words to understand the company?

A:   Well, at the present time there's a shortage of molybdenum production, created primarily by China, who at one produced 24 percent of the world's moly. But now they find that their own internal consumption, they need that much moly. If you take 24 percent of the production of any commodity, you're going to end up with the rapid price rise that you've seen with aluminum, going from $2.50 a pound to $25.00 a pound. At the present time China has got export duties on moly to severely restrict any exports of moly from China. In the meantime, in the West there's no moly production coming out of mines of any significance, and that has caused the price squeeze that we presently endure.

Q:   What was the price of molybdenum four years ago?

A:   Four years ago, I believe it was about $4.50 a pound U.S.

Q:   And now it's $30-35.

A:   That is correct.

Q:   Can you tell me what's happened in the world that created this almost tenfold increase?

A:   Well, as I mentioned to you, the principal influence has been the elimination of China as a moly producer. But there are also a number of other uses of moly that have come to the fore that have to be addressed. It's used primarily in the production of steel, stainless steel in particular. And there's been an increasing amount of stainless produced in the world. Also, as I mentioned previously, it's the energy metal. It's used in the production of pipeline steel to refineries, and if occasionally you need corrosion resistance and strength you add moly to the steel. So there's been a tremendous pressure in trying to produce more moly anywhere in the Western Hemisphere.

Q:   So what you are really saying is that the energy industry at every level, pipes, refineries, corrosion-free steel, stepped in and put its incredible need into the market, whereas the normal steel industry itself has expanded, so you had a double pressure upwards of the molybdenum price.

A:   That's essentially correct.

Q:   If you have to swear in at a trial, what could be very negative for molybdenum in the balance of this decade?

A:  The only thing that could do that is increased number of mines put into production for moly. B 2010-2012, an increased moly production will be seen. But at the same time, you have increased consumption of moly, so it's a question more of balance between production and purchases of moly.

Q:   Let me concentrate for a minute on your company. You are an exploration company, correct?

A:   That is absolutely correct.

Q:   Let's say if everything works out well and you have money, when would be the first time that you could deliver from your mines?

A:   I'm looking at about four to five years before all the permitting processes would be completed on our deposit.

Q:   Four to five years of exploration and research and registration.

A:   Well, that would include exploration and engaging in the permitting process to put a mine in production.

Q:   How many shares do you have outstanding?

A:   At the moment around 71,000,000.

Q:   So 70,000,000 at U.S. price of let's say 20¢ is a $14 million market valuation, correct?

A:   That is correct.

Q: So we are in a key industry with an exploration company with a more or less normal financing, and you are trying to become a producer. In your main mine, how much molybdenum do you suspect you have?

A:   At the present time I think we have between 100 million and 150 million tons.

Q:   I want to go through this very carefully, because most people don't understand it. Let's say you have 100 million tons. How many pounds is that?

A:   It's approximately one pound per ton.

Q:   One pound per ton. So one pound is $35, 100 million is $3.5 billion. So basically your current market valuation is an infinitesimal part of the real value of the company.

A:   That is also correct.

APPENDIX 1

HIGH DEMAND AND LIMITED ROASTING CAPACITY
CAUSES RECORD HIGH MOLYBDENUM PRICES

In March 2004, molybdenum prices started to rise rapidly, responding to limited world roasting capacity and growing demand for molybdenum, mainly in stainless steel. By May 2005, prices had peaked at between U.S. $40 and $50/lbMo, compared with an average price of about $4.50/lb in the ten years up to 2004. Mine production of molybdenum has historically been surplus to demand, but in 2002 and 2003 was in deficit. Mine output was again surplus to demand in 2004 and 2005, though there was a deficit in usable molybdenum products because of limited roaster capacity. The increasing prices of molybdenum substitutes, along with mine closures, compounded the problem. In late 2005, some 24 molybdenum mining or concentrator projects were under consideration, with a total capacity of about 105ktpMo. Of more importance for world molybdenum supply is the addition of new roasting capacity to provide usable product. No major new capacity that is independent of new mine supply appears likely to come on stream before 2009. Although prices in 2006 will probably be somewhat lower than in 2005, they are not expected to return to their pre-2004 levels, and will be underpinned by limited roasting capacity and firm demand, particularly in China.

The key trends, issues and developments in the market are analyzed in this major new report from Roskill. It provides a clear insight into the industry and its trends, and an authoritative analysis of the prospects for the future.

The main end-sue of molybdenum is in steel. Stainless steel accounted for an estimated 28% of worldwide molybdenum demand in 2005, followed by full alloy steel (15%), tool and high speed steel (10%), high strength low alloy steel (9%) and carbon steel (9%).
The global market for molybdenum is estimated to have grown from about 100kt in 1990 to 181kt in 2005, an average year-on-year growth rate of 4.3%. This compares with a world real GDP growth rate of 2.9% py. Chinese consumption of molybdenum doubled to around 19kt between 2001 and 2005.

Ten companies account for about two-thirds of world molybdenum mine production. Codelco from its four copper mining divisions in Chile, and Phelps Dodge from one molybdenum-only and three copper mines in the USA, are by far the biggest producers, together accounting for about a third of world mine production. Rio Tinto more than doubled molybdenum output from the Bingham Canyon mine in 2005 to become the third largest producer with almost 9% of world production.