mon Shares and, to the extent that the addition of
the conversion right will lead to the retirement of
the Class B Preferred Shares, the likelihood that
the common shareholders will have the opportunity
to participate in future dividends is increased.

It is difficult to project future markets and prices,
particularly for chrysotile asbestos fibre.
Management believes that the world demand for
asbestos is now stabilized as a result of improving
world economic conditions and an increasing
acceptance of the controlled use of asbestos. Also,
increased market demand is apparent in some
developing countries. On the supply side, one
mining company has gone out of business and
others have closed certain of their mining
operations, but there remains significant idle
production capacity. However, management is
confident that the Company, as a dependable
supplier for over 30 years of high quality chrysotile
fibre, will be able to maintain its relative position
in the market place. All indications are that the
McDame fibre will be as good as or superior to the
fibre from the open pit mine.

The Company is increasing its technical and
marketing efforts to take advantage of the qualities
and characteristics of Cassiar’s fibre that make it
particularly suitable for certain applications. For
instance, the superior length distribution of Cassiar
fibre and its high drainage or filtration rate during
the manufacturing process makes Cassiar fibre
extremely competitive in the asbestos cement
market. The low chlorine content of Cassiar fibre
makes it especially suited for the manufacture of
certain friction materials and its low magnetite
content makes it ideal for electrical applications.
The low level of impurities and its high resistance
to degradation also make Cassiar fibre attractive to
many manufacturers.

The Company is also conducting research and
development work on a process for improving
recovery of shorter grade fibres. If successful, this
process would allow the Company to recover fibre
from its substantial inventory of low grade material
retained from processing ore in previous years.

OUTLOOK

The mining industry has experienced difficult
times over the past few years. Cassiar, like most
others, has struggled to reduce costs and has fought
hard to hold its market share. With the assistance
of our employees, our customers and our suppliers,
the Company has been able to significantly reduce
its debt and increase its strength for the future.

Subsequent to the year end, 33% of the Common
Shares and all of the Preferred Shares of the
Company were purchased by a number of
institutional and private investors advised by
Hamblin, Watsa Investment Counsel Ltd. of
Toronto. The confidence of the new purchasers in
the future of the Company is most encouraging.

As a result of this purchase, there have been
several new appointments of officers and directors
of the Company. Mr. Winslow W. Bennett has been
appointed Chairman and Mr. James C. O'Rourke
has been appointed President and Chief Executive
Officer. Both Mr. Bennett and Mr. O'Rourke have
also been appointed to the Board of Directors.

Mr. Tom Buell, Mr. Howard J. Kellough, Mr.
Roger D. Lace and Mr. Prem Watsa have also been
nominated by Management for election to the
Board of Directors at the forthcoming Annual
General Meeting of Shareholders.

The officers and directors continue to be
committed to creating and enhancing value for the
shareholders in the long term.

A major consideration in assessing our future
performance is the fact that our Cassiar mine costs
will continue to decrease as the open pit strip ratio
declines over the next few years. Additionally, in
McDame, we have a potential major new mine.
Continuing support from our employees, our
customers and governments is essential in 1987
when we assess the development of McDame for
our long-term future.

On your behalf, we would like to thank the
Cassiar employees for their continuing
understanding of the needed changes and their
supportive team participation in the future.

We would also like to thank Mr. C.A. Smith, past
Chairman and Mr. J.D. Little, past President, for
their valued contributions.

Pa
a
\ ~

James C. O'Rourke,
President

Winslow W. Bennett,
Chairman

March 16, 1987