IKN #172Premium

The IKN Weekly
Week 172 August 19th 2012
Contents
This Week: Feedback from IKN171
Fundamental Analysis: NOBS fundamentals report on OceanaGold (OGC.to) (OGC.ax)
Stocks to Follow: Overview, U.S. Silver (USA.to), Estrella Gold (EST.v), Focus Ventures
(FCV.v), Rio Alto Mining (RIO.to), Sunward (SWD.to), Bear Creek (BCM.v), Strait Minerals
(SRD.v), Plata Latina (PLA.v), Lara Resources (LRA.v).
Copper Basket: Overview, Augusta (AZC.to), Candente (DNT.to), Yellowhead (YMI.to),
Regulus (REG.v).
Regional Politics: Peru Conga again a potential flashpoint plus Newmont’s (NEM) CEO on the
project, Colombia: La Colosa resource estimated by AngloGold Ashanti at 25m oz Au, Argentina:
South Korea’s Daewoo moving into copper production?, Bolivia: Mining production & sales drop,
Chile: La Escondida’s (BHP) half year results a microcosm of industry, El Salvador: Government
pushes for a moratorium on mining activity rather than permanent ban, Guatemala Industry
leaders ask government to speed up permitting process
Market Watching: Radius Gold closes B2Gold (BTO.to) deal, Vena Resources 2q12 numbers.
I remind subscribers that no part of this newsletter can be copied, reproduced or given to any
third party without the express permission of the author.
This Week
Feedback to IKN171
First things first and a hearty “thank you” to all of those (and there were many) who wrote in
with thoughts and suggestions regarding the changes proposed in IKN171 last week. Notes on
the feedback:
I was pleasantly surprised by the amount of positive feedback on the decision, with the vast
majority of those writing in saying that it was a good idea to move to producers and away from
explorers, towards higher volume trading stocks and away from the illiquid stocks. There was
some dissent and a handful of unsubscribers as well but was less, I’d dare say, than I had
suspected might happen.
There were plenty of stock ideas from you all, from the small the the large and nearly all of
them were in the producer sphere. Also perhaps half of the names suggested were not in the
LatAm region, so there has been plenty for me to chase up on in just the names suggested (let
alone my own ideas or results from stock screens). I know I haven’t got back to you all (there
were a lot of mails, please excuse me for waiting until today for a general ‘thanks’ reply to you
all) but I guarantee that I either have already looked or will be looking at every single name
mentioned to me, that’s a promise. No promises about whether your preferred name gets even
a mention on these pages, let alone coverage, however.
One repeated suggestion went along the lines of how moving away from early stage explorers
was a sound idea, but I shouldn’t privy myself from the late-stage explorers with strong looking
deposits either ripe for M&A or about to be taken into construction/production by its junior
mining company owner. I think that’s fair comment and it also plays to my numbercrunch skills
1

so I’m going to consider that specific area of the junior sector more carefully than I was
planning to. However, be clear that preference is for producing miners with free cash flow.
Suggestions that I might cover other market sectors were moved, with a couple of votes
coming in for the energy/oil&gas scene in LatAm. Sorry people, that’s not going to happen.
I’ve been asked just why certain companies (eg SWD, LPK, PLA, AQM) got “considering sale”
put next to their name while others that are also firmly in the exploreco category (e.g. FCV,
SRD, LRA, BCM) did not. The answer is that eventually they’re all sellable, but at this time I’ve
considered both the story of the company, the time it will need to bring the story to fruition and
also its relative size in my portfolio. The result is a type of mental order of potential
consideration and right now, for example, I consider the larger monetary value of Sunward
(SWD.to) plus the long timeline to the point where it might bear fruits (or at least the fruit for
which I bought into the stock, in this case a buyout from a larger miner) make that one needy
of consideration before, for another example, Strait Minerals (SRD.v) which is closing in on the
reason why I own the stock (Alicia drill results) and by the nature of the position, has a smaller
amount of cash tied up in it. I suppose that’s a long-winded way of saying that it’s just me
being subjective, but the sales have to start somewhere and the active consideration of
potential sales, too. I repeat that timeline and guideline I’ve set myself for this turnaround in
the stocks we cover, which is to arrive at a ‘Stocks to Follow’ list that contains mostly
producers by the end of 2012. There’s time enough to make proactive decisions in many
places. As things stand today, three of the names currently featured on the list will leave 2012
as producers of some shape or form (RIO.to, IRL.to and VEM.to assuming Azulcocha gets to
FCF+ stage). Which means we’ll need to add at least four or five producers, perhaps more, in
the last 19 weeks of the year. It represents a big shift and change in direction, but it’s not one
that has to happen starting immediately and as the NOBS report on OceanaGold (OGC.to)
(OGC.ax) today hopefully demonstrates, we have time to lay groundwork and set up potentials
before making the active decisions and laying down cash.
Fundamental Analysis of Mining Stocks
This week we look at OceanaGold (OGC.to) (OGC.ax):
NOBS bespoke report dated August 19th 2012
OceanaGold Corporation (OGC.to) (OGC.ax)
Company Overview
OceanaGold Corporation (Canada: OGC.to, Australia OGC.ax, New Zealand OGC.nz, Frankfurt
RQQ.f) is junior mining company operating in New Zealand and The Philippines. It has two
producing mining operations in New Zealand in Macraes/Fraser and Reefton, as well as the
Didipio project in The Philippines now under late-stage construction and due to be
commissioned at the end of 2012. The share structure is as follows:
2

Shares out: 262.9m
Options: 7.1m
Warrants: Zero
Fully diluted shares: 270.0m
Current share price: $2.41
Market Cap: $633.6m
Approx cash per S/O: $0.28 (end 2q12)
We use the OGC reporting currency, United States dollars, unless stated. Forex U$1=CAD$1
Overview of today’s OGC coverage
OGC is being featured today for a pretty simple reason; it was the single most petitioned name
for coverage from you people out there over the last week, considering our shift in emphasis in
The IKN Weekly to producing mining companies. It ticks many of the boxes now in play too, that
include:
• A non-LatAm based company, now allowed as long as the political risk set-up is
acceptable
• A combination of production-plus growth, with established producing mines soon to be
joined by a newly producing asset
• Financials that are more complicated than the average junior and need to be
understood for what they are, both on a general conceptual level and in some detail
• A share price that has been beaten up and is now showing signs of recovery
But mainly, it’s the first stage of our new direction in coverage because it was the most popular
request from you guys. It also helps that we covered OGC nearly two years ago (a coverage
that was also somewhat ‘on demand’) and although at that time the decision was not to take a
position (a call that was proven good over time) it does mean that although my knowledge was
a little rusty until this week I at least had a handle on the company’s general story. That helps.
OGC’s operations
There are three that concern us here. OGC is currently exploring at its operating mines in New
Zealand in order to grow the gold reserve/resource ounce counts and does have early some
stage exploration work going on in other areas of New Zealand. It’s also champing at the bit to
drill and explore areas under its concession around Didipio (the current exploration moratorium
in The Philippines is stopping that), but for our purposes OGC is comprised of three operations
and here’s a quick overview of them:
• Macraes/Fraser: In the South of New Zealand’s South island close to the city of
Dunedin, the complex is comprised of the Macraes open pit mine and the Fraser
underground (U/G) mine, with the two mines’ product milled together at the Macraes
mill. The Macraes open pitter has been in operation since 1990 and the Fraser U/G was
added to the mix by OGC in 2008.
• Reefton: Also located on New Zealand’s South island (but further North, the two mines
separated by around 300 miles), Reefton was commissioned by OGC in 2007. It’s a
relatively small open pit operation with has been run so far on a limited mine life that
gets extended by ongoing exploration work.
• Didipio: This is the new OGC mine project, located in The Philippines on Luzon island,
the large island in the North of the chain that also hosts the country’s capital, Manila.
Back in 2010 when we looked at OGC there was considerable local opposition to the
Didipio mine and clashes between locals and the company had at times been violent.
Back then, there was legitimate doubt as to whether Didipio would ever make it, but
we’re happy to report that the company has in the intervening time made strong
progress and gained majority local acceptance. The result is that Didipio is now in the
last stages of construction and is due commissioned in 4q12 (in the valuation that
follows, we model the dates provided by OGC but begin our revenues model on
January 1st 2013). OGC has done a good job in bringing Didipio this far and
confounding the doubters (your author included) and should be congratulated. There
3

has been cost overruns on this project (the current ticket is $247m including start-up
working cap requirements) but that’s hardly an isolated story in the world of mining
these days.
For more details on the OGC ops a fair place to start is the latest corporate presentation here
(8), though the normal pro-company type spin needs to be filtered. Again, OGC is hardly alone
in that.
Reserves and resources at OGC
As it’s been a while, it was interesting for me to look back at the resource count as at late 2010
and where it stands today, nearly two years later. This is mainly because OGC’s New Zealand
properties didn’t have much of a long mine life back then, but management assured anyone that
cared to listen that there was plenty more mineral to move into reserve and/or resource
categories to extend the mine life. Also, it’s notable to see the improved resource figures at
Didipio. Let’s start with how things stood back then via this table:
OceanaGold (OGC) 2010 metal count (Au in Moz)
Total Didipio OGC
Macraes Fraser Reefton NZ Gold Total Didipio Copper
Reserves (P+P) 1.42 0.15 0.37 1.94 1.65 3.59 419m lbs
Resource (M+I+I) 2.52 0.73 0.83 4.08 0.73 4.81 750m lbs
Total 3.94 0.88 1.2 6.02 2.38 8.4 1.169Bn lbs Cu
source: company filings as at August 2010
Now for the updated table, using the figures seen in the latest edition of the OGC corporate
presentation, dated June 2012. These are the numbers that count today, people:
OceanaGold (OGC) 2012 metal count (Au in Moz)
Total Didipio OGC
Macraes/Fraser Reefton NZ Gold Total Didipio Copper
Reserves (P+P) 1.59 0.37 1.96 1.68 3.64 507m lbs
Resource (M+I+I) 4.15 0.83 4.98 0.89 5.87 794m lbs
Total 5.74 1.2 6.94 2.57 9.51 1.301Bn lbs Cu
source: OGC corporate presentation June 2012
does not include 0.77m oz inferred Au at Sam's Creek deposit. Cut-off using $950/oz Au, $2.85/lb Cu
The differences are clear, with ounces significantly up on exploration (and note the numbers
don’t include two years worth of mine depletion). The results of the change mean that two years
ago in August 2010, OGC called Life of Mine at Macraes to 2016, at Fraser (the U/G operation
that’s part of the Macraes complex) to 2013 and the separate mine Reefton to 2013. Today
things stand at:
• Macraes open pit Life of Mine to 2019 (added three years)
• Frasers U/G Life of Mine to 2017 (added four years)
• Reefton open pit Life of Mine to 2015-2017 (added up to four years)
Macraes & Reefton mill feed grade averages, per qtr
Not only that, but OGC management
3
continue to hold the same claims that mine
life can be extended further via exploration at 2.5
all three (or two if you lump Macraes and 2
Fraser together) assets. With its track record
1.5
of extension now proven, it’s a fair bet that
more years of production will be added as 1
we move forward. 0.5
0
However, we do note that average grades at
both operating mines have been steadily
dropping over the last three years. This will
gradually add cost and eat into operating
4
90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2
g/t Au
Macraes mill feed grade
Reefton mill feed grade
source: company filings

margins if gold the metals doesn’t do what we’d like it to do and rise in price.
It’s the sign of a mature property that’s run its best material and is now looking to mine less
economic rock. As long as gold
prices remain favourable this OGC: Total op cost vs received gold price, per quarter
strategy will work, but economic 2000
realities are also in play here and the 1750
classic squeezing of margins over 1500
time is evident in this chart that 1250
compares total operating cost (the 1000
calculation more typical in 750
companies reporting in Australia that 500
adds up everything a miner needs to 250
pay in order to produce its ounce of 0
gold, not just on-mine cash costs) -250
And if we isolate those red bars in
the above chart, the ones that show
the difference between revenues and
costs, to get a clearer look, it looks
like this:
The $300s and $400s per ounce
seen in 2010 and 2011 have dried up
and we’re now down to $100s and
$200s in the first half of 2012.
Therefore, we can draw the facile
conclusion that with 9.5m oz gold
under 43-101 compliance (be that
proven, probable, measured, indicated and inferred all lumped together), the current $633m
market cap at OGC values those ounce in-situ at $67 apiece. That may look cheap for an
operating and working mine with its third asset coming online very soon, but we need to temper
that with the fact that OGC isn’t making much money on the ounces it mines at its NZ
operations and the nature of those mines is of deteriorating grades and (the theoretical law of)
diminishing returns. This strongly suggests that OGC would provide good leverage if gold shook
off its current drifting market price and put in a strong upmove compared to other market
devices (starting with the dollar).
A slight aside: Forex matters
Just a couple of lines on things relating to forex, as OGC reports in US Dollars (USD) but its
costs are directly related to the New
Zealand Dollar (NZD) and the bulk of
its financing debt (as we shall see
below) is held in Australian Dollars
(AUD) due to it being raised in that
country with a consortium of
financiers. This chart shows the
performance of the USD versus the
NZD (green line) and AUD (blue line)
in the last two years:
As we can see, the Aussie and Kiwi
dollars have appreciated some 13%
to 15% versus the Greenback in the
period. This brings cost pressures to
the OGC operations in NZ, as it
needs to pay its workers, suppliers etc in NZD which are clearly more expensive in USD terms.
Also, we need to note that debt servicing in Aussie dollars that it needs to make gets more
5
90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2
U$/oz
total op cost
received Au price
difference
source: company filings
OGC: Difference between total op costs and received
revenues per ounce of gold
600 480
500 398 418 409
350 341
400 276
300 177 209
200 104 116 110
100
0
-100
-79
-200
90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2
U$/oz Au
source: company filings, IKN calcs

expensive in USD terms and as OGC holds a lot of its liabilities as financial debt in AUD, that’s
an effect on the P+L and well as the balance sheet of carried debt.
However, those negatives need to be taken in context with a forex pair (or triple in the true
sense) that seems to have to have found a baseline level against the dollar, so big changes of
the type that affect quarter-on-quarter results are now likely mitigated. Also, let’s be clear about
the wider impact of a strong USD, as any financial and balance sheet benefits seen by a
suddenly stronger dollar would almost certainly show up in a lower price for the company’s
marketable product, ounces of gold.
Overall, this isn’t an aspect of the OGC situation that overly troubles me. As all the main moving
parts of the company’s financials (costs, revenue, assets, debt) are dollar sensitive, they will
largely cancel themselves out at the bottom lines of each page. They may make for financial-
type fluctuations in any given quarter, but this simply indicates that OGC is another example of
a mining company that’s better judged by its operation numbers or assets, rather than
obsessing over the bottom line net profit in any quarter.
The financials overview OGC
We run with the normal charts and add a couple of extras along the way to try and display
things in an easier to swallow manner (up to
OGC.to: Assets Breakdown per qtr
you to decide whether I achieve that).
1400
Starting with assets here and in the same way
1200
as I’ll ask you not to home in the the 3q12 and
4q12 debt column estimates as yet (they get 1000
explained as conceptual further down the 800
analysis for their own reason), we do the same
600 here. What we do see at OGC is that the
company capitalizes its exploration and 400
construction (which is fine until the big
200
amortization numbers come out the other end;
note the $20m hacked off revenues each 0
quarter by the mature NZ mines) and that
cash has been dropping quite rapidly in the
last few quarters as OGC spends to build its
Didipio mine. That’s an issue we’ll return to on
more than one occasion as we narrate OGC.
Here’s the debt overview chart at OGC and we need to consider in some detail this part of the
company’s financials, it’s a key metric to get
a handle on at this company today.
Let’s start with a basic “OGC has a lot of
debt” statement, because laying out simple
truths helps set the tone. I’d also ask you to
ignore the 3q12 and 4q12 estimates for the
moment, because we’ll get to those
conceptual estimates that are not likely to be
booked in the way you see above once the
present situation is understood.
So to the present state of affairs with OGC’s
liabilities and the 2q12 numbers state that the
company has $148.9m in current liabilities
(due in 12 months or less) and $221.8m in
non-current liabilities. Here below is the
breakdown of those currents/non-currents as presented in the balance sheet.
6
70q2 70q3 70q4 80q1 80q2 80q3 80q4 90q1 90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 tse21q3 tse21q4
source: company filings
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fixed
other current
cash
OGC.to: Debt Breakdown per qtr
700
600
500
400
300
200
100
0
70q2 70q3 70q4 80q1 80q2 80q3 80q4 90q1 90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 tse21q3 tse21q4
source: company filings
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LT debt
current debt

Of those, trade/payables is what it is. Not only is OGC building a new mine at Didipio in The
Philippines, but it’s also running two operations in New Zealand (along with some exploration on
the islands, too). As Didipio moves into the final year of construction, when big ticket orders and
placed and big cheques get written, we’ve seen trade/payables move from $45.6m to today’s
level and that’s pretty normal. Before we get to the thing that matters, let’s just run an eye over
all other items. Employee benefits = pension plans and those exist. We see other obligations
with a line item and OGC filing $39.3m in deferred tax, which is also a standard procedure.
Finally, there’s $25.3m set aside under asset retirement, which is the company taking the cost
of eventual mine closure into account.
And thus we arrive at the thing we care most about, the “interest bearing loans and borrowings”
that are filed as $78.425m in currents and $152.274m in non-currents. That’s over $230m in
debt and although $60m of that is the leasing agreements OGC has with companies for mining
equipment (Caterpillar (CAT) etc), $167m of it is money that matters, convertible loans with the
current tranche maturing at the end of 2012 and the non-current at the end of 2013. Let’s put
this simply, OGC doesn’t have the money to pay back even the 2012 maturing segment of the
loan and also build Didipio. Also, the conversion rate as stipulated in the agreement means that
those holding the notes (i.e. the bankers) aren’t going to get a good deal if they convert the debt
into shares come maturity day (for example, one AUD$70m tranche maturing in December
2103 would convert to a little over
18m shares, which at today’s market
OGC: Interest payments, last seven quarters (U$)
price would be worth U$43.6m and
not a lot to show for a lend of 6 5.24 4.993 5.086 5.315 5.057
4.71
AUD$70m, interest payments in the 5 4.244
meantime or not). Put simply, it’s in 4
the interest of both lender and
3
creditor, both OGC and the banking
2
people, to roll this loan facility over
and give OGC more time to pay back 1
in cash (while accruing useful interest 0
in the meantime, of course). As this 3q10 1q11 2q11 3q11 4q11 1q12 2q12
simple little chart (right) shows, once source: company filings
the forex adjustments are made it
varies a bit, but OGC has been paying around U$5m per quarter to service the debt on its
books. Banks like receiving cheques of that size on a regular basis.
So roll over the debt they will, and OGC on July 15th announced that a preliminary agreement
between the parties had been arrived at (2). We’ve yet to see the deal close and the devil, as
always, will be in the details but in general terms we know that the financiers are putting up
U$220m in facilities that will
a) pay off the A$57.8m in convertibles due December’12
b) cover the A$110m in convertibles due Dec’13
c) provide U$50m in working capital to OGC, which by our calculations will be needed, in
part at least, to cover the capex requirements at Didipio.
7
m$U

This new facility is slated to mature in three years (i.e. 2015) and put in its simplest terms boots
debt down the road (and back onto the non-current liabilities section of the balance). All this is
fine and it’s understandable from both sides of the table. OGC gets the money it needs to
complete its work and get Didipio to cash flow positive status (which should happen fairly early
in 2013 as long as commissioning in November 2012 happens on time, according to our model),
the bankers get more interest payments and the chance to review the terms of the conversion.
But what I’d like to focus in on here are two points, firstly the way in which this newly rolled-over
facility might affect the company’s financial position and secondly our hesitance about liking the
deal before the details are known.
1) Balance sheet effects: I now ask you to scroll back up to the debt and asset charts above
and consider the 3q12 and 4q12
OGC.to: Working Capital per qtr
estimates in each. What I’ve done in
those charts is assume that the $220m 200
debt facility is added onto the books by
160
OGC and not simply left on standby, as
120
will most likely be the case. This artificial
way of adjusting the assets and liabilities 80
is done so that we can get a better 40
handle on the chart that really matters,
0
this one below of working capital:
-40
It’s here that the problem becomes more -80
evident, because the 2q12 numbers
-120
showed clearly that without a new
injection of financing in some shape or
form, OGC was running on fumes and
would not have had the necessary cash
to finish the construction/commissioning/ramp-up work at Didipio. By adding in the new $220m
facility on top of the current situation (then subtracting capex work and the payment due end
2012), we see that by booting the debt maturity requirements to 2015, OGC has given itself the
necessary time and cash to finish building its mine.
2) Devil in the details. I’m very keen on learning more about the details of the so-far slated but
unclosed re-financing deal, because the details of the plan are important for the financial model
(after all, we’re talking about a $220m debt facility for a $633m mkt cap company, so small slice
of the whole). There will be plenty to consider, but I’ll be on the lookout for the interest payment
details and whether under the terms, OGC will have to hedge any of its production in order to
protect principal payback (bankers like such deals, while as a rule companies and shareholders
don’t). Plenty of other things to consider as well. Don’t get me wrong, I’m not saying that there’s
a big trap waiting for us here and the most likely resolution is one that suits all sides, but in
these days of tough financial markets I’m
going to stay with my potential doubts
until they’re proven unfounded.
The bottom line to balance sheet items is
that the company is taking on debt and
rolling it forward in order to pay for its
expansion plans, particularly that of
Didipio. This means that the mine gets
built, assuming correct closure of the
financing plan and that some sudden,
last minute pol risk flare up doesn’t
scupper things. The downside to taking
on so much debt is that in the event of a
market downturn the equity value of the
company (and yes that means your share
price, longs) would get crushed more
quickly than others and also, that cash is going to have to be paid off by OGC, so don’t expect
stunning bottom line numbers or generous dividend payments for the next few years. However,
8
60q4 70q1 70q2 70q3 70q4 80q1 80q2 80q3 80q4 90q1 90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 tse21q3 tse21q4
source company filings
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OGC.to: Shares Out
300
250
200
150
100
50
0
70q2 70q3 70q4 80q1 80q2 80q3 80q4 90q1 90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2
source: company filings
serahs
fo
snoillim

there is the upside as seen in the above share count chart which has been kept reasonably low
all this time. We’re at a sliver under 263m shares out, just 7.1m options on the books and no
warrants either. OGC has kept the share count low, especially as we consider 1) for a company
that’s built up one open pit mine at Macraes, opened an U/G mine at Fraser, built a new open
pitter at Reefton and is now building a big flagship-type mine at Didipio and also 2) the normal
route for Aussie-based mining companies is to dilute their shareholder bases to kingdom come
(plenty out there with half billion and even
one billion plus share counts) that are nearly OGC: gold production
always highly dilutive, too. 80000
70000
We now move to operational results that 60000
depend wholly on the two (or three, if you 50000
count Macraes and Fraser as separate, but 40000
as the rock from both is milled in one place, 30000
from now on we simplify matters by 20000
considering them as a single entity) working 10000
mines. We start with gold production (there 0
are no by-product credit metals at either
operation) per quarter and the decline from
low 70k’s per quarter in 2009 to mid-50k’s
numbers in 2012 is easy to read on this chart.
As we mentioned above, this is largely due
to the steady drop in grade However, the
last couple of quarters have also seen a
drop-off in mined ore numbers as supplied
by OGC, which we can see here. He
company has blamed problems with truck
availability for this drop and made some
more positive noises about the problem in
its 2q12 MD&A. Although there may be
reason to expect continued improvement
on this score in the quarters to come, as
usual we’ll play to the conservative side in
our model and not expect much more than
the 2q12 production numbers in 3q12.
One of the knock-on effects of lower gold production is, of course, higher cash costs and we
can see there here. We are expecting some improvement in the quarter(s) ahead and there’s no
reason as to why OGC cannot beat our
$1000/oz forecast for 3q12 to the downside.
But again, we play to the conservative side
and let any surprises be pleasant ones later
and let’s see how 3q12 is booked before
upping our production forecasts for the NZ
ops at OGC.
As for production and earnings, the following
gives us the bird’s eye view. Here’s
revenues, costs etc. Notable that the costs
curve in absolute dollar terms (yellow bars) is
very similar to the cash cost one above. It
doesn’t have to be that way (see the BS end
of the junior producers for evidence, such as
GPR.to) but as it is we can look straight at the cash costs as filed by OGC, consider them a
decent gauge of real, overall costs and consider that if OGC can get that cash cost per ounce
figure reined in as it expects (they’re calling $900/oz for the NZ ops and much lower once
Didipio moves online) the money will flow to EBIT.
9
90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 tse21q3
source: company filings
OGC: Ore mined per quarter
2.5
2
1.5
1
0.5
0
90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2
source: company filings
rtq/sennot
cirtem
noillim
Macraes Reefton
OGC: Cash costs per oz Au
1200
1100
1000
900
800
700
600
500
400
300
200
100
0
90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 tse21q3
source: company filings
zo/$U

OGC.to: Quarterly Earnings overview
120
100
80
60
40
20
0
-20
1
70q1 70q2 70q3 70q4 80q1 80q2 80q3 80q4 90q1 90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 tse21q3
source: company filings
srallod
fo
snoillim
revenues
COGS
Op. Earnings
This one shows operating profits and OGC.to: Op. Earnings vs Net Earnings, per qtr
net profits side by side and the
50
relation between the tow figures is a 40
fairly reliable one. We do note that 30
the type of net operating profit that 20
OGC gets from its NZ operations isn’t 10
0
massive stuff in dollar terms. The last
-10
six quarters, that include the good
-20
ones from 2011 and the poorer ones
-30
in 2012, have put $41m on the -40
company bottom line and into -50
treasury, which is a long way from -60
the $247m needed to get Didipio up
and running.
The basic takeaways from the operational results are:
• OGC needs that financing package for Didipio and can’t grow its new mine organically
• The recent 2012 results have been lower than expectations which we can blame on
operational and costs issues. Fair enough, the company says they’ll both get better and
let’s see about that, but even if things start motoring well and OGC starts posting those
$14m net profit quarters from its NZ operations, they still won’t justify its current share
price. We therefore conclude that the fate of OGC is evermore tied to Didipio, it’s great
hope for the future.
• The profile of OGC means that it will benefit strongly from a rise in the gold price. We
can consider this company as a leveraged play on gold, both for its high cash cost and
its mines that are seeing head grade depletion. This is normal for mature operations of
course, but a higher gold price will bring more of those resources to the economically
robust category and help justify current company asset valuations. However the flipside
is also true, as the high cash cost along with that big debt burden would sink the
company’s share price quickly if the gold price went South. With reward comes risk,
ladies and gentlemen.
To sum up, the financials at OGC are worthy of study because the liabilities the company
carries and will carry into the future are a significant risk. Production at its New Zealand mines
has been steadily dropping and although still profitable, it’s not enough to finance expansion. I
recall back in 2010 when analysing the company that it was confident of a 300,000 to 320,000
oz production profile in 2011 and 2012, which is a long way from the 253k oz of 2011 and the
110k oz of the first half of 2012. If OGC had delivered on the forecast, today’s debt burden
would be a lesser thing. The bottom line is that OGC as a investment is now closely tied to the
success (or failure) of the Didipio mine, so getting it up and running in 2012 and then working
profitably in 2013 are key events for the stock price.
70q1 70q2 70q3 70q4 80q1 80q2 80q3 80q4 90q1 90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2
source: company filings
srallod
fo
snoillim
Op. Earnings
Net

Another slight aside: The Philippines mining sector law reform
I’m putting this section here because I want to point it out to you but I’m not exactly sure about
the right place for it in the narrative, so here’s as good as any other place. Another potential
problem that seems to be clearing itself up now is the mining law reform in The Philippines. The
result of extensive debate that for a time seemed to be veering to a very mining FDI unfriendly
posture (e.g. extra high royalties, State participation in all projects, new tax laws imposed on all
mining, bans on new concessions) is a more moderated and measured result that has generally
gone down well (or at least classed as acceptable) by the industry stationed there. OGC
commented on the news of The Philippine President Aquino’s signing of Executive Order 79
(EO79) in a recent NR (3) and it’s been the subject of plenty of news reports as well (example
here (4)). The new law establishes precedence of national laws over any local laws or by-laws
(good for mining companies, the playing field stays level and avoids any local leader’s anti-
mining ideas) and importantly for OGC respects the validity of all contracts signed to date,
which means OGC’s deal will stay as stands. Mining royalties will be increased to an as yet
unconfirmed percentage, but all signals are that The Philippines will move them up to 5% from
their current 2% level, which is higher of course but nothing out of line with worldwide trends.
There has been some dissent of EO79 from national politicians (5), so it is possible that trouble
around this issue still may flare up. The line used by the dissenters varies along the general
guidelines of “the mining companies quickly accept the deal, so it can’t be good for the people”.
Overall, the mining reform issue seems to be resolving itself in an acceptable way for all sides,
which is good for mining there and good for OGC at Didipio. The risk isn’t 100% disappeared,
but we can say that on both a local and national level, OGC has a much better political risk
aspect than it has two years ago and there are enough pledges and guarantees in place to
make the company’s political risk profile acceptable. Not perfect, but acceptable.
Valuing OGC
After all that blahblah we finally get to the point and today I want to take this in two stages.
Firstly, as we’ve tried to put forward (and demonstrate to a certain extent) that Didipio is the
make or break of OGC’s share price, we’ll run the numbers on that operation as if it were a
separate company in order to demonstrate its financial potential. Once that’s done we’ll fold in
the current operations at Macraes and Reefton and offer up a consolidated view of production
and revenues flow. From there, we’ll hopefully get to a valuation that makes sense and from
that we can put together a buy/hold/sell call.
Didipio only: The first stage. For our costs and production metrics here, we’re relying a lot on
the Didipio 43-101 Technical Report published by OGC in July 2011 (get your copy here (6))
BUT (but but but but but) we’re also adapting the numbers offered in the 43-101 to adjust for the
cost creep we’ve seen in the industry. In general terms to stick to the conservative side and to
give an idea where I’m coming from, depending on each line item I’ve added between 10% and
20% to the cost parameter as set out (and if I’ve done my back-checking calculation correctly
this morning, the mean average addition is 17%). Also, of course, we’re using some of the
latest updated estimates on capex costs ($220m instead of July 2011 $185m, other etc) as
reported by the company. We also assume production day one on January 1st 2013, which
comes after the current projected commissioning date (OGC has November 2011 slated) but
may turn out to be a little optimistic (this is mining and shit happens etc, but as we’ve noted
above OGC does tend to the optimistic side in its forecasts...and yes, that’s me being
diplomatic). However, running from January 1st simplifies the model so we’re running on that
date until we know better.
As at June 30th (the end of 2q12), OGC informed the market (7) that it would need $220m in
total costs plus $27 in start-up working capital for Didipio, a total cash requirement for the
project of $247m. Of that total, $161m had already been spent and the company reported
holding $73m in cash at bank. So the quickmath comes to $238m, but then we add that a $50m
segment of the $220m loan being finalized with the consortium of Australian banks is
earmarked for working capital purposes. This brings us to $288m and has Didipio’s financing
1

requirements more than covered, even before we factor in any profits accrued from the New
Zealand operations at OGC.
I want to see that loan closed and I also want to see if the bankers impose any hedges on OGC
as a stipulation for the loan (finance guys like clauses that protest their principle payback)
Production at Didipio can be considered on a Life of Mine (LoM) basis and normally I prefer
looking at a mine or a project from it’s LoM figures, but there are a couple of very distinct
phases at the operation so this time I’m only going to home in on the first seven years’ worth.
That’s because the first part of the plan is open-pit only, will run at a low cash cost per tonne
moved and includes mineral that has a higher than LoM copper content. In fact, the revenues
from copper are slated to be almost as strong as the gold revenues in this first stage. Later as
the mine matures, Didipio becomes a open pit plus underground operation, its mining mix
changes and the costs and revenue profile is very different. The other key factor in deciding to
value Didipio on its starter years production is that debt burden it carries, as the mine needs to
show it is (theoretically at least) capable of quick capital payback, paying down that debt burden
and getting to the 2015 where it can pay off what it owes. If things go well it’s at that point when
OGC becomes the type of mining company that you’d pay multiples to own, with a strong
balance sheet, plenty of cash flowing to treasury, light financial burdens and profitable assets.
What could possibly go wrong?
As for physical production parameters, we’re running with these numbers for production in the
first four years of Didipio which are somewhat lower than the company projections for
conservative’s sake, but reasonably close to the forecasts all the same:
2013: 60,000 oz gold and 33.07Mlbs copper
2014: 90,000 oz gold and 39.65Mlbs copper
2015: 100,000 oz gold and 41.86Mlbs copper
2016: 100,000 oz gold and 41.86Mlbs copper
In this way, 2013 is the ramping up year, Didipio gets into its stride in 2014 and then (as
expected by the company projections) hits its full run rate 2015 and beyond. Again note that
copper production in these early years is higher than the expected LoM average, due to the
expected higher content of that early years mineral.
As for operating costs, OGC in its literature states that it will be able to run a negative cash cost
per ounce of gold, thanks to the copper credit. In our model we’ve taken a different approach to
the costs profile and split things down on a co-product basis, because copper is almost as good
a revenue generator in these first years as gold. We then break down costs as presented in the
July 2011 43-101 on a per tonnage basis (both tonnes mined and milled, as necessary per
case), adjust for our forecast cost creep (and preference for conservative parameters) since the
July numbers and throw it all in the mix. What comes out is, happy to say, very similar to the
type of revenues and costs parameters that OGC has been telling the world about. Here’s a
table:
Gross Rev FY 2013 FY 2014 FY 2015 FY 2016
Cu revs 99.2 119.0 125.6 125.6
Costs 80.0 95.0 90.0 90.0
Au revs 90.0 144.0 160.0 176.0
source: IKN calcs from OGC data
It’s presented in a kind of back-to-front way because I want to show how copper revenues
calculated in this co-product per tonne way more than cover the projected operating costs at
Didipio. This is a good thing and the upshot is that the gold comes at a negative cash cost, just
the way the company said it might (though our numbers are quite as robust on the negative
side).
For the record, we use gold at $1,600/oz and copper at $3/lb in all our calculations and years. If
you think that gold price is too optimistic then feel free to cut it down to your preferred level and
1

as Didipio is scheduled to produce around 100k oz Au per year (or 120k in the better early
years), then a simple $100/oz = $10m per year will help you see the ballpark adjustments.
Personally I’m happy about basing my work around $1600/oz gold at the moment but have used
a slightly lower than spot price for copper to give some revenues leeway to my model.
The State and corporate line items are as per, for example we run corporate tax at the
Philippine 30%, royalties at 5% for the reasons noted above, depreciation is scaled in at a lower
than average for the first years of the mine and we take a rough guess at G&A, though may be
wrong there. In the 43-101 the company assumed 2.5% (or $6/oz for the doré) would go to the
off-taker (who has now been ID’d by the company as Trafigura, though final terms have not
been agreed as yet). In our model we put that at 5%. In the concise income statement
presentation below we subtract those from the sales numbers before they make the tables
(which explains how for example Cu+Au revenues for 2014 come to $263m above but are given
as $237.3m below).
Finally, we’re assuming a $6m per quarter interest servicing charge in our model and we again
point out that in this part of the analysis we’re taking Didipio as a separate entity. That means
when we consolidate Didipio with the New Zealand operations, that interest servicing charge
won’t change. Basically, we want to see here whether Didipio is a viable project as a stand-
alone and it’s because of this project that OGC has taken on that debt burden. Credit where
credit is due.
I think that’s all the main points of the data input, so here’s the income statement as it shows
once the data is dumped:
Didipio Only: Concise Income statement items (Au & Cu co-product)
$1.6k/ozAu, $3/lbCu FY 2013 FY 2014 FY 2015 FY 2016
Sales ($m) 170.8 237.3 257.7 272.2
Cash COGS 80 95 90 90
Depreciation 15 18 22 26
SGA 7.0 6.0 7.0 8.0
Op income 60 106 125 134
Op Inc/share 0.23 0.40 0.48 0.51
Interest 24.0 24.0 24.0 6.0
Tax 8.9 20.5 25.3 32.0
Net income 26.8 61.4 75.9 95.9
Shares out 263 263 263 263
EPS 0.10 0.23 0.29 0.36
Capex -12 -10 -10 -10
FCF 0.11 0.26 0.33 0.43
Sources: OGC data, IKN estimates
In brief, 2013 will be the year to establish operations and show promise without showing
massive income from Didipio ($60m in operating income for the year). However, if 2012 shows
as seen the world will then be expecting the type of free cash flow from 20145 and beyond that
we see in this table. What we have here is a company that can indeed be expected to pay off
the financial liability that it has taken on board to build Didipio in the first three years of
production (we remind readers, once again, that our conservative parameter route always
leaves plenty of blue sky to the upside so to see the debt able to be paid off via our numbers
and in quick time too is very encouraging).
The conclusion we can draw from the Didipio-only part of this valuation is that the project is a
very interesting a robustly economic one. At 100k/oz Au per year it’s not the largest thing out
there and its cost overruns have placed extra burden on the company, but as long as OGC can
execute and bring Didipio online in the way planned (or not even up to the company’s best case
as put forward in its company literature) it will become a real moneymaking machine that will
pay back the capital raised quickly and provide strong revenues.
1

The consolidated company: Now we put the two piece together and most of the criteria are
the same as above, but this time...
We use that Didipio copper production as a by-product credit. The result is to model costs on a
per ounce gold basis and although the company currently projects a number of around $700/oz
for cash costs once Didipio is up and running, we’re going to use $800/oz for that after
consideration (and a few calculations...and a conservative choice of course). We’re leaving
surprises to the upside here, let’s be clear. It wouldn’t take much more than NZ OGC getting its
costs down to $900/oz (perfectly doable) and copper staying at $3.40/lb (rather than our $3/lb
price metric) to get consolidated cash costs down to $600/oz. That $200/oz breach, when
plugged into 340,000 oz gold per annum, makes for a lot of potential operating income upside.
Production is slated at the same as above, plus 240k oz gold from the New Zealand operations
per year (e.g. 2015 = 340k oz). I’m the first to admit this is a very ballpark assumption that
makes a simple assumption of 60k oz Au/quarter from OGC New Zealand, but on the one hand
we have mines getting long in the tooth and on the other a company that says it can improve
both mine life and production going forward. Therefore we go for a happy medium.
OGC: Concise Income statement items (Cu by-product)
$1.6k/ozAu FY 2013 FY 2014 FY 2015 FY 2016
Sales (C$m) 545.0 608.7 630.0 630.0
Cash COGS 240 264 272 272
Depreciation 110 110 100 100
SGA 23.0 23.0 23.0 23.0
Op income 155 193 216 216
Op Inc/share 0.59 0.73 0.82 0.82
Interest 24.0 24.0 24.0 6.0
Tax 32.8 42.2 47.9 52.4
Net income 98.3 126.7 143.6 157.1
Shares out 263 263 263 263
EPS 0.37 0.48 0.55 0.60
Capex -12 -10 -10 -10
FCF 0.75 0.86 0.89 0.94
Sources: OGC data, IKN estimates
From that, we turn to our target box that looks like this.
Sales and earnings Target price & valuation data at $1600/oz gold
2013e 2014e 2015e 2016e consolidated
Sales (C$m) 545 609 630 630 12-month target $3.85 (based on 8x '11 EPS
Sales growth 12% 3% 0% Upside to target 60% on 2014 estimates)
EPS 0.37 0.48 0.55 0.60 Mkt cap (C$m) $634 EV ($Bn) $931
Cash flow 0.79 0.90 0.93 0.98 P/sales (2013e) 1.04 EV/sales (2013e) 1.53
P/E (2013e) 6.4 EV/EBITDA (2013e) 3.5
P/E (2014e) 5.0 EV/EBITDA (2014e) 3.1
P/E (2015e) 4.4 EV/EBITDA (2015e) 3.0
We choose to run with a 8X EPS multiple even though the first years will be about balance
sheet improvement, rather than absolute net profits. At present the company is running a 5X
forward on EPS so with Didipio up, running and largely de-risked by then (all being well of
course), it’s the type of multiples improvement that’s easily achievable. Again, there would be
nothing to stop OGC from earning a much higher multiple, even in a relatively short space of
time like 12 months, because at 300k+ oz /annum and profitable it’s going to be worth more
attention, even as a potential M&A target. You want to dream of 10X and above, be my guest.
1

That $3.85 earnings-based target would put market cap at just over $1Bn, which sits nicely with
its current book value ($489.3m). Nobody would bat an eyelid at paying 2X book for a profitable
gold mining company with decent assets. As for checking back on the (perhaps oversimple) in-
situ gold calculation, OGC would then be valued at $105 per in ground ounce. When you’re
running a margin of $400/oz as OGC is modelled to do, that’s also well inside the realms of the
possible no matter how long in the tooth those New Zealand assets might be.
Conclusion
This thing is 14 pages long, which is way too much really so it’s time to wrap it up. However, it’s
long because we needed to take a good look at the financials of OGC before any reasonable
investment decision could be made.
There are still risks involved with owning OceanaGold (OGC.to) (OGC.ax) today, with the main
ones being:
• Gold price might drop. Class that one as “duh” if you like, but the high cash cost profiles
at OGC’s New Zealand operations mean that even $200/oz lower would send them into
operating loss territories. Leverage is a great thing when your end product is rising in
price, but its characteristic of a double-edged sword must be kept in mind, especially
when we’re considering a company like OGC that’s taken a big chunk of financial debt
onto its books to pay for its growth plans. If all goes well, then no problem. If plans go
slightly wrong, well that’s ok. If gold prices sink, look out below on this one.
• The deal to finance the last stage of the Didipio build-out is still not closed. I’d be the
first to agree that it’s looking very good that a deal gets done, but in the current financial
atmosphere I’d want to see a done deal, not a nearly done one. I also want to see the
exact terms of the deal because there might be clauses that weigh upon our valuation.
• Didipio’s start-up may be delayed, or once in operation the ramp-up timeline might not
go as planned. We’ve added in leeway to our model for this (compared to company
projections) to try and keep the surprises pleasant, but you simply never know and shit
happens in this industry.
• Philippine political risk is better but it’s still not a given. I’ll be much happier about the
prospects of OGC when it’s truly up and running, though that would probably mean
missing out on the cheapest entry points.
• OGC might see further cost creep instead of getting its costs down, as it has pledged to
do. The managerial optimism and rose-tinted spectacles isn’t the worst out there but it’s
still enough to attract my attention. Again, a case of “show me”, both in the quarters left
in 2012 and in 2013.
That little list is compiled to say but one thing: This is not a riskless trade. However, even after
listing those potential traps the value and opportunity that OGC offers is pretty clear. It doesn’t
need to do much more than what’s expected of it at this point, with the commissioning of Didipio
the main item, to see significant share price upside as long as the market doesn’t go totally to
pot on us. This is an interesting investment option today and even though it’s seen a bit of a
run-up in recent weeks (sub $2 just a couple of weeks ago) to the current $2.41
As for the investment recommendation, I like the way this company looks and for those wanting
leveraged upside to the price of gold and willing to take on board the risk factors, OGC is a
good option. It’s in production, its share structure hasn’t been blown out and offers upside to
asset growth, it has apparently overcome the opposition to its Didipio project and is in the last
stages of building what will be its flagship operation and although it has overrun on costs and to
some extent timeline, this is the type of window, just before start-up, that can offer good shorter-
term gains. Today I’m not a buyer of OGC because I want to see how that finalized financing
deal slots into place, the stock has just seen a bit of a run up (not chasing prices in this market
atmosphere) and a few weeks less between now and the proposed start of Didipio will give me
a better risk/reward bias, I think. Finally, let’s see what the gold price does between now and
perhaps October, because the costs/debt profile at OGC make it sensitive to gold price
1

movements and there may be a better place for entry. So even though I’m not a buyer now, at
this very moment, it is the type of stock I’m looking for in the larger-sized, better traded volume
(driven by Australia) speculative production sector. The potential is clear for investment gains in
OceanaGold and as long as you’re aware of the risks I wouldn’t stop anyone from buying this
stock tomorrow morning and starting a position.
As for your author consider OGC.to most definitely shortlisted. A little closer to Didipio day one,
a little more de-risked and even (hope springs eternal) a little lower in price to offer an
interesting entry point. All these things will help tip the balance and get me long.
End of report
Stocks to Follow
Your author’s perhaps tardy decision to move away from the thinly traded explorecos was again
underscored by last week’s action in the list, as generally the amount of movement compared
to better known and better traded names was poor. Since IKN171 five (RIO.to, BCM.v, LRA.v,
AQM.v, FCV.v) of the stocks on our open list went up, one (SWD.to) remained unchanged and
six (VEM.to, LPK.to, YMI.to, PLA.v, IRL.to) lost ground. The biggest upmove came from Lara
Exploration (LRA.v up 18.0%) and the biggest downmoves from Plata Latina (PLA.v down
17.3%) and Vena Resources (VEM.to).
After last week’s disposal of losing stocks U.S. Silver (USA.to) and Estrella Gold (EST.v) we now
have 12 open positions on our list, three less than our self-imposed maximum. Three in the
green, nine in the red.
1

Company Ticker this week Init Price Reco date Current PPS Gain/Loss% Notes
Top Picks
Rio Alto Mining RIO.to buy C$2.04 07-apr-11 C$4.46 118.6% $6.29 tgt
Recommends
Vena Resources VEM.to hold C$0.35 31-may-09 C$0.15 -57.1% Considering sale
Sunward Res SWD.to hold C$1.47 13-mar-11 C$1.32 -10.2% considering sale
Lupaka Gold LPK.to hold C$1.12 23-oct-11 C$0.60 -46.4% considering sale
Bear Creek Min. BCM.v buy C$3.29 07-nov-11 C$2.40 -27.1% holding, good value
Yellowhead Min. YMI.to buy C$1.00 01-apr-12 C$0.76 -24.0% holding, good value
Lara Expl. LRA.v hold C$1.15 08-apr-12 C$1.18 2.6% solid biz model, LT hold
Plata Latina PLA.v hold C$0.79 10-apr-12 C$0.455 -42.4% considering sale
Minera IRL IRL.to buy C$0.66 22-jul-12 C$0.64 -3.0% $1.56 tgt new reco
Smaller/Riskier
AQM Copper AQM.v hold C$0.31 16-oct-11 C$0.165 -46.8% considering sale
Strait Minerals SRD.v hold C$0.125 09-dec-11 C$0.095 -24.0% tgt 25c drill play
Focus Ventures FCV.v buy C$0.175 01-jul-12 C$0.20 14.3% revised tgt 25c
Closed in 2012 closed close PPS
Soltoro SOL.v jan'12 C$0.87 07-nov-11 C$0.94 8.0% cash moved to BCM.v
Gold-Ore Res GOZ.to feb'12 C$0.84 13-oct-10 C$0.98 16.7% trade closed on ELG.v offer
Minefinders MFN feb'12 U$11.68 17-nov-11 U$14.80 26.7% target made, trade closed
Iron Creek IRN.v mar'12 C$0.58 26-sep-10 C$0.31 -46.6% time up on small bad trade
U.S. Silver USA.to apr'12 C$2.18 15-mar-12 C$1.86 -14.7% ST trade no good, cut loss
Augusta Res. AZC.to may'12 C$3.10 29-jan-12 C$2.07 -33.2% bad mkt, bad trade cut loss
Bellhaven BHV.v may'12 C$0.50 22-sep-10 C$0.28 -44.0% new mgmt not impressive
Zincore Metals ZNC.to may'12 C$0.325 29-jul-11 C$0.17 -47.7% bad mkt, bad trade cut loss
Soltoro SOL.v may'12 C$0.70 18-mar-11 C$0.41 -41.4% bad mkt, bad trade cut loss
U.S. Silver USA.to aug'12 C$1.78 27-jul-12 C$1.36 -23.6% closed failed ST trade
Estrella Gold EST.v aug'12 C$0.91 27-mar-11 C$0.14 -84.6% Closed on port realignment
Fortuna Silver FVI.to may'12 C$1.07 03-may-09 C$4.17* 289.7% sell call $6.17/ Mar25
*will adjust while closing position
2009, 2010 and 2011 closed positions in appendices below
Now for some notes on a selection of the above stocks.
Fortuna Silver (FVI.to) reminder. As per IKN152, FVI has been moved to the closed section of the list to reflect the
call made in IKN151 (dated March 25th when FVI stood at $6.17) even though your author is still closing his sizeable
position. The “close PPS and percentage gain will fluctuate until such time as the personal position is closed. There is no
need to close out this position at the current way oversold levels. This reminder will be featured in all coming editions.
U.S. Silver (USA.to): Sold. A few puzzled questions about the apparent jump in USA.to share
price last week, but it wasn’t due to extra valuation being added to the company. Part of the
merger deal with RXE.v was a 0.67/1 rollback of shares, which meant that the number of
shares out dropped in relation to the rise in share price: The quickmath guide:
Pre-rollback, Mr. X owned 10,000 shares worth $1.30 each: Holding value $13,000
Post- rollback, Mr. X owned 6,700 shares worth $1.94* each: Holding value $13,000
*and small bits
Anyway, all a little moot now as your author left this losing trade as planned. By the way, rather
than adjust up my buy-in price in the chart, I’ve adjusted it down using the 0.67X multiple.
Whatever way you do it, the percentages come out the same, as does the fact that it was
another pathetic losing trade to add to the 2012 pile.
Estrella Gold (EST.v): Sold. As was expected, the sale was a mere portion of the position to
to mark exit. Thus the trimming and re-alignment of our ‘Stocks to Follow’ list begins.
1

Vena Resources (VEM.to): VEM now has “considering sale” next to its name. That’s due to a
particularly poor 2q12 financials and particularly the MD&A comments released last week. We
discuss them in a little more detail in ‘Market Watching’ below.
Focus Ventures (FCV.v): Congratulations to FCV on managing to record one single trade of
6,000 shares during the whole of last week. Yes, that’s ironic. If ever a company was in need of
a decent piece of solid exploration news to offer to the market, it’s this one and its now. The
financials are in good shape and there’s plenty to like about the company’s prospective projects,
what we want now is some news. And radar. And volume.
By the way, I’ve pencilled in a 25c target on this stock now, as if it reaches there and we do get
the type of market interest from new cash that comes from a piece of interesting news, it’s the
kind of number I’d sell into. In other words, as much as I like the set-up, these days I’ll take a
modest win in a small junior and bug out without second thoughts if the right window is
offered. Tough times.
Rio Alto (RIO.to): Mails reaching this desk now ask “where’s the catalyst?” for RIO and the
answer is that there probably isn’t one. The mine is running as expected and because
management has proven itself reliable target achievers, we’re now at the stage where the
market simply assumes the throughput expansion plans for the last part of 2012 will go ahead
and be successful. The point here is that if you’re looking for “action”, RIO is possibly not he
one you should be looking at.
Sunward Resources (SWD.to): I don’t like being misquoted, because I get into enough
trouble with the things I really say and write. I don’t like bullboards because they’re a waste of
time and energy and populated by one interesting post every hundred or so, with the vast
majority of what’s left dross. Therefore, I particularly dislike being misquoted on bullboards,
something that happened to me last week as regards Sunward Resources (SWD.to). As I don’t
visit bullboards without good reason I was unaware of the misquote until mails started arriving
(I’ve received four so far) that offered a link to the post in question and then varied between
asking me whether I’d truly had the mentioned conversation and outright accusing me of
double-dealing this stock. This little section that follows does two things; it first shows that I’m
(perhaps overly) sensitive about
what was written about me on this
occasion, which I’d say is unusual
but admit outright this situation
just got to me. Second, it sets the
record straight.
Contrary to the words put in my
mouth by a third party, I have not
said at any point that there is a
share overhang at $1.60 in
Sunward (SWD.to), not in public or
privately or to anyone. The way in
which this information was passed
on implied that I have some special
inside information about sellers
queuing up and waiting to dump
shares at $1.60 thus stopping any rally and curtailing potential upside in SWD in the short and
medium term. What I have pointed out however, because it’s public knowledge and published
by SWD every quarter in their filings, is that the company has a warrant overhang of 38m
papers with a strike price of $1.65 that date from the original and big financing the company
did with the consortium of big insto investors, led by Electrum. This isn’t any big secret though,
this is known by anyone who opens up a quarterly and reads it and if memory serves, SWD is
quite open about this fact in its corporate presentations and on its website.
1

Meanwhile in trading, SWD remained a thinly traded issue and I would really, really like to hope
that the exaggerated selling seen Thursday and Friday was not due to people acting on
bullboard misinformation. Though what it does do is make SWD a cheap buy for those who look
for bottom fishing opportunities. An annoying week in SWD. Enough said.
Bear Creek (BCM.v): Not exactly the “true volume appearing” that we noted as a
requirement for a sustained and confident rally in BCM, but the 256k shares traded on Thursday
(sadly little follow-thur Friday) on the back of the company NR of last week (8) is at least one
step in the right direction.
As for that NR, it was more one of those “hello we exist” type NRs, not a bad thing but nothing
particularly new about the company. What it probably did do was to open the door for BCM’s
recently contracted IR company to hit the phones, dust off the rolodexes and make pitches to
targetted insto desks. The three things I liked about it were 1) the emphasis on Corani 2) the
noting of its early-stage stuff 3) the timing of the release. Regarding 1) the company made
mention of Santa Ana and its woes, but now seems less preoccupied by that issue and more in
tune about promoting its real and valuable asset, Corani. Re 2) it’s the first time that BCM has
made any sort of effort in promo’ing its grassroots projects in Peru (bar the tail end of the
corporate presentations) with Tassa Sumi and Yegua all getting their paragraphs. As for 3) the
timing during the lulling summer month and before Labor Day is interesting and comes before
the North switch back into bizmode. If BCM can attract a bit of attention now by noting
newsflow to come and getting a few desks “in early and cheap”, the chances of more to come
are good next month.
Strait Minerals (SRD.v): SRD had a good week despite the ostensible result of 0.5c cut from
the share price (it’s still in its mean average trading range and although we’d like it higher, half
a cent here or there isn’t a major issue). That’s because we saw volume traded in the stock and
that’s because we had a piece of decent news from the company’s corporate side, as well as
confirmation (9) Monday that drills are about to turn (long last) at Alicia. Let’s go with the drill
news first which told of a contract signed and that drilling work on the site was now fully
permitted, green lighted and the first 6,000m of the 10k program which is due to be expanded
to 23k when the necessary permits arrive is due to kick off on August 20th. Yes, this is plenty
behind the original schedule and even slightly behind the “beginning of August” schedule we
last received on grilling management a few weeks back, but it is positive all the same.
According to the JV agreement Teck must
spend at least $2m on drilling in 2012, so
assuming things go to plan we’re about to
get plenty of meaningful newsflow from
Alicia, one way or the other.
As for the corporate news, that came
Thursday morning (10) when SRD
announced Teck had funded its very small
partner once again to the tune of $300,000
by purchasing another 3m shares priced at
10c each (no warrant kicker). We knew
that SRD did have a tight treasury position,
this because of the delay in kicking off the
drill program at Alicia more than anything
else. As SRD is the operator and paid a fee by Teck for the work done, the project was always
going to be one that keeps SRD self-sustaining while the program continues, but the delay
caused a bit of a liquidity crunch so it seems Teck has stepped in to help things run smoothly at
its minor (very very very minor) partner. Of course, it goes without saying that Teck’s
willingness to invest more in SRD is a positive signal and that’s the main reason we saw trading
action in this minnow last week. As the chart indicates, SRD went from its normal pitiful volume
to decently traded on the Teck news, with the only downside being the large gap it ran
between the bid and ask that saw the stock flying around in big percentage moves at any given
moment.
1

SRD settled the week at 9.5c, but apart from the last parts of Friday 10c became a minimum
level for the stock. If you’re interested in taking a spec position in this stock now that the news
has finally begun flowing, don’t pay more than 10c for your bits.
Plata Latina (PLA.v): Here’s how we started last week’s note on PLA.v:
“It wasn’t much more than a rebound to previous numbers and until real volume
comes for the stock there’s nothing confident about it, but the move back above 50c
on a bit of buying does have its tepid charm.”
Sadly, we saw the flipside to the low volume sword last week, as this chart bears witness:
Or in simple terms, this tough to trade issue saw 5k shares on Friday afternoon drag its price
down nearly 10% in one single trade as somebody decided they wanted out of a small position.
It’s the way it is with these things right now, I’m sad to say.
Lara Resources (LRA.v): Am I excited about LRA’s big percentage upmove last week? Nope,
not until real volume starts
flowing through the stock,
though to be fair it did at least
traded every day last week and
it’s notable that at least one
person was keen to want in
and was willing to pay the ask,
no shenanigans. Up is better
than down, yes. Apart from
that we repeat that without
volume or news (preferably
both) it’s perilous to read too
much into moves like this one.
2

The Copper Basket
After thirty-three weeks of 2012 The Copper Basket is showing a 40.48% loss to level stakes.
company ticker price 1/1/12 Shares out Market Cap current pps gain/loss%
1 Copper Fox CUU.v 1.15 387.97 488.84 1.26 9.6%
2 Augusta Res AZC.to 3.17 144.1 425.10 2.95 -6.9%
3 Lumina Copper LCC.v 13.19 40.7 389.91 9.58 -27.4%
4 Nevada Copper NCU.to 5.18 72.8 169.62 2.33 -55.0%
5 Western Copper WRN.to 1.58 93.28 87.68 0.94 -40.5%
6 Candente Copper DNT.to 0.97 121.67 74.22 0.61 -37.1%
7 Regulus Res REG.v 1.24 99.88 69.92 0.70 -43.5%
8 Yellowhead Min. YMI.to 0.80 52.82 40.14 0.76 -5.0%
9 Baja Mining BAJ.to 0.80 338.5 20.31 0.06 -92.5%
10 AQM Copper AQM.v 0.39 105.6 17.42 0.165 -57.7%
11 Excelsior Min MIN.v 0.63 56.12 14.59 0.26 -58.7%
12 Catalyst Copper CCY.v 0.08 274.48 13.72 0.05 -37.5%
13 Duran Ventures DRV.v 0.18 184.72 12.01 0.065 -63.9%
14 Crazy Horse CZH.v 0.35 62 9.92 0.16 -54.3%
15 Strait Minerals SRD.v 0.150 56.86 5.40 0.095 -36.7%
Portfolio avg -40.48%
Repeat Note: I DO NOT OWN ALL THE STOCKS IN THE COPPER BASKET. I DO NOT RECOMMEND THEM AS BUYS.
THEY ARE CHOSEN AS A REPRESENTATIVE BUNCH OF THE COPPER JUNIOR EXPLORATION SECTOR, NO MORE NOR
LESS. In fact I currently own three of the stocks on the list, namely Yellowhead Mining, AQM Copper and Strait Gold.
From the outset, back in 2010 when the first version of The Copper Basket made its debut, the idea has been to select
a range of names in the junior copper exploration sector that offer a fair representation of what’s out there, the big,
medium and tiny, the well-run, acceptable and nasty, the world class deposit potentials and the small, scratchy assets,
ones that might get taken out by majors, others that might get moved to production by the same company. The Copper
Basket is nothing less than an index, a measuring the pulse of the sector if you like.
Another net positive week for The Copper Basket, though not as spectacular as the previous
one. The overall basket recovered another
1.14% thanks to eight risers (LCC.v, 20% Copper Basket 2012 average, weekly
15%
AZC.to, DNT.to, REG.v, AQM.v, MIN.v,
10%
DRV.v, CZH.v) that had the edge over 5%
0%
seven droppers (CUU.v, NCU.to, BAJ.to,
-5%
WRN.to, YMI.to, CCY.v, SRD.v). The -10%
-15%
biggest wins came from Crazy Horse
-20%
Resources (CZH.v up 23.1%), Augusta -25%
-30%
Resources (AZC.to up 19.9%), Excelsior
-35%
Mining (MIN.v up 18.2%), Duran Ventures -40%
-45%
(DRV.v up 18.2%) and Candente Copper -50%
(DNT.to up 13.0%) while the larger losers
were Catalyst Copper (CCY.v down
16.7%), Baja Mining (BAJ.to down 14.3%)
and Nevada Copper (NCU.to down 8.6%).
Meanwhile, over at the macro world for copper things remain quiet during the summer months.
Overall world inventories were shaved by 1.9% to stand at 435,322mt at Friday’s close, down
8,233mt, while the LME cancelled warrants percentage was 16.4%, just 0.4% higher than this
time last week. Small moves and no trend being set.
Now for updates on some basket companies:
Augusta Resources (AZC.to): Of the four (relatively) larger caps mentioned as springers last
week, NCU.to and CUU.v both dropped away without managing to follow through, but Lumina
(LCC.v) added another 6.4%, which wasn’t bad but not in the same league as the 19.9% that
2
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source: IKN Weekly calcs, TSX
2102/1/1
morf
egnahc
%

AZC added to move back to just below $3 once again (not so long ago, it was languishing way
under $2). Some help must have come from the decision (11) by Red Kite (RK) to roll over its
$40m loan to AZC that was coming up to due date, but really it would have been a big surprise
if AZC couldn’t have cut a suitable deal with RK. The reason seems to be that the ebb and flow
of permitting optimism seems to have flowed back to AZC’s favour and there’s a new found
optimism about the company getting a green light from the environmental permitting
authorities (we’ve trudged over this story enough times, no long repeats today). This was, of
course, the reason your author stuck his neck out and bought some AZC back in January, only
to fold the losing hand in May. There was some substantive news in AZC’s favour as regards the
key issue of permitting as well, because on Monday the company announced (12) that is had
been awarded its draft air permit from the State of Arizona (apparently circumventing the local
authority that had previously denied said permit). This draft permit award is a good thing,
though not much more than a step in the right direction because the big call will be on the EIA
and that’s late this year (and probably 2013) at the earliest. The current airs of positive around
AZC have done well for the stock price, but this is still a binary story, people. EIA award = win,
EIA denial = lose. Personally, I will sit out and look for those producer winners the rest of the
year, in accordance with the strategy change here at the Weekly.
Candente (DNT.to) and Yellowhead Mining (YMI.to): I’ve lumped there two together
because DNT is an example of the small market cap copper companies that made moves last
week, while the one we highlighted last
week as our preferred play for rotation,
YMI.to didn’t bust any sort of move.
However that doesn’t negate our overall
strategy here, as given a recovering
market these smaller names will play
catch-up to the larger market cap
companies and we contend that in YMI
you’re not only getting a rebound from
beaten-down low, but a company with a
decent, fairly advanced project that has a
real chance of becoming a mine one of
these fine days. It’s a better looking
prospect than DNT for one thing and a
country mile better than other springy
movers DRV.v and CZH.v last week, to name but two. As the moving fingers writes and having
writ moves on, YMI’s time will come and it’s still my idea of a place to make a quick difference if
you’re not enamored about holding a copper explorer for too long.
Regulus Resources (REG.v): REG had news out last week and it was good, without being
great. The company seems to have hit the higher grade resource that made the company’s
discovery hole in the Southwest corner of Rio Grande back in late 2011, as the NR out Tuesday
(13) reported hole #99 had gone through similar type of rock and grade as the previous #86
that got everyone hot and bothered about REG at the time, though over somewhat lesser
widths that headlined 124.5 metres of 0.66% Cu and 1.37 g/t Au (1.51% CuEq or 2.58 g/t
AuEq) including 40 metres with 1.23% Cu and 3.08 g/t Au (3.06% CuEq or 5.25 g/t AuEq). For
those wanting to get a handle, the map provided as a link to the NR (14) gives you a better
idea of how the two hits on this mineralization hang together so far.
By the way, I’ve left the CuEq and AuEq in that numerical outline of the hits as provided by
REG.v deliberately, as they show that the mineralization is weighted as more gold than copper
on a relative basis. This ties in with our thoughts as previously aired that REG.v may eventually
turn out to be more of a gold play than a copper play.
The mineralization is deep and so far at least the target has been difficult for the team to nail
down. This combo means that the drill program has been (and will continue to be) expensive,
which is something to consider if you like the look of what they’ve found already. More shares
added to the pile going forward is a near certainty, it only remains to be seen whether REG can
2

find more good rock and finance at higher levels, or whether the next round will be one that
dilutes current shareholders. What we can say is that now the team has hit twice, it’s going to
be easier for them to home in on the good stuff and hit again.
Regional politics
Peru Conga: A potential flashpoint, plus Newmont’s (NEM) CEO on the project
Tomorrow August 21st and Tuesday 22nd a general 48 hour strike has been called by the anti-
mining groups in Bambamarca (15) that will include (according to organizers) a massed march
to the lagoons that conga plans to drain and replace with man-made reservoirs. Bambamarca
is, a region inside the larger Cajamarca province and close to both the city of Cajamarca and
the Conga project, and is also one of the anti-mining group stronghold zones. So far so normal,
but we note that Bambamarca, like most of the ‘hot’ mining protest areas of Cajamarca, is still
firmly under the State of Emergency laws declared by national government that prohibit any
sort of political gathering or protest group. The result is that the next 48 hours may become a
flashpoint for violence between the opposing factions and it goes without saying that both sides
will blame each other if any blood is spilled. A lot will depend on how the 48 hour strike
develops and how the government decides to handle things because if a large protest is
forthcoming and the government sticks to the letter of the emergency laws, a clash looms.
Meanwhile, DJNW does a good job on Richard O’Brien’s thoughts regarding Conga in this report
(16) and here are the key phrases (for me at least):
"I think that a number of communities felt as if they were a bit disenfranchised. I can
ensure you we didn't do that intentionally," Mr. O'Brien said.
Newmont, the world's second-largest gold-mining company by output, has a forecast
producing up to 7 million ounces of the precious metal a year by 2017.
"To be at 7 million ounces we have to build Conga. We have to build a number of other
projects as well, but Conga is clearly a component of that, and we would have to
ensure that Conga gets built on schedule," he said.
"The key at this point will be getting acceptance of the parties that are most impacted
by Conga," he said.
Mr. O'Brien reiterated that construction will only go ahead after water supplies are
ensured. The building of reservoirs on high-mountain lake areas will likely go until well
into 2013. Construction of the mine could possibly start in 2014, but only if the
conditions
Analysis: It looks as though O’Brien’s position closely matches the “we build the reservoir, show
Cajamarca people we’re on their side, guarantee the water supply they’re worried about and
wait until 2014 when that asshole Santos is voted out of office. We can then build our mine.”
The novelty here is seeing O’Brien admit that NEM needs the Conga project.
Colombia: La Colosa resource estimated by AngloGold Ashanti at 25m oz Au
The last we heard was that AngloGold Ashanti had counted 22m oz gold at its big La Colosa
project in Colombia and according to the company website, it’s still classed as a 16m oz
resource, but as of reports from the company’s Mark Cutifani last week (17) the deposit is now
slated at 25m oz gold by the company. AngloGold Ashanti also said that from around 5%
acceptance of its plans amongst locals three years ago it was up to 60% acceptance (though
how they measure that is unknown) and that the decision on whether to proceed to
construction won’t happen for another three to four years.
Argentina: South Korea’s Daewoo moving into copper production?
An interesting story from San Juan province, Argentina (one of the friendliest of the miner
friendly jurisdictions, we recall). The Director General of South Koea’s massive Daewoo,
Wonchae Yi, was in San Juan last week (18) and made clear his company’s intentions to
participate in the province’s copper mining development plans. He stated that Daewoo would
2

compete in upcoming concession tendering processes in the province in order to secure
prospects for large copper deposits that the company would expect to explore, develop and
bring into production on its own.
Bolivia: Mining production and sales drop
Last week the Bolivian government released (19) half year figures for its mining industry and
the main takeaway is that sales in both volume (around 15% globally) and dollar terms (around
22% globally) were down significantly from last year. As an example, Bolivia’s main metals
product zinc saw its sales volume drop from 204,336mt in the first six months of 2011 to
180,469mt in the first six months of 2012. The government also noted that royalty payments to
provinces had dropped significantly in the traditional mining provinces, dominated by Potosí and
Oruro. In the first six months of 2011 regional governments of the provinces (known as
departments in Bolivia) received U$82.9m, whereas in the same period of 2012 that dropped to
U$67m. This royalty should not be confused with the hydrocarbons royalties that are a separate
payment.
Chile: La Escondida’s (BHP) half yearly results a microcosm of the industry
Because Chile loves its copper and because the BHP Billiton (BHP) owned La Escondida mine in
Chile is the biggest single copper mine in the world, Chileans make headline news of its results
when published (here’s an example from Chile’s decent La Tercera (20)). What we saw in the
half year results from La Escondida announced last week sums up the industry as a whole,
because despite having invested serious money in production growth and now reaping the
benefits of higher production volumes, sales in dollar terms dropped and profits dropped even
more.
In a nutshell, copper concentrate production for the first six months was 366,205mt (up 22%
YoY) and copper cathode was 167,037mt (up 10% YoY), which meant overall production was
up by 17.9% and sales rose by 12.3% in volume terms for the six month period. However,
sales revenues dropped by 5.8% to $4.31Bn and net profit at the mine dropped by 20% to
$1.58Bn. Taxes of $494m due to the State were down by 12.3% as well. To sum up: More
production, higher costs, lower revenues. That’s copper 2012 in the world’s biggest copper
mine and closer to your home, too.
El Salvador: Government pushes for a temporary moratorium on mining activity,
rather than an outright permanent ban
It’s still one of the worst countries in Latin America to have your mining project, but the
decision of the Mauricio Funes government (21) to push for a moratorium on mining instead of
a ban has upset environmentalist groups (often headed by local church leaders) who say that it
will leave the door open for mining in the medium-term. The moratorium plan as put forward
by the government would mean that all activity in the mining exploration sector is put on hold
until government officials make a full inspection of the project, the company and its activities. If
it passes muster, the government would then give said mining company the permits to continue
their activities. I wouldn’t hold your breath about the prospects of any mining operation in El
Salvador on this, but the move last week does give a chink of hope for companies such as
Pacific Rim that want to develop there
Guatemala: Industry leaders ask government to speed up the permitting process
When a public announcement such as the one featured here happens, you can bet safe money
that it comes at the end of private rounds of governmental lobbying that have left proponents
frustrated enough to call in the journalists.
Guatemala’s Association of Extractive Industries along with the Guatemala Chamber of Industry
on Thursday (22) met with President Otto Pérez Molina to express their concern about the
length of time it was taking to award permits to mining companies, particularly those looking to
get their mining permits that would allow them to operate. The delegation made particular
mention of the Tahoe Resources (THO.to) (TAHO) Escobal project (known locally as Santa Rosa
after the local town) that they said was the “most urgent” case. In reply, government officials
2

said that they understood the industry concerns but were unable to give fixed dates for the
emission of any delayed permits.
Market Watching
Radius Gold closes B2Gold (BTO.to) deal
It took a while longer than expected, but the deal struck by Radius Gold (RDU.v) and B2Gold
announced in April was announced closed on Tuesday (23) with RDU receiving the proceeds
(4,815,894 shares of BTO, currently worth $17.87m) and BTO the assets as agreed. We also
note that Radius main man Simon Ridgway has added to his holding once again at current
prices (24) having added 23,000 shares at prices between 20c and 24.5c since August began.
He now holds just under 4.5m shares of his company and has probably been doing the same
type of cash/assets per share counts that we’ve done on RDU in the last few weeks. The
difference is that he’s happy to buy in the 20s, rather than your author’s tightwad strategy to
wait for prices in the teens.
Lastly, note that since we ran the numbers in detail in IKN167, RDU has managed so squeeze
about 15k shares extra out of the BTO deal and the BTO stock price has rallied; the effect of
this is to give the final closed deal a value of 20.6c for every RDU share. In IKN167 we
deliberately ran with a lowball $15.4m figure for our calculations (conservative as always),
which means the difference is about 2.8c per share. This would imply that on a straight line
through our previous reasoning a 20c share price would offer the type of value you’d want from
this kind of high risk spec value play. RDU traded at 23c and 24c last week.
Vena Resources 2q12 numbers
By far the nastiest surprise of the week was opening the 2q12 VEM numbers and seeing the
sudden dosage of illiquidity hit the stock. In overview terms, what seems to have happened is
that JV partner Trafigura is calling in its loan obligations now that the Azulcocha mine has been
granted its permits and that means that the liabilities that were quietly sitting in the non-current
liabilities are now firmly and squarely current debts. This is the only possible reason (after all,
VEM hasn’t been spending big money and racking up debt at its other operations) for the
sudden big hike in liabilities that now put its working capital position at negative $16.86m (and
only $1.8m in the current assets column means day to day liquidity is a problem, too). In
response to this financial bucket of cold water, VEM announced immediate cost-cutting
measures and has halted exploration activities at its other assets. All very unpleasant reading.
This comes at a time when VEM as operator was about to start up the Azulcocha mine (all the
papers are now theirs) but the plans have also been hit by the low price for zinc at market,
which would allow the mine to run at break-even (according to your author’s spreadsheets at
least) but leave little room for the cash needed to get mining operations up to cash flow
neutrality. Therefore VEM is opting to run the tailings at Azulcocha as well as look for toll
mining deals with local producers that will allow Azulcocha to start with little cash pressure.
Meanwhile VEM is now in default with Trafigura on its loan payback obligations with $1.66m
that was due paid on July 31st, and other monthly tranches of the same amount to pay every
month for the next six months. Put simply, Trafigura seems to be suddenly playing hardball
with VEM and squeezing the company for its own reasons and you can bet dollars to donuts
that Trafigura has this all planned out (after all, access to VEM’s filings is public). However, we
also note that in official terms there’s no default been called, because that would need
Trafigura to actively demand its money from VEM. This implies that the two sides are working
out some sort of deal. Now I’m not privy to any kind of inside information on that and that’s
just my own inferred guess on reading between the lines of the MD&A, but on consideration it’s
the only reason there might be for a situation where the lender suddenly says “pay up”, all the
long-term debt suddenly lands with a plop in the short-term column but the same lender
doesn’t press on and make a formal demand, putting the creditor into default.
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Something else i know is that I now have an confirmed date to spend the morning with
management at VEM on August 28th and including the presence of Juan Vegarra as slated in
last week’s edition. I’m sticking to my position of last week on this, because the type of Q&A
that’s needed now is one that’s best done face to face, also after holding (nay, suffering) as a
VEM shareholder for years, a couple of weeks either way isn’t gong to make much difference.
But let’s be clear on this people, the meeting at the end of this month will decide whether I
continue to hold VEM or whether I sell because as laid out last week, it’s time for tough
decisions here at the Weekly. Tough decisions aren’t always the popular ones.
Conclusion
IKN172 is done, we close with bullet points as usual:
• The main event today is an extensive look at OceanaGold (OGC.to) (OGC.ax) and it’s
the type of analysis I’ll be homing in on in future editions of the Weekly. As expressed
last week, we’re about hunting down and identifying cheap metals producers these
days and want to find the ones that can offer us the type of returns that make the risk
wearable.
• We need to keep one eye on Peru political risk next week. There’s little doubt that the
decision of the Gregorio Santos led anti-mining groups in Cajamarca to defy the current
State of Emergency regulations in the region and put on a protest march had been
made to try and antagonize the national government into a crackdown which would
htne be spun to the advantage of the protesters. As noted a couple of editions ago, this
Santos guy has lost any vestige of my sympathy and is showing himself to be a real
uncaring, self-serving asshole. I hope the government doesn’t rise to the bait but
there’s no guarantee because the people in charge in Peru aren’t exactly the sharpest
knives in the drawer, either. On this one, no news will most definitely be good news.
• The quarterlies from Vena Resources (VEM.to) were nothing sort of horrid and due to
that, the meeting your author has later this month is even more needed. I do not like
holding shares in juniors with negative working cap, and that’s putting things mildly.
• On the market and trading front, better action was seen in Bear Creek (BCM.v) but the
one that still catches my eye at current prices in Yellowhead Mining (YMI.to). The key
will be a new-found popularity and volume, but if that comes the stock has all the right
ingredients to play catch-up to its larger market cap copper exploration cousins.
• This week’s edition is very heavy on the stock analysis of just one company and lighter
on other aspects. OGC took time to explain (and even this way I’ve cut corners) so it
took page space, but I do plan to do as much fundies searching and analysis in the
weeklies to come as we try to build a shortlist of buyables in the producer realm.
However, they won’t all be 14 pages long and there will be plenty of space for the
normal stuff in future editions. The change in direction of The IKN Weekly (as explained
last week) is going to be a work in progress for a while to come. Finding new names is
the fun part, but getting rid of the old direction (and companies that it contained) is
also part of the process. And not so pleasant.
The top long-term pick is Rio Alto Mining (RIO.to). I thank you in advance for any feedback
sent in. Flash updates will be sent promptly if required by events.
I wish you good trading fortune, ladies and gentlemen.
Otto
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Footnotes, Appendices, references, disclaimer
(1) http://www.oceanagold.com/assets/documents/Presentations/120613OGC-Corporate-presentationJune2012.pdf
(2)http://finance.yahoo.com/news/oceanagold-provides-didipio-project-corporate-003500682.html
(3) http://www.oceanagold.com/investors-and-media/news-releases/philippines-mining-sector-reform/
(4) http://www.philstar.com/Article.aspx?articleId=832261&publicationSubCategoryId=66
(5) http://ovc.blogspot.com/2012/07/executive-order-79.html
(6) http://www.oceanagold.com/assets/documents/Technical-Reports/110729-NI-43-101-Technical-Report-Didipio.pdf
(7) http://finance.yahoo.com/news/oceanagold-provides-didipio-project-corporate-003500682.html
(8) http://www.sacbee.com/2012/08/16/4732094/bear-creek-provides-corani-project.html
(9) http://finance.yahoo.com/news/strait-contracts-driller-alicia-copper-152900595.html
(10) http://finance.yahoo.com/news/strait-closes-private-placement-123000170.html
(11) http://www.tucsonnewsnow.com/story/19311807/rosemont-coppers-parent-finalizes-40-million-loan
(12) http://finance.yahoo.com/news/augusta-receives-rosemont-draft-air-120000945.html
(13) http://finance.yahoo.com/news/regulus-extends-high-grade-copper-192600431.html
(14) http://media3.marketwire.com/docs/0814reg1.pdf
(15) http://caballeroredverde.blogspot.com/2012/08/paro-de-48-horas-sera-total-en.html
(16) http://www.foxbusiness.com/news/2012/08/17/newmont-ceo-conditions-not-there-for-peru-minas-conga-to-proceed/
(17) http://www.bnamericas.com/news/mineria/proyecto-la-colosa-de-anglogold-alberga-25moz-de-recursos-auriferos
(18) http://www.diariodecuyo.com.ar/home/new_noticia.php?noticia_id=533960
(19) http://www.paginasiete.bo/2012-08-17/Economia/Destacados/07eco-001-0817.aspx
(20) http://www.latercera.com/noticia/negocios/2012/08/655-478623-9-utilidades-de-minera-escondida-caen-20-a-
us15834-millones-durante-el-primer.shtml
(21) http://www.provincia.com.mx/2012/08/rechazan-suspension-temporal-de-explotacion-minera-en-el-salvador/
(22) http://www.prensalibre.com/noticias/Empresarios-piden-agilizar-licencias_0_757124304.html
(23) http://finance.yahoo.com/news/radius-gold-closes-sale-nicaraguan-123000398.html
(24) http://www.canadianinsider.com/node/7?menu_tickersearch=rdu
Stocks To Follow Closed Positions, 2011
Closed in 2011 closed close PPS
Sunward Res SWD.v jan'11 C$1.05 21-nov-10 C$1.63 55.2% target made, trade closed
Serengeti Res SIR.v mar'11 C$0.245 05-dec-10 C$0.285 16.3% sold pre-tgt, ST trade fail
Fronteer Gold FRG apr'11 U$2.37 03-may-09 U$15.24 543.0% buyout, trade closed
Minefinders MFN apr'11 U$9.09 07-nov-10 U$16.89 85.8% target made, trade closed
Metalline Min. MMG may'11 U$1.04 26-jan-11 U$0.89 -14.4% exit, resource disappointed
Peregrine Met PGM.to jul'11 C$0.87 06-mar-11 C$2.60 198.9% buyout offer, closed
Dynasty Metals DMM.to jul'11 C$4.20 03-may-09 C$2.85 -32.1% Sold. Fail. Move on.
Aura Silver AUU.v aug'11 C$0.22 13-oct-10 C$0.16 -36.4% Bad pick. Take loss
U.S. Silver USA.v aug'11 C$0.52 26-jan-11 C$0.71 36.5% closed to make room
B2Gold Corp BTO.to sep'11 C$2.80 12-may-11 C$4.27 52.5% target made, trade closed
Bear Creek Min. BCM.v sep'11 C$3.80 27-may-11 C$4.17 9.7% macro sell call victim
Minefinders MFN sep'11 U$14.70 10-aug-11 U$15.15 3.1% macro sell call victim
Great Panther GPR.to sep'11 C$3.03 22-aug-11 C$2.64 -12.9% macro sell call victim
Fortuna Silver FVI.to sep'11 C$1.07 03-may-09 C$5.36 400.9% sold 20%, macro sell call
Focus Ventures FCV.v nov'11 C$0.40 20-apr-10 C$0.20 -50.0% cut losses, bad trade
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Regulus Res. REG.v dec'1 C$1.17 14-aug-11 C$0.52 -55.6% cut on news of poor 43-101
2009 and 2010 closed positions in appendices below
Stocks To Follow Closed Positions, 2010
Closed in 2010 closed close PPS
B2Gold Corp BTO.to Jan'10 C$0.88 08-nov-09 C$1.49 68.2% target made, trade closed
Radius Gold RDU.v Jan'10 C$0.18 23-aug-09 C$0.40 122.2% target made, trade closed
MAG Silver MVG mar'10 U$5.60 23-nov-09 U$7.28 30.0% closed in pdac week
Riverside Res RRI.v mar'10 C$0.435 20-sep-09 C$0.60 37.9% closed in pdac week
Amarillo Gold AGC.v mar'10 C$0.81 31-may-09 C$0.70 -13.6% closed in pdac week
B2Gold Corp BTO.to apr'10 C$1.24 18-feb-10 C$1.50 21.0% target made, trade closed
Lumina Copper LCC.v apr'10 C$0.84 14-jun-09 C$1.55 51.2% total position now sold
Troy Resources TRY.to may'10 C$1.10 03-may-09 C$2.25 104.5% sold on negative results
AuEx Ventures XAU.to may'10 C$2.51 24-may-09 C$3.38 34.7% trade closed
Nevada Copper NCU.to jun'10 C$3.27 14-mar-10 C$2.03 -37.9% need to lower Cu exposure
Carpathian Gold CPN.to jun'10 C$0.39 14-mar-10 C$0.35 -10.3% too exposed to cap raising
Amerix PM Corp APM.v jun'10 C$0.065 08-nov-09 C$0.05 -23.1% victim of macro bear
Antares Minerals ANM.v jun'10 C$1.42 06-dec-09 C$2.10 47.9% sold half
Vena Resources VEM.to jun'10 C$0.37 31-may-09 C$0.23 -37.8% sold half
Minera Andes MAI.to sep'10 C$0.75 28-jul-10 C$0.95 26.7% ST trade closed
Gold-Ore Res GOZ.to sep'10 C$0.52 01-aug-10 C$0.75 44.2% target made, trade closed
B2Gold Corp BTO.to sep'10 C$1.45 25-may-10 C$2.01 34.5% target made, trade closed
Blue Sky Uran BSK.v oct'10 C$0.41 19-may-10 C$0.22 -46.3% v small v bad trade closed
Dia Bras Expl DIB.v oct'10 C$0.14 30-aug-09 C$0.35 150.0% target made, trade closed
S. Amer. Silver SAC.to nov'10 C$1.38 24-oct-10 C$1.60 -15.9% loss on short, small fail
Ventana Gold VEN.to nov'10 C$7.92 27-jun-10 C$13.51 70.6% trade closed on buyout
Lumina Copper LCC.v nov'10 C$1.42 11-aug-10 C$3.65 157.0% trade closed
Antares Minerals ANM.v dec'10 C$1.42 06-dec-09 C$8.40 491.5% trade closed
Rio Alto Mining RIO.v dec'10 C$0.69 23-mar-10 C$2.16 213.0% trade closed
Coro Mining COP.to dec'10 C$0.585 03-oct-10 C$1.24 112.0% target made, trade closed
Stocks To Follow Closed Positions, 2009
Closed positions closed closing PPS
Cardero Res CDY/CDU.to May'09 U$1.20 03-May-09 U$0.87 -27.5% sold on negative news
Eastmain Res. ER.to May'09 C$1.04 06-May-09 C$1.315 26.4% trade closed
Radius Gold RDU.v May'09 C$0.165 03-May-09 C$0.235 42.4% trade closed
Latin Amer Min. LAT.v May'09 C$0.12 03-May-09 C$0.158 29.2% trade closed
Aquiline Res. AQI.to July'09 C$2.03 16-Jun-09 C$1.68 -17.2% took loss, bad timing
Chariot Resources CHD.to Aug'09 C$0.20 12-Jul-09 C$0.415 107.5% trade closed
Castle Gold CSG.v Sep'09 C$0.64 02-Aug-09 C$0.60 -6.3% ST trade didn't work out
Guyana Goldfields GUY.to Sep'09 C$2.30 12-May-09 C$4.50 95.7% profit taken
Los Andes Copper LA.v Sep'09 C$0.09 21-Jun-09 C$0.09 0% trade closed
Pediment Gold PEZ.to Oct'09 C$0.80 09-Aug-09 C$1.00 25.0% trade closed
Minera Andes MAI.to Oct'09 C$0.68 03-May-09 C$0.71 4.4% too much bad news
Dynasty Metals DMM.to Nov'09 C$4.18 03-May-09 C$6.01 43.8% half sold
Rusoro Mining RML.v Nov'09 C$0.55 03-May-09 C$0.57 3.6% underperformed
Important Disclosure
The information and opinions contained within this report reflect the personal views of the author and therefore all
material within should not be construed as accurate or reliable or be utilized as advice for investment or business
purposes. Independent due diligence and discussions with ones own investment and business advisor is strongly
recommended. Accordingly, nothing in this report should be construed as offering a guarantee of the accuracy or
completeness of the information contained herein, as an offer or solicitation with respect to the purchase or sale of any
security or as an endorsement of any product or service. All opinions and estimates included in this report are subject to
change without notice. It is prohibited to copy or redistribute this report to any type of third party without the express
permission of the author.
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