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The IKN Weekly
Week 175, September 9th 2012
Contents
This Week: Fe erratum, Kick the can, Gold went up, Next week’s macro event(s).
Fundamental Analysis: NOBS fundamentals report on Gold Resource Corp (GORO).
Stocks to Follow: Overview, Fortuna (FVI.to), Vena (VEM.to), Minera IRL (IRL.to), Rio Alto
(RIO.to), Focus (FCV.v), Sunward (SWD.to), Bear Creek (BCM.v), Strait Minerals (SRD.v),
Lupaka (LPK.to).
Copper Basket: Overview, Nevada Copper (NCU.to).
Regional Politics: Venezuela: One month to go before the Presidential election, Peru:
Shougang workers to strike IKN to rant, Argentina Mining 2012.
Market Watching: The Colorado Precious Metals Summit and corporate presentations, An
Endeavour Mining (EDV.to) comment, Copper Mountain’s (CUM.to) rally and Yellowhead
(YMI.to), OceanaGold (OGC.to) (OGC.ax): No position yet.
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
Fe erratum
In last week’s edition I wrote that Vena Resources (VEM.to) at Macusani had control over 28m
lbs uranium under 43-101 compliance, which was a typo but I didn’t notice it at thye time. In
fact the number is 38m lbs U and I therefore beg apology for the error.
Kick the can
The latest from Europe that got markets running well was Mario Draghi’s plan for OMT
(Outright Monetary Transactions), which is fair enough because what Mr. Market wanted was
some type of event which added liquidity into the financial mechanism. It has its supporters but
its detractors too, such as the critical Bundesbank president Jens Weidmann who said it was
“...tantamount to financing governments by printing banknotes...” and he’s right because it is,
but that’s just why other people like it of course (and if you suddenly feeling the pull of
European politics on this strategy I’m not surprised). Anyway, if you want to know more about
OMT’s details and read sharp analysis on the plan I’m now going to leave you disappointed and
suggest you go read others with far more expertise than myself on the subject, because what I
want to reflect upon is the more general subject of can-kicking. In my OMT readings over the
last 48 hours (approx) one thing I’ve seen with regularity from the better quality of article is
how Draghi is kicking the can down the road, with the main discrepancy being just how much
time is being bought by OMT. Siome say ‘indefinitely’, others say ‘a few months’, I’ve even seen
some pretty specific time calls such as three months or ‘six weeks’.
I get the feeling it may be much less than any of those, because if there’s one thing we can
take away from the European mess and how Greece has unravelled, it’s been how the
effectiveness of any ECB-led plan has been overestimated by those not looking to make an
immediate profit from changing macroeconomic circumstances. Any plan to buy time (i.e. kick
1

can down the road) has seen the amount of time bought diminish rapidly and bring about the
next crisis moment far more quickly than expected by its mentors, which for me is more about
the voracious market appetite for what’s not much more than free money, combined with its
growing absolute power over events. When big banks have to race against each other to corner
as much profit from (for example) State and ECB interventions, the whole game is about
getting there first and snaffling up more than your competitor. It is, on reflection, a wholly-
inclusive miscrocosm of the currency race to the bottom that is so often commetned upon by
market watchers (esp of the Austrian ilk). This time around The ECB wants us to believe it’s
ahead of the curve and dictating policy instead of making tardy reactions to crises, to which I‘m
forced to laugh a tragic laugh. On the blog on Friday I wrote (2) “If your idea of a plan is to
base your investments around the declarations of a European banker, it's time you took a good,
long hard stare in the mirror” and that’s a position which isn’t up for debate or discussion. I
may hesitate, hum and hah over other market happenings and wonder what results might be
caused by their effects, but trusting interventionalist policymakers to intervene in the way I
want them to and putting my financial wellbeing in their hands? I don’t think so, the track
records don’t inspire.
Gold went up
In last week’s intro section we wrote:
“...so with one of the strongest proponents for extra Fed-led stimulus
recognizing that the unemployment figure is the single key dataset, let’s not
be in any doubt about this one; a strong jobs number next Friday will almost
certainly see gold sell off from its current rally $1,690/oz level.”
Of course, the opposite was also true
☺. The 8.1% headline jobs number
may have given Obama something to
use in his speechifying, but the
underlying data in the BLS report was
weak and gold reacted in exactly the
way you’d expect of a market poised
for its QE3 heroin fix...up up up.
Oh, I nearly forgot, I’m a newsletter
writer so therefore I have to rah-rah
and cheer the move in gold and the
junior mining stocks. I also have to
promise you guaranteed riches and
easy money and all you have to do is
put your money into the sector. It’s a
wonderful thing to be able to
recommend to you all so many
purchases without ever needing to
tell you to sell out of the stocks and
take profits, let me tell you.
Next week’s macro event(s)
Set your clocks for 12:30pm EST Thursday September 13th, time and date of the FOMC
announcement. There are other macro indicator events scheduled for next week, with things
like China industrial production due from that country (mentioned in Copper Basket below) and
U.S. retail sales on Friday, but next to the expectation now generated for a QE3-type
announcement on Thursday the rest are just noise. The key phrase everyone will be looking for
is a new program of “Large Scale Asset Purchases” and following on from the FOMC bulletin,
Bernanke is scheduled to give a press briefing at 2:15pm EST.
2

As for the chances of QE— (by any other name) happening, put me firmly in the team of Bill
McBride over at Calculated Risk (1) because for my money (and that’s quite literally true)
there’s no better judge of U.S macroeconomic affairs. McBride this weekend wrote, “Conclusion:
I expect both QE, and an extended forward guidance, to be announced this week at the FOMC
meeting.” It doesn’t come much clearer than that but it’s not necessarily some sort of hearts
and flowers panacea for the gold market, either. From where I sit, these last few days and the
days to come look like a case of buying the rumour and selling the news.
Fundamental Analysis of Mining Stocks
This week look at Gold Resource Corp. (GORO).
NOBS bespoke report dated September 9th 2012
Gold Resource Corp (GORO)
Company Overview
Gold Resource Corp (NYSE: GORO) is junior gold mining company operating in Mexico. Its
flagship property is the operating and producing ‘El Aguila’ silver/gold mine in Oaxaca, Mexico
nd it also has a asset book of exploration and development stage properties in the same region.
Current share structure is as follows:
Shares out: 53.016m
Options: 5.702mm
Warrants: Zero
Fully diluted shares: 58.718m
Current share price: $21.32
Market Cap: $1130.3m
Est Fwd Dividend yield: ~3.4%
Approx cash per S/O: $0.87
All prices are in US dollars unless stated. Forex U$1=CAD$1
Today’s report
The object of the NOBS fundamentals report today is straightforward; we’re laying out the case
for a short position in Gold Resource Corp (GORO) and fully intend to act on this next week so
if you don’t feel like reading all the ins and outs of the argument, stop right here and go read
something more interesting than this issue of The Weekly, or turn on the TV or go to the movies
and watch a decent first releae film. The bottom line is that your author is going to short GORO
and the rest is noise.
GORO was last featured on these pages in IKN168 dated July 22nd and in that more narrative
article I said that GORO was overvalued on any metric you care to examine, but particularly
when compared like-for-like with peer companies. On that day we chose to stack GORO up
3

against Fortuna Silver (FVI.to) and Rio Alto Mining (RIO.to) as the information about those other
companies is always close to hand for your author, but comparatives against any number of
other companies would work just as well. In IKN168 we made clear that we believe GORO is
and will remain a profitable mining company over the medium term and unless it announces
more bad news to the market in the style of its 2q12 production numbers, it will stay that way.
However, our contention in July was that, aside the untrustworthy management and the
fanatical shareholders who are their own red flag, GORO was simply overvalued.
On July 22nd, GORO stock was priced at $17.39. Today the share price is $21.32, i.e. up 22.6%.
Back in IKN168 the advice was to avoid the stock as a long position but if you are short GORO
stay that way (and according to NASDAQ figures (3), GORO short interest currently stands at
around 4.3m shares so you have company if you are). Things change today and the reasons
are three:
1) We changed the emphasis of The IKN Weekly as announced in IKN171 dated August 12th to
cover more producers.
2) In that same edition IKN171, the door was opened to recommending short positions for the
first time on these pages. Here’s how we broached the subject at that time:
I will consider offering recommendations on shorts. I get a lot, and I mean A LOT of
people telling me that I’d make a good shorter of mining stocks, probably because of the style of
the IKN blog more than anything else. However, I’ve kept The IKN Weekly long-only up to now
because the type of stock we cover (typically Canadian, junior, small) is often tough to short for
the retail investor and you need to be either in a pro-shop or have a really smart broker (and a
longer-term relationship with the brokerage) to be able to play the downside to these stocks.
With the move to more producer stocks and the potential move up in market cap size, the
chances of finding stock to borrow and and gets better for us retail grunts, so although I’m not
wild about the idea, I’m not going to stop myself any longer if I find a shortable that’s screaming
at me.
The fact is that GORO ticks off all the boxes I’d want for a short in the junior mining world, as it’s
a) listed in the USA which makes the mechanics of shorting easier b) has a decent market cap
c) has a higher dollar share price than your average junior producer, which makes things easier
too d) now that the stock has moved back up, it doesn’t seem merely overvalued (as in July) but
really ‘screaming at me’. On which subject...
3) The share price of GORO has moved back up to above $21, a price I did not expect to see
again in this stock in 2012. It’s clear that the impetus of the move has been on the back of the
improvement in gold price (July 22nd gold stood at $1,576/oz, today it’s 10.3% higher at
$1,739/oz), but all the same we’ve seen this rally in an already overvalued stock that’s been
basically uncontested and at 2X beta to the metal that defines its corporate title.
In other words, in IKN168 we called avoid but this time we’re serious. We’re going short GORO
next week and the details as to why are found below.
The dividend
This company is all about its dividend. Not quite all, because it still has to mine its rock, process
it and sell it at a profit and in fact on that score it does quite well. GORO did hit significant
problems in the last quarter 2q12 and we’ll go into some depth about those further down, but
the reason why the dividend is all important is that it’s the only visible means of support for an
otherwise very over-extended share price. On August 28th GORO announced (4) the latest of its
monthly dividends of 6c per share payable to shareholders of record on September 10th with the
payment moving on September 24th. Let’s first consider the cost to GORO of this dividend
distribution policy. At present, there are just over 53m shares out of GORO. As 4.3m of those
are held in short positions (note: those shorting GORO are liable to any dividend paid) this
means GORO the company is scheduled to pay out 48.7m lots of 6c dividends in September;
that’s $2.922m. If we then assume the company makes the dividend 6c per month over a year
(and the way things are going it looks like that’s GORO’s objective) this would imply that a little
over $35m were paid to shareholders per year.
4

As for the yield, that currently stands at 3.4% per
annum if we consider 6c/month per year and the
current share price, a yield figure that GORO is
proud to show off to the world. Here’s a link to the
latest corporate presentation (5) which gives a
good idea of the image and limited aspects of the
company it prefers to offer to the market (and if
investors are convinced by simply reading
through a corp presentation without checking out
the underlying numbers and quarterlies, then
that’s their decision). By way of example, from
that presentation we are given this table of
“peers” to GORO. The Miriam Webster dictionary
defines peer in this way:
Peer (n): one that is of equal standing with another: one belonging to the same
societal group especially based on age, grade, or status
From this we are forced to conclude that GORO, with a tonnage throughput of less than 750tpd
in the first six months of 2012, that is due to produce around 110k of gold equivalent in 2012
and with a market cap that fluctuates around $1Bn, is on an equal standing to Barrick (mkt cap
$40.2Bn), Goldcorp ($34.9Bn), Newmont ($25.7Bn), Kinross ($11Bn) Yamana ($13Bn) Agnico
Eagle ($8.5Bn) or Royal Gold ($5.4Bn). Now I’m not one to knock GORO’s ambitions, but it
does seem a little premature to consider this company a peer of the Tier 1 names listed in
GORO’s own corporate brainwash material.
The dividend policy at GORO is its key marketing and selling point, it’s USP (unique selling
point, as the jargon goes) and the company never misses an opportunity to tell its holders about
how lucky they are to hold a stock that pays dividends amongst all the drudge and nonsense of
the junior mining world. It looks to return cash to its shareholders in the form of a monthly
payment and emulate larger precious metals mining companies, which is fair enough. But this is
not a mature, large and diversified Tier 1 but a junior that has aggressive growth plans (if you
swallow whole what this management team says, at least) and a limited treasury with which to
fund their plans. The day the dividend is stopped is the day GORO loses trust and goodwill with
the people it has managed to convince. Not only that, but there’s clear evidence that the
company has been paying dividends out of treasury and not its positive cash flow recently, as
the company saw its cash treasury reduced in 2q12 even though operations expenditures were
inside the range of the normal. The operational problems it faced in 2q12 cut production, but
instead of cutting down on its faddish dividend it preferred to sell more metal than it produced
and deplete treasury in order to cover 18c worth of dividends. It’s the kind of stunt you can get
away with for a limited period, but not for any length of time. More on that later.
The 43-101 resource count
One of our complaints back in IKN168 (July 22nd) was the lack of a 43-101 compliant resource
held by GORO at its producing mine. The good news on that score is that the 43-101 that had
apparently been held internally
by GORO for over a year was
published in late July (just
hours after our IKN168 report
in fact) and can be examined
on this link (6) at the company
website. It’s a good thing that
we’ve finally got a 43-101 from
GORO as first and foremost, it
gives us an idea of what the
company has got at its main El
Aguila underground resource.
Here’s the relevant table from
the report:
5

This table underscores just how little gold resource there is at the corporation named Gold
Resource Corp. As the average gold grade of milled rock at GORO isn’t much above that 3.2 g/t
stuff noted in the indicated resource (e.g. 3.73 g/t 2q12, 4.27 g/t 1q12) it looks like GORO is
making no bones about digging all the resource out as stands from the 5m width and milling it
no matter what cut-off. Therefore that 1 g/t gold line is the place to consider its contained metal
and although we’re told that there are 415,000 oz of gold equivalent, do the math and you’ll see
that the indicated resource contains just 104,129 oz gold (the rest of that Eq number coming
from silver, copper, lead and zinc). And as GORO mined out a minimum of 13.3k oz Au in the
first two quarters of 2012, it means that the indicated resource for gold is almost certainly sitting
under 90,000 oz today, unless any of that inferred material has got its upgrade. When
considering that type of gold resource in the light of the company’s $1Bn+ market capitalization
and I’m forced to the conclusion that it looks a little on the thin side. And yes, that was me being
ironic.
By the way, the average grades for all metals in that indicated 1 g/t cut off line suggest that
once processed at the typical reported recovery grades and sold at today’s market prices (and
yes, I’m being generous enough to include the recent jumps in silver and gold) each tonne is
worth around $530 in rock value. With costs likely to stay above $300/tonne and perhaps
approach $400/t in 3q12 if GORO has the same sorts of problems it saw in 2q12 that’s the
margin disappearing in front of your eyes, folks. Meanwhile, the same revenue dynamics
applied to the inferred material in that 43-101 resource chart (again, the 1 g/t cut-off) would
suppose a rock worth of around $350/t, which calls into doubt whether that part of the 43-101
reosurce at El Aguila is truly economic these days in the face of rising costs. At the moment it is,
but we’re definitely looking at a different scenario for operating margins if that grade is defined
as stands.
Before we leave our quick look at the Aguila resource we need to consider one positive for
GORO; the Pincock Allen Holt (PAH) 43-101 technical report noted that the company has so far
enjoyed positive grade correlation to the resource numbers and plant head numbers. It depends
on the metal, but the overall gold equivalent was calculated to be some 11.8% higher than
expected which means that on the whole, the resource is performing very closely to its undiluted
resource numbers and this effect has counteracted the assumed 20% mine dilution in the
original company mine plan. In other words, it’s a fair guesstimate to use the number in the 43-
101 resource as the actual head grade.
The second quarter production report and guidance
On July 19th GORO came out with its 2q12 production report and offered an unpleasant surprise
to its shareholders. Production had
dropped to just 14,488 oz AuEq (gold
production just 6,342 oz) and as a
result, guidance for the year was cut to
100,000 oz to 120,000 oz AuEq from
the previous 120,000 to 140,000 oz
AuEq. This bucket of cold water
resulted in a sharp sell-off of GORO
stock, as seen in this price chart and
yes, it’s not difficult to spot the day on
which the bad news came out, is it?
The reasons for this big miss, as
offered up by GORO, were interesting
too. In its July 19th NR the company
President Jason Reid was quoted (7)
as follows:
"Early development of the Arista mine, in which we drove straight to and developed directly on the veins,
was a means to rapidly feed ore to the mill and generate cash on an accelerated basis. The rapid
development on the veins, which enabled record first quarter production, pushed back overall mine
development into the second quarter including preparations for stoping from levels 7 to 10. Doing so
resulted in less second quarter production but has put the Company in a more sustainable production
position for the second half of 2012."
6

In other words, GORO had stuffed its early quarters with unsustainable production and had to
do something tantamount to stopping all stoping on the higher grading veins in order to pay for
its previous haste. More explanations were forthcoming (they came with the heavy doses of
spin but there was information underneath) in the 2q12 earnings report, the accompanying NR
(8) and also the conference call from GORO the day after it reported its financials. You can read
a transcript of that ConfCall on this link (9) and it’s a most interesting read too, because it’s solid
evidence of the type of sophistry preferred by the officers of this overhyped company. For
instance, it was proud of having returned a net profit and made particular mention of having
“banked $800,000” during 2q12, because they must think shareholders will be happy with an
extra $800k in cash despite the way current assets dropped by over $17m. Idiots abound.
But back to the mining issues during 2q12, and the main blame was levelled at more water
being encountered as the mine went deeper (wow, hoodathunkit?), more ventilation and power
therefore needed at depth (ditto) and “safety issues” as well. We of course applaud that GORO
puts safety first and prefers to cut back on production schedule to protect the wellbeing of its
workforce, but all the same the type of issues reported are hardly unexpected in a vein mine as
it opens up new and lower levels. It all smacks of a company that was desperate to please in its
first quarters of production and mining at a rate that they knew they wouldn’t be able to
maintain; the question is therefore why they chose to do things that way.
Guidance for 3q12 and beyond
Part of the 2q12 bad news was directed at guidance for the rest of the year and here we seem
to be hearing two stories at once from GORO. On the one hand the company was super-keen
to tell us that the problems were behind them, the stoping of the higher grade materials was
back on track and that things would be more sustainable in the second half of the year and
they’d “created the lead time needed” (gotta love that mining-speak). However, we were also
guided to 100k minimum AuEq production for 2012 which means a minimum production of just
55k oz AuEq for the second half of the year, what with 1h12 coming in at 45k oz AuEq. Ok fine,
they may have decided to go the UPOD (under-promise over-deliver) route for the rest of 2012,
get all bad news out of the way in one shot, etc, but we also note that in the ConfCall, when
pressed on the stopes then back in production the stoping is happening on two levels (7 & 8)
and simply being prepared on others (9 & 10). As GORO had been running at least three faces
at a time in its more profitable quarters (3q11 through 1q12) it suggests that things are still not
back to normal. We’re going to get better grades in 3q12 than we saw in 2q12, as long as we
can take the company’s words at face value, but we’re still not going to get the type of numbers
seen in the first part of 2012, that’s a certainty.
So to our forecasts for 3q12 (and in the conclusion section we make out case as to why 3q12 is
a key period for both the company and our proposed short position). Let’s start with tonnages
milled and although the mill isn’t likely to be running yet at its 900tpd capacity (CEO William
Reid full explanation of that is the
underperformance was “for various GORO: Tonnage mined per month
reasons”...very enlightening) we can 80000
expect GORO to post better 70000
throughput numbers than in the poor 60000
2q12. Our forecast 63,000 tonnes 50000
milled in 3q12 implies an average 40000
30000
daily throughput of 685tpd.
20000
10000
As grade is likely to increase with the
0
stoping material making up more of a
1q11 2q11 3q11 4q11 1q12 2q12 3q12est
percentage of the plant head material,
we’d fully expect better silver and gold source: GORO data, IKN ests (1q11 incl open pit & U/G)
produciton figures for this quarter.
However, we’re less interested in the amounts GORO produces and more interested in its sales
figures, because after inflating its 2q12 with inventory ounces we’d be mildly surprised if the
company can sell as much as it did without compromising itself further down the line. It’s tough
to make an accurate guess on GORO’s 3q12 numbers because it’s a small operation, so minor
production variations in a single mine/mill make a much bigger difference to a small mining
7
rtq
rep
sennot

company such as GORO than a big one like ABX (excuse me for not considering them ‘peers’).
Just as one example, indicated/inferred resources aren’t deeply understood (much less than
proven and probable by simple definition) so fluctuations and variation to what is expected
wouldn’t surprise. Any change in grade, pinch/swell, faulting, host rock type makes a difference
to a small mining operaiton such as this, or even something as prosaic as a machinery failure
can matter. Then on another tack company may again sell down inventory to inflate 3q12,
perhaps doable just one more time to paper over cracks. It’s not so likely but I wouldn’t put it
past them because of the baseline lack of trust that can be put in these people...which is
another another good reason why it’s a tough set of numbers to call.
But call them we will and to put my head on the block, after fiddling for hours with a spreadsheet
and finally deciding on a model that works to my general satisfaction here’s how we forcecast
the 3q12 sales at GORO (note, not production but sales):
• Gold: 6,200 oz (was 7,119 oz in 2q12 and 6,668 oz in 1q12)
• Silver: 650,000 oz (was 603,426 oz in 2q12 and 828,376 oz in 1q12)
• Copper: 200mt (was 186mt in 2q12 and 210mt in 1q12)
• Lead: 700mt (was 651 mt in 2q12 and 706mt in 1q12)
• Zinc: 2,000mt (was 2018mt in 2q12 and 2144mt in 1q12)
Of the five the most important in the mix is silver that accounts for over 50% of revenues, but as
they’re all payable production we make a list of them all and consider each one in our
calcuations. So with our production guesses in place we apply suitable market prices (3q12
averages for gold $1,700oz avg, silver $31/oz,
both pretty optimistic to give the company a
GORO: Quarterly Earnings overview
break to the upside, then other metals are minor 45
stuff anyway) subtract the typical amounts that 40
35
GORO leavs at the smelter gate (according to its
30
quarterlies we’re considering between 10% and
25
12% of gross...we’ll go for 10% to give the
20
company a break again) 15
10
We take a deeper look at the costs elements at 5
GORO in a moment and we also reiterate some 0
of the revenues expectations in the charts that
follow, so it’s all mixed in together between the
two sections. However, here’s how we anticipate
3q12 revenues to figure (revenues of $33m and COGS of $12m) with the resulting gross profit
figure as well. The general outlook is one that’s slightly better than 2q12 without knocking
anyone’s socks off, either.
Costs profile at GORO
We now look more closely at the subject of costs at GORO and before we get into it, let’s state
nice and clearly that it’s not easy to analyze this company’s costs profile. What we have is a
company that buries its costs parameters under ever-changing line items and makes it difficult
to get a handle on how much it needs to spend in order to produce and pounce of gold (well,
really it’s “gold equivalent”, because as noted previously this company can have the word Gold
in its corporate title but in fact receives a minority of its revenues from gold). The company of
course has the right to present financials in the way it sees fit as long as the methods comply
with the US rules for listed companies, but the lack of transparency as seen in these company
filings is one of your author’s favourite red flags; the basic rule is that people who have things to
hide will hide things, while people who are confident about their accountability will be fine about
making them as transparent and understandable as possible.
After due deliberation and chopping the numbers in several different ways, I’ve decided to
present the GORO costs in what I’m, going to call “true costs” for our purposes. The phrase
“true costs” (not going to put it between tedious speech marks from now on) tots up everything
spent by the company and taken as a financial liability as it produces its metal and includes a
whole list of things:
8
11q1 11q2 11q3 11q4 21q1 21q2 tse21q3
source: company filings, IKN ests
srallod
fo
snoillim
revenues
COGS
Gross profit

• Production costs, the money directly spent to mine and process its rock.
• Depreciation and amortization, pretty low because most exploraton and development
costs at the Aguila mine weren’t capitalized by GORO, so there’s less below ground
“value” to subtract as the rock comes out.
• Accretion, normally a low number, a minor line item.
• G&A, which holds all the normal office-type items but it also includes the very generous
stock-base compensation that GORO management hands to its key personnel (i.e.
itself), because the company sometime includes these stock awards in its G&A and
sometimes it doesn’t, an example of the obfuscating behaviour that can be witnessed in
its quarterlies. It’s almost as if they don’t want you to understand their financials...
(cough, ahem).
• Exploration expenses, mainly on its undeveloped properties, baseline studies of the
early stage projects etc.
• Construction and development, which seems to be a bit of a catch-all line item and
where GORO regieters monies spent on the upgrade of Arista (Aguila) veins, drilling to
turn inferred into indicated, infrastructure expenditures etc but being a P+L line means it
keeps balance sheet liabilities down.
So when we add all that lot up, we have the amount of money GORO spends on its ongoing
business before tax. We can then compares the amount of money it brings in via revenues to
the true costs amount, which looks like this in chart form:
GORO: Revenues vs "true costs"
U$m
45
40.622
40 37.781
revenues 35.438
35 "true costs" 33
30.01
30
25 20.664 20.514 22.522 22
20 13.940 15.908 15.269
15 11.28
9.127
10
5
0
1q11 2q11 3q11 4q11 1q12 2q12 3q12est
true costs = prod costs + deprec&amort+ accretion + G&A + stock
based compensation + expl expenses + construction & development
Here right is another way in which I’ve broken down the costs profile of GORO into components
and it may help see how the above true costs is
GORO: Costs breakdown
figured. The lion’s share of the deal is the classic
14
mining costs (COGS) but the other three all count,
too. What we see is a company that had very low 12
costs compared to its revenues in the period 3q11 10
to 1q12 when operating profit aggregated to over 8
$62m, over a buck per share and very good 6
money for just three quarters for a company this 4
size and of early age. However, the last quarter 2
saw both costs rising sharply and revenues drop 0
with the resulting squeeze on profits, as we can
see in the chart below (note in 4q11 GORO
benefitted from a one-off tax rebate that swelled
its quarter bottom line).
9
11q1 11q2 11q3 11q4 21q1 21q2 tse21q3
source: company data, IKN ests
m$U
COGS
G&A + stock comp
exploration
cons+dev

GORO: Operating Profit vs EBIT
50
45
40
35
30
25
20
15
10
5
0
1q11 2q11 3q11 4q11 1q12 2q12 3q12est
source: company filings, IKN ests
1
srallod
fo
snoillim
pre-tax profit
op profit
Another reason to cut and dice GORO costs into the so-called true costs is that it gives a better
straight line comparative on how much the
company needs to spend in order to process GORO: Revs/tonne vs True Cost/tonne
one tonne of its rock, which we can see here
right. It’s notable that despite some pretty
700
variable revenues numbers in its quarters so
600
far, GORO’s rock worth per tonne has been
500
fairly steady and only fluctuated with the
400
underlying prices of silver (its main revenue
generator). We see that 1q12, for example, 300
was a sweet spot for the company because 200
although metals prices had dropped away 100
from highs by then, the true costs per tonne 0
was at a low $203.38. As revenues from 1q11 2q11 3q11 4q11 1q12 2q12 3q12est
metals were at $541.06/t, this mean that source: company data, IKN calcs
GORO was running a very strong $337.69/t
margin on its operations, so the more tonnes it got through its mill the better the bottom line.
However, we note again how the wheels came off the machine in 2q12. The mining problems
faced by GORO in the last reported quarter, coupled with the amount of money it needed to
spend in the remedial process, saw margins sink to way below true costs and left the company
just $124.95/t to play with.
Let’s consider that 2q12 in a little more detail, as the propping up of results through excess
sales isn’t something that GORO will be able to get away with again. Here’s a little table that
shows how much of the GORO top line revenue in 2q12 came from sales of gold and silver
above and beyond the amount of metal actually produced by the company in the period:
GORO 2q12 revenues from inventory
Au produced (oz) 6,342
Au sold (oz) 7,119
realized price $1631
$ difference (m) $1.27m
Ag produced (oz) 487,053
Ag sold (oz) 603,426
realized price $27
$ difference (m) $3.14m
grand total extra $4.41m
$/t $73.58
source: GORO data, IKN calcs
By way of explanation:
• In 2q12 GORO produced 6,342 oz gold but sold 7,119 oz. As its average realized price
for gold in the period was $1,631/oz, this implies that GORO managed to add $1.27m to
its revenues from sales of gold inventory rather than sales of gold produced.
ennot/$U
revs per tonne
true cost per tonne
difference

• In 2q12 GORO produced 487,053 oz silver but sold 603,426 oz. As its average realized
price for silver in the period was $27/oz, this implies that GORO managed to add
$3.14m to its revenues from sales of silver inventory rather than sales of silver
produced.
• Therefore, GORO added $4.41m to its top-line revenues straight from inventory and
when you consider the amount of rock milled in the period, that adds up to $73.58 of
cash for every tonne milled. In other words 60% of its profit margin in 2q12 came from
inventory sales.
Indeed, when we check the balance sheet we see that in the lapse 1q12 to 2q12 filed
inventories dropped from $7.453m to $5.287m, a difference of $2.166m. As inventories are
usually carried at cost and our true costs per tonne have been averaging at or around half of
revenues per tonne, this makes sense. It’s also the kind of thing a mining company can do
once, perhaps twice max (with $5.3m left in the inventory tank there may be another bite at the
cherry left) but it’s no way to run a business, especially one that needs constant positive cash
flow from operations to fund its dividend policy of around $9.5m per quarter.
Which brings us neatly to our examination of GORO’s balance sheet and this is where the
rubber hits the road on this stock. As we’ve seen, the company’s mine is a profitable operation
under normal circumstances and the type of margins between true costs and total revenues that
it’s capable of achieving in a good quarter (see
GORO: Assets Breakdown per qtr
3q11, 4q11, 1q12) mean that there’s plenty of cash 150
flowing to the current assets. However, it also has
125
its financial obligations such as that dividend policy
100 so when a rough quarter happens, such as the one
we saw in 2q12, it shows up quickly in the balance 75
sheet items.
50
The other noticeable thing about GORO’s books is 25
the low asset costs assigned to its fixed assets, eg 0
the mine, mill and exploration projects. When it
coms to registering quarterly revenues this helps
the P+L, because GORO doesn’t have to subtract
so much for its amortization & depreciation (and
also because the mine is relatively young; for a good contrast check the numbers OceanaGold
(OGC) reports on these items for its New Zealand operations). The downside comes on the
balance, because it’s a company that doesn’t offer up much in the way of asset backbone to
justify its share price. GORO really is all about its cash flow and profit potential and is designed
to be that way; the reward for the shareholder or potential shareholder is holding a profitable
company that pays a dividend, rather than a company with strong asset value.
So to the chart and between 1q12 and 2q12, the GORO asset balance sheet (above) showed
some pretty big changes. Its bullion purchases were put on hold (that are held for those
shareholders who prefer to take their dividends in metal than in cash...another faddy thing of
theirs which doesn’t mean much because there’s nothing to stop you taking your dividends in
cahs and buying physical metal on the open market
afterwards) while its the cash position stayed more or
less the same, thanks to the trade-off between the profit
generated and the cash distributed via dividends. Fixed
assets dropped as little as the modest
depreciation/amortization took its slice, but the big drop
came in the “other current” section which was down by
a cool $17.8m and that’s where we turn our attention.
We’ve already noted that inventories dropped by
$2.166m between 1q12 and 2q12 (from $7.453m to
$5.287m) because GORO tapped into its store room
and sold silver and gold in order to inflate its revenues
1
01q4 11q1 11q2 11q3 11q4 21q1 21q2 tse21q3
source: company filings
srallod
fo
snoillim
Bullion
fixed
other current
cash&ST
U$m GORO: Accounts receivable
20 17.9
14.734 14.281
15
10 8.307
5
0
3q11 4q11 1q12 2q12
source: company filings

top line. That’s part of the story here, but the other, bigger part is that of accounts receiveable
and that looks like this (above) in tracking chart form. From accounts receivable in the $14m
ranges last year and a line item that went to $17.9m in 1q12, this suddenly dropped to just
$8.307m in 2q12, a difference of nearly $9.6m. This looks for all the world like a company that
rings round the people that owes it money in order to get the cash owed so that it can pay the
promised dividend. Again, it’s a strategy that will work once for a company in a tight spot and it’s
good for alleviating a sudden liquidity crunch brought on by an unpleasant surprise in its
operations, but it’s not the way you can run a
company over an extended period of time without
GORO: Debt Breakdown per qtr
changing attitudes towards its dividend policy. 40
35
Let’s shift to the liabilities held by GORO as seen in 30
this next chart. GORO builds up its corporate tax 25
liability through the financial year and then sees that 20
burden lifted, which was the case in 2012 as well 15
(though the obvious change between 1q12 and 2q12 10
is obscured by a VAT (sales tax) liability carried in 5
1q12 and then paid). That aside, what we can expect 0
from the company is a higher tax set-side in 3q12 that
will bring the total back up to around the $20m that
approaches the levels seen this time last year. It’s an
eminently manageable level of liabilities so let’s not
sound alarm bells where none are due but it does mean that working capital, which was already
under pressure in 2q12, is going to feel the pinch again in 3q12.
Here’s the working capital chart and this one is important folks, because GORO is a liquidity
machine that relies on a strongly profitable mining
operation to fund its business model. GORO does
not have the luxury of some other companies that
can throw in a weakly profitable quarter every now
and again and cut cash away from its bottom line
profits in order to fund an expensive round of
development or exploration work (for example, see
how Fortuna Silver (FVI.to) goes about its growth
and business model). GORO isn’t allowed to have a
weakly profitable quarter; it must have good,
profitable quarters every quarter and no excuses,
because it doesn’t have a whole heap of fixed
assets to back itself up and it has bills to pay such
as that $9.5m/qtr dividend policy that it trumpets
sans cesse. Look again at that working capital chart and consider that GORO declared a net
profit for the 2q12 quarter of $3.6m but saw its working capital drop by $5.5m to $63.7m. Then
consider that we expect GORO to file a profitable 3q12 as well (we’re giving its operations the
benefit of the doubt) but even so, still expect the company to see a trimming of its working
capital position to $60m.
Valuing GORO
We know that due to the corporate plan at GORO, which is to grow the company into a cash
flow machine that feeds dividends to shareholders rather than underlying asset value, the
company has a low book value and thanks to its profitability is able to demand a 12X multiple to
book. This is not and never will be a company that’s measured by what it owns, it’s a company
that has to be measured by what it does. That means making a bottom line profit and being able
to distribute that profit to its shareholders.
As we recognized in IKN168, GORO is overvalued compared to peers on a like-for-like basis. At
that time we used the two charts you see below (though now updated to reflect September 9th
valuations) and the inference is pretty clear; despite having a roughly equal production profile to
a true peer company such as Fortuna Silver (FVI.to) (FSM) which is mostly silver, works in
Oaxaca, produces gold as a minor product and base metals and a by-product credit, GORO
1
01q4 11q1 11q2 11q3 11q4 21q1 21q2 tse21q3
source: company filings, IKN ests
srallod
fo
snoillim
LT debt
current debt
GORO: Working Capital per qtr
80
70
60
50
40
30
20
10
0
01q4 11q1 11q2 11q3 11q4 21q1 21q2 tse21q3
source company filings, IKN ests
srallod
fo
snoillim

gets a much, higher market cap valuation. It’s even called as worth more than Rio Alto, despite
that company’s far stronger track record of production, profit and delivery on promises.
Market Caps FVI, GORO, RIO, end 2q12 and now
1600 1372
1400 1130
1200
1000 884 800 706 651
600 435
400
200
0
end 2q12 now
source: Yahoo! Finance data, IKN calcs
Therefore, when we ask what the difference is with GORO, the answer must be in the way it
goes about its promotion and shareholder attitude which all points to one thing, the different
thing it does, the dividend. People like the fact that they’re due to pick up 72c this year via a 6c
payment every month (even though the dividends are now taxable in the United States)
Its monthly dividend has risen incrementally to the current 6c/month and the problem GORO
now faces is that the dividend is a rod for its own back; it only takes a cursory look at the way in
which it raided the sweet jar in 2q12, pulling in those accounts receivable and selling into its
inventories, to see that it knows just how much depends on the company’s unique selling point,
the junior that gives the dividend. The logical conclusion is that if GORO has to cut or suspend
the dividend it will be in share price problems.
How much of a problem is it, though? This chart shows the EBIT per share levels filed by
GORO in the last few quarters, plus our forecast
EBIT/share for 3q12. When it was putting in
46c/share and 44c/share performances on the
back of solid production, low costs and strong
market prices all was fine with the world, but with
the bad production results of 2q12 and the new
guidance, we’re only now expecting 21c/share
even with our reasonably generous silver and gold
average prices assumed for the current quarter in
our model. That would be an annualized 84c or a
Price/EBIT ratio of over 25X, perhaps triple the
multiple usually allowed to this size of company (or
any size for that matter). We are reasonably
confident that GORO can keep itself running
profitably for the rest of 2012 but it now all
depends on the amount of profit it can generate.
• The first thing it needs to do, first and foremost, is cover its dividend obligations with
cash flow and by our model that’s not going to happen in 3q12.
• Even then, if it manages to get to $9.5m it’s only running to stand still, to pay that
dividend and with nothing left for its internal, corporate plans. This begs the question of
just how GORO expects to open up its next mine, run a more aggressive exploration
campaign and add value to the company as an asset. Working capital needs to rise in
order to justify its plans, not drop as we’re expecting.
The bottom line question is just how long GORO can keep paying its dividend. With $45m cash
at bank and $9.5m cash to pay each quarter, the answer is that in theory (and if it went on long
enough the theories expounded and made popular by certain Charles Ponzi would begin to be
considered) at least it can carry on for a three or even four quarters even if its operations hit
1
pac
tekram
m$U
"Gold Equivalent" production at Fortuna Silver
(FVI.to)(FSM) Gold Resource Corp (GORO) and Rio
Alto (RIO.to)
FVI.to 70000
FVI AuEq GORO 60000
GORO AuEq RIO.to 50000 RIO AuEq
40000
30000
20000
10000
0
4q11 1q12 2q12
source: company filings, IKN calcs
GORO: EBIT/share
0.50
0.40
0.30
0.20
0.10
0.00
11q1 11q2 11q3 11q4 21q1 21q2 tse21q3
source: company filings, IKN ests
)O/S
m35
ta(
erahs/$

glitches and the mine merely breaks even, but reality states that GORO will at some point have
to protect its core business by keeping its own cash position intact and not running down its
working capital, especially as it holds no particular value to its fixed assets (mine, mill etc). And
even if the company fails to recognize a little bit of reality at the end of this quarter, the market
will surely be less forgiving and anticipate the end of the dividend bonanza. We’ve considered
the recent weak points at GORO and the revised forecast that aims for a production
improvement from the weak 2q12. But we’ve also taken in the revenue and costs breakdowns
as well as examining the balance sheet details of the company in order to see just where the
weaknesses manifest themselves. What we see is a company that’s going to make a profit as
long as it performs to company expectations, but even then in 3q12 we expect it to register a
net profit of $7m, below the $9.5m “running to stand still” level. It can of course sell a few more
jewels to cover the difference, but we’ll again see that in a deteriorating asset and working
capital position. Meanwhile, its smaller than you’d expect El Aguila resource is further depleted
and the remaining inferred gold at lower grade brings a new level of uncertainty into the picture.
GORO will be fine and will confound its critics (count me in) if it can move back up to 120k oz
AuEq for 2012 and cut its costs profile back down to the place where it was during last year’s
sweet spot. It will be even better if it can deliver on its forecast of reaching 200k AuEq by 2013
or 2014 (it used to be 2013, nowadays they seem far more reluctant to commit) but this brings
me to my final point about GORO, that it’s management are unreliable, promise more than they
deliver and have a long-standing tendency to fudge, revise and lower expectations after-the-
fact. Not only have the pie-in-the-sky zero cash cost predictions for GORO never materialized,
but they’re also pretty self-serving, as witnessed by the events of May 10th 2012, forty days into
the 90 days of 2q12 when the company reaffirmed its 2012 production guidance of 120k to 140k
oz AuEq and on that very same day, Chair/CEO William W. Reid sold (9) 366,054 of his shares
on the open market (the price that day was between $25 amd $25.72). We later learned that the
2q12 had been a production disaster and when that information was made public the share
price dropped by over 30% on very high relative volume. In the 2q12 confcall Reid defended his
sales by saying they were for “State planning purposes” and a disposition by gift but whatever
that might really mean you can’t help but applaud the timing of his selling considering what he
must have known about 2q12 by that time. That’s just one example and for another, consider
the near $19m expended by GORO in G&A+stock in the last four quarters. That’s a lot of G&A,
so a closer breakdown of that number would be interestingbut all we get from the filings is that
the increases are, “...due to an increase in stockbased compensation expense, salaries and
benefits and professional consulting fees.”. Much on entertainment, guys?
GORO is the junior mining version of Christian Andersen story, The Emperor’s New Clothes. In
that story, the truth was masked by flattery and the refusal to look stupid by stating the obvious.
In this one, the truth is hidden by a flimsy and apparently unsustainable dividend policy that will
either have to be dismantled, will drain treasury away from the company or in the best of cases
will inhibit the company by taking away the type of cash treasury it needs to run with its
expansion plans. The current resource is seeing the best of its rock mined away and it’s
uncertain whether what’s left will be able to offering the same type of margins. If I were GORO
management I’d be itching to run a secondary offering at this point to try and lock in some of the
overinflated equity value into treasury, sell some expensive shares to the greater fool and
guarantee liquidity, but that will also come at the cost of dilution and lowered dividends for its
current holders as well as going against the whole ostensible company ethos of being the
shareholder-friendliest thing out there.
Its 2q12 results were a bad surprise for its shareholders,but the underlying problems that
caused the sudden stop aren’t going away soon. Costs are bound to rise from the 2012 levels
and with indications that the best of the indicated resource is now being mined out, the case for
the GORO business model now lies in the hands of the spot prices for silver and gold. If they go
up GORO gets safe as all boats rise (aside: your author will be floating in other boats) but what
we’ve already seen this year is the flimsiness of the business model being used; if the whole
plan depends on depleting current assets in order to pay dividends, you’re on a road to nowhere
as a company and the multiples to earnings you’re affording will be quickly crushed.
As for a formal valuation and target on GORO I will not try to pull the wool over your eyes on
this and cook up some chart with a nominal target reached in some scientifically pleasing
1

mathematical manner. What I do know is that the GORO of today is significantly overvalued and
that by way of a reasonable estimate, taking into consideration that things may go better or
worse for the company than I expect or that it might reduce its dividend in the face of a
mediocre 3q12 instead of suspending it completely (to name just two variants among a
thousand), I’d estimate a downside price target at between $12 and $14 today, representing a
market cap of up to $742m at today’s 53m share count and a downside to the first target of
34%. I’m not calling death and complete to-zero destruction on GORO because as long as it
performs at a reasonably close level to its officers’ guidances it will to be a profitable company
in the medium-term, just not enough to justify its current valuation or its growth and reward
plans for the future. Reasonably profitable won’t be able to pay the bills, pay its dividends, its
expansion and justify the current share price, but even then we’re trusting (for want of a better
word) a management team that talks a better game than it plays so the chances of a bonus to
any short position, that of a black swan event, are always in the mix too.
Trade envisaged
After the action of last week that saw a whole lot of other junior miners lift on the back of Fed
chair Bernanke’s comments, the price levels at GORO went to what I consider a very
overvalued level, not just overvalued. I’m expecting a little follow-on in the goodwill next week
and as GORO is at the knee-jerk end of the junior gold market, it’s likely to beneifit a little further
from the action. There’s also the small matter of the stock going ex-dividend at the end of
trading tomorrow, September 10th, when anyone short will have to pay 6c to their long
counterparty. Big deal. So overall and taking it all into conisderation, the plan is:
1) To go short GORO (as it’s a US listed stock and a short pool is usually available, that
should be fairly straightforward) at some point between now and Wednesday. The ex-
divi date is of little consequence to my trade plans, frankly.
2) I plan to hold the GORO short until at least mid-October when the 3q12 production
results are announced by GORO.
3) From there and depending on the market reaction, I will hold for the 3q12 earnings
report that should turn up in mid-November.
4) At that point, I will likely close the position be it a win or a loss. But it will be a win.
In other words, my short in GORO is planned as a near-term trade. It’s also something of a
hedge against the current strong positive sentiment towards gold and its ilk that’s suddenly
sprung, but the bottom line is that my short position in GORO as of next week is more company-
specific than anything else. The financials show that the company has painted itself into a
corner with tis dividend policy and in 2q12 obviously felt obliged to keep paying out, else face
the wrath of its holders. However, to use another old saying you can’t have your cake and eat it,
so if the plan is to distribute earnings through dividends, what does a small and eager to grow
mining company do for investment cash? In a best-case situaton GORO will chop its divi while
my short is uncovered and the resulting price dive fulfills the plan, but even if that isn’t so, I
expect the market will eventually cotton on to the financial weak GORO business plan and
position itself for the eventual dividend demise. The drop if so will be gentle rather than violent,
but it will do just fine too.
End of Report
Stocks to Follow
On the week we saw nine of our open ‘Stocks to Follow’ make gains (not going to list them all,
do it by deduction if you care enough), one stock remain unchanged (FCV.v) and two stocks
lose ground (PLA.v, AQM.v). Of the winnners, the best upmoves were put in by Lara Exploration
(LRA.v up 26.0%) and Minera IRL (IRL.to up 12.5%), while the biggest lower was Plata Latina
(PLA.v down 23.7%). It was a good week all told, let it be the first of many (please Ben).
We currently have 12 open positions on our list, three less than our self-imposed maximum.
Five are in the green, seven 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$5.09 149.5% $6.29 tgt
Recommends
Vena Resources VEM.to hold C$0.35 31-may-09 C$0.16 -54.3% target lowered to 21c
Sunward Res SWD.to hold C$1.47 13-mar-11 C$1.38 -6.1% considering sale
Lupaka Gold LPK.to hold C$1.12 23-oct-11 C$0.59 -47.3% considering sale
Bear Creek Min. BCM.v buy C$3.29 07-nov-11 C$3.12 -5.2% holding through
Yellowhead Min. YMI.to buy C$1.00 01-apr-12 C$0.73 -27.0% good value under $1
Lara Expl. LRA.v hold C$1.15 08-apr-12 C$1.31 13.9% solid biz model, LT hold
Plata Latina PLA.v hold C$0.79 10-apr-12 C$0.29 -63.3% considering sale
Minera IRL IRL.to buy C$0.65 22-jul-12 C$0.72 10.8% $1.56 tgt added more
Smaller/Riskier
AQM Copper AQM.v hold C$0.31 16-oct-11 C$0.16 -48.4% considering sale
Strait Minerals SRD.v hold C$0.125 09-dec-11 C$0.14 12.0% 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 sep'12 C$1.07 03-may-09 C$5.13 379.4% sell call $6.17/ Mar25
2009, 2010 and 2011 closed positions in appendices below
Now for some notes on a selection of the above stocks.
Fortuna Silver (FVI.to): Position closed. I sold around 45% of my total position in three
separate tranches with the first going when FVI clicked through $5 and the others at $5.12 and
$5.20. I’m still not done selling but having waited nearly six months (!!) for a reasonable selling
level to show up, it’s time to mark a close to this position and set a price in stone in the above
table. I hope to sell the remaining shares at higher prices (well, obviously) but for the time
being, this is a good enough place for our purposes. It also means I have a decent wedge of
cash to play with (that gets even bigger if the rest of my FVI position goes under the hammer
in the days or weeks to come) which is a good thing and gives me more flexibility to trade in
the way I’m looking to do for the rest of 2012, so expect more buy/sell action to be reported on
these pages than the normal slow, snail’s pace stuff you may be used to, starting with...
Vena Resources (VEM.to): Added. I put some money where some mouth is and bought a
small chunk of VEM at 15.5c last week as a short-term trade. Because of the circumstances of
the trade I’ve decided not to alter the cost average position in the above table and will keep
this new piece as a separate trade, but of course in the end it’s all one large bag and in order to
reduce overall losses in the stock. We had no news from VEM about the expected asset disposal
(again, the situation laid out in IKN174 last week after discussions with management) which for
me suggests good things rather than bad; zinc’s suddenly up to 87c/lb and there may be a
better deal on the table, or VEM finding a bit of strength from which it can negotiate. Also
noticeable was the action on the BVL, which was lower volume (~100k shares/day over the five
days) but still a lot better than Canada trading and also with a clear buyer any time U$0.15
1

showed up, a solid looking baseline. Be clear that the new reduced 21c price target is set and if
we see it I’m a seller, but I see no reason why I can’t run a small side-trade on the expectation
that VEM is going to sort out its balance sheet woes in the near term and get the resulting love
from the market.
Minera IRL (IRL.to): Added. A good week for IRL with news, volume and even some
reasonable trade on the Canadian
ticker. First we note the bump in
volume on Tuesday morning when a
few bargain hunters moved in
(include your author, who added
that day at a very nice price and
has even managed to click down
the cost average on the above chart
by a penny as a result). Then on
Tuesday afternoon Desjardins
opened up coverage on IRL and
that note found its way to your
mailboxes on Wednesday morning
via the Flash update (see appendix
1 below). It was a good report
(better than the same author on
RIO, see below) and the resulting interest seems to have caused the buying blob on
Wednesday morning as well.
Then pre-bell Thursday IRL released news (11) of a new mineralized zone at it Don Nicolas
project in Argentina. As we’ve mentioned previously Don Nicolas is a) a very big concession b)
full of interesting targets for IRL to explore and c) expected to grow in resource size by
company management, so the NR out last week went a long way in confirming the promise
there. The eyecatching parts of the story are that it’s a new zone, that the drills deployed there
hit numbers such as 6.7m of 10.5 g/t gold and 19.8 g/t silver, 6.1m of 5.43 g/t gold and 27.6
g/t silver, and 11.1m of 5.38 g/t gold and 5.26 g/t silver (strong numbers by anyone’s
reckoning) and that the new discovery is located about a mile from the planned mill at Don
Nicolas that’s currently waiting for its permits to arrive. Put all that together and the company’s
insistence that the plant to be built at Don Nicolas will have a much longer mine life than the
3.6 years in the feas study makes an awful lot of sense.
Cut to Friday and IRL found itself boosted with the rest of the market, but although it saw 80c
early on it was too far too fast for the stock on low volumes, so it dropped back before the
finish. That’s fine, it just means there’s more room to go up this week coming ☺.
Rio Alto (RIO.to): On the same day Desjardins reported on Minera IRL (IRL.to) (sent as a
Flash update pre-bell Wednesday
morning, see appendix 1), Tuesday
afternoon Sept 4th, the same house
also sent out a initiating report on RIO
which said the company was going
great guns but the share price had all
the value already baked in and they
didn’t see much upside left. The
Desjardins bottom line call on RIO was
therefore ‘hold’ and an initial $4.50
target price. That Desjardins report
may have been the cause of RIO price
weakness late Tuesday and
Wednesday (see chart) and from
feelers put out that day I strongly
suspect that to be the case. However,
1

the weakness didn’t last long as we can see and RIO finished the week rallying with the rest of
them to close Friday at new all-time highs.
It’s not my fault that Desjardins is late to the party. Not my fault that they’ve mis-called the
target here by nearly two dollars. And it’s not my fault that Adam Melnyk prefers to imagine
unlikely case political/social risks than rely on track records and hard evidence. The bottom line
is that I don’t know whether Desjardins has its own second-agenda reasons to undervalue RIO,
but I know the report doesn’t do the company much justice. That catty enough for you? If not,
see Regional Politics below...
Focus Ventures (FCV.v): FCV announced (12) that it was booting the expiry date of those
30c warrants that are kind-of overhanging the stock price forward by a year, which is a bit of a
pain. On the other hand, Cass & Co might be wildly optimistic that the next news to hit the
market will see the stock surge and want those warrants to become guaranteed treasury
without all that fuss of runing placements, but overall I doubt that second scenario and
consider the decision to keep that overhang in place a negative for us retailers. I wish
companies wouldn’t do that stuff.
Sunward Resources (SWD.to): A bit of news and a bit of positive overall price movement
(for a change) on modest volume, which isn’t bad considering the doldrums it’s been in for
weeks. The company announced a new drill at the main Cerro Vetas zone of Titiribi (13) (note;
SWD made a numbers error in the first NR and quickly corrected things the next day (14),
having made AuEq numbers the same as Au numbers in the first NR) and then went on to drop
very strong hints about its development plans for the large site area. The whole thing now
seems to be aimed at a staged construction at Titiribi that would use the best-understood and
largest (so far) resource at Cerro Vetas to get production rolling at a reduced capex cost. That
makes sense and we’d then see SWD (or whoever owns it by then) scaling up production and
using cash flow to fund further growth. The next stage will be to work the resource numbers
and studies done so far into a scoping study (PEA) that gives us a handle on what a mine would
cost at the site, be it a fully grown one to begin with or a scaling-in option which now seems
more likely.
Bear Creek (BCM.v): This comparative chart shows the trajectory of both silver (via the ETF
SLV) and BCM in the last six
months, the time it’s taken for
silver to get back to $33/oz and
level pegging. BCM rallied
somewhat and for a while in early
July, but apart from that light relief
it was pretty dire stuff until mid-
August and the relief rally that now
has the stock firmly above $3. I’m
glad to see BCM holding above $3,
but still fully aware that it
continues to be dirt cheap when
one considers the quality and
advanced state of the Corani
project. There’s no reason why this
can’t rally further and I’m a strong
holder of BCM at these prices,
perhaps even an potential additon on weakness.
Strait Minerals (SRD.v): It was good to see SRD hang onto its strong gains of the previous
week and on bits and pieces of volume too (it actually traded on every single day last week,
which isn’t bad; you have to start somewhere, guys).
1

Lupaka Gold (LPK.to): News at last from the LPK drill program and it’s a pretty good start to
the autumn 2012 newsflow, too. There are three things to like about Thursday’s NR (15) for my
money at least:
1) The outstep holes to the North end of the main A-1 zone came in with much better gold
grades than the average in the rump of the deposit and its target. The widths are less
but numbers of up to 7.29 g/t Au over 18m (DDH-54) more than makes up for that
(after all, that’s the gold content equivalent of 90m at 1.45 g/t Au which sits up there
with the best of the middle part of A-1. We aloso like that decent higher grades of the
same ilk were hit by other holes on that end of A-1 (DDH-55 and DDH-56), suggesting
that the best intercept was no fluke. This mineralization isn’t at surface or near surface
like the middle part of A-1, but the grade makes up for that.
2) The outstepping continues to the North end of A-1 and keeps hitting good rock. At a
best guess I’d say that the new holes have added perhaps 150,000 oz au to the overall
resource count at A-1 which would put us just under or just over 2m oz Au if my
guesstimate were added to the current 43-101 resource count (depending on whether
you use the capped or uncapped number at the 0.4 g/t cut-off9. There’s something
about 2m oz Au that catches people’s attention and the way in which those holes hit
strong grades suggests there’s more to come from the North end of A-1
3) The company has confirmed that it’s now drilling the Chaska zone of Crucero, which is
the part of the concession that has a decent shot at giving us a new discovery and
adding big ounces to the resource if things work out well. Of course LPK still has to hit
something with the diamond rig there so there’s no guarantees, but at least we’ll begin
to get an idea of the target’s potential sooner rather than later. All eyes on those
Chaska drill results when they come out, ladies and gentlemen, because the whole plan
here is that A-1 holds enough to justify the share price and Chaska is the potential
gravy...or bigtime gravy.
However, there’s bad news in the NR as well; namely that the company is still keen on merging
with Andean American (AAG.v), which
isn’t surprising but worth a mention all
the same. I can’t help but feel that
with the NR, the reaction and the way
in which the market has suddenly
picked up, the corporate strategy has
left a lot of money...a lot of my
money...in the hands of AAG holders
and/or post-merger announcement
bargain hunters (who started to show
up last week). No matter, even with
the ill-thought out merger between the
two companies and the near-worthless
assets that AAG has brought into the
mix along with its cash treasury, LPK
has seen itself beaten down far too
much and should be good for a
rebound in the near-term. The real
acid test will come on the day it
reveals numbers for Chaska, though.
That’s the place your naively hopeful
author looks to for his salvation.
The Copper Basket
After thirty-six weeks of 2012 The Copper Basket is showing a 37.60% loss to level stakes.
1

company ticker price 1/1/12 Shares out Market Cap current pps gain/loss%
1 Copper Fox CUU.v 1.15 387.97 477.20 1.23 7.0%
2 Lumina Copper LCC.v 13.19 40.7 386.65 9.50 -28.0%
3 Augusta Res AZC.to 3.17 144.1 376.10 2.61 -17.7%
4 Nevada Copper NCU.to 5.18 72.8 206.75 2.84 -45.2%
5 Western Copper WRN.to 1.58 93.28 83.95 0.90 -43.0%
6 Candente Copper DNT.to 0.97 121.67 71.79 0.59 -39.2%
7 Regulus Res REG.v 1.24 99.88 49.94 0.50 -59.7%
8 Baja Mining BAJ.to 0.80 338.5 42.31 0.125 -84.4%
9 Yellowhead Min. YMI.to 0.80 52.82 38.56 0.73 -8.8%
10 AQM Copper AQM.v 0.39 105.6 16.90 0.16 -59.0%
11 Duran Ventures DRV.v 0.18 184.72 16.62 0.090 -50.0%
12 Catalyst Copper CCY.v 0.08 274.48 16.47 0.06 -25.0%
13 Excelsior Min MIN.v 0.63 56.12 14.59 0.26 -58.7%
14 Crazy Horse CZH.v 0.35 62 11.78 0.19 -45.7%
15 Strait Minerals SRD.v 0.150 56.86 7.96 0.14 -6.7%
Portfolio avg -37.60%
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.
The Copper Basket saw a sixth straight week of average gains, adding 1.17% to the average
and keeping the winning streak intact.
However it wasn’t a knockdown week
and the difference between precious 20% Copper Basket 2012 average, weekly
15%
metals performance (largely our Stocks 10%
5%
to Follow list) and the industrials is still
0%
significant. Since last week nine stocks -5%
-10%
made gains (LCC.v, NCU.to, DNT.to,
-15%
REG.v YMI.to, DRV.v, CZH.v, CCY.v, -20%
-25%
SRD.v) with the best moves down at the -30%
-35%
tiny, beaten end of the list through
-40%
Catalyst Copper (CCY.v up 20.0%) and -45%
-50%
Crazy Horse (CZH.v), while of the six
losers (CUU.v, AZC.to, BAJ.to, WRN.to,
AQM.v, MIN.v) the biggest drop was in
Excelsior Mining (MIN.v down 18.8%).
So overall a positive week, but it’s worth
noting that COPX (the copper producer ETF) rallied 10% last week and was no less than 7%
last Friday alone (16) on the back of the big, Bernanke/jobs number/Draghi fuelled move in the
market price for copper, so it’s fair to say that copper producers are still seeing better action
than copper explorers.
We move to our continued tracking of copper inventory statistics. The headline numbers for
copper were positive, as world inventories dropped 4.9% to stand at 412,914mt (down a
chunky 21,363mt). The biggest part of that drop was the 6.1% reducation in LME warehouse
holdings (13,950mt) and all but one hundred tonnes of that big LME drop was registered in
exits from their Asian warehouses (US and European warehouse levels hardly changed at all).
However, this time Shanghai Futures Exchange warehouses also dropped by 6,992mt (-4.4%,
to 151,073mt) and Comex inventories were down by 0.9% as well. The signs all point to a big
inventory drawdown in Asia and that can’t be a bad thing at all.
2
ht8naj ht51 dn22 ht92 ht5bef ht21 ht91 ht62 ht4ram ht11 ht81 ht52 ts1rpa ht8 ht51 dn22 ht92 ht6yam ht31 ht02 ht72 dr3nuj ht01 ht71 ht42 ts1luj ht8 ht51 dn22 ht92 ht5gua ht21 ht91 ht62 dn2pes ht9
source: IKN Weekly calcs, TSX
2102/1/1
morf
egnahc
%

Still, there is a dataset that points to a negative for copper and it’s worth considering that in
order to calm ourselves a little, after all that bulish
action. As we pointed out in IKN173, cancelled
warrants percentages have been a pretty good
indicator of price action during 2012 and last week
they took a dip to finish Friday at 13.78% of of LME
inventories. That’s 2.28% down on this time last
week and a trend is starting to show itself there, as
the tracking chart suggests. This isn’t one to
immediately trade on and use as an excuse to go
short copper immediately, but the next couple of
weeks in cancelled warrants will be worth watching
carefully and if the number goes under 10% (for
want of a better benchmark), copper may do
something nasty and reverse on us. On that score,
we note with interest that China is due to publish its
closely followed industrial production numbers next
week, along with other macro trackers such as its
trade balance and retail sales.
So overall the copper market action was clearly bullish last week, but there are medium-term
indicators that we’d want to see go the way of the bulls before really getting hot and sweaty
about copper in the last quarter of 2012.
Cancelled Warrants at LME, IKN157 to date
35% 31.91%
30%
19.81%
2
2
0
5
%
% 21.91
1
%
6.21%
20.89%20.67%
19.10 16 % .0016%.40 18 % .39 16 % .06%
13.76% 13.78%
15% 11.07% 11.591%1.721%0.81%
8.71%
10% 6.87%
5%
0%
2
751NKI 851NKI 951NKI 061NKI 161NKI 261NKI 361NKI 461NKI 561NKI 661NKI 761NKI 861NKI 961NKI 071NKI 171NKI 271NKI 371NKI 471NKI 571NKI
source: Cochilco, LME
rof
yrotnevni
EML
%
latot
yreviled
resu-dne
Now for an update on just one basket company this week:
Nevada Copper (NCU.to): NCU came on with the full-court press for the post-Labor Day
headline grabbing period and was rewarded with a price rally that saw the stock trade with a
3-handle for the first time in a long time before a small fade later Friday. The PR campaign was
backed up by plenty of institutional and brokerage support as well and the net result was
enough to get mails coming on from plenty of you guys out there asking for a renewed opinion
on the stock and whether it was worth a buy in the high $2s/early $3s. The answer is yes on
the value scale (as long as it gets sold to the highest bidder of course) but even in the new
found optimism of this junior market I’m not chasing any name and want them cheap and
under the radar, not talked about and already risen.
Anyway, to the news and on September 5th we were told (16) that the NCU head honchos were
going to accompany Nevada Governor Brian Sandoval on his trade mission to China and South
Korea, with the obvious underlying message that Pumpkin Hollow would be presented to their
hosts as buyable material while they listened to the governor promise political, legal and social
support for those who went to Nevada and created jobs, etc. Then hot on the heels of that
news came NCU’s new 43-101 resource re-count (18) that has added a very decent 1.1Bn lbs
Cu M+I to the Western deposits at Pumpkin Hollow which is a good resource upgrade and
that’s no BS. All that, and China has just approved $157Bn in infrastructure projects (19) means

we’re going to have to review and perhaps cover NCU again soon folks, exploration property or
not.
What could possibly go wrong?
Well, this might (20). With due thanks given to MM for the link, we read last week about the
dissenting voices amongst locals for the Pumpkin Hollow plan and opposition to the conveyance
of permits through Senate (that’s scheduled to make a decision some time next year). Senator
Harry Reid wants to add a a conservation measure to the legislation that will allow for a
wilderness area next to the Pumpkin Hollow project which is where, according to the local
expert cited, things might get out of control. He says that the naysayers are bound to turn up
to oppose the development of Pumpin Hollow but it also seems that the wilderness project is
itself a potential threat, as it’s the type of earmark that might spin out of control if not careful
and eventually attract opposition to the whole mine-plus-conservation area package. As always
in these stories, we need to be on the look out for the things that might go wrong and this has
the potential to be one, especially as we move into the hot months of a US election year.
Regional politics
Venezuela: One month to go before the Presidential election
The Hugo Chávez vs Henrique Capriles vote scheduled for October 7th is just one month away
and although there are plenty of biased reporters, biased polls and biased and commentators
who want you to believe their prejudices on both sides of the fence, when a reasonable step or
two is taken back from the growing noise levels all signs are that Hugo Chávez is still favourite
for the win, like it or not.
It is admittedly difficult to follow the contest, not least because the polling studies tend to come
from bureau with close affiliations to either candidate. The pro-Hugo pollsters have a very
simple strategy of posting their man in a 15 point, or 20 point or 30 point lead, meanwhile the
pro-Henrique polls tend towards the line of “it’s very tight” or “much tighter than the
government wants to make out”. Your author therefore and once again moves to his fallback
position of trusting the best-of-a-bad-bunch Datanálisis more than any other polling company.
Peru: Shougang workers to strike, IKN to rant
The good thing about having so much ignorance about the Peruvian mining scene is that there
is and will continue to be commentary from apparently influential voices that will insist the
country’s junior mining sector is not a good place for investment. That abjectly stupid people
continue with their abject stupidity is an advantage for the rest of us, because they’ll let us get
on at great value prices and only jump on the
bandwagon late in the game, which would probably
Shougang Iron Ore Production '09 to date
turn out to be a great moment to take profits. 1000000
800000
The other good thing about their ignorance is that it
600000
will continue to be fed by news reports and
occurances that will allow them to carry on making 400000
blind, sweeping and abjectly stupid assumptions,
200000
for example when the strike at the Shougang iron
ore mine on the South coast of the country starts 0
later this month (21). Headlines are bound to be
grabbed by this work stoppoage of around 1,000
employees demanding an extra 10 Nuevo Soles
(U$3.85) per day (management has offered them
2) and bound to be jumped upon by those who’ll use it as an example of the unstable situation
in the country. The facts are more prosaic than anything indicative of deep unrest in Peru’s
mining industry, as the relationship between Shougang’s workers and management has been a
sour one for years and the way in which the Chinese capital owners treat their workers falls far
2
90naj yam pes 01naj yam pes 11naj yam pes 21naj yam
mt
source: MEM

short of world standards. This is a specific case and not a trend-setter, but that won’t stop the
dumb end of the chattering brigade from telling you otherwise.
Peru is not a perfect country for mining or exploration. There are always going to be specific
hold-ups and problems faced by mining countries anywhere in the world and in the case of
Peru, headlines are grabbed by Cajamarca are then used to magnify other cases of unrest. No,
Peru is not a perfect country for mining, no country is in fact, but Peru is a very good one as
long as you know where you are and with whom you’re dealing. The kind of bullshit written by
Adam Melnyk on Rio Alto last week is a case in point of somebody looking to justify their own
prejudices in order to make a point. Nobody will remember his stupidity two or three years
down the lline when the La Arena sulphide operation is successfully permitted and under
construction either. Anyway, rant over.
Argentina Mining 2012
Argentina’s mining industry had its big annual bash in Salta last week (22), as the Argentina
Mining 2012 attracted 400 stalls, 3,000 attendants and all the expected minng bigwigs from
Ministry and local regional politics too. As is usual in these events there was a lot of self-
congratulation without much real substance and that’s all right i suppose (Minister Jorge
Mayoral is pleased (23) that there has been 3.5m metres of exploratory drilling in 2011 and
2012 to date) but perhaps the most interesting moments came from governors of the OFEMI
group of pro-mining provinces, who generally made staunch defences of their approval to
mining and threw barbs at “those in Buenos Aires who wear gold rings, use iPhones, copper
cables for their TVs and then try and tell us what to do”. I’d like to report more than a few
sound bites from the event, but sadly that’s all there really was. No deals, lots of photos of
politicians wearing hard hats indoors.
Market Watching
We find ourselves in the hands of big macro market movements at the moment and although
I’m very happy to report, for once, that those large tides seem to be moving in favour of junior
mining companies I’m also fully aware that anything that’s said in Market Watching this week
away from the general themes is not much more than picking and choosing an individually
preferred story rather than homing in on something that’s moving by itself. So this week we’ll
keep this section relatively short.
The Colorado Precious Metals Summit and corporate presentations
Last Wednesday through Friday (Sept 5th to 7th) a sizeable number of junior mining world
names were assembled at the Park Hyatt Beaver Creek, Vail CO for the Precious Metals Summit
there. This is drawn to you attention because the website lists the names that spoke there and
also gives easy-to-download links to the corporate presentations that were seen during the
conference. As long as I’ve counted them up correctly, no fewer than 87 junor mining
companies had their presentation slot with names that include companies we follow closely,
from the producer and explorer world. Check out the full list here (24) for the ones that catch
your fancy and then go to the presentations page here (25) (that link is to the day 3 names,
but days 1 and 2 are also easilt accessed from there) to download and read through your
preferred material. A useful one-stop palce for up-to-date corporate material and thanks due to
several readers who forwarded the links to your author, much appreciated.
An Endeavour Mining (EDV.to) comment
Apart from OceanaGold (OGC.to), the most popular general request I’ve received since opening
the floor for suggestions on junior producers outside of LatAm is Endeavour Mining (EDV.to).
This short segment is to thank all of those (and there have been at least half a dozen of you)
for the headsup but after due consideration it’s not going to make feature here as an open
position.
2

I agree with the general consesnus that it’s done a good turnaround, has become financially
more interesting in the last 12 months (approx) and the move by EDV (26) to buy out Avion
Gold (AVN.to) in an all-paper deal to create (or at least they say) a 300,000 oz Au per year
mining company makes business sense for the parties involved.
The problem is simply geography. As
stated when making the move and
changing emphasis at the weekly, I’m
happy to consider world locations outside
of LatAm that have a reasonably good
political risk aspect and the plain fact is
that I do not know anything about the
countries in which EDV and AVN operate.
Ok, I do know a little bit and it doesn’t
take too much in the way of reading and
Googling to get a handle on the
countries, namely Ghana, Burkina Faso,
Mali and Ivory Coast, but all the same I
will always be a nautical mile behind
somebody who has first hand knowledge
and experience not only of the countries but also of the cultures involved. I also note that Ivory
Cost and Mali have had some pretty significant political upsets recently which is enoug to put
me off all on its own (but then again, EDV would not have picked up AVN so cheaply otherwise,
so who knows?).
When it comes to political risk I know what I know and that tends to be the LatAm region, to a
greater or lesser extent. Outside of LatAm I find some places that I’m comfortable about
covering but others that seem fraught with unknowns and risks to me. I’m not trying to put you
off EDV as an investment and it wouldn’t be the first time that I’ve passed on a big winner
either, but EDV is not in a location that is comfortable enough for me to cover formally and with
gusto. It’s that simple.
Copper Mountain’s (CUM.to) rally and Yellowhead (YMI.to)
No single move in any junior mining stock last week caught my eye more than the action in
Copper Mountain (CUM.to) last week, with the stock rallying 30% on big volumes from a
generally available $2.60 to close the week at $3.38.
All that and a good pol risk location, too. There’s hope yet for Yellowhead Mining (YMI.to) if its
neighbour can rally this strongly, because it suggests a sudden renewal of market interest in
coppers and such rather than anything company specific. CUM has popped and YMI has not, so
2

if given the chance I’ll look to add a few more to my pile next week and average down on this
losing position.
OceanaGold (OGC.to) (OGC.ax): No position yet
The price has run fast since we first featured OGC and pointed to it as a potential buy for The
IKN Weekly and there was no sign at all of any $2.50-or-below price last week to get me in (as
metnioned in IKN174) so this one has got away from me, for the time being at least. However
I’m not in a rush to be new here and can wait it out, value comes first.
Conclusion
IKN175 is done, we close with bullet points:
• Today we put forward the short case for Gold Resource Corp (GORO) and by this time
next week I’ll be short the stock. The way it moved Friday strongly suggests there may
be more immediate-term upside left in its tank so no need to jump in first thing Monday
morning and I’ll pick and choose my preferred moment. But all the same, this stock is
now overpriced to the Nth degree and with its secondary role as a hedge position to
other gold long investments in my port, even more welcome.
• OGC may have run away from me for the moment at least, but Yellowhead (YMI.to)
has not. That’s the place I’ll be looking to add some exposure to copper and use a bit
of the newly released FVI funds.
• VEM is still in the right spot for a shorter-term trade, though be careful that I’m not
talking my own book here because I got a few last week at 15.5c.
• I get tired and bored with people who know nothing about Peru telling me about Peru.
I therefore resolve not to tell any of you about Burkina Faso, Mali or Ghana and
repsectfully pass on EDV. There’s nothing wrong with the numbers though, so if you
like we can run those in a future edition as long as you realize that you’ll get no call
from yours truly.
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
Footnotes, Appendices, references, disclaimer
(1) http://www.calculatedriskblog.com/2012/09/analysis-i-expect-qe3-on-sept-13th.html
(2)http://incakolanews.blogspot.com/2012/09/chart-of-day-is_7.html
(3) http://www.nasdaq.com/symbol/goro/short-interest
(4) http://finance.yahoo.com/news/gold-corporation-declares-august-monthly-214200076.html
(5) http://static.gowebcasting.com/documents/files/events/event_00000844_sgJxpSlH.pdf
(6) http://www.goldresourcecorp.com/content/DE-00186_El_Aguila_Technical_Report_final_20120710.pdf
(7) http://finance.yahoo.com/news/gold-corporation-reports-second-quarter-211700264.html
(8) http://finance.yahoo.com/news/gold-corporation-reports-second-quarter-220000139.html
2

(9) http://seekingalpha.com/article/799321-gold-resource-s-ceo-discusses-q2-2012-results-earnings-call-
transcript?part=single
(10) http://www.sec.gov/Archives/edgar/data/1160791/000118143112029588/xslF345X03/rrd345044.xml
(11) http://finance.yahoo.com/news/minera-irl-ltd-discovers-mineralized-060000399.html
(12) http://finance.yahoo.com/news/focus-extends-warrants-224800857.html
(13) http://finance.yahoo.com/news/drilling-cerro-vetas-zone-intersects-122200980.html
(14) http://finance.yahoo.com/news/correction-previously-published-release-september-211300105.html
(15) http://www.lupakagold.com/s/news.asp?ReportID=545884
(16) http://incakolanews.blogspot.com/2012/09/five-days-of-metals-and-miners_8.html
(17) http://finance.yahoo.com/news/nevada-copper-nevada-governor-sandovals-230000490.html
(18) http://www.nevadacopper.com/s/NewsReleases.asp?ReportID=545857&_Type=News-Releases&_Title=Nevada-
Copper-Announces-1.1-Billion-Pound-Increase-In-Measured-And-Indicate...
(19) http://www.reuters.com/article/2012/09/07/us-china-subways-idUSBRE88606620120907
(20) http://www.rgj.com/article/20120829/MVN08/308290177/Creating-jobs-locally-even-?nclick_check=1
(21) http://www.aminera.com/noticias-generales/118-internacionales/43140-trabajadores-de-minera-shougang-hierro-
peru-aprobaron-huelga.html
(22) http://www.mch.cl/noticias/index_neo_exclusivas.php?id=41103
(23) http://www.prensa.argentina.ar/2012/09/09/33955-destacan-perforaciones-mineras-por-35-millones-de-metros.php
(24) http://www.precioussummit.com/companies-2012-colorado
(25) http://www.gowebcasting.com/conferences/2012/09/05/precious-metals-summit/day/3
(26) http://finance.yahoo.com/news/endeavour-mining-acquire-avion-gold-215000502.html
Appendix 1: Flash update dated Wednesday Sept 5th
Good morning, With thanks to reader 'LR' who was kind enough to pass this on, please find attached a report on Minera
IRL (IRL.to) (MIRL.L) published by Desjardins yesterday afternoon. The house opened up coverage on IRL with this
extensive report and although we could quibble its price target (I think the stock is worth plenty more than the $1.10 set
by Adam Melnyk) it's a very good job of work, one of the non-BS fundies reports you get from Canadian houses (on
occasion) and plenty of background on company operations and well thought out forecasts.
As a quick semi-aside, I received the copy from LR after the bell yesterday and also after having added to my position in
IRL as planned and noted in IKN174 (no OGC bought as yet, however).
Anyway, I hope you find value in the report, passed on with no further comment.
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
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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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