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Strike while the Iron's Hot

Bob Moriarty
July 2, 2008

I first wrote about Palladon in February of 2005 when the stock was $.435. Last December I wrote about them again but as a tax-loss selling candidate. The stock was $.19 a share. The stock has been a disappointment to me and all of my readers for three years now. When they closed a deal with a Chinese partner in April, I wrote about them again. The stock was $.37.

I'm not sure just how many times my readers expect me to hand them a steel of a deal on a sterling silver platter but here it is.

Before the deal with the Chinese, Palladon owned half of the Palladon Iron Corporation (PIC) that controlled the Comstock/Mountain Lion iron mine in Southwest Utah. The 50/50 partnership with Luxor on the iron mine never made sense since no one really controlled anything. So in early June, Palladon announced a deal to purchase the 50% ownership in PIC from Luxor Capital, their partner.

It was an aggressive deal. Palladon was offering to pay Luxor $65 million for their 50% of the project. Face it, times are tough and lots of juniors are having the devil's own time raising money. For Palladon to announce a $60 million financing was pretty ambitious. Much to my very great surprise and immense pleasure, on June 26th, Palladon announced the closing of the deal. Palladon now owns 100% of the Comstock/Iron Mountain iron mine. That's a steel of a deal.

Here is how the numbers work out. When Palladon agreed to the deal with the Chinese on April 1st, they agreed to deliver 2 million tons of about 55% iron starting around August 1st 2008. A month from now. Shipments to China will follow soon after that.

The ore is worth about $25-$30 a ton in PROFIT. I know that's a term that few investors in juniors will be familiar with but it means selling something for more than it costs you to produce. It's the money you pay tax on and then put in your pocket or reinvest in plant and equipment or give to your loyal shareholders. For the 12 months starting August 1st, the iron project should make something like $50-$60 million dollars PROFIT. Palladon paid $65 million to make an additional $25-$30 million dollars profit in the next year. But I'm probably understating the figure.

Rio Tinto just announced a 97% increase over 2007 for what they will get for their iron. Iron prices are fixed from April 1 to April 1 of the next year. Iron is hot and the industry believes there will be an additional major increase next April. The world contract price for iron is about $145 per ton and iron is going for $185 on the spot market. A $50 increase in the price for iron next year would be worth about $.50 a share in profit per Palladon share.

I've believed in Palladon for years and supported them when I was getting nothing but hot air from one particular director/former CEO. Luxor has been rewarded for their patience with a 200-300% profit on their investment and current investors should do a lot better.

In simple terms, Don Foot, President and CEO has done a brilliant job of snatching victory from the jaws of defeat. And then he made it better. With 100% control of the project, he can run it like a real company.

One factor that I doubt many investors have taken into account is the potential for Palladon to upgrade both their facilities and their profit. They will be shipping 55% Fe a month from now at a profit of maybe $25-$30 a ton. They also will be installing concentrators that will bring the Fe content up to 67-68% that will double the profit. The cost of shipping is a major factor in the price of iron. When you ship 55% Fe, you are also shipping up to 17% dead weight in waste material of no value.

I'll climb way out on a limb and suggest to my nice readers that I figure at a price of $.82 today, Palladon is selling for a PE of 1-1.5 times 1 year hence earnings. That's a good deal. In addition, exercise of all the options and warrants on Palladon would bring in an additional $30 million dollars. So Palladon is sitting in the cat bird's seat financially.

We own a fair bit of shares bought in previous placements and on the open market. While Palladon has paid nothing for this piece, they are paid advertisers on 321gold. We are biased and you should take that into account. There is nothing confusing about the pricing of iron and the company is very good at communication so I encourage investors to do their own diligence. You get to make the money; you need to do some of your own work.

Palladon Ventures
PLL-V $.82 (June 30, 2008)
PLLVF-PK 205 million shares fully diluted (approximately)
Palladon Ventures website

Jul 1, 2008
President: 321gold

321gold Ltd