IKN #180Premium

The IKN Weekly
Week 180, October 14th 2012
Contents
This Week: Changes today.
Fundamental Analysis: Jaguar Mining (JAG) (JAG.to), Rio Alto Mining (RIO.to), Minera IRL
(MIRL.L) (IRL.to).
Stocks to Follow: Overview, Primero (PPP) (P.to), Sunward (SWD.to), Strait (SRD.v), Bear
Creek (BCM.v), Gold Resource Corp (GORO), OceanaGold (OGC.to), Lachlan Star (LSA.to),
Focus Ventures (FCV.v), Lara Resources (LRA.v).
Copper Basket: Overview, Lumina Copper (LCC.v).
Regional Politics: Mining social conflicts and human rights violations in Colombia, Guatemala
presents its mining law reform project to Congress, Mexico’s new mining law, Peru:
Buenaventura’s (BVN) Orcopampa mine goes on strike, Venezuela election wrap-up, Peru:
Conga ignored, Changes at the top in Yanacocha, Colombia: Peace process not starting well.
Market Watching: Goldquest Mining (GQC.v) and comment on geology knowledge, Liberty
Silver (LSL.to) (LBSV.ob) redux, Great Panther Silver (GPR.to) (GPL) 3q12 production numbers,
The Sanchez-Paredes bank account freezing may affect Sulliden (SUE.to) down the line.
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
Changes today
Just so you have a list and there’s no chance of missing the main changes:
• The IKN ‘Stocks to Follow’ list loses Sunward Resources (SWD.to) as of next week and
I’m selling my position, though not all at once and not at the first possible minute
tomorrow either. But I’m selling.
• We’re also dropping coverage on Strait Gold (SRD.v) until further notice (though time
time please be clear that I intend to keep my own, small personal holding in the stock).
• However, I plan to add more Minera IRL (IRL.to) to my holding next week.
Reasons for these changes all below.
Fundamental Analysis of Mining Stocks
There are three parts to the ‘Fundamentals...’ section of IKN180 today. First a quick word on
Jaguar Mining (JAG) (JAG.to), second a report on my meeting with Rio Alto (RIO.to) last week,
third a report on my meeting with Minera IRL (IRL.to) last week. Of the three, the piece on
IRL.to is the one I like the most.
1

Prowling for Jaguar (JAG)
I’ve teased far too much already on this in the last three weeks and it’s bugging me that I
haven’t been straighter with you all so far, so even though there’s no decision being made
today’s the day I come out and name Jaguar Mining (JAG.to) (JAG) as the company that I
think, but I’m still not sure, is a potential purchase in the near future of The IKN Weekly. As
mentioned on more than one occasion I’m still looking for confirmation on how things are going
at the company, but now that time is starting to slip by (and the share price has been a little
weak recently), the best course of action will most likely be to wait until the 3q12 results are
published in mid-November. In 2011 JAG provided a production update around a month before
financials were released, but we haven’t seen that NR from the company this financial year (so
far). If JAG decides to give us an update it will be next week and may accelerate the decision
process, but as the share price has drifted since the arrival of the company’s new CEO in early
September (1), I don’t think there’s a need for any mad rush and I’¡m more interested in
gathering as much hard info as possible than risking a trade just to get a slightly better entry
point. That’s just me.
The theory behind JAG as an investment from here is based on its potential as a turnaround
story. I’ve long held this company in nothing much short of contempt for the never-ending
promises of great things to come that have always been followed by disappointing results. Not
only that, but the charade surrounding JAG and the non-existent buyout offer from China’s
Shandong last year was called correctly here and resulted in the final. Severe sell-off of
company stock. However, the combination of a new team at the helm at JAG, led by new
Pres/CEO David Petroff and backed up by others coming from ex-Breakwater who worked with
him, plus newly lowered forecasts, guidances and objectives that look reasonably workable,
plus a balance sheet situation that still looks saveable from here as long as operations can start
making true profits, plus reliable (though utterly off-record) word that things are getting better
in-company, all point me in the direction of a gold producer that is a potential investment at its
current price. Therefore the plan is to run a full, detailed NOBS report once we know how JAG’s
3q12 has turned out officially, at which point a formal buy/hold/sell decision gets called.
Rio Alto Mining (RIO.to): Delays to thoughput growth, sulphide project on course
On Tuesday morning your author caught up with Jaime Soldi, corporate affairs boss of RIO, as
well as company COO and General Manager of its wholly owned Peru subsidiary ‘Rio Alto
S.A.C.’, Victor Gobitz. They were feeling pretty good about the company having passed the
U$1Bn market cap threshold that morning and we talked about what the company had in store
in the weeks and months ahead. Two main subjects were discussed, namely the state of play in
2

the move to 36,000tpd on the oxide gold production and the developments in the sulphide
stage two project, so we’ll take them one at a time starting with the production outlook at RIO.
Production in the next quarters: Let’s start with a clear statement and get the only
potential bad news on the table without trying to hide it: The oxide rock throughput upgrade
isn’t going as well as we’ve been guided previously, but on the other hand it’s not a particularly
big problem and more a case of delay than disruption. COO Gobitz now expects the throughput
to move up and reach the scheduled and targetted 36ktpd by the end of January 2013, which is
around two months behind the latest guided schedule as far as my calculations go. The
problem isn’t the processing plant upgrade, nor is it the new plant and vehicles because they’re
on site and ready. The problem is that due to the general topography of the La Arena mine, the
logistics of dump leach pad space is restricting the
La Arena 2012 forecast gold prod, per qtr
upgrade. In simple terms (the only ones that we
70000 62676 62676
really need), this means that 4q12 won’t see the 60000 55973 58801 58543
type of thoughput tonnage we were expecting 49284
50000 46000
from RIO and as a result, our forecast for gold
40000
production in the current quarter has to come
30000
down a notch or two. This table now outlines what
20000
we expect from RIO in the quarters to come and
10000
includes 3q12 just passed. If the company sticks
0
to the type of production disclosure rhythm we’re
used to we should get the real number from them
next week but for the time bring we’ll throw in our
best-guess 46,000oz Au for 3q12, as noted in
IKN178 where we in fact went for a range of between 45,000oz and 47,000 oz, so the 46k on
this table is the happy medium.
So that’s our revised forecast for production in the quarters to come and this time, we’re
projecting out into deeper 2013 to give an idea of what we think happens to the oxide gold
story at La Arena as throughputs hit their new maximum and the rock grade stabilizes at a level
more akin to the original 43-101 resource, adjusted for decent positive reconciliation:
These two tables outline what we expect from throughput changes and grade changes in the
quarters to come. We’re now expecting 4q12 to average 28,000tpd of throughput as the mine
ramps from the current 24ktpd to the 36ktpd target. Then in 1q13 we look for throughput to
average 34,000tpd, then from 2q13 onwards we run at 36ktpd. As for grade, we’re now
assuming a steady state 0.7 g/t Au in the quarters to come, which is a best-guess compromise
between the 0.5 g/t of the 43-101 resource, the positive reconciliation that RIO has seen from
that baseline grade up to now and the recognition that the best of the higher grading material
has now been mined in the early, bonus months at La Arena. Also please note that we’re
assuming a flat 85% recovery level from all quarters from now on, which is how La Arena
recoveries have been acting up to now over average and time. One you put all this together, it
means that we at IKN are now forecasting a 2012 production of around 210,000 oz gold, which
is slightly down on the 215k-220k range mentioned in IKN178 a couple of weeks ago but will
still be a remarkable achievement for the company in its first year.
3
21q1 21q2 tse21q3 tse21q4 tse31q1 tse31q2 tse31q3
Oz Au
source: IKN ests
La Arena 2012 forecast avg throughput
tonnages per day, per qtr
40000 36000 36000
34000
35000
28000
30000 24000
25000 17889 17802
20000
15000
10000
5000
0
21q1 21q2 tse21q3 tse21q4 tse31q1 tse31q2 tse31q3
tpd on La Arena 2102 forecast avg grades, per qtr
pads
1.40 1.26 1.25
1.20
1.00 0.80
0.80 0.70 0.70 0.70 0.70
0.60
0.40
0.20
0.00
source: IKN ests
21q1 21q2 tse21q3 tse21q4 tse31q1 tse31q2 tse31q3
g/t Au
source: IKN ests

Progress and news on the stage two sulphide project: As for the stage two sulphide
project, that seems to be gelling nicely. The company timeline is to have an internal pre-feas
study ready (that’s unlikely to be a public display document, as they’ll wait until the full
feasibility that Hatch expects to deliver in 2q13 for that) which will then allow RIO to make the
necessary decisions on what to put into the Environmental Impact Assessment (EIA) permit
application to Peru’s Ministry of Energy and Mining (MEM). As long as the timeline sticks RIO
should file its permit application by the end of May 2013. we’ve previously noted that the plan
nowadays is for RIO to go for a smaller sulphide production start-up, which will mean a lower
capex footprint and the capacity to quickly pay back said capex by running the higher-grading
near surface sulphides for the first six or seven years. Also, on vibe from the meeting alone RIO
management seems much more firmly committed to this plan, with the targetted throughput
level now between 18,000tpd and 20,000tpd for this first stage of the second stage (if you get
my meaning). One advantage to the smaller scale first-stage-of-second-stage repeated by RIO
management on several occasions is that due to it being contained in land that already has
environmental permits approved, a full new EIA won’t be necessary and RIO will be able to
apply for a permit modification, rather than a brand new EIA file. This paperwork is much more
straightforward than a full EIA and is a real positive to the new plan.
Another very interesting aspect of this plan is the lowered capex they’d need to build this
sulphide plant and get the stage two underway. When asked what kind of capex ballpark figure
they were now looking at for this type of 18ktpd to 20ktpd throughput sulphide machine they
obviously couldn’t give any hard or fast number and kept the low/high guidance wide (we’re still
a long way off any construction decision, let alone a working mill, so caution is needed and all
caveats apply), but the general feeling in-house is that it should be possible to get to sulphide
production day one at a cost of somewhere between U$200m and U$300m. On further
questioning, it looks as though $300m really would be a worst case upper limit for the capex
too, so perhaps a happy medium of $350m can be pencilled in right now. This type of capex bill
looks pretty darned fine from where I’m sitting, because it means that RIO will in all likelihood
be able to pay for stage two construction totally from its treasury and revenues from the stage
one oxide production we’re now enjoying at La Arena. This in turn means that you and I the
shareholders of RIO suffer no share dilution or debt load added to the structure to move the
company into this next stage of life. This is good.
RIO.to discussion and conclusion: I came away from the meeting wondering whether the
slightly lowered production expectations for La Arena in the last part of 2012, due to the delays
in getting the throughput charged up to the target 36,000tpd, might adversely affect the share
price in the next few weeks. My best guess is that it might, but then again I couldn’t help but
think that RIO was facing an apparent lack of newsflow catalysts a couple of months ago when
trading at $4.70 or so and might not make much of a move and here we are +20% later.
However, one thing I’m sure about is that the market is still, after all this time, giving very little
credit to RIO for its Stage 2 sulphide production plans, giving all of its time and love to the
current oxide production ops. Come 2013 this is surely going to change and as people realize
that RIO isn’t joking, is applying for the
permits to build Stage 2 and will have all the
cash it needs on hand to build it without the
need for market funds, I’m sure that the
company will begin to get the longer-term
love. Overall I’m in a big winning position here
(bought at 69c, recall) and consider RIO a
long-term position, so I’m not going to sell a
single share and will let it all ride no matter
what the stock does for the rest of 2012. And
after all, the delay to the throughput upgrade
isn’t much more than a couple of months and
in the meantime, with the cash cost profile it
has and the price of gold where it is, RIO will
remain an extremely profitable company. The
bottom line is that I’m a happy holder of RIO, our Top Pick stock.
4

Minera IRL (IRL.to): Don Nicolas permits due very soon, adding to position
A positive meeting with IRL on Tuesday afternoon, so here goes with the lowdown on what was
discussed. We’ll do this company asset-by-asset:
Ollachea: The good news here is that the access tunnel has made great progress since your
author visited the site back in August and as per last Tuesday morning, the tunnel was 528m
into its approximate 1.2km total length (when I walked the tunnel it was at 198m).
Development has speeded up considerably since a fault zone was passed and the contractors
(JJC) had made it into the easier shale rock beyond (which is the same rock that hosts the
mineraliztion further down the line). To give an idea of the acceleration, here are the monthly
totals for the tunnel boring.
• June: 65 metres
• July: 65 metres
• August: 125 metres
• September: 172 metres
As for October, news from the project was that the day before my office visit, Monday October
8th, the tunnelers had just cracked a single day record of 10.7m. Overall, CEO Courtney
Chamberlain was keen to stress that the ETA for the access tunnel has always been “in the first
quarter of 2013” and the timeline will stay that was, but the good progress in the last few
weeks means that the company is now a little ahead of its schedule and has a bit of wiggle
room for the timeline, so perhaps we’ll get good news on the tunnel at the end of February
instead of the end of March.
As for the Ollachea feasibility study that was expected at any time around now, but when asked
on this IRL said that there were a few delays based on technical matters and the desire to
incorporate new information into the report, so the 43-101 was going to be delayed a few more
weeks. The best official timeline I got was “in 4q12 for sure”, but for what it’s worth I’d say it’s
most likely to be seen in November now, rather than October or December.
Corihuarmi: Management is very happy about the way the Corihuarmi mine is running, the
smallest of the three main IRL assets but the only production at the company. As reported a
couple of weeks ago in these pages, July production came in at 2,564 oz and we’d expect the
whole of the quarter to keep up that pace according to comments, which indicates a 3q12 total
of around 7,500 oz Au. This is plenty higher than the mine forecast for the quarter and the
2012 financial year and the good news is that IRL expects Corihuarmi to keep performing at
this speed in 4q12, too. As for cash costs, it was more difficult for management to give 3q12
guidance but from prodding for information and reading between the lines,I’d expect cash costs
to come in at below $600/oz for the quarter. In other words, mine operating income should be
around 7,500oz at a U$1,000/oz margin, you can do the rest of the easymath yourself and it all
goes a long way in covering the exploration costs and G&A generated by the other development
arms of IRL. Corihuarmi is and will continue to be small and it’s not the reason we’re long the
stock, but there’s no denying its useful role as a free cash flow generator.
Don Nicolas: The big question for CEO Chamberlain and his team was, “When does Don
Nicolas get its permits?” and the only answer he’d give was “soon”, which was fair enough as it
makes perfect sense to play such sensitive information close to one’s chest at this point.
However, further Q&A with IRL people indicated that “soon” was most likely going to be this
month, perhaps November latest, and overall the team (the reticent CEO Chamberlain aside)
was very confident about being able to bring good news to the market in the near future.
We also went into quite a bit of detail on what permits were scheduled to come from the
relevant Argentine authorities at this point and what permits the project would still need to
obtain afterwards to be allowed to move to construction and production. The system used
means there are a whole bunch of sub-permits tht IRL will need during the construction and
commissioning period for Don Nicolas, but these are subordinate to the two big permits IRL
5

needs to be able to say “we’re cleared to build the mine at Don Nicolas”. These are the
environmental impact permit and the construction permit and on this score the news is very
good, as those are the precise two permits that are about to pop out of the other end of the
Santa Cruz provincial government chain of bureaucracy. Company and province (the permits
needed in Argentina are issued at a provincial, rather than a national federal level) are meeting
next week in Santa Cruz, which is being framed as the last full-scale meeting before the formal
permits are issued. Overall, I’m forced to say, even while imagining the potential for a last
minute Argentine bureaucracy blockage, to say that I’m also confident of seeing IRL with the
permits soon (because at some point I have to trust people who are trustworthy, such as those
at IRL). The IRL team, led up by president and chief social/political/community negotiator Diego
Benavides, went into great detail about the dealings and processes they’ve been through in this
Don Nicolas/Santa Cruz government and authority process and all down the line a situation
that’s correct, workable, logical and believable. IRL has gone about the job of permitting in the
right way and by the looks of things, is about to reap the harvest that comes from doing things
right. If, as we’re now firmly supposing, the permits are delivered come the end of this month
or perhaps early November IRL will be in a strong position to go to prospective financiers, say
“Hi everybody, we have permission to build and operate the mine, it’s time to fund us” and get
the capex package needed for Don Nicolas on the go. From what I’ve heard, both from inside
the company and from third parties in the financial sphere but unconnected to the company (as
yet, and I cannot say more) there’s plenty of interest about funding Don Nicolas at this point
with one of the potential sources being financial institutions in Argentina itself. Word has it that
there’s a lot of money in Buenos Aires that’s looking for a useful home, what with the barriers
now being set up by the government to stop capital flight and dollar purchases, so that’s a
potential and novel way of financing a mine project in the pipeline.
Corporate: We understand that working capital is now down to about U$7m, which is better
than the IKN forecast for end 3q12 as we’d slated in $3.5m. The improved number has been
helped by the better than expected numbers from Corihuarmi in terms of production and better
cash margins (gold price up, cash cost down), but still in absolute terms cash getting low and a
direct quote from CEO Chamberlain is that he is “uncomfortable about going under $5m” in
working cap at any given moment, which means that we’re looking at a company that is about
to go back to market and run a financing, methinks. This brings up the tricky question of
gauging how much money IRL will want to raise via a straight equity placement financing its
current low share price (which is the way it’s seen in-house, according to the vibe picked up
more than once by different members of its management team). Put in easily digested bullets,
the situation is:
• The IRL treasury is getting low at $7m in working cap. As the $5m level is CEO
Chamberlain’s comfort limit, we can expect the company to go back to market and top
things up, in some shape or form.
• The main exploration burn at its two development projects, Ollachea and Don Nicolas,
is coming to an end. Meanwhile its small production at Corihuarmi continues to
outperform expectations and provides very useful free cash flow to cover G&A, etc.
Once the access tunnel development at Ollachea is done come 1q13, burn rate drops
even further at a corporate level.
• However, IRL will soon be looking to close a financing package for its Don Nicolas
project in Argentina. We’re budgeting $80m for this and it’s tough, very tough at this
point to second guess the company and call how it might put together the cash
needed. It might come from a all-debt deal, maybe from debt + equity, maybe equity
only (though that one’s unlikely). But it also dovetails into the IRL desire to raise
general working cap for its business soon, so the combo has many potential
permutations.
• Then the next steps at Ollachea are just round the corner, because the project
feasibility study is due before the end of this year and a little (but not much, to be
6

clear) further down the line IRL wil be looking to take that feas and turn it into a deal
with another set of financiers to build its to-be-flagship mine. Again, what combination
of debt, equity, etc (e.g. other options such as off-take, forward sales etc that can’t be
ruled out) IRL plans on using is difficult to tell at this point, but the connection between
it and its other financing needs (modest general working cap soon, Don Nicolas soon)
needs to be noted, at least.
So that’s the situation on the corporate financial side, now for a best guess (that might be
mightily wrong) that IRL runs a small financing before the end of this month. I’m
guessing that the company goes one of two ways, either my best guess (above) of raising a
small amount (say $10m) for its corporate purposes alone or maybe (less likely at this point)
$30m or $40m to cover its corporate and also a significant portion of the Don Nicolas capex. If
IRL decides on a small equity raising then I’d expect the company to fund Don Nicolas via a
debt deal, potentially using Argentine financing cash from inside the country (or potentially
using more traditional financing routes from world-established sources who understand mining
better than the suits in Buenos Aires) or perhaps via a deal that includes debt and a second
round of equity raising in a couple of months’ time, hopefully at a price share rack price.
Conclusion and recommendation: IRL is going well on all fronts and apart from the slight
delay to the Ollachea feas (now expected “in 4q12” rather than “early October”) there’s nothing
negative to report. The Ollachea tunnel is making good time and Corihuarmi is producing well
and profitably, but the really good news from the meeting was that from Don Nicolas in
Argentina, where the permitting is about to come through (and yes, I’m a trusting soul on this
today). This fact alone is, I believe, key to the good things that will happen to IRL in the next
couple of years. A permitted Don Nicolas allows IRL to put the financing package together and
build its mine. It brngs extra confidence to the company and shows the world that the next
stage, bringing Ollachea online, isn’t some sort of wild dream. Funding comes for that, IRL gets
its three mines working, we all live happily ever after. What could possibly go wrong? ☺
Today, my main doubt about IRL is the form in which it raises its cash in the next few months.
Once I know the details and assuming they’re retail-shareholder friendly it will be time to raise
IRL to a Top Pick recommendation here at the Weekly. As things stand it’s not there yet, but
the confident exuding from the company about the Don Nicolas permitting would be silly for me
to ignore at this point either, so while the share are cheap (and taking into account that there
may be a little overhang about the upcoming financing, be it large or small), I’ve decided to add
to my position in IRL next week. Things are looking good here and so I’m looking to roughly
double my personal holding by this time next week.
7

Stocks to Follow
Over the week our list of 16 open positions (though that will be lower this time next week) saw
six move up (LRA.v, IRL.to, OGC.to, GORO, PPP, FCV.v), three remain unchanged (YMI.to,
PLA.v, SRD.v) and seven lose ground (RIO.to, VEM.to, SWD.to, LPK.to, BCM.v, LSA.to, AQM.v).
The best upmove was put in by Focus Ventures (FCV.v up 10.0%) and the worst of the losses
incurred by AQM Copper (AQM.v down 21.4%) and Lupaka Gold (LPK.to down 11.8%), but
apart from those three it was generally a quiet week for our stocks, with fluctuations tending to
be modest.
With the addition of the near-term short on Primero Mining (PPP) we now have 16 open
positions, which is one more than our nominal maximum but that will be cut back by this time
next week. Nine of the positions are in the green and seven are in the red.
Company Ticker this week Init Price Reco date Current PPS Gain/Loss% Notes
Top Picks
Rio Alto Mining RIO.to buy C$2.04 07-apr-11 C$5.61 175.0% $6.29 tgt
Recommends
Vena Resources VEM.to hold C$0.35 31-may-09 C$0.14 -60.0% target lowered to 21c
Sunward Res SWD.to selling C$1.47 13-mar-11 C$1.21 -17.7% selling and taking loss
Lupaka Gold LPK.to hold C$1.12 23-oct-11 C$0.60 -46.4% considering sale
Bear Creek Min. BCM.v hold C$3.38 07-nov-11 C$3.62 7.1% added 3rd time Fri 21st
Yellowhead Min. YMI.to buy C$1.00 01-apr-12 C$0.70 -30.0% value under $1, added Fri
Lara Expl. LRA.v buy C$1.15 08-apr-12 C$1.30 13.0% solid biz model, LT hold
Plata Latina PLA.v hold C$0.79 10-apr-12 C$0.50 -36.7% considering sale
Minera IRL IRL.to buy C$0.65 22-jul-12 C$0.81 24.6% $1.56 tgt added more
OceanaGold OGC.to buy C$3.03 16-sep-12 C$3.36 10.9% new position $5.34 tgt
Lachlan Star LSA.to buy C$1.50 30-sep-12 C$1.56 4.0% new position $2.23 1st tgt
Gold Res Corp GORO short U$21.47 09-sep-12 U$20.13 6.2% SHORT Position tgt $14
Primero Mining PPP short U$7.26 07-oct-12 U$7.17 1.2% SHORT new near-term play
Smaller/Riskier
AQM Copper AQM.v hold C$0.31 16-oct-11 C$0.11 -64.5% considering sale
Strait Minerals SRD.v drop C$0.125 09-dec-11 C$0.12 -4.0% closing coverage til FY13
Focus Ventures FCV.v hold C$0.175 01-jul-12 C$0.22 25.7% revised tgt 25c
Closed in 2012 closed close PPS
Soltoro SOL.v jan'12 C$0.87 07-nov-11 C$0.94 8.0% cash moved to BCM.v
Gold-Ore Res GOZ.to feb'12 C$0.84 13-oct-10 C$0.98 16.7% trade closed on ELG.v offer
Minefinders MFN feb'12 U$11.68 17-nov-11 U$14.80 26.7% target made, trade closed
Iron Creek IRN.v mar'12 C$0.58 26-sep-10 C$0.31 -46.6% time up on small bad trade
U.S. Silver USA.to apr'12 C$2.18 15-mar-12 C$1.86 -14.7% ST trade no good, cut loss
Augusta Res. AZC.to may'12 C$3.10 29-jan-12 C$2.07 -33.2% bad mkt, bad trade cut loss
Bellhaven BHV.v may'12 C$0.50 22-sep-10 C$0.28 -44.0% new mgmt not impressive
Zincore Metals ZNC.to may'12 C$0.325 29-jul-11 C$0.17 -47.7% bad mkt, bad trade cut loss
Soltoro SOL.v may'12 C$0.70 18-mar-11 C$0.41 -41.4% bad mkt, bad trade cut loss
U.S. Silver USA.to aug'12 C$1.78 27-jul-12 C$1.36 -23.6% fail ST trade close pre 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$5.32 397.2% 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.
Primero Mining (PPP): Short position opened. Note that the US listing is being used for
this short rather than the Canadian ticker (P.to) as it’s a whole lot easier to get a lend in the
States. But one thing that has played against my new, and very-near-term planned short
position here is that I didn’t factor in how Team Canada (brokers, analysts, instos and
8

commentators) would get behind PPP as one and pump the company to all and sundry during
the week just gone, to a level that approaches pure hype. From my point of view at least, this
stopped this now overvalued company from coming back down to a more reasonable valuation
level and stopped my new short from making anything more than the smallest of paper profits
so far. One of the things that struck me while watching the Canada All Star Promo Show wa
show much heat was created by the “no big tax” news out of Mexico, but there was a distinct
lack of light as to exactly how this new tax ruling would affect PPP. As we laid out last week,
the IKN call here is that the tax news is positive but it’s hardly the type of game-changer that
will make a big difference to the current financials.
The upshot of last week, when I opened my short to take advantage of the clear overvaluation
of PPP compared to its peers but got knocked over in the rush of new hot money entering, is
that I might have to extend the time duration of this position into November (I really wasn’t
expecting to hold it for more than a week or two when writing on the subject last Sunday in
IKN179) and take in the 3q12 results that are likely to show a dose of financial reality in the
P&L and may even give a more reasonable guidance on how the new tax regime on the PPP
silver production is to affect the company. I’m not happy about failing to get the best possible
entry point in the stock (that was Thursday) because when it’s a near-term play every nickel
counts. I’m not happy about having to leave it open longer than expected, either. But if needs
be, adding one month to this position isn’t going to kill me either and if the overexpectative
shouts of buy are drowning out the whisper of the true fundamentals trying to tell their more
modest and sober story, then so be it. Then again, if the position starts going wrong it’s one I’d
cut quickly and without fuss, because that’s what you do with very-near-term positions.
Sunward Resources (SWD.to): Selling. Not an easy decision, but from 1) the decision for
The IKN Weekly to move to majority producer coverage 2) the mediocre share price action
we’ve seen in this stock over the last few weeks and 3) the relative lack of upcoming catalyst
news, with the first main newsflow due in 1h13 via its PEA (see IKN176 for more on that) the
call is being made and I’m going to liquidate this position. As always, I’m not in a hurry to sell
at the first possible opportunity and won’t do so (so sell at the bell all by yourself, I won’t be
helping you to race the price down and see it spike down for a few hours). Mine will be a
gradual sale strategy and I’ll be looking for prices at or above the current $1.20 and bits,
because there seems to be some decent floor resistance here.
I still like the company and although the over grade is low, I continue to maintain that it’s just
about the only “large scale low grader” that makes appeal as a potential real mine. That’s due
to its relatively low capex footprint and the low opex that comes from eventually having a mine
in a great place for mining infrastructure. This is a decision based more on my personal
portfolio position and what I want to achieve in The IKN Weekly going forward and shouldn’t be
considered a poor reflection on the company. The bad stuff, that’s all from me folks. Come the
PEA we’ll surely take a second look at SWD and there’s no reason to exclude it from possible
reincorporation in the list at that time, but for the moment I’m going to take the loss here on
the chin and move on.
Strait Minerals (SRD.v): Dropping coverage. Negative news about SRD awaited your
author on Wednesday and as a result, we’re going to drop this name from our list until such
time as things, quite literally, start moving for the company.
The problem is, in essence, a simple one; SRD isn’t allowed to start drilling at its Alicia property
yet. It’s not due to any fault of the company either, as it got all permits together and even
mobilized a rig to the property but at the last minute (almost literally) Peru’s government threw
a curve-ball. The country’s Ministry of Culture (note, not the mining ministry) decided all by
itself that the two regions of Apurimac and Cusco would be covered by a blanket halt on all
mining exploration activity until a statutory public consultancy meeting had been completed by
all all projects in the region. The Culture ministry decreed that the whole of the two regions
should be classed as “indigenous” and because of that the prior consultancy laws put in plae by
the Humala government last year had to be applied. Apparently this has stopped work at five
different projects run by five Canadian listed exploration companies (Panoro, Candente, Solex
9

Aguila American and Strait). In the case of SRD the ruling is even more ridiculous because the
locals around the project are not indigenous, do not class themselves as indigenous and have
already voiced their clear support for the project.
But it gets worse, because the ruling from the Culture Ministry hasn’t made it clear what the
mining companies need to do or what papers they need to fill in or what fees they need to pay
in order to set in motion the wheels for the now mandatory consultancy. In effect, this means
that you have a whole bunch of explorecos that have been stopped from working by a last-
minute government decision and who want to get moving on their projects, but are stopped
from doing so until the same ministry has decided on what the companies need to do to apply
for permission!
It’s the type of situation that is wholly infuriating and has “Welcome to LatAm” stamped all over
it, but the practical upshot to it all is that SRD at Alicia, with drill rig on site and waiting to turn,
has no idea as to when it will be able to start drilling. It could be weeks, it could be a couple of
months, it could be next year and neither the company or us has the first clue. Meanwhile, the
company has to keep in good books with its JV sponsor Teck (which has been understanding up
to now we hear, but there are limits to patience on these things and as Teck is now internally
finalizing its 2013 budget requirements, some uncertainty is evident).
So to the decision to drop SRD from our coverage, done with a heavy heart but the fact is that
a small exploreco has to be able to explore in order to justify its inclusion these days. Through
no fault of its own SRD finds itself stymied, but whoever’s fault it might be its tough to include
a tinycap exploration company with an indefinite delay on its hands (and a project that’s
already been delayed on a couple of occasions) when there are other companies more
deserving of the space. However, I won’t be selling my personal cache of shares because the
position is really small anyway and makes little difference either way (plus my personal cash
pile is ok and going to get better due to the sale of SWD, a bigger absolute holding by some
distance). We’re certain to revisit SRD once drilling gets underway but until that time, the stock
is retired from our list.
Bear Creek (BCM.v): I let a few of the non-core traders go a couple of weeks back and since
then a feeling of “maybe I didn’t sell enough of them” has been itching at me. The silver corner
hasn’t shown much by way of strength in the last couple of weeks and as this one is a
leveraged play to the metal (here’s a 12 month chart of BCM vs SLV to illustrate the point)
there may be a pullback further than the smallstuff 10c or 15c since I let that small portion of
mine go. Added to the new direction I’m looking to steer to with the weekly (mostly producers,
minority explorers) I’m wondering whether to pack this one up and take the cash off the table.
On the other hand, BCM at Corani is about the best priced (for buyers that is) advanced silver
1

project I can think of today and doing wholesale selling at these very low valuations (i.e. under
$4) isn’t easy for my fundies bones to allow.
Gold Resource Corp (GORO): Back one quarter ago it took 19 days of July for GORO to
announce its 2q12 production numbers, which suggests that we may have the 3q12 production
figures at some point in the market week to come. Hope so, because its the first of the two
datasets on which this short play is based. As for last week’s trading, GORO basically continued
its gentle drop drift tendency of the previous week, dipping under $20 for a while but nothing
much more to report. When its a near-term play such as this one I do tend to watch the
intraday comings and goings more closely.
OceanaGold (OGC.to): Wednesday evening (Americas time at least, might have been pre-bell
Thursday in Australia, come to think of it), OGC informed the market (2) that its 3q12 financials
would be out on October 30th, which means it will be filing a week or two ahead of its junior
producer peers for the quarter. Probably a good thing. OGC continues to trade well and for
what it’s worth, a well-regarded professional technical analyst told me via mail last week that
(and I quote) there’s “...nothing to stop OGC from going directly to $4...” from here. I promised
him that if it does just that I’ll pay more attention to charts in the future. Fair deal, I think.
Lachlan Star (LSA.to)
LSA started well but went from higher to lower as the week wore on. One thing being picked up
on your author’s radar about this company is that locals at the town of Andacollo, near to the
company’s CMD operation, have been grumbling somewhat about LSA’s presence. To this end
we note (3) a visit by government representative Pamela Ramírez to CMD, who has the job title
of “Coordinator of Mining Policy for the Ministry of Mining Regional Secretariat of Coquimbo”.
Now, it’s true in English and in Spanish that the longer your job title the less important you are,
but this meeting was reported in the press and finished with an agreement from government
lackey and company to establish a mining round table in Andacollo that will allow the
community better access to the company in order to voice opinions.
This is not a situation that is the precursor to immediate problems. It is however an issue that
we will keep an eye on for any reported improvement or deterioration in social relations
between LSA and the people who live around its mine.
Focus Ventures (FCV.v): News from FCV Friday was the type of release that catches
geologists’ attention more than the financial market’s, but we liked it all the same. Please click
through and read for yourself (4) but the upshot is that surface soil testing of the Reventón
zone of Santa Cruz/Reventón in Mexico, to
which FCV is optioning in, has returned very
promising surface sampling. This is the map
supplied with the NR and the thing to note is
that all the pink dots have returned over
10g/t Au in soil which according to company
president David Cass are the best (by quite a
way) soil samples returned from the whole
region so far. Right now clearing and
trenching work is well underway, with four
company geols (along with their specialist
support staff and local workers as well) on
site who report multiple structures and
breccias on and between ridges, of up to 15m
width. So the details (and there are plenty in
the NR) are available but what I want to get
across here is that the team is suddenly pretty
excited about the progress made in the last couple of weeks, both from the lab assay of soils
and the visual evidence they’re uncovering.
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Trading-wise FCV has had a very thin time of it recently, but the Friday news perked up the
stock price somewhat, though volumes remain low. Finally, we hear that pres Cass is going to
be in Lima at the end of this month, so as long as timing works I’ll make it over to the big city
and try to find out more.
Lara Exploration (LRA.v): Another week, another NR announcing a JV deal from LRA. This
time the NR came Thursday (5) and the project is the Chocos property, located in the Arequipa
region of South Peru (6). It’s being optioned to a private company, CJL Capital, on pretty typical
JV terms (cash payments, minimum exploration funding over time) but in this case LRA will give
up 100% of the project to the optionee, rather than keep its normal 25% or 30% as a free ride.
Instead, it will keep a 2% NSR on eventual production. Chocos is basically a lead/silver/zinc
target and is considered nearly drill ready by LRA. Grab samples have shown high Zn levels in
certain areas of the 10,200Ha site, which will probably attract the most immediate attention.
As for trading, the stock had a better week and traded over $1.30 on better (though hardly
mega-liquid) volumes, putting the drag caused by the equity financing behind it now.
The Copper Basket
After forty-one weeks of 2012 The Copper Basket is showing a 40.51% loss to level stakes.
company ticker price 1/1/12 Shares out Market Cap current pps gain/loss%
1 Copper Fox CUU.v 1.15 398.97 474.77 1.19 3.5%
2 Augusta Res AZC.to 3.17 144.1 384.75 2.67 -15.8%
3 Lumina Copper LCC.v 13.19 40.7 366.30 9.00 -31.8%
4 Nevada Copper NCU.to 5.18 72.8 255.53 3.51 -32.2%
5 Western Copper WRN.to 1.58 93.28 62.50 0.67 -57.6%
6 Candente Copper DNT.to 0.97 121.67 47.45 0.39 -59.8%
7 Regulus Res REG.v 1.24 99.88 42.95 0.43 -65.3%
8 Yellowhead Min. YMI.to 0.80 52.82 36.97 0.70 -12.5%
9 Baja Mining BAJ.to 0.80 338.5 35.54 0.105 -86.9%
10 Duran Ventures DRV.v 0.18 184.72 26.78 0.145 -19.4%
11 Catalyst Copper CCY.v 0.08 274.48 20.59 0.075 -6.3%
12 Excelsior Min MIN.v 0.63 56.12 16.56 0.295 -53.2%
13 AQM Copper AQM.v 0.39 105.6 11.62 0.11 -71.8%
14 Strait Minerals SRD.v 0.150 56.86 6.82 0.12 -20.0%
15 Crazy Horse CZH.v 0.35 64.48 4.84 0.075 -78.6%
Portfolio avg -40.51%
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 basket loses again, dropping by another 1.09% on the overall average last week and
moving back into the negative 40s, not a pleasant place. The were four that moved up (NCU.to,
BAJ.to, MIN.v, CCY.v), two that remained unchanged (YMI.to, SRD.v) and nine that lost ground
(all the others) with the worst of the losses taken by AQM Copper (AQM.v down 21.4%),
Regulus (REG.v down 14.0%) and Crazy Horse (CZH.v down 11.8%), while the best of the ups
came from Baja Mining (BAJ.to up 23.5%) and Excelsior Mining (MIN.v up 9.3%), though it’s
worth noting that of all those, perhaps only REG.v can really be classes as a stock with some
1

life left in it and all the others have been beaten down to the place where just a 1c or 2c move
makes a big percentage difference to the trading and hardly counts as serious any longer.
As for those underlying inventory 20% Copper Basket 2012 average, weekly
fundamentals, one datapoint sticks out head 15%
10%
and shoulders above the rest. Overall 5%
worldwide stocks moved up 3.0% to 0%
-5%
443,481mt, LME stocks dropped 3.0% to -10%
215,900mt, but the big change was seen in -15%
-20%
Shanghai Futures Exchange stocks, which -25%
-30%
rocketed up 11.7% to stand at 181,514mt.
-35%
That’s a big leap in China-based inventories -40%
-45%
and if it doesn’t wash through in the next
-50%
week or two (max), a big pointer to slack
end user demand in the world’s most
important copper market. Finally, LME
cancelled warrants stood at 23.17% of
inventories, which is the same positive type number we reported on from last week but is
somewhat overshadowed by what’s going on in the Shanghai warehouses this time.
Now for an update on just one basket company this week, reflecting the sector ennui:
Lumina Copper (LCC.v): Last week LCC put its house in order, cleaned up its balance sheet,
transferred to load onto its share count and make the near inevitable tacit admission that it
wasn’t going to meet its 2012 target to sell the company, all in one shot. The centrepiece was
the NR on Monday (just a day after our musing that 2012 wasn’t going to happen for the
company) (7). The main takeaway from the NR is the $23.75m private placement, designed to
pay back the loan currently on its books
from related company Lumina Capital
Partnership Ltd (Ross Beaty’s main
investment vehicle) and provide necessary
working capital to continue in 2013.
However, the news of the PEA timing due
complete in 1q13 came with a mention of
how useful that document would be in
discussions with potential buyers, which is
clearly a guidance to next year rather than
this year for any deal. Also, later on in the
NR the financing was said to be able to
fund LCC through to late 2013, again a
strong suggestion of an altered timeline
and company failure to complete on its
plans for 2012.
As also noted last week, the stock had already been under some market pressure and that
multiplied on the Monday news. Friday was a better day and LCC popped back to over $9 for
the first time in the week on renewed buying from some quarter or other (possibly some
brokerage employee who really needs to visit Argentina in the near future).
Regional politics
Colombia: Mining, social conflicts and violation of human rights in Colombia
We draw your attention to this Spanish language report (8) entitled “Minería, conflictos sociales
y violación a los derechos humanos en Colombia” (Mining, social conflicts and violation of
1
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source: IKN Weekly calcs, TSX
2102/1/1
morf
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human rights in Colombia) published last week by respected human rights NGO CINEP (Centro
de Investigación y Educación Popular). The blurb that accompanies the 25 page document is as
follows:
“This special report looks at some of the social conflicts that have emerged during the
process of converting Colombia into a mining country, a situation also faced by other
countries in Latin America and the Caribbean. The conflicts demand that we show the
achievement of social resistance in movements against mining, highlight violations of
human rights in mining zones, the dynamics of territorial reconfirmation and lastly show
the political changes and the new role of mining institutions with the State.”
As you may gather from that blurb the report’s focus is largely from the anti-mining point of
view, but it does give fair hearing to both sides of the issue and recognizes good mining
practices in Colombia as well as highlighting the poor ones. Recommended as reading material
for anyone with enough Spanish and desire to know more about the way in which the country’s
developing mining industry is viewed by Colombians.
Guatemala’s Mining Ministry presents its mining law reform project to Congress
Do not hold your breath on this, because its still in project stage and needs to go through a
whole bunch of committees and debates before becoming law. Not only that but a mining
reform project in previous President Colom’s government managed to die a slow and painful
death in committee. But cynicism aside, there is reason to look positively on events last Friday
in Guatemala when the Perez Molina government’s mining ministry finally presented its law bill
to the country’s Congress (9).
The bill proposes changes to 36 of the current 86 articles that make up the country’s current
law and changes proposed include issues such as government control of the sector,
environmental checks, the creation of a national fund with monies received from mining and the
formalization of the royalty percentages paid by companies to the State. In the words of
Minister for Energy and Mining Erick Archila, “The reforms look to modernize the law...provide
better methods for environmental evaluation, give a better distribution of royalties to
communities, establish obligatory information mechanisms for companies and to set royalties in
a permanent manner rather than under voluntary agreements.” Regarding the likely key issue
of royalties, its expected that Guatemala will set them at between 5% and 8% of gross
revenues and the project envisages a distribution of 40% to a newly set-up mining fund, 35%
for municipalities where mining activity takes place, 20% for the departments where mining
takes place (the larger regions that include the smaller municipalities) and the 5% left for
funding ministerial activities in the Mining and Energy ministry and the Environment ministry.
So that’s the rough outline of what was presented to parliament last week, but we need to
point out clearly that critics (10) (11) are already raising their voices on this law bill, with a
main anti-mining group CALAS strongly critical that the new bill does not include an obligatory
community consulting clause as per OIT169 (to which Guatemala is a signature member), as
well as other complaints about the bill’s content. Also, as stated at the top of this section,
passage through congress of this bill, whether in its present state or watered down as it goes
along, is not a given in a country such as Guatemala with weak institutions. We should consider
last week’s events a positive step towards a modern mining sector in Guatemala, but not much
more than a single step for the time being. A story we’ll watch carefully for developments in the
weeks and months ahead.
Mexico’s new mining law
On Friday, changes to the current mining law in Mexico were published in the country’s official
gazette (thus making them law) by Mexico’s Finance Ministry (rather than the energy or mining
industry). The changes are largely technical in nature and revolve around making the permitting
and paperwork flow needed between companies and country easier and more flexible. The
general theme of “administrative simplification is the one that’s been disseminated by the
government and picked up by media, for example here (12). The new laws have been
hammered out in committees that included all the main mining bodies of the country and as
1

well as aimed at making paperwork easier, they give more authoritiy to both national and local
government to check on operations at any given mine and to check legal ownership of
concessions. Overall, nothing much to grab headlines here as good news is no news (& vice
versa). Mexico remains a serious mining country with the majority of its territory welcoming to
the sector.
Peru: Buenaventura’s (BVN) Orcopampa mine goes on strike
On Tuesday October 9th strike action begin at Buenaventura’s (BVN) main wholly owned gold
mine, Orcopampa, responsible for 260,000 oz Au production in 2011 (though we note that
BVN’s main source of revenues comes from its minority 43.65% holding in the Yanacocha S.A.
JV with Newmont). However, official word of the strike action didn’t reach the market until
Friday (13), when the company notified Peru’s stock market regulatory body.
Workers on strike at Orcopampa are mainly those employed via third party subcontractors and
their beef is that they’re paid much less than the directly employed workforce as well as lacking
extra benefits such as healthcare plans and a share of profits under Peru’s worker profit sharing
scheme that diverts 8% of pre-tax profits to the workforce. Despite the fact that the
government authorities have deemed the strike illegal (i.e. it doesn’t follow the national
procedures for formal industrial actions) the strike action is reportedly continuing this weekend.
We note that BVN, headed by the same Roque Benavides whose aloof attitude has done
nothing to help the Yanacocha Conga situation, has a track record of not negotiating with
worker demands on things such as pay (particularly the thorny issue of third party
subcontractor pay) and there’s a track record of this sort of industrial action at their mines.
We’d eventually expect a negotiated agreement on this specific issue, but companies such as
BVN aren’t getting away with the relatively cheap labour costs of yore in Peru any longer.
Consider this another example of the cost pressure in mining.
Venezuela election wrap-up
We now know that there was no surprise and Hugo Chávez Frias was re-elected as Venezuela’s
President last weekend by a relatively comfortable 11 point margin over main rival Henrique
Capriles. Due to this there was no Flash update on Monday morning and there will be no mining
recos for the country in the indefinite future, either. And if the word on Anglo American at Loma
de Niquel is true (and there’s little reason to doubt the word of somebody as well versed in
Venezuelan business affairs as Setty (14)), soon we’re going to have a real live example of
what we can expect from Venezuela’s mining sector in the years to come. Setty reports on
reliable word that the Anglo licence is not going to be renewed when its time is up next month
and the most likely situation is that the mine reverts back to the State in what can be described
as a quiet nationalization.
Peru: Conga ignored
If you hadn’t noticed that protests against the Yanacocha S.A. (NEM/BVN) Conga gold mining
project in Cajamarca re-started last week and a reported (15) 1,000 people have now
congregated next to one of the lakes slated to be drained and replaced with a man-made
reservoir, then you’re not the only one both outside and inside Peru. There’s a clear strategy
now playing out, with the government giving the order to (and getting obedience from) the
main Peru media channels that a big fuss is not to be made of Conga any longer, airtime
stripped away from the protesters and their leaders not given the opportunity to make polemic,
headline-grabbing statements. As I write this note Saturday midday the protests have gone on
for a full six days around the threatened lakes but on the TV that’s making background noise as
I type, a full 50 minutes of the main national lunchtime news program have gone past with nary
a word about Conga.
Changes at the top in Yanacocha
Meanwhile Carlos Santa Cruz, head of Newmont South America and the point man for the
majority-owners of Yanacocha in Peru Conga and all, is being transferred (16) to the job of
Senior VP Asia Pacific as from February 2013, with his job being taken by Tood White, current
NEM VP for Corporate Excellence (like that job title). However, it’s notable that Mr. Santa Cruz
1

has already stepped down from his South American job which is now being done on an interim
basis by Javier Velarde, a company lawyer. Although the company and some commentators
have tried to make out that the transfer is to a job of equal importance inside NEM, there’s little
doubt amongst those of us with some basic common sense that NEM’s musical chairs is a
verdict on the poor job done in moving Conga forward in the last couple of years. It remains to
be seen whether NEM can make the new move count or whether it will be judged on a
corporate rather than individual level, but it’s fair to say that a new face at this time makes
sense if, as we fully expect (and have mentioned on several occasions) the company is looking
to calm the conflict and spin wheels until the 2014 Peru regional elections come around and
main Conga foe Gregorio Santos loses his job as regional governor of Cajamarca.
Colombia: Peace process not starting well
I’d like to be a little more optimistic about the official start to peace process talks between the
FARC-EP scumbags and the government of Colombia, due to start tomorrow October 15th in
Oslo Norway, but newsflow from the country suggests that the FARC is trying its hardest to
scupper talks (and therefore likely blame the government for breaking off negotiations, their
usual tactic). The Norte de Santander region reported FARC attacks this weekend (17) with
power lines sabotaged (explosions to pylons) and an “armed strike” called by the terrorists
(note: an “armed strike” differs from a normal strike action by militants and calls for armed
roadblocks, disruptive tactics etc from FARC groups). Far too many negotiations between these
two sides have been announced with good intentions but then entered into in bad faith (by
both sides, not just the FARC) and ended by achieving nothing. Though as Churchill said, jaw-
jaw is better than war-war so we therefore keep hopes intact.
Market Watching
Goldquest Mining (GQC.v): A comment on geology knowledge
“If you want to know about geology, ask a geologist.” We’ve used that little ditty on these
pages previously and it came to mind once again when watching the recommendations on what
to do about (former?) market hotpot Goldquest Mining (GQC.v) (disclosure, no position) fly
around the sector last week. The main issue was the company NR from last Thursday (18) that
reported good intersects, but according to experienced professional geologists that your author
reads and trusts the results are now suggesting that the best grades of the company’s ‘Romero’
property in the Dominican Republic are likely contained in a small plug rather than in a wide
zone of big mineralization. Meanwhile, other stock promoters and one in particular (and for
once I’m not going to name names, suffice to say it’s one of the big ego-fuelled BSsers of the
promo trade) who isn’t a professional geologist but likes to pretend he is, continues to talk up
the GQC results and encourage his many readers to get on this potential ten-bagger.
The spectacle as I watched from the sidelines (I repeat, no position in this stock and not going
to take on either) reaffirmed my own decision to move away from the exploration end of junior
mining, especially those companies in early stage work that rely on raw exploration data to
make their cases for investment. Professional, qualified geologists don’t just have a slight
advantage in these cases, they have a knowledge advantage that’s miles ahead over non-geol
grunts like me. Over the years of following this sector I know I’ve picked up that-n-that type
knowledge of rocks, metallurgy, drilling and a hundred other etcs, but I’m also aware that this
type of pick-it-up-as-you-go knowledge is often missing key basic knowledge to underpin
diagnosis, it’s patchy at best and sometimes it’s more dangerous than it is useful. Covering
producers is, for me, a far more comfortable affair, as is covering exploration plays with
advanced plans or plenty of resource information available. Not for me is the early stage play
because I don’t pretend to be a geologist and never will do, either. Beware those who do.
Liberty Silver (LSL.to) (LBSV.ob) redux
A little follow-up note to the report last week that was then put on the blog (and caused a
serious spike in visitors, too) to note and address a few issues arising.
1

Firstly a practical point and the part about “if it ever trades over a buck again” can by all
accounts be discarded forever, as several readers (subbers and blog readers) have noted to
your author (who agrees) that the move by the SEC to put the LBSV ticker onto the so-called
“gray sheets” and make trading access for brokers difficult is invariably a death knell for a
stock, no matter whether it’s on the TSX main board in Canada or not. To whit, if you find
yourself holding shares in this company today, the best advice possible is to get out at the first
possible opportunity (if one arises) and take the hefty loss that it implies, sadly.
A number of questions came in about the origins of the as-yet unpublished report that was
source material for some of last week’s report, particularly the part about insider holdings of
LSL. I repeat that I have been denied permission to pass on the PDF to third parties, so sorry
and all that, until that denial is reversed I must stick by the author request, though I will
happily publish the report and forward to all those wanting a copy the moment I am allowed to
do so. I’d also like to repeat that I am fully confident of the veracity of the report’s findings and
yes, it’s the same report that was mentioned by Financial Post’s Peter Koven in his Saturday
October 13th report (19).
Regarding the contents of the report, I’d like to make clear that there was a lot, as in a lot of
information that I didn’t use in last week’s IKN note on LSL, including several ‘smoking gun’
type connections between Genovese and LSL via third parties that make underhanded
connections between him and the company very clear indeed. I understood last week that the
authors intend to allow the report to come to light eventually (in their own time) and as such
didn’t want to steal all the thunder. After all, credit to where credit is due.
Great Panther Silver (GPR.to) (GPL) 3q12 production numbers
Pre-bell Wednesday morning Great Panther Silver (GPR.to) (GPL) announced (20) its 3q12
production results. As most round these parts
know, I’m no fan of this company and still
consider it overrated and overpriced, that opinion
is based in the numbers rather than any personal
grudge. In that respect it’s one that’s worth
keeping an eye upon, because if the facts change
I’ll quote JM Keynes and change my opinion. As it
happens, last week’s 3q12 results from GPR didn’t
inspire much and it shows in the way the
company traded last week,
But it’s worth considering just why that is so.
We’ll do that here via tracking charts in an
abridged form (picking out what I think are the
GPR: Average daily tonnage throughputs at
main issues with GPR today).
700 Guanajuato and Topia mills
600 W thr e o u s g ta h r p t u w t ith a t thi i s t s cha tw rt o tha o t p e c r o a v t e in rs g to m nn in a e g s e , 500 81 101 122 131 132 132 136 132 160
85 108 102 114
Guanajuato and Topia. The aggregate of the 400
two was 640tpd average over the quarter, a 300
new record for the company (and Topia 200 381 443 388 382 397 434 478 492 455 441 426 450 480
showing up particularly well compared to its 100
track record).
0
However, when we compare silver production
(the mines produce certain levels of Au, Zn and
Pb by products, but the benchmark of GPR will
always be its silver production) we see that things have remained at-or-about the same levels
for the last five quarters and below the levels seen in 2009 to 2011. As a sidebar, we point out
1
90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3
source: company filings
dellim
dpt
cirtem
Guan tpd Topia tpd

that in 2009 to 2011 the company made no end of forecasts and promises significant
production growth in its future; the reality has been 180º from that.
GPR: Ag production by mine, per qtr
450000
400000
350000
300000
250000
200000
150000
100000
50000
0
1
90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3
source: company filings
gA
zo
Topia Ag prod
Guanajuato Ag prod
So if throughput tonnages are up but production is basically unchanged, this would indicate that
as long as recovery percentages were on track (and they are, see the NR for details) the likely
situation at both mines is deteriorating
grade and indeed, if we home in on that GPR: Silver grades (g/t) per qtr
g/t Ag
dataset we see the situation is long-
550 Guanajuato
standing. Gradual drops in grade over time
500 Topia
are the story at both mines, which means 450
that the company needs to up its 400
350
throughput just to be able to stay at the
300
same-ish overall production rate. And thgis 250
is in spite of company assurances that the 200
150
grade issue was being addressed, with
100
lines such as “...this has been off-set by a 50
drop in ore grades at both operations. The 0
latter is being addressed and management 3q10 4q10 1q11 2q11 3q11 4q11 1q12 2q12 3q12
expects an improvement in grades in the source: company filings
coming quarters” turning up in the 3q11
MD&A. With running costs in Mexico (and the world for that matter) generally rising and more
rock needs to be pushed through to produce the same amount of metal, we’d also expect cash
costs to have risen when GPR reports its quarterly financials in mid-November. As for the grade
depletion, we’d already noted in 2q12 that GPR was falling behind on its 2012 production
forecast so this part of the announcement...
“However, based upon production to date, and expectations for production for the
remainder of the fourth quarter, the Company is adjusting its guidance for metal
production to a range of 2.2 to 2.4 million Ag eq oz for fiscal 2012 as compared to 2.5
to 2.75 as previously anticipated.”
...came as no surprise at all.
What we now have is a company running to stand still in production and that shows up over at
its balance sheet, too. Here’s the assets breakdown chart that sees growth inertia and a slight
depletion in underlying treasury

GPR.to: Assets Breakdown per qtr
120
110
100
90
80
70
60
50
40
30
20
10
0
1
80q4 90q1 90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2
source: company filings
srallod
fo
snoillim
fixed
other current
cash&eq
Homing in on working cap (the last chart today, this is only a quick overview) we can see that
ever since the grand promises big growth of early 2011 that padded out the $24m bought deal
which coincidentally closed in April of that year,
60 GPR.to: Working Capital per qtr
the company has never managed to return much
55
in the way of significant quarterly profits and often 50
reports quarterly losses, even in this high silver 45
40
price scenario. Its high cash cost profile (that it
35
hides in the financials) doesn’t help matters, but it 30
25
would provide a good leverage play if silver prices
20
rose sufficiently. 15
10
5
This is another note that could go on for a long
0
while yet, but as the idea was just to outline the
case against GPR as a producer we’ll stop here.
Not only is GPR my idea of a mediocre and
overhyped mining company, it also acts as a
blueprint for the type of company into which I don’t want to invest. It may offer up the
occasional punctual trading opportunity, especially if silver runs higher and gives its high cost
profile a chance of returning good profits for once, but a clear line should be drawn between a
trade and a true investment. It also offers CEO Robert Archer a $35,000/month cash pay
package (extras on top later) so there’s at least one stakeholder that benefits (and others in
well paid management positions, of course). But the over-promising of this company, coupled
now with assets that are looking longer in the tooth by the quarter, means that GPR is still a
stock to avoid even as producers make headway against the explorecos. But more importantly,
it’s the type of producer junior that it represents which is the real lesson. The silver lining is that
if GPR can command a $270m market cap just by running to stand still, there really is value
potential in Jaguar Mining (JAG) today as mentioned above in ‘Fundamentals...’ as its market
cap is but a third of GPR’s.
The Sanchez-Paredes bank account freezing may affect Sulliden (SUE.to) down the
line
The story last week that we featured on the blog (22) (23) but was also covered in detailed
style by Peru’s Caretas magazine in this Spanish language link (24) about the bank accounts
held by members of / companies belonging to the Sanchez-Paredes family in Peru and frozen
by the U.S Justice Department may have negative consequences for Sulliden Gold (SUE.to). As
this 2009 report in Peru’s La Republica points out (25), SUE and the Sanchez-Paredes (S-P)
family (long assumed to be up to their necks in narcotrafficking and to the point where only
media outlets worried about lawsuits stick the words “assumed” and “allegedly” into their
stories to cover their collective rear ends) SUE decided that rather than continue a legal
action/counteraction suit between itself and the Algamarca company owned by the S-P that was
expected to go on until 2015, the company decided to reach an out of court settlement with the
S-P and was granted undisputed ownership of the Shahuindo property in exchange for
multimillion dollar payments to the family. The agreement reached saw SUE pay Algamarca (i.e.
80q4 90q1 90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2
source company filings
srallod
fo
snoillim

the S-P family) $13.5m in cash and issue them with 9,575,000 shares of SUE.to, which
represented 9.8% of shares out at that time. The final part of the settlement was also a 1.5%
NSR on Shahuindo production that SUE had the right to buy back later on and did so, for $11m
in December 2011. In other words, SUE paid the S-Ps $24.5m and issued them 9.575m shares
for in order to amicably settle the disputed ownership of Shahuindo (even though SUE
maintains that it was in the right all the time) instead of contesting the case in court.
Now that the USA is taking a far more active role in clamping down on this narco family
(contacts tell your author that word from the U.S. Embassy in Lima is the the USA has run out
of patience with the obviously corrupt judiciary investigating the S-P case and last week’s move
was nothing short of a rude wake up call to Peru the country on its whole manner of treating
cocaine trafficking) it may turn out that SUE gets into hot water for cutting settlement deals
with this family. This three month price chart shows that Sulliden shares did a good job of
recovering with the sector from the
mid-August period to early
September, but since then has been
knocked back first by a lacklustre
feasibility study (26) for Shahuindo
and then by a shareholder rebellion
against an “overly generous” (shall we
say?) bonus scheme that its
management team, led by Executive
Chair Stan Bharti, tried to implement
only to later withdraw the plan. Now
that the AGM is done and dusted (on
October 10th and as reported on the
blog (27) Mr. Bharti hardly got a vote
of confidence from his backers) we
should watch to see whether SUE’s
past in dealing with the S-P catches
up with the company. To gauge that, we’d look for further share price declines on accelerated
volumes.
Conclusion
IKN180 is done, we close with bullet points:
• We’re adding to our IRL position next week and it’s now going to be a chunky one. The
time spent with the IRL people made the week’s trip all worthwhile and never mind the
crappy Lima weather.
• Rio Alto (RIO.to) is in good shape too, though there is a chance that it won’t be able to
live up to the highest market expectations in the rest of 2012, thanks to that slight
delay on the throughput upgrade. No matter, this stock is a winner all the way and
even though we still have our nominal target at $6.29 once the sulphide plans really
start to be factored into the share price action, I’d expect RIO to go a lot higher in
2013. Top Pick, yes you bet it is.
• However, we say goodbye to Sunward (SWD.to) and Strait (SRD.v) as of this week, not
easy ones to let go but circumstances make it the right call in both cases. Good
companies, good people on board, but not for The IKN Weekly for the time being.
• I know that some people don’t like me showcasing stocks that underperform such as
Great Panther (GPR.to), but I think it’s almost as important to look at the cases that
don’t stack up for my own personal education as it is to look at the strong performers.
2

• As for the future, you now know that Jaguar Mining (JAG) has my eye as a potential
turnaround play. If the 3q12 numbers come in well, expect to read a whole lot more on
the company on thse pages.
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://finance.yahoo.com/news/jaguar-mining-announces-appointment-david-110000913.html
(2)http://www.newswire.ca/en/story/1050507/oceanagold-q3-2012-financial-results-conference-call-webcast
(3) http://www.aminera.com/mas-noticias-nacionales/43962-nuevo-gerente-de-minera-dayton-se-reune-con-
representante-de-la-seremi-de-mineria.html
(4) http://finance.yahoo.com/news/exploration-reventon-outlines-1-300m-123000472.html
(5) http://finance.yahoo.com/news/lara-options-chocos-polymetallic-project-113000440.html
(6) http://www.laraexploration.com/chocos-project
(7) http://finance.yahoo.com/news/lumina-copper-announces-strategic-review-123000403.html
(8) http://puj-portal.javeriana.edu.co/portal/pls/portal/docs/1/3844071.PDF
2

(9) http://www.congreso.gob.gt/noticias.php?id=3677
(10) http://www.s21.com.gt/editorial/2012/10/14/propuesta-ley-minera-requiere-revision-profunda
(11) http://noticias.emisorasunidas.com/noticias/nacionales/critican-propuesta-reformas-ley-mineria
(12) http://www.eluniversal.com.mx/notas/876441.html#1
(13) http://noticias.terra.com.mx/mundo/america-latina/huelga-en-mina-peruana-buenaventura-afecta-
produccion,fe192ca16755a310VgnCLD2000000dc6eb0aRCRD.html
(14) http://settysoutham.wordpress.com/2012/10/12/exclusive-anglo-american-out-of-venezuela-in-a-month/
(15) http://www.noticiasser.pe/12/10/2012/cajamarca/conga-quinto-dia-de-manifestaciones-en-las-lagunas
(16) http://www.noticiasser.pe/10/10/2012/cajamarca/cajamarca-primeras-reacciones-ante-el-anuncio-del-retiro-de-
carlos-santa-cruz-d
(17) http://cmi.com.co/?n=90929
(18) http://finance.yahoo.com/news/goldquest-expands-mineralization-footprint-romero-151700334.html
(19) http://business.financialpost.com/2012/10/12/junior-miner-liberty-silver-under-double-scrutiny/
(20) http://finance.yahoo.com/news/great-panther-silver-reports-third-120000659.html
(22) http://incakolanews.blogspot.com/2012/10/gold-and-cocaine-and-peru-and-usjd-and.html
(23) http://incakolanews.blogspot.com/2012/10/minyanville-does-sanchez-paredes.html
(24) http://www.caretas.com.pe/Main.asp?T=3082&S=&id=12&idE=1069&idSTo=0&idA=61277&NL=1
(25) http://www.larepublica.pe/04-03-2009/sulliden-y-sanchez-paredes-resuelven-pelea-por-propiedad-de-emporio-de-
oro
(26) http://finance.yahoo.com/news/sulliden-announces-results-shahuindo-feasibility-110000422.html
(27) http://incakolanews.blogspot.com/2012/10/the-sulliden-sueto-agm.html
Stocks To Follow Closed Positions, 2011
Closed in 2011 closed close PPS
Sunward Res SWD.v jan'11 C$1.05 21-nov-10 C$1.63 55.2% target made, trade closed
Serengeti Res SIR.v mar'11 C$0.245 05-dec-10 C$0.285 16.3% sold pre-tgt, ST trade fail
Fronteer Gold FRG apr'11 U$2.37 03-may-09 U$15.24 543.0% buyout, trade closed
Minefinders MFN apr'11 U$9.09 07-nov-10 U$16.89 85.8% target made, trade closed
Metalline Min. MMG may'11 U$1.04 26-jan-11 U$0.89 -14.4% exit, resource disappointed
Peregrine Met PGM.to jul'11 C$0.87 06-mar-11 C$2.60 198.9% buyout offer, closed
Dynasty Metals DMM.to jul'11 C$4.20 03-may-09 C$2.85 -32.1% Sold. Fail. Move on.
Aura Silver AUU.v aug'11 C$0.22 13-oct-10 C$0.16 -36.4% Bad pick. Take loss
U.S. Silver USA.v aug'11 C$0.52 26-jan-11 C$0.71 36.5% closed to make room
B2Gold Corp BTO.to sep'11 C$2.80 12-may-11 C$4.27 52.5% target made, trade closed
Bear Creek Min. BCM.v sep'11 C$3.80 27-may-11 C$4.17 9.7% macro sell call victim
Minefinders MFN sep'11 U$14.70 10-aug-11 U$15.15 3.1% macro sell call victim
Great Panther GPR.to sep'11 C$3.03 22-aug-11 C$2.64 -12.9% macro sell call victim
Fortuna Silver FVI.to sep'11 C$1.07 03-may-09 C$5.36 400.9% sold 20%, macro sell call
Focus Ventures FCV.v nov'11 C$0.40 20-apr-10 C$0.20 -50.0% cut losses, bad trade
Regulus Res. REG.v dec'1 C$1.17 14-aug-11 C$0.52 -55.6% cut on news of poor 43-101
2009 and 2010 closed positions in appendices below
2

Stocks To Follow Closed Positions, 2010
Closed in 2010 closed close PPS
B2Gold Corp BTO.to Jan'10 C$0.88 08-nov-09 C$1.49 68.2% target made, trade closed
Radius Gold RDU.v Jan'10 C$0.18 23-aug-09 C$0.40 122.2% target made, trade closed
MAG Silver MVG mar'10 U$5.60 23-nov-09 U$7.28 30.0% closed in pdac week
Riverside Res RRI.v mar'10 C$0.435 20-sep-09 C$0.60 37.9% closed in pdac week
Amarillo Gold AGC.v mar'10 C$0.81 31-may-09 C$0.70 -13.6% closed in pdac week
B2Gold Corp BTO.to apr'10 C$1.24 18-feb-10 C$1.50 21.0% target made, trade closed
Lumina Copper LCC.v apr'10 C$0.84 14-jun-09 C$1.55 51.2% total position now sold
Troy Resources TRY.to may'10 C$1.10 03-may-09 C$2.25 104.5% sold on negative results
AuEx Ventures XAU.to may'10 C$2.51 24-may-09 C$3.38 34.7% trade closed
Nevada Copper NCU.to jun'10 C$3.27 14-mar-10 C$2.03 -37.9% need to lower Cu exposure
Carpathian Gold CPN.to jun'10 C$0.39 14-mar-10 C$0.35 -10.3% too exposed to cap raising
Amerix PM Corp APM.v jun'10 C$0.065 08-nov-09 C$0.05 -23.1% victim of macro bear
Antares Minerals ANM.v jun'10 C$1.42 06-dec-09 C$2.10 47.9% sold half
Vena Resources VEM.to jun'10 C$0.37 31-may-09 C$0.23 -37.8% sold half
Minera Andes MAI.to sep'10 C$0.75 28-jul-10 C$0.95 26.7% ST trade closed
Gold-Ore Res GOZ.to sep'10 C$0.52 01-aug-10 C$0.75 44.2% target made, trade closed
B2Gold Corp BTO.to sep'10 C$1.45 25-may-10 C$2.01 34.5% target made, trade closed
Blue Sky Uran BSK.v oct'10 C$0.41 19-may-10 C$0.22 -46.3% v small v bad trade closed
Dia Bras Expl DIB.v oct'10 C$0.14 30-aug-09 C$0.35 150.0% target made, trade closed
S. Amer. Silver SAC.to nov'10 C$1.38 24-oct-10 C$1.60 -15.9% loss on short, small fail
Ventana Gold VEN.to nov'10 C$7.92 27-jun-10 C$13.51 70.6% trade closed on buyout
Lumina Copper LCC.v nov'10 C$1.42 11-aug-10 C$3.65 157.0% trade closed
Antares Minerals ANM.v dec'10 C$1.42 06-dec-09 C$8.40 491.5% trade closed
Rio Alto Mining RIO.v dec'10 C$0.69 23-mar-10 C$2.16 213.0% trade closed
Coro Mining COP.to dec'10 C$0.585 03-oct-10 C$1.24 112.0% target made, trade closed
Stocks To Follow Closed Positions, 2009
Closed positions closed closing PPS
Cardero Res CDY/CDU.to May'09 U$1.20 03-May-09 U$0.87 -27.5% sold on negative news
Eastmain Res. ER.to May'09 C$1.04 06-May-09 C$1.315 26.4% trade closed
Radius Gold RDU.v May'09 C$0.165 03-May-09 C$0.235 42.4% trade closed
Latin Amer Min. LAT.v May'09 C$0.12 03-May-09 C$0.158 29.2% trade closed
Aquiline Res. AQI.to July'09 C$2.03 16-Jun-09 C$1.68 -17.2% took loss, bad timing
Chariot Resources CHD.to Aug'09 C$0.20 12-Jul-09 C$0.415 107.5% trade closed
Castle Gold CSG.v Sep'09 C$0.64 02-Aug-09 C$0.60 -6.3% ST trade didn't work out
Guyana Goldfields GUY.to Sep'09 C$2.30 12-May-09 C$4.50 95.7% profit taken
Los Andes Copper LA.v Sep'09 C$0.09 21-Jun-09 C$0.09 0% trade closed
Pediment Gold PEZ.to Oct'09 C$0.80 09-Aug-09 C$1.00 25.0% trade closed
Minera Andes MAI.to Oct'09 C$0.68 03-May-09 C$0.71 4.4% too much bad news
Dynasty Metals DMM.to Nov'09 C$4.18 03-May-09 C$6.01 43.8% half sold
Rusoro Mining RML.v Nov'09 C$0.55 03-May-09 C$0.57 3.6% underperformed
Important Disclosure
The information and opinions contained within this report reflect the personal views of the author and therefore all
material within should not be construed as accurate or reliable or be utilized as advice for investment or business
purposes. Independent due diligence and discussions with ones own investment and business advisor is strongly
recommended. Accordingly, nothing in this report should be construed as offering a guarantee of the accuracy or
completeness of the information contained herein, as an offer or solicitation with respect to the purchase or sale of any
security or as an endorsement of any product or service. All opinions and estimates included in this report are subject to
change without notice. It is prohibited to copy or redistribute this report to any type of third party without the express
permission of the author.
2