IKN #173Premium

The IKN Weekly
Week 173 August 26th 2012
Contents
This Week: Travelling next week, One more comment, Fed Watch.
Fundamental Analysis: NOBS fundamentals report on Primero Mining (P.to) (PPP).
Stocks to Follow: Overview, Fortuna (FVI.to), Vena (VEM.to), Focus (FCV.v), Rio Alto
(RIO.to), AQM Copper (AQM.v), Sunward (SWD.to), Bear Creek (BCM.v), Lara (LRA.v), Plata
Latina (PLA.v).
Copper Basket: Overview, Duran (DRV.v), Regulus (REG.v), Yellowhead (YMI.to).
Regional Politics: Colombia: A cabinet re-shuffle, Peru: Conga on “back burner” doesn’t mean
scenario changed, Magistral Ancash/Constancia Arequipa/Quellaveco Moquegua/Investment in
Peru continues to grow, Argentina: Mendoza tries to dilute its tough mining law.
Market Watching: Zincore (ZNC.to) inside buys, Orko Silver (OK.v): a headsup for you momo
traders of BS stories, OceanaGold (OGC.to) (OGC.ax) update, Rio Alto Mining (RIO.to): First six
months of production at La Arena suggests our theory of a low 3q12 is correct (even a little
overoptimistic), Fortuna (FVI.to) (FSM) at Caylloma, monthly silver production numbers, Bear
Creek (BCM.v) 2q12 numbers, Lara Resources 2q12 numbers, Goldgroup Mining (GGA.to):
Decision due at Caballo Blanco.
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
Travelling next week
Your author is on the road as from tomorrow morning and as long as things go to plan, will be
back in the office by Friday morning. The first part of the trip is a couple of nights in Lima
where I’ll be catching up with a few companies (as well as a couple of friends...all work and no
play etc) then the second part is the site visit to Minera IRL (IRL.to) (MIRL.L) at Ollachea in the
company of IRL’s VP Expl Donald MacIver. Expect a photo-report next week. This also means
that blogging will be light for the next few days over at IKN.
One more comment about the change in direction at The IKN Weekly
I’m not sure how much I should dwell upon this subject, but on fielding mails and exchanging
with a few of you out there last week, there’s one specific subject I’d like to make clear.
On cue, the market gets a nice upturn and people’s thoughts turn to those beaten down junior
exploration companies. Are they now cheap? Are they worth revisiting? Are we about to get a
big bounce in the utterly pummelled end of our beaten down sector? Yes, maybe we are. Or
maybe we’re not and although I freely admit that the change in emphasis on these pages that
started a couple of weeks ago and will continue to the end of this year has its point of
crystallization in the bad performance of the junior explorers we’ve picked and followed this
year, the reasons to move to the coverage of mostly producers is a separate, free-standing one.
1

I’m moving coverage to the producing end of the juniors because I think it’s the place where I
can do better work over the time frames necessary to find winners, that’s all. I’m aware that by
selling these beaten down tiny names I may well be selling them at the bottom of their price
curves but as said, this decision may have been crystallized by the horrid 2012 so far but it’s
more of a strategic move that will continue indefinitely. I want The IKN Weekly to play to my
own strengths, rather than be a tipsheet for the latest hot drill play or running with market
currents, and that’s what this move is ultimately designed to do. As I mentioned when
introducing this change, it comes from the admission that the weekly has moved off course
over time, which has been my error but I now want to get it back on course. This decision is
not suddenly going to be reversed just because the explorers show signs of life.
Fed watch
Next week’s main Fed event is Ben Bernanke’s keynote speech at the annual Jackson Hole
Economic Symposium. That’s scheduled for Friday morning (not long after the open) and it’s
one for traders’ notebook of course, because the world will be looking for any sniff of a hint of a
thought of a nuance of a suggestion about the chances of QE3 coming online in September.
Also in the Jackson Hole line-up is the ECB’s Mario Draghi Saturday (September 1st), a speech
that will also get plenty of attention.
For what it’s worth*, I think that the current situation in the USA doesn’t merit a new round of
QE and that what we saw last week (Fed minutes) wasn’t much more than another episode in
the usual rounds of jawboning. However, the Fed (and in its present incarnation Bernanke)
must be understood as a political entity because that’s what it is and has always been. With
Romney calling for the ouster of Bernanke last week, the potential for a shot of easing and a
quick (heroin) fix spurring on the markets just before the U.S. election is just that bit higher. So
it’s not a “not gonna happen” and it is a “maybe” right now, but he bottom line is that last week
saw the markets bake in some kind of QE (by that or any other name) so the risk now must be
to the downside, the risk is that it doesn’t happen. After all, QE3 now has a long history of not
happening after those outside the Fed have insisted on its imminent arrival.
Let’s see what Ben has to say for himself this week.
*
not much
Fundamental Analysis of Mining Stocks
This week we look at Primero Mining Corp. (P.to) (PPP):
NOBS bespoke report dated August 26th 2012
Primero Mining Corp. (P.to) (PPP)
Company Overview
Primero Mining Corp. (Canada: P.to, USA: PPP, Frankfurt 9PM.f) is a junior mining company
operating in Mexico. Its flagship property is the operating San Dimas gold mine that sits on the
boarder between the states of Durango and Sinaloa, Mexico. It also has an exploration-stage
property, Ventanas, fairly nearby in Durango state. The share structure is as follows:
2

Shares out: 96.69m
Options: 8.47m (7m at $5.26 and $6.00)
Warrants: 20.8m (all at $8.00)
Fully diluted shares: 125.96m
Current share price: $4.58
Market Cap: $442.8m
Approx cash per S/O: $1.34
We use the PPP reporting currency, United States dollars, unless stated. Forex U$1=CAD$1
Overview and reason for coverage
Primero Mining (P.to, PPP and from here on we’ll use ‘PPP’ to refer to the company) is the
second step in our move to cover and eventually hold larger, producing mining companies in
The IKN Weekly ‘Stocks to Follow’ portfolio. PPP is chosen because it’s one of the better small
producers out there, the political risk outlook is acceptable (in Mexico, producing), it has good
market liquidity and it’s been catching bids and rising in price on the back of the recent recovery
in share prices for our sector.
We can summarize the story behind PPP in just a few words. Goldcorp had a non-core asset in
the San Dimas mine and the people behind the now Primero Mining (the core of which is ex-
IAMGOLD people, so oodles of industry nous in this team) approached GG, offered to buy the
asset and give GG a big slice of the newco. GG agreed, monetized its non-core asset and the
game began. PP raised the cash to bring the mine into production and from there has done a
good job in turning it into a profitable little gold/silver operation with growth potential. Today’s
PPP is 45% owned by Goldcorp.
I’m going to try (at least try) to keep today’s analysis to the financials, the numbers and the
valuation metrics of PPP, a deliberate decision that’s about keeping the NOBS analysis succinct
and about the main points of the story. This does means that we’re cutting down on the back
story stuff about PPP, but there’s plenty of reading material available starting with a decent
corporate presentation (1) that’s recommended reading if you want to get up to speed. That and
the website (2) of course. From here we’re about the numbers, folks.
Financials and production results
We’ll do this in a slightly different way this week. First we do the standard balance sheet items
that include the usual suspects for your information. However, we’re going to combine chat
about PPP’s production profile and revenue generating capacities to date with the P+L
overview, because 1) it makes sense in today’s
P.to: Assets Breakdown per qtr
case and 2) it saves a bit of time and space (I’m 800
not keen on 14 page analyses like the one last 700
week and want to make them shorter if possible). 600
500
Assets first (right) and what we have here is a 400
company that started with a cash pile (to get the 300
San Dimas mine up, running and cash flow
200
positive), saw that depleted a little but in the last 100
couple of quarters has started adding back to
0
treasury. The net result is an assets development
that looks fairly static, but as the plan unfolds
there’s more liquidity being added to the books.
The liabilities situation (below) is interesting, because it’s here where we can really see PPP’s
financial plan unfolding. The company took on plenty of debt to fund its purchase of San Dimas
(not least with major shareholder Goldcorp) but has really made progress in dropping debt load
and strengthening the balance sheet. The latest development on this score happened on
August 7th (2a) with the schedule conversion $30m in debt to 8.4m (and bits) of shares. With
this development, total held debt is now under $100m for the first time with financial debt from
the start-up now down to $45m (for context, at end 2q11 that financial debt stood at nearly
$180m)
3
01q4 11q1 11q2 11q3 11q4 21q1 21q2 tse21q3
source: company filings
srallod
fo
snoillim
fixed other current
cash&ST

P.to: Debt Breakdown per qtr
300
275
250
225
200
175
150
125
100
75
50
25
0
4
01q4 11q1 11q2 11q3 11q4 21q1 21q2 tse21q3
source: company filings, IKN ests
srallod
fo
snoillim
LT debt
current debt
Paying down liabilities has done wonders for the company working cap, so here’s that chart.
Even after backing out exploration budget
expenditures ($33m for FY12, $14m left to spend
P.to: Working Capital per qtr
this year) we expect working cap to reach $124m 160
by the end of the current quarter (ends Sep 30). 140
This fits in well with PPP’s stated plans of growth 120
through M&A in 2012 and beyond, with the 100
company looking for deals with exploration stage 80
companies in politically safe jurisdictions in The 60
Americas. Clearly they like Mexico and we can 40
immediately add The USA and Canada as long as 20
the specific region is miner-friendly (BC, Nevada 0
etc), but let’s add Peru, Chile, Brazil, perhaps
Colombia, perhaps Nicaragua to the mix of
countries PPP would consider under that title. In
other words there’s plenty of potential choice and
as we’ve recently seen, the way forward in this cheap M&A target environment is to make
friendly all-cash or majority cash bids for other companies (all-paper bids are considered more
dilutive and though it varies from case ot case,
just see LPK/AAG for an example). PPP has
the balance sheet oomph to buy something out
there in cheapworld, it seems. Also, with a 45%
shareholder named Goldcorp as sponsor, you
get the feeling that lines of credit will be more
easily available to PPP than the rest of the
junior market at present.
The reverse side of the recent conversion is
that the share count has upped a little Shares
out (S/O) stand at 96.7m after the recent deal
and we’d expect 3q12 to close out on that
number. The difference isn’t that great and so
far at least, PPP hasn’t been in a hurry to dilute the count for its growth. That’s because it set
itself up as a debt-fuelled enterprise of course. Before leaving the subject of share structure,
let’s take a line to note the 8.47m options and 20.8m warrants that PPP carries on its books
today. Seven million of those options have an exercise price of either $5.26 or $6.00, while all
the warrants are priced up at $8.00. The options in particular represent something of an
overhang that the share price would have to overcome if the company were to register
eyecatching share price improvement from here.
Time to move on to the production and the P+L, which we’ll combine to give an idea of how
PPP is running. The general answer is that it’s running well, with production increases, cash
costs under control and good positive cash flow. So to details:
At PPP Silver is a small part of the revenues mix (we’ll add some comment on Ag in a moment)
and gold is what we really care about. Here’s the gold production chart and we see PPP’s
01q4 11q1 11q2 11q3 11q4 21q1 21q2 tse21q3
source company filings, IKN ests
srallod
fo
snoillim
P.to: Shares Out
110
100
90
80
70
60
50
40
30
20
10
0
11q1 11q2 11q3 11q4 21q1 21q2 tse21q3
source: company filings
serahs
fo
snoillim

production growth has been pretty smooth, with incremental gains that add up to nearly 4,000
oz more in 2q12 compared to the same quarter of
last year. We also add in the gold sold bars on P.to: Quarterly Gold Production (oz)
this chart (not numbers though) and then we 30000
forecast both 3q12 and 4q12 at 25,000 oz Au. 25000 25000 25000 22588 23277
This forecast hike is driven by slightly improved 19374 19500 20191
throughputs (and guidance of better to come in 20000
the quarters ahead) and head grades (looks like
15000
better control of mine dilution) that averaged 4.25
g/t in 2q12...we simply carry that number forward. 10000
By the way, we note that recovery percentages 5000
are very strong at San Dimas, averaging 97% and
regular as clockwork, the type of number that 0
indicates an efficient cash cost scenario.
Now for that word about silver, starting with
production. As we see here Ag production has
also risen steadily, with head grades
improvements up an ounce or so in 2012 to 256
g/t Ag (8.2 oz/t) the main reason. However, we
need to note that as part of the money raising at
the beginning of its life, PPP struck a streaming
deal with Silver Wheaton (SLW) for its silver
production. In exchange for the upfront cash that
kick-started the mine, PPP must sell for the first
four years of operation starting August 6th (and
running to August 2014) the first 3.5m oz of silver
production, at a price of $4/oz (+ 1% annual
increment, which means next year it sells its
silver production at $4.12/oz), then once the 3.5m
is supplied, 50% of subsequent production in the 12 month period goes to SLW at that price
while the other 50% can be sold at the spot market price by PPP. After that date, it must sell the
first 6m oz Ag production at $4/oz, with the same 50/50 deal on ounces above 6m
All that’s a bit gobbledigooky even by my obfuscating standards, so what it means at the
moment, is that the clock starts running on silver production in early August of each year. From
that date, the first $3.5m oz Ag goes to SLW at $4 and bits per ounce. If we set a simplified
scenario and note that at the moment PPP produce around 5.5m oz Ag per year, it means this:
1) First 3.5m oz Ag sold to SLW at $4.00 (and bits) terms
2) 50% of other 2m oz Ag sold to SLW at $4.00 (and bits) terms
3) Other 50% of 2m oz Ag sold on open market at spot price
Or even more simply, we take a $28/oz spot price and say:
PPP sells 4.5m oz Ag to SLW at $4/oz = $18m
PPP sells 1m oz Ag to market at $28/oz = $28m oz
Therefore PPP in one year sells 5.5m oz Ag for revenues of $46m, or $8.36/oz average, which
should give you the idea of the weight of this stream on PPP’s revenues compared with the spot
price of silver.
The final wrinkle to consider is that the contract with SLW runs from August 6th, not January 1st
or any logical date. Therefore the “cheap” silver gets booked in part of 3q, all of 4q, all of 1q the
next year and then part of 2q the next year. We can see the effect of that in this next chart,
which tracks the quarterly revenues breakdowns of the two revenue metals at PPP:
5
11q2 11q3 11q4 21q1 21q2 tse21q3 tse21q4
gold prod (oz)
gold sold (oz)
source: company filing IKN ests
P.to: Silver production per qtr
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
11q2 11q3 11q4 21q1 21q2 tse21q3 tse21q4
M oz Ag
Source: company filings, IKN ests for 2h12

P.to: Gold and silver quarterly revenues breakdown
60
50
40
30
20
10
0
2q11 3q11 4q11 1q12 2q12 3q12est 4q12est
source: IKN calcs from P.to data, IKN ests for 2h12
6
m$U
silver revs
gold revs
We see that PPP books more revenue from silver in 2q, a little less in 3q, then the minimum
amounts in 4q and 1q of any given year. That’s to be expected, but we also have to consider
than once August 2014 comes around PPP gets a flat $4.16 for all its silver production (unless it
gets over that 6m oz threshold by then). Finally, seeing the breakdown here makes it clear that
gold is the money earner at PPP and not
silver, so aside from all the silver revenues P.to: Total sales of gold and silver, per quarter
and sales stuff, don’t lose sight of the 60 57.1
forest for the trees. Gold is king at this 51.8
50 46.1 44.0 47.2
company, period. 40.8
40 34.0 35.6
Here’s that revenues info again, this time 30
consolidated (right), and we see that 2q12 20
is set to be the best cash quarter of the 10
year unless gold really does put in a big 0
spurt (for our model, we use $1,600/oz
gold for 3q12 and 1,650/oz gold for 4q12
forecasts and yes, I’m feeling slightly
generous about 4q12).
Meanwhile, cash costs have done and are
modelled to do this. PPP has done a good job in
keeping these costs under control. The lack of
revenue from silver come 4q12 might make our
current $550/oz forecast for that quarter a bit
optimistic, but the company has so far delivered
well on operations and is currently guiding for
more operational costs to be cut, so there should
be enough to offset the silver revenues drop by
then.
Here’s how all that production, revenues and
costs talk hits the operational numbers in the P+L. Here (below) we see how PPP benefitted
from stronger Mine Operating Income (MOI) in
2q12 ($30.17m) thanks to the extra revenues
from silver. Those are predicted to reach nearly
$22m in the current quarter as long as costs
come in where we expect them.
Net income for 2q12 (below) was almost exactly
$15m (a quarterly EPS of 17c) and our model
forecasts $10.8m (11c EPS for 3q12). We note
at this point that PPP currently pays a
disproportionate amount of tax on its cash
earnings, because at the moment the Mexico
tax people are calculating tax on production of
gold and silver, rather than the the revenues
PPP generates from the sales. As a majority of silver is sold at just over $4/oz, this means the
11q1 11q2 11q3 11q4 21q1 21q2 tse21q3 tse21q4
U$m
source: company filings, IKN calcs
P.to: Cash cost per quarter
800
700
600
500
400
300
200
100
0
11q2 11q3 11q4 21q1 21q2 tse21q3 tse21q4
source: company filings
srallod
SU
P.to: Quarterly Earnings overview
80
70
60
50
40
30
20
10
0
11q1 11q2 11q3 11q4 21q1 21q2 tse21q3
source: company filings, IKN ests
srallod
fo
snoillim
revenues
Op-Ex
MOI

tax bill would be lower per quarter if it were calculated on sales revenues. Currently, PPP has
an appeal in with the Mexico tax people and
expects a decision on whether it will be able to P.to: Operating Profit vs Total comprehensive
pay a lower rate of tax, based on straight 50 earnings per qtr
revenues, at the end of this year. If it gets a 45
good decision, more of the operating profit will 40
35 flow to net income.
30
25
We wrap up this overview of the financials by 20
asking readers to consider this final incomes 15
10
chart to the first chart shown in the section, that
5
of assets, because even while implementing an 0
aggressive exploration program with a capex
1q11 2q11 3q11 4q11 1q12 2q12 3q12est
bill of $33m for this year, PPP has managed to
source:PPP filings, IKN ests
add cash to its treasury thanks to its profit-
making mining ops at San Dimas. What the books show is a company that’s executing its plan
well and by paying down debt in the way it’s been doing, PPP has now put itself in the position
where it can make a cash M&A deal and grow via acquisition in this current beaten down
valuation window, which was also part of the plan when the company got off the ground. PPP
has all the hallmarks of a well-run company, both in financial and operational terms. That’s the
type of company for which the market will pay a premium.
Reserves and resources at PPP
Two things to note about the reserves and resources at San Dimas presently. This table is a
simple one (it’s from the latest company presentation) that doesn’t complicate the eye as much
as tables in other PPP documents and has all we really need to know. As at December 31st
PPP reported 505,000 oz Au and 31.8m oz silver in probable reserves. Aside from that (and
apart from the 67k extra contained in indicated, which we can probably discard due to the
slightly strange tonnage and grade figure) San Dimas has another 704,000 oz Au and 60.8m oz
Ag under 43-101 compliant inferred resource category. As San Dimas is a historic mine that’s
produced over 11m oz in its time and the geology of the current mined horizon is well studied,
this is one of those inferred category numbers that we can be reasonably confident about. So if
the inferred comes good here, we’re looking at another eleven years of mining at current rates.
Around $14m of PPP’s total 2012 exploration budget is earmarked for drilling at San Dimas and
we’re expecting new resource numbers from the company in this quarter. The medium-term
objective is to decide whether the mine can support a throughput upgrade to 2,500tpd or
3,000tpd from its current stated capacity 2,100tpd.
The second thing to note here is that PPP is now talking up the potential of a second
mineralized horizon at San Dimas (see p22 of current presentation). The general theory is that
the ore so far mined is one one horizon and geology suggests there may be a second deeper
parallel horizon underneath the mined out areas. If this is the case then it would be a game
changer for San Dimas and PPP, because we’d suddenly be thinking about all the 11m oz gold
already mined there and seriously considering whether all that is duplicated. Even half of that
would be 5m oz gold and way more than enough to see the current share price permanently left
for dust.
The bottom line here is that PPP isn’t endowed with the largest mineral resource/reserve out
there, but at a current 1.2m in-situ gold (minus eight months of depletion, so call it 1.1m if you
7
srallod
fo
snoillim
Net Income
op profit

prefer) P+P+M+I+I it’s enough for a decade at current throughputs, eight years at the potential
upgraded throughputs, as well as offering plenty of exploration potential in areas as-yet
unmined at San Dimas. Also, this isn’t an exploration project looking to prove up ounces and
then shop them to a third party, but a working mining company that has shown to the
satisfaction of anybody who cares to look that it can dig those ounces out the ground and make
a fat margin on them in dollar terms. That makes those ounces far more valuable in-situ. Finally,
there’s the longer-term hope that a large new discovery can be made at the mine which would
change things greatly, so there’s blue sky potential as well.
Valuing PPP
We’re cutting to the chase here (I’ve already gone on too long about the financials, please serve
yourself a coffee and continue) and moving to a valuation of PPP.
We’re modelling the company on its potential for next year, 2013. So far we’ve looked at the
way in which its quarterlies have developed and have projected into the next quarter or two.
Those numbers have passed muster and we see that although silver revenues will drop in the
quarters to come thanks to that SLW stream, the company is running well operationally and we
can assume with a decent degree of confident that profits will continue (gold price willing, of
course). However, on due consideration I think the best way to value PPP today is to consider
its potential in the next 12 months, rather than a the rest of 2012.
Here are the variables:
• A 2,050tpd throughput (slightly higher than 1h12 but less than the 2,100tpd max and in
company guidance) current gold and silver grades, plus recovery levels, are all
maintained.
• Gold is sold at spot price (four model variables used, see below). Silver is sold at an
average of $9.00/oz in the 2013 financial year.
• Cash cost is set at U$650/oz, higher than current levels to account for potential cost
creep and also your author’s preference for conservative parameters.
• Amortization/Depreciation at $40m for the year. G&A at $24m for the year. Interest
(debt servicing etc) at $6m for the year. Capex slated at $30m (though that might
change significantly if PPP decides to upgrade San Dimas or add a new asset...we’re
guessing at $30m for the time being).
• Shares out at 96.7m, Forex CAD1=USD1 (which basically means that for those of you
considering P.to over PPP as your investment vehicle, we’re considering them as
exactly the same).
• Normal Mexico State burdens (worker participation 8%, etc). As for corporate tax the
normal 28% is used but no adjustment made for any new lower tax regime on silver, so
the same underlying rate as paid by PPP in 2011 is used. If PPP gets the tax judgement
to go its way, we calculate it as being worth around 2% of MOI and will improve the
numbers used today. If PPP doesn’t get the judgement it wants, our model loses
nothing.
That and a few other pieces, but the end result is this condensed incomes statement that uses
four different price for gold to show how financial performance would be affected by a bull or a
bear. We’re using U$1,600/oz as our standard case for modelling, both here and in our target
price, but low ($1,400/oz) and high (up to that sexy sounding $2,000/oz gold price we’re
suddenly hearing about again) numbers are there for you to consider, too:
8

PPP at San Dimas: Income items for FY13
At 2,100tpd thruput $1,400/oz Au $1,600/oz Au $1,800/oz Au $2000/oz Au
Sales (U$m) 187.8 207.1 226.4 245.7
Cash COGS 71.1 71.1 71.1 71.1
Depreciation 40.0 40.0 40.0 40.0
SGA 24.0 24.0 24.0 24.0
Op income 52.7 72.1 91.4 110.7
Interest 6.0 6.0 6.0 6.0
Workers Part. 4.2 5.8 7.3 8.9
Tax 12.8 18.1 23.4 28.7
Net income 29.8 42.2 54.6 67.1
Shares out (m) 96.7 96.7 96.7 96.7
EPS 0.31 0.44 0.56 0.69
Capex -30 -30 -30 -30
FCF/sh 0.41 0.54 0.67 0.80
Source: IKN ests
And once that little lot is plugged into our target box, here’s how it looks:
PPP: 2013 earnings model Target price & valuation data for FY13
Gold Price $1400 $1600 $1800 $2000 using four different gold prices
Sales (C$m) 188 207 226 246 12-month target $4.39 (on 8x EPS, Au $1,600/oz
Upside to target -4% plus end FY12 cash/share)
EPS 0.31 0.44 0.56 0.69 Mkt cap (C$m) $443 Enterprise value $400
Cash flow 0.72 0.85 0.98 1.11 P/sales ($1400) 2.14 EV/sales ($1400) 1.93
P/E ($1400) 14.9 EV/EBITDA ($1400) 4.3
P/E ($1600) 10.5 EV/EBITDA ($1600) 3.6
P/E ($1800) 8.1 EV/EBITDA ($1800) 3.0
cash flow defined simply as EPS + depreciation
We value PPP at 8X PE, as it’s an established small gold miner with a good growth profile in a
politically reasonable jurisdiction. We also credit shares with the net cash position expected at
the end of this current year, 2012. The result is a target price of $4.39, representing a 4% drop
on the current share price of $4.58
“What?”, I hear you say, “the target price is LOWER than Friday’s close?”. Yes that’s right, it is
and I’d comment the following four items on that:
1) A lot of the growth potential seems to have already been baked into PPP by this current
market. Thanks to a change in sentiment, its own progress and the new impetus in the price of
gold PPP has put in a good rally in the last few
weeks as this chart shows (and yes, those of you
who have been mailing me about this stock in
2012 can now mail me again and say
“toldyaso”...you were right, ok?). PPP was
bouncing around between $2.50 and $3.00, it’s
now 50% higher than the high end of that trading
band.
2) One of the attractions of this stock is its decent
volumes and liquidity, but that also means it’s
going to be one of the first movers in a rebound or
sustained bullish scenario. On consideration I
think PPP is now potentially overbought and due
9

for a pullback, but it’s equally possible that the stock finds a new equilibrium level and simply
stays in a new, higher trading range.
3) Next, let’s consider the price of gold. We model at $1,600oz but if gold continues its rally and
we find it at $1,800/oz by the end of the year, PPP’s earnings potential is that much higher and
our target price is immediately in the $5.30s rather than the $4.30s.
4) The way things stand, I think the $4.50 or so of today is justified as a price level, but it’s not a
bargain. It’s assuming a lot of things go right for PPP and its plan stays on rails for the next 12
months. However, as we’ve discussed above PPP’s stronger balance and stated plans means
that it might throw in a new element at any given time and change the game. It has the right mix
of ambition and ammunition to do so too, so we discuss a bit of that below and lay out just one
alternative case.
Upside potential: one scenario
One of the nice things about this company is that there’s plenty of growth potential baked into its
current plans and also potentially bolted on via a deal. When it comes to production upside, we
could if we wanted consider that wonderful blue-sky potential of a second mineralized horizon at
San Dimas that suddenly adds multi-million ounce potential to the company. However it’s a bit
too Utopian for the moment, so nice at that might be it’s not much more than background noise.
Another potential is the Ventanas project (that we haven’t talked much about) coming up with a
new resource and on its heels a mining plan. The other possible is PPP surprising the market
by buying a late stage exploration project or even a small producer and immediately bumping
up production M&A style.
All those are the type of things that can happen in a growing and clearly dynamic company
that’s now putting together a decent cash position, but the most likely growth upside for the
nearer-term is throughput and production increases at the current San Dimas. PPP has been
drilling and once we know how much new resource (or inferred turned into higher trust
categories) they have we’ll know whether the company will invest on upgrading its mill. The
current plans are to run at either 2,500tpd or 3,000tpd come 2014 when the upgrading is
complete so to give you an idea of what that might mean, here’s a second condensed incomes
sheet that shows how PPP numbers look at 3,000tpd (other variables ceteris paribus)
PPP at San Dimas: Potential Income items for FY14 using 3k tpd thruput
At 3,000tpd thruput $1,400/oz Au $1,600/oz Au $1,800/oz Au $2000/oz Au
Sales (U$m) 268.3 295.9 323.5 351.0
Cash COGS 101.5 101.5 101.5 101.5
Depreciation 40.0 40.0 40.0 40.0
SGA 24.0 24.0 24.0 24.0
Op income 102.8 130.4 157.9 185.5
Interest 6.0 6.0 6.0 6.0
Workers Part. 8.2 10.4 12.6 14.8
Tax 26.6 34.2 41.8 49.4
Net income 62.0 79.8 97.5 115.3
Shares out (m) 96.7 96.7 96.7 96.7
EPS 0.64 0.82 1.01 1.19
Capex -30 -30 -30 -30
FCF/sh 0.74 0.93 1.11 1.30
Source: IKN ests
Of course a production upgrade at the mine doesn’t come for free and the potential income
growth needs to offset the embedded capex, but we’d expect the investment to be paid in less
than two years of operations and the resulting cash flow on 145,000 oz gold and 8.3m oz silver
per year to increase bottom line profits and share valuations quickly. As long as the resource
can support the upgrade, this is the method I’d advocate as the way PPP should grow.
1

To give an idea of how this runs against our target model, at $1,600/oz gold we’d look for a
$7.79 target from PPP, representing a 70% upside to Friday’s close.
Conclusion
Just the nine pages today ☺. I’m not a buyer of Primero Mining (P.to) (PPP) today, which won’t
come as a surprise to any of you who have worked slowly through today’s report before reading
the conclusion (not many of you). What we have today is a strong, well-run company that WAS
a bargain just a few weeks ago (cuddawuddashudda) but due to the rush up in share price is
now fully valued to its present market cap, and valued close to its future value too. Therefore,
your value-seeking author is forced to pass today, August 26th 2012, but be clear that PPP is a
quality outfit, with proven profit-making ability and the type of growth profile and determination to
grow that you want from a small young producer, too. This is a company I’d want to buy if we
see a market reversal in gold that sends it back into oversold territory, rather than the somewhat
overbought position of the share price today.
There’s also one other thing I have to say before leaving: If PPP is interesting at 110k oz AuEq
production and a $440m market cap, Rio Alto (RIO.to) is still more interesting at its current 210
Au production and its $818m market cap. There, I’ve said it. Yes I know that having all eggs in
one basket isn’t so smart, so the idea of adding to RIO rather than opening a position in PPP
isn’t a valid option. However, on a like-for-like basis RIO at today’s snapshot is the better of the
two and I’d need to see significantly better value offered by PPP to open a position. The
benchmark is set high, perhaps.
The bottom line is that PPP is a good company, with production, profit and growth, but until the
price returns to something that represents good value I’m on the sidelines. However, we’re at
what is potentially a peak in a snapback rebound and the chances of seeing a bit of a drop are
clear. With cash at our disposal and a bit of patience, our report today may pay dividends if the
right price does show up.
End of report
1

Stocks to Follow
Our list had an overall positive week, with eight of our open positions making gains, two that
remained unchanged and just two that dropped. The best move was seen in Bear Creek Mining
(BCM.v up 19.6%) which made for a very pleasant change.
We currently have 12 open positions on our open list, three less than our self-imposed
maximum. Three in the green, nine in the red.
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$4.77 133.8% $6.29 tgt
Recommends
Vena Resources VEM.to hold C$0.35 31-may-09 C$0.16 -54.3% considering sale
Sunward Res SWD.to hold C$1.47 13-mar-11 C$1.36 -7.5% 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$2.87 -14.6% holding, now rebounding
Yellowhead Min. YMI.to buy C$1.00 01-apr-12 C$0.80 -20.0% good value under $1
Lara Expl. LRA.v hold C$1.15 08-apr-12 C$1.12 -2.6% solid biz model, LT hold
Plata Latina PLA.v hold C$0.79 10-apr-12 C$0.37 -53.2% considering sale
Minera IRL IRL.to buy C$0.66 22-jul-12 C$0.65 -1.5% $1.56 tgt new reco
Smaller/Riskier
AQM Copper AQM.v hold C$0.31 16-oct-11 C$0.17 -45.2% considering sale
Strait Minerals SRD.v hold C$0.125 09-dec-11 C$0.10 -20.0% 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
failed ST trade close pre
U.S. Silver USA.to aug'12 C$1.78 27-jul-12 C$1.36 -23.6% split
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$4.71* 340.2% 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.
Fortuna Silver (FVI.to) (FSM): As FVI rose by 12.9% week-over-week and we’re now a
trifling 29c away from my minimum price for selling, here’s a reminder. Yep I’ll be out the office
all next week bar early Monday morning and Friday and while travelling my connection time will
be patchy. However, I will be setting at least a couple of sales to get rid of at least a portion of
my FVI at prices that start at $5 and move up in tranches, as the plan since April has been to
dispose at a price above $5. If FVI powers much higher I might find myself getting rid of all my
position, but that’s unlikely and I’d be happy to see this rally simply continue and I get to mark
1

a real sales price (at long last) in this position that’s been in flux for too long. FVI has enjoyed a
very decent rally in August (rightly so, it’s a good company and was boringly underpriced for
too long) but I’m still a seller at a suitable price.
Vena Resources (VEM.to): I meet with VEM management, including CEO Vegarra and Peru
country manager David Bent, on Tuesday. Expect full coverage this time next week. As for the
share price, happy to say that it hasn’t caved into obscurity after the bad 2q12 financials, so
there are obviously enough people with enough faith in this company to allow it to stay working
cap negative without the price being crushed to death.
Focus Ventures (FCV.v): We had news out from FCV last Thursday (3), when the company
announced it had added more phosphate exploration concessions to the large land area already
held by its phosphate subsidiary. This time the land is located close to the shore and South of
Peru in an area well known for grape production (and high quality pisco). What we’re seeing is
a company putting together an asset package that will be of more interest to a larger company
and then hopefully spinning it out to get a third party to develop it, classic project generator
model using OPM. With this asset in the mix, FCV hs made its phosphate book that more more
attractive to potential partners.
In other news, company President Cass told your author that we can expect more newsflow
from the company for the rest of the year on all its development fronts (we assume that
particularly means the main Santa Cruz/Reventón project in Mexico). It’s not surprising to hear
that a junior explorer plans to get itself on more radars at-or-around the Labor Day point in the
calendar, but it’s good to know anyway. There’s little doubt that the company needs to get its
story out there and we can tell just by looking at the continued pathetic volumes traded. When
it comes to the IKN strategy going forward, if FCV can move up on decent volumes we may
decide to hold on, but if we see moves up on bitty volumes then it may well be time to sell and
put the cash into something more tradeable.
Rio Alto (RIO.to): A good week for our Top Pick stock, with new highs booked on Thursday
morning and new 52 week (and all-time) close on Friday to boot. There aren’t many mining
companies out there that can claim a new 52 week high so soon into this recovery, which
speaks volumes to the quality of this paper. I have a meeting planned with the HQ people at
RIO on Tuesday afternoon, so anything gleaned then will be handed on. Meanwhile, please
check ‘Market Watching’ below for a little extra on the production rhythm at La Arena.
AQM Copper (AQM.v): A few weeks ago we took rough guidance of “inside 3q12” from AQM
for the PEA and best-guessed that as somewhere in August. Although that is still just a house
guess that did little more than split a three month span down the middle, the PEA should still
arrive during 3q12 and that means form here til the end of September, i.e. the next five weeks.
When we have a 43-101 compliant document that gives us economics as seen from the
company looking inside out, we’ll then see if this beaten down copper name can grab a bit of
traction. Whatever happens, the time is drawing nigh to make a decision here.
Sunward Resources (SWD.to): Another crappy week in this stock. Even though we saw an
overall weekly rise, the stock traded in a sickly manner and we saw plenty under $1.30 before a
weak-ish rally end week saved blushes. We’re awaiting the PEA, of course, which will begin to
sketch out how the company sees the economics and development lines that Titiribi could take.
Bear Creek (BCM.v): Better. We’re still nowhere near “good” and your author again states for
the record that anything under $3 is a good and tradeable near-term position, but we did see
volume last week, we did see decent price upmoves (in line with the better end of market
reactions to the gold and silver moves) and we also seemed to have seen the back of a
persistent seller whose steady liquidation had been keeping the cork underwater. Please see
‘Market Watching’ below for a look at the company’s 2q12 numbers as reported last Thursday.
Lara Resources (LRA.v): LRA also reported its quarter on Thursday and we also take a look
at the relevant bits and pieces of the numbers in ‘Market Watching’ for this one too. See below
1

for more, while we note here that our dampened enthusiasm in IKN172 for LRA’s big move two
weeks ago was sadly justified, as the stock couldn’t follow through on price or volume action.
Plata Latina (PLA.v): Horrid action in this stock, with the market seemingly looking to scoop
up low prices from people who are throwing in the towel. While these “get me out” sales stay
with low volume there’s not that much to worry about, because from all angles this is classic
liquidity selling (people wanting out to go play in another sandpit. If volumes accelerate and the
slide continues, I’d worry far more.
The Copper Basket
After thirty-four weeks of 2012 The Copper Basket is showing a 38.79% loss to level stakes.
company ticker price 1/1/12 Shares out Market Cap current pps gain/loss%
1 Copper Fox CUU.v 1.15 387.97 473.32 1.22 6.1%
2 Lumina Copper LCC.v 13.19 40.7 393.98 9.68 -26.6%
3 Augusta Res AZC.to 3.17 144.1 393.39 2.73 -13.9%
4 Nevada Copper NCU.to 5.18 72.8 182.00 2.50 -51.7%
5 Western Copper WRN.to 1.58 93.28 92.35 0.99 -37.3%
6 Candente Copper DNT.to 0.97 121.67 71.79 0.59 -39.2%
7 Regulus Res REG.v 1.24 99.88 59.93 0.60 -51.6%
8 Yellowhead Min. YMI.to 0.80 52.82 42.26 0.80 0.0%
9 Baja Mining BAJ.to 0.80 338.5 20.31 0.06 -92.5%
10 Excelsior Min MIN.v 0.63 56.12 17.96 0.32 -49.2%
11 AQM Copper AQM.v 0.39 105.6 17.95 0.17 -56.4%
12 Duran Ventures DRV.v 0.18 184.72 16.62 0.09 -50.0%
13 Catalyst Copper CCY.v 0.08 274.48 13.72 0.05 -37.5%
14 Crazy Horse CZH.v 0.35 62 11.16 0.18 -48.6%
15 Strait Minerals SRD.v 0.150 56.86 5.69 0.10 -33.3%
Portfolio avg -38.79%
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.
For the fourth week in a row The Copper Basket registers net average gains, with the overall
average improving by 1.69% since
IKN172. This time the score includes 20% Copper Basket 2012 average, weekly
nine upmovers (LCC.v, NCU.to, 15%
10%
WRN.to, YMI.to, AQM.v, MIN.v, 5%
DRV.v, CZH.v, SRD.v) two unchanged 0%
-5%
(BAJ.to, CCY.v) and four downmovers -10%
(CUU.v, AZC.to, DNT.to, REG.v). We -15%
-20%
had some big percentage upmoves -25%
from Duran Ventures (DRV.v up -30%
-35%
38.5%), Excelsior Mining (MIN.v up -40%
-45%
23.1%) Crazy Horse (CZH.v up
-50%
12.5%) and Nevada Copper (NCU.to
up 7.3%) while the biggest drops
were registered in Regulus (REG.v
1
ht8naj ht51 dn22 ht92 ht5bef ht21 ht91 ht62 ht4ram ht11 ht81 ht52 ts1rpa ht8 ht51 dn22 ht92 t6yam ht31 ht02 ht72 dr3nuj ht01 ht71 ht42 ts1luj ht8 ht51 dn22 ht92 ht5gua ht21 ht91 ht62
source: IKN Weekly calcs, TSX
2102/1/1
morf
egnahc
%

down 14.3%) and Augusta Resources (AZC.to down 7.5%). The story last week was one of the
minnows putting in rebounds, which contrasts to the story a couple of weeks ago when the
bigger market cap names all put in 10%+
gains while the little guys stood pat.
Something to mull over, methinks.
We turn our attention to the world copper
markets and last week saw both market
price and inventories rising. Here’s the
price chart and although we still haven’t
broken back up and out of this $3.30/lb to
$3.55/lb range that’s been set since mid-
May, the move up from $3.37/lb or so to
the high $3.40s close Friday looked very
healthy and according to industry
commentary came on renewed volume
buyers.
Meanwhile, worldwide inventories clicked
up 1.1% to stand at 440,097mt, not a big
move nor one to worry about though the
bulk of the move was taken by the
+1.8% reported by the Shanghai Future
Market warehouse levels (to 158,938mt).
As for cancelled warrants, we saw those rise a little to 18.39% of LME inventories and that’s the
right direction if you want higher copper prices in the future. If I were smarter at graphics I’d
be able to lay the excerpt of the daily copper movements since IKN157 over the top of our
cancelled warrants chart, but even by simply presenting it below the relationship between the
cancelled warrants level and the price of copper is pretty evident.
Cancelled Warrants at LME, IKN157 to date
35% 31.91%
30%
19.81%
2
2
0
5
%
% 21.91%
16.21%
20.89%20.67%
19.10 1 % 6.001%6.40 1 % 8.39%
13.76%
15% 11.07% 11.591%1.72%10.81%
8.71%
10% 6.87%
5%
0%
1
751NKI 851NKI 951NKI 061NKI 161NKI 261NKI 361NKI 461NKI 561NKI 661NKI 761NKI 861NKI 961NKI 071NKI 171NKI 271NKI 371NKI
source: Cochilco, LME
rof
yrotnevni
EML
%
latot
yreviled
resu-dne
Now for updates on some basket companies:

Duran Ventures (DRV.v): Hardly a house favourite round here, but the big percentage move
put in by this stock last week makes it worthy of a bit of extra study today. We had no news in
the stock but a big 38.5% move and as this five day chart suggests it was still rather thin and
choppy action for a stock with such a small share
price (example, the 114,500 shares trade Friday
come to just over $10,000 all told). It would only
need one bagholder to step up and decided to sell
into the move and take losses to see DRV dive
back down again and let’s face it, there are plenty
out there still. And yes, this is true for DRV and a
whole lot of other heavily beaten down issues (I
hold a few, there’s no immunity or escape from the
facts). This is why at times like these, when a long
overdue rebound shows up in the market it takes
more than just a knee-jerk percentage price gain
to get my attention; I want volume. I want volume
that signifies interest, that signifies real new
money moving in and that isn’t afraid to bang on any ask shown and knock it over. From what
we’0ve seen in DRV and others so far, the rebounds are often built on shaky foundations and
re-testing of lows wouldn’t get me to bat an eyelid.
Regulus Resources (REG.v): As another example of the above argument regarding DRV.v,
let’s consider the trading action in Regulus (Reg.v) in August, because this stock has things in
common with the DRV story and things that are very different too. As for similarities we’ve seen
a low of 44c, a high of 74c and all on volumes that have got over 100k per day just twice all
month. Three days this month we’ve had zero shares traded. On Friday we saw the price drop
from 70c to 60c (-14.3%) on just 33,000 shares traded. The liquidity and trade reliability
problem in REG is the same as DRV’s. However, we also note that REG.v is run by honest and
trustworthy people who are actually doing their best to move forward, drill, develop and explore
in order to add value to the company. Now in the end REG may fail or it may succeed, but
either way its efforts to honestly explore its properties put it in a totally different situation to
the one at DRV, where the only mining that comes to mind is that of back pockets.
Yellowhead Mining (YMI.to): YMI stubbornly refused to budge again which is kind of
annoying shorter-term, but if it needs time to play catch-up then it needs time.
Here’s a good question on YMI received from reader ‘TR’:
“A question on the US vs Canadian dollar, on YMI's latest PDF, they show an .86:1 relationship,
the Canadian dollar is actually a bit higher than the US at the moment and I find it hard to believe
it'll be going very far below par for quite some time if ever. How does this change the outlook?”
We’ll tackle the answer in two ways, TR. Let’s first go to the company Feasibility Study (FS)
dated March 2012 and in there, we do indeed see that YMI uses a 0.86X multiple for the forex
pair. This would at first suggest that costs for
the Harper Creek project will come in over
16% greater than the parameters in the FS,
including the $840m capex and the overall op-
ex. Indeed this is true, but the forex pair
chosen by YMI for its modelling cannot be
taken in isolation with the rest of the
parameters. In fact, in a series of diagrams in
the FS we see that YMI runs its base case
using 0.86C CAD/USD, but under the base
case it also assumes a copper price of
$2.50/lb. If and when the copper price goes
up, YMI’s project criteria adjust the forex and eventually reach USD1 =CAD1 at a price of
$3.82/lb. For sure we can take issue with the point at which the two currencies reach parity
1

compared to copper (there’s now plenty of evidence for a $3.40/lb to $3.50/lb level), but the
sensitivity adjustments are made by YMI in non-base case situations.
This chart from the YMI FS shows the close correlation between the Loonie and spot copper
prices. By deciding on a $2.50/lb base case price for copper, YMI (along with its 43-101 FS
compiler) has chosen the relevant forex level to suit that copper price. With any rise or fall in
copper, the forex is adjusted
accordingly
Also, by homing in on the easy-
read sensitivity table in the FS
(there are several versions in
fact, here we highlight the
NPV8% example) we see that
the current 16% or so move in
the exchange rate would
adversely affect project
economics by around $500m,
but at the same time if we use
a $3.25/lb copper price (30%
higher than the base case, but
still significantly lower than today’s spot) the NPV is boosted by $1.8Bn, a net advantage to the
project of around $1.3Bn.
Or if you like, here’s the IRR sensitivity version if you prefer your comparatives in percentage
form. Boosting the forex from
0.86X to 1.00X would drop the
IRR fro the base case 20.2%
to 16.5%, but the boost from
higher copper prices more
than outweighs that
disadvantage (+27% at 16%
higher prices, +32% at 30%
higher copper prices). Or put
in easy terms, add 16% to the
forex and 16% to the copper
price (remember how they run
in lockstep) and add a net
3.3% to your IRR
1

Now for the second way of looking at the issue, which is the way your author approaches
any company project is to run independent numbers. In the case of our NOBS report on YMI
dated April 1st 2012 (IKN152), one parameter in the valuation was using parity for the two
currencies. Here’s how we presented that line item in the report:
U$1 = CAD$1 and though it might not look like it, we’re again taking a conservative
stance here. The FS makes a pretty strong case for a lower Loonie if copper prices
drop that would benefit the forex by as much at 15% at $2.50/lb copper and therefore
bolster earnings in CAD, but we’re going to build in more conservative leanings by
staying with a flat 1:1 ratio.
The way I choose is to run a set forex (which adversely affects lower base-case pricing models
and offers us a conservative parameter) and then see if the project still holds water. In effect, I
ignore the forex advantages implied by a lower copper price (and used by YMI in its FS) so if
the numbers still work, we’re baking in the blue-sky surprises as usual. Or put another way, as
an independent analyst I’m allowed to make a project as hard as possible in the model and
don’t have to run with the spoonfed numbers from company or tied analyst that will always look
on the bright side of life (cue whistling).
Regional politics
Colombia: A cabinet re-shuffle
Last week President Juan Manuel Santos of Colombia went through a normal protocol move of
asking for the resignations of all his ministers (something that happens from time to time in
many LatAm states), but then surprised many by making some significant re-shuffle moves in
his ministerial cabinet. There has been plenty of English language reporting on this re-shuffle
(4), but in brief the headline move so far is seeing to-then mining and Energy Minister, Mauricio
Cardenas, move to the bigger role of Finance Minister (replacing to-then incumbent Juan Carlos
Echeverry). President Santos has said that he’ll take his time in naming all changes to his 16
person cabinet, though one widely expected now is to see the current Interior Minister Renjifo
moved to Mining and Energy Minister (he was once mining vice-minister there).
The re-shuffle now makes sense, coming two years into his four year term, though it’s also
seen as a reaction to growing dissent in the Santos Administration from the left (FARC
insurgents are mounting more guerrilla-style attacks in what is understood as pressure to get
the government to the negotiation table) and from the right (ex-President Alvaro Uribe has
become an outspoken critic of Santos, saying he’s being too soft and appeasing left wing
groups both home and abroad, particularly that man Chávez again). We acknowledge that the
re-shuffle is driven by domestic political issues more than anything else, but on a practical level
also recognize that a change of this sort at Mining and Energy may make for more delays to the
already delayed overhaul of the mining rulebook in Colombia.
Peru: Conga on the “back burner” doesn’t mean our scenario has changed
With every week that passes, the IKN working theory of a Conga project that will be nudged
along to 2014 (when, not if, Santos gets voted out of office as regional governor) is gaining in
strength. The latest move in that direction came Thursday with the national government
making an official announcement (5) that Yanacocha SA (NEM/BVN) had decided to suspend
the development of the Conga mining project until further notice, or in the words of NEM’s
Richard O’Brien Conga is now ‘on the back burner’. Meanwhile, work on the water reservoirs
still continues and that’s a fact that hasn’t gone unnoticed by regional governor Gregorio
Santos; he wants all machinery and personnel removed from Conga including that which is
constructing the reservoirs, presumably because he sees that project as undermining his
position down the line. To this Roque Benavides (BVN head) notes (6) that the machinery won’t
be removed because all permits for its presence have been obtained and that although 4,500
1

jobs have been cut from the project (the vast majority locals who will now get a lesson in
political-economic reality) there are still 1,500 people working Conga today.
The other news of interest surrounding Conga last week was the survey conducted by
Ipsos/Apoyo in the Cajamarca region that reported 78% of Cajamarca locals oppose Conga, a
figure that rises to 89% in the rural areas. The survey was widely reported in media (both in
Peru and abroad, e.g. here’s DJNW in English (7)) and the headline is bad reading for the pro-
Conga contingent, however once the details are considered (I’ve seen the document but sorry,
wasn’t allowed to take a copy and there’s no public link) there’s plenty of mitigation. The survey
was run on 504 people (250 in Cajamarca city, 254 in rural areas), has a margin of error of 5%
and breaks down as 226 people against Conga in the rural zones and 167 people against Conga
in the urban zones of Cajamarca. So opposition to the project is clear but it’s not as solid as it
first seems with 36% of that total 78% choosing the option “against Conga but could change
mind” while the other 42% chose “against Conga and nothing could change my opinion”.
Magistral in Ancash, Constancia in Arequipa, Quellaveco in Moquegua: Investment
in Peru continues to grow
The advancement of another mining project was announced last week, as the Magistral Social
Fund was showcased (8) by the government’s Mining Ministry (Minister Jorge Merino leading
the press conference). This is the project once held by Inca Pacific that was taken up by Peru’s
Milpo and is a medium-sized copper/moly project in the Ancash region of the country. The
formal signing of the agreement between the affected communities, company and government
came with the type of quotes you’d expect from a Minister keen on promoting the industry.
This is the third formal go-ahead announcement in the last few week we’ve had from the Peru
government regarding mining projects, with Magistral’s formal commencement coming after the
announcements of an agreement between all parties in the Southern Moquegua region over
Anglo American’s Quellaveco copper project and then the formal green light on the HudBay (ex-
Norsemont) Constancia copper project in the Arequipa region. Clearly the government wants to
show another side to mining in Peru than that of the headline-making Conga snafu, but the
advancement of not just one but three projects in this short space of time is not to be sniffed
at. And if we take a bigger picture than just mining and look at overall investment in Peru,
private dollars aren’t being shy about the place and the investments continue to flow, as this
chart (and I could have picked plenty of dataset example, but this one is a fair picture and as
good as any) derived from Peru Central Bank (BCRP) figures tries to depict. Not only is GDP
rising (+6.1% in 2q12) but the portion of that growth from private sector investment has grown
for the last eleven quarters, no matter whether Alan García or Ollanta Humala was or is in
charge of the shop.
Peru: Private sector investment as percentage of nominal
GDP, 2009 to date
25.0%
22.5% 21.8%
20.0% 20.6% 19.1% 17.7% 17.9% 18.3% 18.8% 19.2% 19.4% 19.6% 19.6% 19.6% 20.0% 20.5%
17.5%
15.0%
12.5%
10.0%
7.5%
5.0%
2.5%
0.0%
1q09 2q09 3q09 4q09 1q10 2q10 3q10 4q10 1q11 2q11 3q11 4q11 1q12 2q12
source: BCRP
1

Argentina: Mendoza tries to dilute its tough mining law
Interesting legal developments in Mendoza, Argentina. Last week saw the anniversary of the
permit rejection for Coro Mining (COP.to) at San Jorge by the provincial parliament of Mendoza,
but now at least two of its parliamentarians are about to present a bill to modify the current law
(known locally as law 7,722) and make it less stringent towards mining projects. As things
stand the bill led by one Jorge Muñoz (allied to ex-Governor Celso Jaque) can be seen here (9)
and its main point would be to reduce the prohibition of toxic substances (cyanide etc) to a
radius of 10km from any urban area, instead of the current blanket ban on their use in any part
of the province. The bill is to be presented in September and is already getting a hot reception
from anti-mining campaigners who were out on the street last week (10) to demand the bill’s
denial, as well as marking the anniversary of the San Jorge reversal.
This is a parliament battle to watch carefully, as we already note Mendoza has recently joined
the ten-strong association of pro-mining provinces and would probably want to make mining
development easier in the region in order to fall in line with the national government policy
(CFK supporters hold a majority in Mendoza). If things suddenly get easier for mining projects
in Mendoza, it might be worth revisiting that beaten down stock COP.to, as a trade may show
itself. Watch this space in September.
Market Watching
Orko Silver (OK.v): a headsup for you momo traders of BS stories
We’ve kept an eye on the stock price of this rather dubious company and its untrustworthy
management team ever since it fell off
a cliff in early April on the news that
Pan American Silver (PAA.to) (PAAS)
decided not to take up its option on the
company’s main ‘La Preciosa’ project in
Mexico.
The last we heard out of OK.v was back
on June 5th, when it announced (12)
that the new resource update being
compiled by Mining Plus would be
delivered to the company by the end of
that month. OK.v at that time stated
that the resource update would form
the basis of a new PEA (Preliminary
Economic Assessment, or Scoping Study
in old money) being put together by AMEC. So the first thing we need to note is that unless
OK.v decided that the Mining Plus resource update wasn’t material (unlikely), we’re nearly two
months late on news about those numbers.
The second thing to note is that last week we saw a move in both price and volume on
Thursday afternoon and Friday in OK.v’s share price, which we underscore as potentially
significant because for one thing this company is run by people with a bad for BS and market
playing and for another the timing (overdue resource update, closing in on Labor Day etc)
catches the eye. And regarding that resource update and PEA, the whole premise for following
this stock since April (IKN153, others) is that we expect the new 43-101 documents to push the
window on La Preciosa and make it suddenly look a whole lot better than in the PEA that was
compiled and delivered in 2011 for the benefit of the more serious mining brains at PAAS.
Here’s how we put it in IKN153 (excerpt):
So what’s being set up here? Well put briefly, a scuzzy management team with a reputation for
pumping their stock (and taking profits via insider selling) has decided not to use the $13m or so
it says it has at bank to drill its inferred mineralization to a sufficient level and then produce a
2

rigorous, industry standard feasibility study for La Preciosa. Instead it’s going to produce another
PEA, on the back of one less than a year old, that will “optimize” certain parts of the plan and
show just how wonderful the property and the project really is. And we note that the PEA back in
2011 wasn’t produced to specifically impress the wider world, as the idea was to impress its JV
partner enough to take La Preciosa to feasibility level. Now that plan has fallen through, OK.v will
produce another PEA for La Preciosa but this time the company isn’t out to impress an expert
audience from a large mining company that actually knows what it takes to mine silver in Mexico.
This time, the audience for OK.v’s “enhanced”, “improved”, “optimized” PEA will be us, the retail
shareholder grunts that are more easily blinded by sequins thrown into eyes.
IKN173 back and let’s make this
one crystal clear; I am not a buyer
of OK.v personally. This isn’t my
kind of trade set-up at all. Starting
with the basic fact that I have no
wish to sponsor the scumball end of
the junior market with my cash, not
even for a short period of time.
However, I am not you and part of
the service round these parts is to
note these kinds of set-ups, after
which you can decide what you
want to do with them. Be clear
about the risks involved too.
OceanaGold (OGC.to) (OGC.ax) update
Three things to report on after last week’s NOBS report on OceanaGold (OGC.to) (OGC.ax)
1) The stock is up. It’s up 10.4% to be precise, closing Friday at $2.66 in Canadian trading and
doing well all week.
2) Company CEO Wilkes gave an interesting Q&A on Wednesday, which you can access here
(13). This is a PR-type interview which throws puffball questions at the company and allows
them to show off their best points, but I don’t want to sound too critical of the format because
the exercise was worthwhile and we out here in investorland do glean useful information on the
state of play at OGC. There are some interesting sections, particularly the bits where CEO
Wilkes seems to guide for improved production in the next couple of quarters (compared to
1h12 at least) but even so your author is going to play safe and keep to our reasonably
conservative production and valuation parameters for the time being.
3) We now have more details of the financing package, thanks to the company NR on Tuesday
(14) that gave several pieces of detail but the mai one that might affect our current valuation
model is this bullet point excerpted:
The Company has agreed to purchase out-of-the money put options at a strike price of
US$1,400 per ounce gold for approximately 40% of its New Zealand production from
October 2012 to June 2013 .
What this does is cover about $140m worth of production and is just the type of clause that the
moneylenders tend to look for (as noted last week) because they want as much guarantee as
possible that they get their money back at the end of the period. As noted in last week’s report,
the rolling of the loan would bring working cap to around $150m (as the loan term of mid-2015
boots it far enough into the future to make it a long-term liability), so seeing just about all that
working cap position covered by this hedge makes sense, from the banker’s perspective at
least. What we’re left with is a deal that allows the lenders to have $140m or so worth of
insurance, even if the bottom falls dramatically out of the gold market.
2

The mechanism does come at a cost to OGC however, as we’re likely to see the company add
the hedge on to its liabilities but also mark down financial results to market while the hedge is
open. That mark to market might be quite large during the 4q12 period as well, as if we
assume the 40% is indeed covering 100,000 oz gold (as seems to be the case) and there’s a
difference of (for argument’s sake) $200/oz between the average spot price of $1,600/oz and
the $1,400/oz that OGC will receive for that portion of its production, the financial results might
be skewed by as much as $20m in 4q12 and that’s cash that OGC will have to deliver to the
counterparty of the put position (almost certainly the very same bankers who are lending them
the money). As the hedge develops into 2013, the financial effect is likely to reduce (unless
gold shoots off into the stratosphere, but if that’s the case OGC will gain on the 60% of its
production left unhedged and come out winning overall) as the ounces are delivered; also, once
booked in the first quarter of the hedge, the subsequent financial effects are booked against
that first figure, which basically means that (for example) if gold stays at $1,600/oz average for
all of 4q12 and then all of 1q13, the 1q13 results have no further
mark to market loss.
Overall it’s a fair deal that OGC has put together and it’s one that
won’t put too much pressure on the company’s financials,
assuming of course that the price of gold behaves itself. As for the
way it affects our model as presented last week, we’ll show the
simple effects via the condensed incomes statement. Here right
inset is a small copy of last week’s to remains you and now here’s
the new version, adjusted for the hedge:
As you can probably make out, what OGC has done is to condemn
itself to a 2013 with no net profits, but at the end of next year it will have Didipio up, running,
growing in production size and revenues and will by then also be a company that is clear of the
hedge. As we based our model on FY2014 last week rather than FY13, in the great scheme of
things the modest amount of income sacrificed to cover the investment capex is a smal price to
pay and I’m therefore not going to move the current target price down. OGC has cut itself a fair
deal and if we get the price pullback we’re looking for, this company will become a component
of our ‘stocks to Follow’ list before the end of this year.
OGC: Concise Income statement items (Cu by-product)
$1.6k/ozAu FY 2013 FY 2014 FY 2015 FY 2016
Sales (C$m) 394.6 608.7 630.0 630.0
Cash COGS 240 264 272 272
Depreciation 110 110 100 100
SGA 23.0 23.0 23.0 23.0
Op income 9 193 216 216
Op Inc/share 0.04 0.73 0.82 0.82
Interest 24.0 24.0 24.0 6.0
Tax (3.7) 42.2 47.9 52.4
Net income (11.0) 126.7 143.6 157.1
Shares out 263 263 263 263
EPS -0.04 0.48 0.55 0.60
Capex -12 -10 -10 -10
FCF 0.33 0.86 0.89 0.94
Sources: OGC data, IKN estimates
Zincore (ZNC.to) inside buys
We mentioned it on the blog last week (11) and a quick line here as well won’t do any harm.
The 7.46m shares bought under direct ownership by ZNC CEO Jorge Benavides at 13c a share
tots up to $970k in cash and is a very chunky purchase (before last week CEO Benavides had
around half a million shares of the company). It’s unclear who the counterparty is, as most
likely seller Eduardo Hochschild hasn’t changed any filing as yet (and holds around 19m
2

shares), while a big partner First Quantum owns another 42m or so. No matter realy, it’s the
buyer’s move that catches the eye, no matter who the seller may be.
Let’s also underscore here that although I’ve bailed on my position already, there is enough to
like about ZNC at this price if it makes the type of drill hit at the Dolores copper target that it’s
looking for in a perfect world. Once again it comes down to relative liquidity of the stock, as
until we get a decent level of day-to-day trading the attraction is limited unless you like to take
real chances (or have some fun money to spare).
Rio Alto Mining (RIO.to): First six months of production at La Arena suggests our
theory of a low 3q12 is correct (even a little overoptimistic)
Last week Peru’s Mining Ministry filed its monthly production figures for June and the half year
of 2012 (15), which is always a useful
dataset for those of us tracking the RIO.to: Monthly gold production figures, according to
performance of mining companies in Mining Ministry (MEM) filings
Ozt Au
the country. The gold production date 25000 24401
breakdown gave us the monthly 22500 20144 19560
20000
production figures for Rio Alto 17639
17500 16692 15426
(RIO.to) at La Arena (amongst
15000
dozens of other line items for 12500
different goldies) and those figures 10000
are shown here in this little chart 7500
5000
right. First a quick sidebar note that
2500
according to the MEM numbers, RIO 0
produced 57,466 oz gold in the 2q12
Jan12 feb mar apr may jun
period while in its own literature the source: MEM
number was 58,081 oz, a difference
of 615oz. That’s a smallish number and doesn’t affect our overall look here, but it’s worth
noting all the same.
So to the analysis, and we clearly see the bias of production at La Arena in April 2012, the first
month of 2q12, when 24,401 oz Au were produced. This then tailed off to 15,426 oz Au in the
June month. This fits in with our working theory that the best of the high bonus head grade
was being depleted during 2q12 and come 3q12, we’re
likely to see the softest quarter of the 2012 financial
La Arena 2012 forecast gold prod, per qtr
year. Oz Au
70000
60000 55973 58801 55712
Our current model has RIO producing 50,289 oz Au in 50289
50000
3q12 and just by looking at that June 2012 month’s
40000
production, we may be shooting a little too high with
30000
that figure it seems. As I’m visiting RIO offices next
20000
week, I’ll see what I can glean from them and if
10000
necessary, this time next week we can adjust the
0
model. More next week.
1q12 2q12 3q12est 4q12est
source: IKN ests
Fortuna (FVI.to) (FSM) at Caylloma, monthly silver production numbers
Just quickly, while over checking the monthly production numbers at RIO.to La Arena I also
pulled down the monthly silver production numbers for Fortuna Silver (FVI.to) at Caylloma. I’m
not sure how useful or relevant these are nowadays to the big picture at FVI, what with San
José Mexico a big part of the production and revenues story, but at least it shows the month-
on-month regularity at FVI and the way in which Caylloma continues to run on rails. By
extrapolating these numbers and taking into account that the first quarter of any year is usually
the softest for FVI (due to rainy season conditions) we can forecast Caylloma as delivering
around 2.1m oz silver in 2012 at current rates.
2

FVI at Caylloma: Monthly silver production
220000
200000 190900 188135
177267
180000 156624 162090 169196
160000
140000
120000
100000
80000
60000
40000
20000
0
source: MEM jan12 feb mar apr may jun
2
gA
zo
Bear Creek (BCM.v) 2q12 numbers
We haven’t updated on the full financial dataset at BCM since the 2011 YE results, so with last
week’s 2q12 results printed its a window to correct that lapse, starting with the expenses
numbers in this chart:
BCM.v: Expenses Breakdown
12
10
8
6
4
2
0
90q1 90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 tse21q3
source: company filings
srallod
fo
snoillim
other exp.
prof fees
wages & mgmt salaries
share based compensation
exploration costs
The last three quarters have seen a burn higher than your author was expecting. Most of the
exploration expenses in 2012 have been concentrated on the main Corani project ($7.4m in
1h12) as the company moves to complete the work necessary for its Environmental and Social
Impact Assessment (ESIA) which is due to be submitted to the Peruvian government at the end
of this year. As well as that, main work, which includes all the necessary studies, drilling work,
condemnation drilling etc), BCM has been busy at its other early stage exploration prjects at
Tassa ($1.5m in expenses in 1h12 with about
half of that spent on drilling) and Sumi (early BCM.v: Loss pre-items and Net Loss, per qtr
stage stuff there and just $0.1m spent. As for
10
the frozen project at Santa Ana, just $0.3m 9
spent there on legal fees as BCM tries to get a 8
deal struck with the national government (and I 7
6
repeat that the company’s best shot there is
5
some sort of financial compensation, as the 4
project isn’t going to happen whatever they say 3
at national level, see IKNs passim for more). 2
1
0
The upshot to all this is that BCM has been busy
(not so much on NRs this year, but plenty of
work clearly going on behind the scenes) and
therefore spending cash faster than expected by
your author. We see this again in the net losses booked at BCM, the highest ever seen at the
company and just about all of it due to cash burn (though there were a couple of large
incentive options awards). As you can see on the right of that chart, we expect the net losses to
90q1 90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 tse21q3
source: company filings
srallod
fo
snoillim
loss before other items
Net Loss

drop back towards the company mean average in 3q12, as most of the Corani budget for 2012
has already been spent and more options awards aren’t likely.
So let’s see how that’s affecting the cash
position. The one we care about the most is
working capital, which stood at around $80m at
the end of 2q12 and is now slated to drop to
just under $67m by the end of this year.
The current asset position is about half the total
asset (BCM doesn’t capitalize its exploration
work on a quarterly basis) and although
dropping due to that burn, there’s still plenty of
fuel in the tank for 2013 and beyond. Not
enough to take Corani into construction or
production of course (that’s a $500m+ ticket
price) but plenty to keep things running until Pan American or other decides to buy the thing.
BCM.v: Assets Breakdown per qtr
250
225
200
175
150
125
100
75
50
25
0
2
80q4 90q1 90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 tse21q3
source: company filings
srallod
fo
snoillim
BCM.v: Working Capital per qtr
140
120
100
80
60
40
20
0
fixed
other current
cash
Shares out look like this and no change is expected to the make-up either, not while that cash
position stays as strong as it is, anyway.
The bottom line to BCM today is that of a
company that’s been working behind the scenes
to develop its properties without making big
noises for the market. I don’t know whether
that’s a good or a bad thing up to now, but as
we move towards ESIA submission and upgrades
of its 43-101 reserves/resources, for the rest of
2012 I’d like to see BCM trying a bit harder to
get its story out there into retail
gruntland...that’s because I’m fully bought in
now, of course ☺. But as for the numbers, bar
the higher than expected burn this year the
company seems shipshape and with plenty of
cash to finance its activities without worrying about the next round of financing. BCM remains a
true bargain and one of the few explorers that is basically guaranteed not to be sold due to our
new direction. This stock + this price = like.
Lara Resources 2q12 numbers
Another one with its quarter reported last week was Lara Resources (LRA.v), so a quick look at
things here won’t do us any harm either, as the last time we looked at the underlying financials
of LRA was in the NOBS report of IKN153 back in April. The main story at LRA is its expenses,
which although tightly controlled came in a bit higher than we’d expected at $955k for the
80q4 90q1 90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 tse21q3 tse21q4
source company filings
srallod
fo
snoillim
BCM.v: Shares Out
100
90
80
70
60
50
40
30
20
10
0
80q4 90q1 90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 tse21q3
source: company filings
serahs
fo
snoillim

quarter, some $255k higher than our $700k model. However, I hasten to point out that it’s
almost certainly a case of your author being stupid on LRA than LRA doing anything out of the
ordinary. Still, expenses have dropped compared to the last four quarters as expected and seen
on this breakdown chart:
LRA.v: Expenses Breakdown
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2
60q4 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
travel costs share based payment
mgmt fees prof fees
other exp. exploration
office/rent/admin etc
That takes us to the balance sheet and I’m not
going to do the whole thing here, not least LRA.v: Working Capital per qtr
5
because liabilities are basically zero, so the
4.5
working cap chart (right) is good enough for
4
our purposes LRA had a touch over $1.5m at
3.5
bank at the end of 2q12. 3
2.5
Shares out stayed at the same number seen in 2
1.5
1q12, namely 26.301m S/O. I’, looking at that
1
cash/share chart and thinking that a $2.5m
0.5
raise at this point would put LRA’s coffers back 0
up to around 15c/share, which seems to be a
level at which it’s happy to operate. As we saw
in 2010, LRA has run treasury down low than
its current 6c/share, but it doesn’t tend to go
much lower so if I were thinking about taking a
larger position in LRA today, I’d be on the
lookout for the placement opportunity rather
than buying in the open market. Or in other
words, a financing before the end of the year
would come as no surprise, but if LRA could do
a deal that brings in cash from one of its other
properties (and let’s face it, there are plenty of
irons in the fire here) cash could be topped up
without the need to add to the share count. We
do know that LRA is averse to dilution, as this
share count evolution chart indicates. In the
last 12 quarters, just 1.4m shares have been
added. That’s tight. We like tight.
Goldgroup Mining (GGA.to): Decision due at Caballo Blanco
We’ve kept an eye on this one too, so it’s time to note once again that according to the
Semarnat (Mexico enviro bureau) timeline a decision is due to be made on the EIA as presented
by Goldgroup Mining (GGA.to) for its Caballo Blanco project in Veracruz, Mexico. The pros and
cons have been dissected on this call before and we’ll suffice by saying today that if you go
long now you’re risking a negative decision but if it the call goes your way, you’ll make good
money. I honestly don’t know how this one is going to go, though I do know that GGA
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
LRA.v: Shares Out
30
27.5
25
22.5
20
17.5
15
12.5
10
7.5
5
2.5
0
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

management are confident and have been making insider purchases at levels 50c and below to
demonstrate said confidence. On the other hand, the EIA has already seen pushback from
Semarnat (observations were placed with GGA that were then answered by the company) and
the local governor of Veracruz, a member of the Enrique Peña Nieto election winning PRI party,
has maintained his position against the project. The EIA is a national body decision rather than
a local one, but all the same the locl opposition is significant.
The plan here remains the same; stay on the outside looking in and if GGA.to gets its permit,
miss out on the first part of any upmove but enjoy at least some trading gains by getting no
quickly afterwards. That’s because I’m a chicken of a trader, mind you.
Conclusion
IKN173 is done, we close with the traditional bullet points:
• The markets are suddenly perking up and with that sentiment comes the hunt for
beaten down value. There’s decent reason behind just investing in a basket of names
and looking for the ‘all boats rise’ type of move, however we’ll try to add to that trading
mentality by finding companies with specific advantages that could see them outrun
rivals in the near-term. Examples this week include Coro (COP.to), Orko (OK.v), and
Goldgroup (GGA.to), all of which are pending company specific news that might see
them bounce. These type of stocks are my taste, but they find room in the weekly all
the same.
• As for my personal shots at the beaten down value springer, I’ll stick with Bear Creek
(BCM.v) and Yellowhead (YMI.to) for my kicks next week. BCM had a good week
pricewise and its 2q12 numbers indicates plenty of activity going on behind the scenes.
YMI hasn’t moved much yet, but it’s still a copper names with a decent, economically
and politically sound project on its books. There aren’t many who can say the same.
• Primero Mining (P.to) (PPP) has done well in its relatively short life as a company and is
now on a firm enough footing to warrant close inspection. I like its operations, but I’m
not in a big hurry to buy this at any price and wouldn’t be at all surprised to see it
dropping back to $4 or below, at which point its relative value will get me more
interested in a position because it’s a good company. Another plus is the good traded
volume, which gives the flexibility to enter and exit at short notice.
• OceanaGold (OGC.to) moved up from last week and gave us details on that financing
package as well. Of the two recent producers covered (OGC and PPP) I prefer this one
but again I’m not in a rush to take any price. The financing deal means 2013 will be a
flat one financially and there’s plenty of time in which to pick the price entry spot
preferred, as the current $2.66 represents less than a 50% upside to my price target on
the stock...that’s not enough reward for the stock until Didipio is de-risked further and
I’m not chasing a junior name just because gold put in a good spurt last week
• This week coming is a travel week, and I’m particularly looking forward to seeing the
Minera IRL (IRL.to) project development at Ollachea.
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
2

Footnotes, Appendices, references, disclaimer
(1)
http://www.primeromining.com/Theme/Primero2011/files/doc_presentations/Primero%20Q2%20Results%20Presentatio
n%20Final.pdf
(2)http://www.primeromining.com/
(2a) http://finance.yahoo.com/news/primero-announces-issuance-shares-goldcorp-210000362.html
(3) http://finance.yahoo.com/news/focus-acquires-second-phosphate-project-165800739.html
(4) http://in.reuters.com/article/2012/08/25/colombia-politics-idINL2E8JP2A320120825
(5) http://www.andina.com.pe/Espanol/noticia-confiep-suspension-temporal-conga-traera-calma-para-centrase-el-
dialogo-425639.aspx
(6) http://www.tuteve.tv/noticia/actualidad/92744/2012/08/25/roque-benavides-paralizacion-de-conga-recorta-4500-
puestos-de-tr
(7) http://www.foxbusiness.com/news/2012/08/22/peru-poll-78-in-cajamarca-reject-minas-conga-mine-project/
(8) http://www.andina.com.pe/Espanol/noticia-proyecto-magistral-ancash-demuestra-con-dialogo-es-posible-hacer-
inversiones-mineria-425626.aspx
(9) http://www.tiempodesanjuan.com/notas/2012/8/23/proyecto-minero-jorge-caida-conoce-texto-para-modificar-7722-
16181.asp
(10)
http://www.losandes.com.ar/notas/2012/8/25/ambientalistas-marcharon-contra-mineria-contaminante-662957.asp
(11) http://incakolanews.blogspot.com/2012/08/zincores-boss-buys-zincore-zncto.html
(12) http://finance.yahoo.com/news/orko-silver-reports-progress-ongoing-124500287.html
(13) http://finance.yahoo.com/news/company-insight-md-recent-important-235600742.html
(14) http://finance.yahoo.com/news/oceanagold-announces-signing-corporate-refinancing-075300360.html
(15) http://www.minem.gob.pe/descripcion.php?idSector=1&idTitular=4985#
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
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
2

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.
2