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               Some of the best performers in this bull market have been the metal stocks.

We all know the story- dramatic growth in China,  India etc are sucking up large quantities of commodities in a world market that has not expanded metal supply

for many years and requires several years to establish new mine supplies.

     The result of course has been some staggering explosions in metal prices. The $64

question then- is it different this time because of globalization or are we at the top of the

cycle. While we believe over the near term (one-two years),  it is different,

our selection only needs stable zinc prices to prevail handsomely.

    Strategic Acquisition Corp was a new issue in Canada in May 2007 raising $105 million earmarked for mining zinc in Tennessee. The company expects to spend $70 million by year end, rehabilitating the mines, buying mobile equipment and setting up the mill.

    As background, the mines were shut down several years ago by an Australian company

because of low prices. Thus as a past producer (29 years of production)  with known reserves, SRZ expects to be producing in the first quarter of 2008. The mining area is made up of five underground mines with estimated reserves of 2 billion pounds of zinc in addition to other undeveloped property in the area. Quite interesting is the fact that reserves have remained relatively constant over the 29 years indicating exploration has continued to replenish the mined zinc. It is noteworthy that in the 1980’s, the

mines were the largest zinc producing mines in the country. They produced a high concentrate of ore consisting of over 50% zinc producing over 100 million pounds of zinc

in its last year of operation (2003).

   Adding further interest to the properties is the expected byproducts of the mining- germanium and gallium- used in semiconductors. Past mining has recovered the former

and hopes are to recover the latter. Should this be successful,  management believes costs

would be cut  significantly from $.70 to almost $.55 per pound. But we will be conservative in our work.

    The current goal of management is to produce 125 million pounds payable zinc at $.70 per pound cost. Furthermore, the company has stated they have the capability to produce about 40,000 kilograms of both germanium and gallium at indicated values of $700 and $900 per kilogram yearly, and thereby would become one of the world’s leading producers.

    Certainly one of the big questions would be the state of the zinc market. Over the past

two years, zinc has jumped from $1500 a metric ton to a high of $4500 a metric ton in Dec 2006 and today trades at about $3500 a metric ton on the London Metal Exchange.

Zinc is used to galvanize steel and with the world in a infrastructure  boom it is easy to

understand that world demand exceeds supply-  by 20,000 tons this year. Indeed zinc inventories are at a critically low levels of late having fallen to about 69000 metric tons-

their lowest level in 16 years. Inventories are down 65% from last year and about 90% from three years ago. Obviously a giant sucking is afoot. With no early diminution of

worldwide demand expected or an important expansion of mine supply imminent, prospects look attractive. Industry sources feel that over the next couple of years some new production will lead to stable prices and then expect a significant supply shortfall in about 2010 when several large mines are depleted.

      The arithmetic of the mines includes an estimated full twelve month production rate starting in  2008 of 2.4 million tons of ore containing 125 million pounds of recoverable zinc. Using the 125 million pounds at a initial estimated cost (without the rare earths) of $0.70 per pound and a selling price of $1.60,  results in a cash flow of about $100 million. With the 30 million shares of stock at $6.00 and a market capitalization of $180 million,  we are selling at about a two times cash flow in a world where  producing mines generally trade between 4 to 10 times cash flow.

     Conversations with management exhibit a high degree of confidence in the project with their cash flow estimate of $100 million  in the first full year of operations  (without gallium and germanium sales). Germanium could add another $20 million in revenues, to be hopefully followed by  gallium sales in late 2008.

     Let us put this all together. Mine and reserves in place- thus no need for a feasibility study. Mill and infrastructure in place- no plant or roads to build. Just completed a new financing raising 100 million dollars to get the mine up and producing again. World zinc inventories are falling and prices stable. No political risk- unless Tennessee is scary. Producing metal early 2008. And sells at about two times cash flow.

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