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Re: rrufff post# 9423

Tuesday, 12/22/2009 4:54:37 PM

Tuesday, December 22, 2009 4:54:37 PM

Post# of 9487
re BUERF -

Risks Associated with Refining

Our subsidiary faces logistical issues which may affect its ability to ship product on a regular and reliable basis, which could negatively impact the demand for our cobalt or our operational costs, and reduce the economic viability of our operations.

Our subsidiary faces many logistical issues both in the shipping of finished product and the flow of incoming supplies and spares. The remote nature of the location of our refinery facility, only 40 miles from the Democratic Republic of Congo border in western Uganda, means that deliveries cannot be scheduled on a regular and reliable basis.

Our subsidiary faces logistical issues as it has to import most of the supplies and spare parts that it requires to operate which may affect its ability to operate the refinery on a continual and consistent basis, which could increase our operating costs and as a result reduce the economic viability of our operations.

Most of the materials needed for the operation of the plant are imported into Uganda from various sources worldwide, including North America, the European Union, Australia and South Africa. This remoteness



necessitates long pre-order periods, often several months in advance. Most shipments are by vessels and arrive through port of Mombassa, Keyna. This port is incredibly congested due to huge increase in traffic into East Africa in the past decade. It is estimated that there are presently in excess of 5,000 containers awaiting onward shipping from Mombassa to destinations in northern Kenya and Uganda.

Once the container has cleared the port there is a further three day road journey to our refinery including the Ugandan border clearance to be negotiated. Transport vehicles are often in poor condition and the state of the roads can vary enormously. It is not unusual for critical supplies to be delayed while a replacement truck is located and dispatched to solve a breakdown problem. A major delay in an incoming shipment of a single process product could cause a temporary shut-down of the entire plant and the subsequent extended re-start process.

Our subsidiary faces logistical issues as it has to export all of its cobalt to various world markets which may affect its ability to ship product on a regular and reliable basis, which could negatively impact the demand for our cobalt or our operational costs, and reduce the economic viability of our operations.

The same problems are to be managed in reverse when shipping cobalt to the world markets. Trucks are not available locally and must come from Kampala to move the sealed containers to Mombassa. Once again the port congestion can cause delays in lading. All of this results in extended periods between packaged product ready for shipment and the bill of lading documents to facilitate payment by the customer.

Our subsidiary's cobalt refining operations are subject to market forces beyond our control which could negatively impact the demand for our cobalt or our operational costs, and reduce the economic viability of our operations.

Currently, we earn revenues exclusively from the sale of cobalt that is refined by our subsidiary Kasese Cobalt Company Limited. The marketability of cobalt is affected by numerous factors beyond our control. These factors include government regulations relating to prices, taxes, royalties, allowable production, imports and exports, any of which can increase our operational costs or reduce our refining capacity. In addition, cobalt prices are volatile, and supply and demand for cobalt fluctuates. Consumers, fearing further price increases, tend to increase their purchases in times of rising prices and, anticipating further price decreases, reduce purchases in times of price decline. If the demand for cobalt were to decline, or if we were to incur significantly higher operational and regulatory compliance costs and taxes, our economic viability would deteriorate and the continuation of our business would be threatened.

Our revenues are largely dependent upon cobalt prices that are subject to dramatic and unpredictable fluctuations. A significant drop in cobalt prices could threaten our ability to continue operations .

The current demand for and supply of cobalt are the fundamental influences on the metal's prices, as are technical trends, currency exchange rates, inflation rates, changes in global economies, political factors and a number of other factors. The supply of cobalt, in turn, consists of a combination of mine production and existing stock held by governments, producers, financial institutions, and consumers. As a result, cobalt prices are subject to dramatic and unpredictable fluctuations.

Due to weak cobalt prices in 2002, the Kasese Cobalt Company refinery was placed on a care and maintenance program under which all cobalt production ceased by September 2002 and operations recommenced approximately one year later when cobalt prices improved.

GodBless - NoDoubt - creede

~> #board-7229

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