Valuation of a Magnetite Iron Deposit, Ontario, Canada, for Corporate Financial Reporting to the Tel Aviv Stock Exchange

In January 2011, EIS was retained by Natural Resource Holdings (NRH), to develop a Fair (Market) Valuation of a tract of mining claims in southern Ontario, Canada, encompassing an undeveloped magnetite iron deposit, the Suni deposit. The valuation report was for a regulatory filing with the Tel Aviv stock exchange in accordance with Standard 6 of the International Financial Reporting Standards. The intended uses of the report were to verify to management and stockholders that the agreed acquisition price was fair and reasonable and to report to regulators the appropriate asset fair (market) valuation for recording on the company’s balance sheet.

In the 1950s and 1960s, the deposit had undergone extensive geological and metallurgical testing, followed by advanced mine development planning by Can-Fer Mines. In 1965, Algoma Steel optioned the mining claims from Can-Fer for C$1,340,000, and $200,000 per year advanced royalty, eventually buying ownership of the claims. A mine was not developed though, because of the high strong international competition that developed around 1970 in iron ore and steel supplies. In 2007, after Algoma was acquired by Essar Steel, it dropped the claims, at which time, Kenneth Kukkee, a Canadian prospector, staked a new set of claims over the Suni deposit.

In November 2010, Roy Sebag, an Israeli entrepreneur, optioned the claims through a private company that he owns. Mr. Sebag had retrieved and collated from various sources, copies of much of original drill-hole data, analyses, metallurgical testing, pelletizing studies, and design studies for mine, plant, and infrastructure. He had also located some complete sets of Can-Fer drill cores stored at the Ontario Ministry of Northern Development and Mines Core Library in Thunder Bay, thereby allowing confirmation of the logs he had obtained for those cores. Bringing these data and studies together with the control of the property substantially increased the value of the property.

The value of the property was further enhanced by Mr. Sebag and NRH through the process and results of digitization and geostatistical analysis of the data by a leading geostatistician, Rex Bryan of Tetra Tech, Golden, Colorado. His results were reported in a March 2011 technical report, providing Inferred Resource tonnage and grade estimates for the magnetite under current under current standards. EIS conducted supplemental evaluation of the results of the geostatistical analysis, applying mine pit outlines and preliminary economic analysis of mining and processing to areas of the deposit that have adequate confidence of continuity of mineralization to be classified as an Indicated Mineral Resource under the Australasian 2004 JORC Code.

An agreement had been struck between Mr. Sebag’s company and NRH (of which he was CEO) to transfer the Suni purchase option agreement to NRH in March 2011. Based on the JORC-compliant resource estimate, EIS then developed a Market (Fair) valuation of the option agreement at an agreed date in March for financial reporting under IFRS 6 to the Tel Aviv Stock Exchange. Five magnetite iron deposit transactions were adjusted to the Suni property under the sales comparison approach. The value conclusion showed that the value of the property had been enhanced many-fold from the value transferred from Mr. Kukkee to Mr. Sebag’s company. The valuation developed by Mr. Ellis passed intense audit scrutiny that resulted from the appearance of the November 2010 transaction being a bargain transaction.