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Palladon AdVentures

Bob Moriarty
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April 11, 2005

I last wrote about Palladon Ventures (PLL-V $.78; Canadian 26.8 million shares Market Cap of about $21 million Canadian; website) about two months ago. Shareholders have been eagerly awaiting news of just how CEO George Young intended to finance the deal, ever since.

Sure enough, early Friday morning, the shares of Palladon were halted pending an announcement. It came in early afternoon and at first glance probably shocked most Palladon investors. I've thought about it over the weekend and had a good long phone call with George on Saturday. I'm now a believer that the newly announced financing is a very good deal for Palladon.

Basically, in February when Palladon announced the deal, they appeared to need around $6.5 million to buy the property from the bankruptcy court. The JV between Palladon and Western Utah Copper [WUCC] called for a 65/35 split with Palladon getting the lions' share of the project and being responsible for 65% of the cost. But WUCC is a small, privately held company with not a lot of assets and no cash. So for the last two months, George Young has really had to carry 100% of the financial burden to only get 65% of the gravy. So instead of having to cough up $6.5 million, George had to find $10 million and the cash to get operations started. And that's a lot more of a burden.

I've known since February that George was talking to three different groups in Vancouver for the financing. I had mixed emotions about that overall. When the Vancouver sharks smell blood, they go into a feeding frenzy. And most of the companies in Vancouver providing capital are the first to dump your shares when the holding period is up. In any case, George didn't come to an agreement with any of the Vancouver people but made a rather good deal with someone right out of left field, Luxor Capital Partners.

Serious Palladon investors and followers have known for six weeks that Luxor Capital has been accumulating shares in the open market and now controls slightly over 4 million shares or 17% of the outstanding shares. Not only that, they now seem to have taken a very aggressive approach to becoming partners with Palladon in the Cedar City Comstock/Mountain Lion iron project.

The financing announced on Friday calls for Luxor Capital to loan $13 million (US) to Palladon in the form of a 5% Convertible Note. In addition, Palladon will issue Luxor 7.8 million warrants at about $.96. WUCC will be taken out of the deal entirely with a cash payment from Palladon and the new split between Palladon and Luxor will be a 50/50 deal.

At first glance it sticks in the craw just a little that Luxor Capital has cut such a great deal. They loan Palladon $13 million and end up with another 25% of Palladon and half the iron project as well. But the fact that it's a great deal for Luxor shouldn't confuse the reader, it's still a lot better than a red hot stick in the left eyeball for Palladon. Palladon has only put up $50,000 so far in this project history. If it fell apart tomorrow, Palladon hasn't been hurt and actually the absolute downside is Palladon selling the project to the steel company which was trying to buy it for $10 million two months ago but wanted time for due diligence.

Palladon was a $.34 a share company three months ago when the original press release came out. Palladon has gone from a market cap of about $7 million to a market cap of $21 million. I fully expect Luxor to be supportive of the stock, they make the maximum profit on the shares through appreciation. If for any reason the shares slip down, they would simply buy more.

While Palladon has had to give up 15% of the project, they have gained a partner with the strongest of strong hands who has every reason in the world to want to see the project up and running as fast as possible. Speaking of which, George tells me that Palladon is near signing a contract with a major buyer who will buy every ton of ore Palladon can ship. Back of the envelope figures from George suggest production starting in 3-6 months after upgrading the mine with a magnetic separator unit costing about $300,000 and putting the existing conveyor belt back into commission.

It looks as if Palladon may go with contract mining and should gross something in the $30 per ton range and net maybe $20 per ton. The figure of 1 million tons per year is still the goal. And my back of the envelope figures would show a NPV of $240 million to $450 million. So if George makes his numbers, I believe the fully diluted 31 million shares of Palladon will still be worth $3 to $4 a share in the next year. Or more.

I was a buyer when the shares were $.40 a share, I picked up some more shares at $.78 and in my view anything below $.80 is damned cheap. You don't owe me any of your profits so do your own due diligence. I am giving you my opinion and we all know what opinions are valued at. Palladon is an advertiser but has not paid for this piece in any way, and I am biased.

April 11, 2005
Bob Moriarty
President: 321gold Inc
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