IKN #186Premium

The IKN Weekly
Week 186, November 25th 2012
Contents
This Week: One trade planned, Distracted.
Fundamental Analysis: Galway Resources (GWY.v): Adding to the recently opened position
and adding GWY.v to our ‘Stocks to Follow’ list as of next week. Lara Exploration (LRA.v) 3q12
numbers.
Stocks to Follow: Overview, OceanaGold (OGC.to), Aurcana (AUN.v), Rio Alto (RIO.to), AQM
Copper (AQM.v), Lupaka (LPK.to), Focus (FCV.v), Minera IRL (IRL.to).
Copper Basket: Overview, Augusta (AZC.to), Nevada (NCU.to).
Regional Politics: Overview, Peru: Gregorio Santos now under legal pressure, Inside Story
Americas – Time to monitor Guatemala’s mining sector, Guatemala THO update, Dominican
Republic/Haiti: The elementary level of environmental debate, Peru: water prices for mining
companies to rise, Peru: La Zanja expansion program opposed by regional politicians,
Argentina’s debt “default” and how it might affect mining
Market Watching: MAG Silver (MVG) (MAG.to) update, Fortuna (FVI.to) (FSM) back at $5,
Still undecided on B2Gold (BTO.to).
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
Next week’s trade heads up
The jury is still out on whether to buy back into B2Gold (BTO.to), but there is one trade decided
upon and planned next week so here’s a nice clear top-box notelet to make sure it’s seen by all.
I plan to add to my recently opened position in Galway Resources (GWY.v) and because it’s
now of a certain size, as per next week this near-term trade will make it to the official ‘Stocks to
Follow’ list. Details below.
Distracted
You may notice (and even grumble about the fact) that this week’s edition is somewhat lighter
than the normal week, which I could explain by pointing to the shorter Thanksgiving market
week in the USA and the subsequent knock-on effects in light volume trading in Canada and all
other interconnected bourses. But if I said that it wouldn’t be true, because last week I largely
took last week off. I found myself at my desk every morning as usual, put this-and-that on the
blog, read the necessary news releases and generally kept in touch with the market, but once
the main counting and reference work was done I made a point of getting out the office, out
the house and doing things unrelated to my normal working week or just kicking back and
taking braintime off with the family, a film and book or a restaurant.
As a result, I wasn’t paying so much attention, nor did I have the normal amount of prep work
done at the end of the week to fill up the Weekly in the way it normally gets filled. The other
thing I didn’t do was to open and spend time refining my model for B2Gold (BTO.to) because
once I’d made the active decision not to buy the stock this week (see below for reasoning) I felt
less inclined to write up the stock as a NOBS report this week, as I’d kind of slated in. The in
1

depth analysis and call can wait until the buy happens, I think at least. So yes, I was lazy last
week, unashamedly and undoubtedly lazy. With the market likely to enter into a busy period
and attention needed during December and January it gave me the chance to recharge the
batteries and get rid of a stale feeling that was creeping up on me...in short, it was nice to get
away.
On the subject, I’d like to make clear today that I will not be taking any normally scheduled
vacations during the Southern hemisphere summer vacation period, so apart from a reduced
level service in the single edition of The IKN Weekly in Christmas week and published
December 30th, service will be uninterrupted this year. This time around there’s going to be too
much to do.
Fundamental Analysis of Mining Stocks
Galway Resources (BWY.v): Buying more, adding to ‘Stocks to Follow’
Back in IKN181 we noted the takeover deal that Eike Batista’s AUX had made for Galway
Resources (GWY.v) and although not making the stock part of the official IKN Weekly ‘Stocks to
Follow’ the stock was bought by your author, price $2.17. This two month chart does as good a
job as anything in explaining what’s happened since then:
The answer is, not a lot. Friday’s close of $2.19 is slightly down on the typical $2.22 or abouts
we saw once things had settled down, but we’re still only counting this win in pennies to date.
This is why it’s getting a second mention today, because the chances of this deal falling through
are between slim and none and there’s still plenty of value on offer from a potential trade.
Here’s how we summed things up in IKN181 at the time and it’s all true today as well:
As of last Thursday, GWY dumped all outstanding files (43-101’s Management Information
Circulars etc) onto SEDAR and called for the plan of arrangement meeting to happen on
December 17th, so we now have a fixed schedule that should lessen concerns about time value
of money for this arbitrage. This is one of the better arb deals I’ve seen out there, as even if
2

the Victorio spinco (the New Mexico W-Mo property + cash) gets sold down hard by people
liquidating for the cash, you’re still likely to see much loyalty for the Colombia spinco because
the GWY team are keen on moving it forward and the location is strong (see IKN181 for more).
So to the personal call here, and as the title line suggests I’m going to add to my position here.
I find myself with portfolio (and back pocket) space to add to junior positions and the shorter-
term scenario with very litle downside risk that is GWY today appeals more than holding a bit
too much cash than is necessary. Because of this, I’m going to add the position to the ‘Stocks
to Follow’ list as of next week (there’s space there as well) because it’s going to be a bit too big
to ignore, assuming I get what I want at the price I want ($2.20 or below). The upside here
won’t ever be of the blow-your-socks-off megawin, but as arb opportunities go it’s really fairly
juicy (at around 16% IKN calculation on Friday’s close) and unless Eike Batista goes something
close to bankrupt in the next month or there’s a sudden and utterly surprising GWY shareholder
rebellion, this deal will happen.
This one isn’t rocket science, it’s a value proposition that’s more than backed up by the cash
component in the deal ($2.05 cash payola, then 19.3c per share in treasuries at the two new
spincos) even if you prefer to be extremely harsh in these difficult times and value the property
assets at total zero (and that’s without the goodwill of the “loyalty bonus” the winning GWY
that CEO Hinchclife and his management team will bring into the newcos, especially the
Colombian one). I like the math and due to the fact that the stock has dropped off the market
radar and not moved much since the big announcement, I’m going to take advantage of this
still low entry point and buy more. But this time, it’s official.
Lara Explorations (LRA.v) 3q12 results
This weekend saw Lara Explorations (LRA.v) report its quarter, so with room this week to fill
‘Fundamentals...” with at least something we’re checking out the numbers and how we expect
the company financials to develop in the quarter (or even quarters) to come, instead of sticking
all in ‘Market Watching’ below. For the task, here come our usual suspects charts.
LRA.v: Assets Breakdown per qtr
15
14
13
12 11
10
9
8
7
6
5
4
3
2
1
0
Assets saw cash at bank drop to a smidgeon over $1m, with total assets at $6.65m. Since the
end of the quarter LRA has added significantly to the pile by running a placement that started
at $3m but was upped to $5m by demand. That placement sold 4m units (1 unit = 1 share + 1
warrant at $1.85 that’s good for two years) to raise gross proceeds of $5m and makes a big
difference to the tightly run LRA’s books. Meanwhile, liabilities remain as close to zero as an
ongoing concern exploration company can manage, an optimum situation.
This means that the working capital chart now looks like this below, will look close to that in
4q12 and onto the new cash total we’ve added a few bars that represent the working capital
position through 2013 and into 2014. As you can probably make out, even by assuming a
somewhat steeper quarterly cash burn at LRA than over the last four years (ever the
conservative am I), as long as LRA continues its operations at its standard rhythm is has
enough funding to make it easily into 2014. At the time of the placement I gave it a cautious
3
70q4 80q1 80q2 80q3 80q4 90q1 90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 tse21q4
source: company filings
srallod
fo
snoillim
LRA.v: Debt Breakdown per qtr
2.5
fixed
2.25 other current
cash 2
1.75
1.5
1.25
1
0.75
0.5
0.25
0
70q4 80q1 80q2 80q3 80q4 90q1 90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 tse21q4
source: company filings
srallod
fo
snoillim
LT debt
current debt

welcome, which is now confirmed with 20/20 hindsight as the company timed it well, got in
when the Bernanke QE3 pop was in full flight and the window of opportunity was opened for
juniors to add cash. Now that market conditions have somewhat deteriorated again (according
to wise voices at least) the deal done looks that much better.
LRA.v: Working Capital per qtr
6
5.5
5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
4
70q4 80q1 80q2 80q3 80q4 90q1 90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 tse21q4 tse31q1 tse31q2 tse31q3 tse31q4 tse41q1
source company filings, IKN ests
srallod
fo
snoillim
As for operations, here’s the latest bar added to the chart and as we expected when opening
coverage on LRA in IKN153 dated April 8th, burn rate has dropped in the last two quarters.
Back in IKN153 we assumed an overall burn that would average $700,000 per quarter so at
around $900k average over the last two it’s a little higher than expected, but it’s not out by
tonnes on an absolute level either and with new funds now in, it’s a rhythm that’s eminently
manageable.
LRA.v: Expenses Breakdown
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
60q4 70q1 70q2 70q3 70q4 80q1 80q2 80q3 80q4 90q1 90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3
source: company filings
srallod
fo
snoillim
travel costs share based payment
mgmt fees prof fees
other exp. exploration
office/rent/admin etc
The bulk of burn still goes on direct exploration of properties, with the grassroots type geology
that LRA does well in order to collect data that
would then interest larger partners to JV deals. LRA.v: Shares Out
35
That’s the business model and it’s one that LRA
executes very well, with 16 projects now under JV 30
or partnership and all being moved forward using 25
OPM.
20
15
Shares out looks like this and we see the new
10
total after the 4m unit raise on the right. As at
this weekend LRA has 30.52m shares out and a 5
FD total of 37.13m. 0
70q3 70q4 80q1 80q2 80q3 80q4 90q1 90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4
source: company filings
serahs
fo
snoillim

Finally, the overall net loss table updates this way. We remind readers that the two negative
bars are there to record the net gains in the quarters (2q08, 1q12) thanks to sales and cash
received from partners.
LRA.v: Loss pre-items and Net Loss, per qtr
2
1.6
1.2
0.8
0.4
0
-0.4
-0.8
-1.2
-1.6
-2
5
70q1 70q2 70q3 70q4 80q1 80q2 80q3 80q4 90q1 90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3
source: company filings
srallod
fo
snoillim
loss before other items
Net Loss
As for operations, LRA reports that eight of its 13 projects in Brazil and eight of its 18 projects
in Peru are currently under JV deals. This leaves LRA
paying bills on 15 projects as it moves them forward.
LRA: Expl. costs at Sami, FY11/12 qtrs
It’s difficult to find fault with the way in which LRA has U$m
0.25
done business so far in 2012 and your author is a
0.196
happy shareholder of the company, but one nit that I 0.2 0.176
0.155
feel needs picking is the lack of a deal struck on its 0.15
0.117 0.108
Sami property in Southern Peru. On meeting the LRA
0.1
team on several occasions, they were particularly keen 0.049
0.05
on this project and suggested that a JV deal, probably
0
with a large company that could do the project justice, 0
was close at hand. It’s now over six months since that 1q11 2q11 3q11 4q11 1q12 2q12 3q12
source: company filings
time and no deal has manifested itself and as a glance
at exploration costs booked to the Sami project
indicate, the last quarter saw a drop-off in activity there which suggests LRA thinks its work is
done and the next stage should be a deal.
But really, this is about the worst thing I could find in a bunch of solid and attractive financials
posted by LRA this weekend. With the outlook for the industry looking rough, a position in a
solid, well-funded and tightly held company that gives manifold options for a discovery win is as
safe as it gets right now. Yours, a happy holder of LRA.
Stocks to Follow
Of our current batch of 12 positions open positions, five made gains last week (LPK.to, OGC.to,
AUN.v, AQM.v, FCV.v), three were unchanged on the week (RIO.to, PLA.v, USC.to) and four
dropped some (VEM.to, LRA.v, IRL.to, LSA.to). The best percentage win was seen in AQM
Copper (AQM.v up 21.4%) while the worst loser by quite a distance was Vena Resources
(VEM.to down 18.4%).
We have 12 stocks on our open positions list, three less than our self-imposed maximum. Five
of those stocks are green, one is unchanged and six left in negative territory.

Company Ticker this week Avg Price Reco date Current PPS Gain/Loss% Notes
Top Picks
Rio Alto Mining RIO.to buy C$2.04 07-apr-11 C$5.25 157.4% $6.29 tgt
Recommends
Vena Resources VEM.to hold C$0.70 31-may-09 C$0.16 -77.1% target lowered to 42c
Lupaka Gold LPK.to hold C$1.12 23-oct-11 C$0.465 -58.5% holding
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$0.44 -44.3% considering sale
Minera IRL IRL.to hold C$0.73 22-jul-12 C$0.90 23.3% $1.56 tg, added, new avg
OceanaGold OGC.to buy C$3.03 16-sep-12 C$3.50 15.5% $5.34 tgt growth prod
Lachlan Star LSA.to Spec buy C$1.50 30-sep-12 C$1.35 -10.0% $2.23 1st tgt
United Silver USC.to buy C$0.245 28-oct-12 C$0.235 -4.1% new position 60c tgt
Aurcana Corp AUN.v buy C$1.07 11-nov-12 C$1.07 0.0% new position $1.50 tgt
Smaller/Riskier
AQM Copper AQM.v hold C$0.31 16-oct-11 C$0.085 -72.6% considering sale
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
Strait Minerals SRD.v oct'12 C$0.125 09-dec-11 C$0.12 -4.0% closing coverage til FY13
Sunward Res SWD.to oct'12 C$1.47 13-mar-11 C$1.21 -17.7% sold, took loss
Gold Res Corp GORO oct'12 U$21.47 09-sep-12 U$17.40 19.0% Short trade closed
Yellowhead Min. YMI.to nov'12 C$1.00 01-apr-12 C$0.63 -37.0% sold, took loss
Primero Mining PPP nov'12 U$7.26 07-oct-12 U$6.73 7.3% Short trade closed
Bear Creek Min. BCM.v nov'12 C$3.38 07-nov-11 C$3.72 10.1% Took small profit
2009, 2010 and 2011 closed positions in appendices below
Now for some notes on a selection of the above stocks.
OceanaGold (OGC.to): The bright spot of an otherwise meagre week, OGC traded strongly
on volume in both Canada and Australia (though NZ volume (OGC.nz) was rather thin). We’re
now right at the point where OGC is expected to declare Didipio in operation and if all goes to
plan (and what could possibly go wrong?) we should benefit from the pop that comes from the
feelgood factor on the news.
Meanwhile and FWIW, we note that Canaccord initiated coverage on OGC on Wednesday in this
note (1) with a 12 month price target of A$4.25 set (that’s CAD$4.41 at today’s forex). I think
that target, based on a 5% discounted NAV calculation, is a little low and I’m happy to stick to
my higher aspirations for the stock, but nitpicks aside there’s no big complaints about the
analysis which also assumes an upcoming re-rating of the stock thanks to Didipio.
Aurcana Corp (AUN.v): Next to OGC, the other pleasing performance of the week as AUN
climbed back from the sub-loonie price of last week (a sell-off that really did look over-
exaggerated) and got to you author’s personal breakeven point (and yes, I am happy to have
6

made the quick decision to add at those lower prices, thanks for asking). This position is now
set fair and we’ll look for it to bear fruits in the next couple of months, with Shafter the news
catalyst driver. Meanwhile I’s like to point out (and forgot last week) on prompts from several
readers that Aurcana has tradeable and fairly liquid warrants listed, under the ticker AUN.WT.
The warrants are at a strike of $1.00 and expire 29th November 2013, so at that base price with
a year to go give decent leverage for those looking for even more risk on top of junior mine
ownership. This turbocharged leverage isn’t for little old risk-averse me but it might be for you,
as the rewards come higher if things go well. Consider it a simple heads-up and I thank those
readers who took time out to remind me of AUN’s derivative.
Lachlan Star (LSA.to): LSA continued to show weakness last week but if gold can consolidate
its late week gain tomorrow thru Wednesday here’s a stock that should benefit from a shorter-
term trading bounce. The stock was largely ignored through last week’s patchy trading and due
to a couple of small sales Friday finished the week well down compared to others and to gold,
but buying overnight in Australia may be a result as bargain hunters move in. We remind
readers that LSA is our leveraged gold price play, as due to the company’s higher range of cash
costs its profitability is sensitive to changes in the gold price at these levels (much more so than
a RIO or BTO, to name just two examples), therefore theory suggests that LSA should snap
back harder thanks to this decent (and most welcome) move in gold to $1,750 or so.
You want a potential quick trade flip in the juniors? LSA is my suggestion for next week.
Rio Alto (RIO.to),
Let’s consider the price action in RIO compared to gold (GLD), PM miners (GDX) and PM junior
miners (GDXJ) over the last ten days:
So RIO underperformed peers last
week, with a bout selling on Wednesday
making the difference. The stock
recovered well and traded nicely and on
volume Friday as bargain hunters
moved in and were cheered by gold’s
move so somehow RIO managed to
finish UNCH for the week, but overall it
was hardly inspiring stuff.
Even good stocks have rough spots and
what we saw last week isn’t reason to
worry about our Top Pick story. Au
contraire, the soft week means that really great buying opportunities showed up and I’d still
strongly recommend the current price as a great place to enter or add if you want (more) RIO
in your portfolio.
AQM Copper (AQM.v): The percentage gain looks good but it’s not much more than a
technical rebound from previous and ever deeper lows. The stock needs fundies news and
that’s the delayed PEA, no more nor less.
Lupaka Gold (LPK.to): A small rebound, a need for news. Basically ditto
Focus Ventures (FCV.v): Another “all percentage no reality” move as FCV continues to
bounce around its 20c to 22c range on featherlight trading volumes. News will drive this stock
and for that we look to its Mexican flagship ops, as highlighted in IKN183. There’s a lot of ennui
and thin trading in these illiquid stocks, which doesn’t bode well for December I’m afraid. For
me FCV is easier to hold than AQM or LPK, but none would be immune from a sudden hard
downspike if just a handful of holders need to book losses for tax reasons.
Minera IRL (IRL.to): IRL brought good, solid newsflow to us last week when announcing (2)
a resource upgrade for the Don Nicolas project in Santa Cruz Argentina. The actual bottom line
7

numbers of the upgrade, although good enough, weren’t that eyecatching for a market that
likes upgrades to come in millions of ounces and give copywriters the chance for wowser
headlines, but there was plenty of good in the NR and it’s notable that IRL thought the results
important enough to back them with a Conference Call, a replay of which you can here on this
(3). There are three main takeaways from NR and the ConfCall ran by IRL, which are:
1) Some increase in the gold in the higher grade resource which adds to immediate plans and
extends current planned mine life
2) A decent increase in the lower grade material which now opens the potential to add a
separate and economically viable and probably very profitable small heap leach operation at
Don Nicolas
3) Mineralization is open on strike (and at depth) so there’s high probability of more to
come
We do this piece by piece.
• IRL just by concentrating drilling (a step-out, extension and infill program) on one of
the two best explored (until now) zones at Don Nicolas, named Martinetas, has put M+I
resources up 87,000 oz to 468,000 oz Au and inferred up 20,000 oz to 165,000 oz.
This updated resource chart has more details and there are a couple of red highlights
put in by your author to cover some of the more interesting boxes.
• The gold at the Don Nicolas deposit is classed under two cut-offs, of 0.3 g/t for rock
that is earmarked for eventual heap leach processing and then the 1.6 g/t cut-off
material that IRL has included in its plans for processing in the pre feas study already
published. In other words, the high grade stuff is the basis for the current mine
economics and of more immediate concern, but if and when IRL sets up a second
production line, a small heap leach along the lines of its current ops at Corihuarmi, the
rock it will sometimes mine as waste will be available for cheap and economic
processing in the future. Therefore it’s the change in the high grading material that will
benefit the mine plan.
8

• In the above chart I’ve highlighted the 1.6 g/t cut off at the zone inside Martinetas
classified as a combo of the Cerro Oro, Coyote and Lucia targets (all close together).
That zone now has 131,000 oz of higher grading material under 43-101 M+I (plus and
increase in inferred) with just the M+I up 16,400oz from the last count. This result
adds immediately to the mine life at Don Nicolas and it’s also indicative of what can be
achieved by further drilling.
• Next, just above those red boxes there are the total for the lower cut-offs at Don
Nicolas, and if we add up the M+I with the inferred and subtract the higher grade cut-
off rock, there’s around 6m tonnes available for heap leaching at an approximate grade
of 0.7 g/t and after listening to the company, making best-guess and being
conservative, we can expect that to run at around 70% recoveries. If that’s run over a
six year period it will add around 16,000 oz gold per year to the mine production, which
is on top of the established plans for Don Nicolas to process the higher grading material
via mill that have already been approved and permitted by Argentina.
• The most interesting part of the “low grade story” is that much of the rock has to be
moved anyway. During the conference call CEO Chamberlain noted that at least 2m
tonnes will be extracted as waste and stored at one side for eventual heap leach
treatment while the higher grading material is accessed. He also noted that if the lower
grading material that’s mined as waste then gets processed, the strip/waste ratio drops
from the currently planned 8:1 to around 2:1. In other words, any production from the
“waste” that grades around 0.7 g/t will come with very favourable economics and low
cash cost, over and above the already robust economic plans to mine the higher
grading material that are already approved.
• We should note that any plans for a heap leach ops at Don Nicolas will have to come
after the setting up and running of the current plan, because as well as for technical
and legal reasons the company is keen on getting the current plan up and running,
showing the world that a new and profitable mine can be built in the bugbear country
called Argentina, instilling confidence and then expanding its operations. It will be one
step at a time so the high grade plans first, but the new size of the lower grade
material adds a potentially very interesting second string to the IRL bow here.
• The last main point to note about the NR and confcall is how keen IRL was in
emphasizing the potential for more resource growth at Don Nicolas. This isn’t news to
us here because we’ve already reported on the confidence in-company about how the
current short mine life plan is likely to be extended for years as more mineralized rock
is discovered and made into resource, but the repetition of this line in the NR and
ConfCall (at one point VP Exploration Don McIver talked about his team “will be busy
for five years” on exploration and addition of resources) was significant. Once again, we
note that the current plan, already advanced, showing strong economics, quick payback
and fully permitted, should be considered the start of mining at the very big and still
largely underexplored concession and not the be all and end all.
So to wrap up, although not chock full of wild eyecatching numbers the IRL news last week was
solid and positive. We now await news on the feas study for Ollachea (in “a few weeks” says
Chamberlain, i.e. slightly late) and then the all important financing deal for Don Nicolas. Few
clues were offered on that, but Chamberlain did say that two term sheets were being
considered at the moment, Argentina itself (probably private financial entities or banks) were a
potential source of financing and that no hedging facility is expected on the terms and
conditions (which was good news).
9

The Copper Basket
After forty-seven weeks of 2012 The Copper Basket is showing a 47.44% loss to level stakes.
company ticker price 1/1/12 Shares out Market Cap current pps gain/loss%
1 Copper Fox CUU.v 1.15 398.97 422.91 1.06 -7.8%
2 Lumina Copper LCC.v 13.19 43.2 393.98 9.12 -30.9%
3 Augusta Res AZC.to 3.17 144.1 383.31 2.66 -16.1%
4 Nevada Copper NCU.to 5.18 72.8 251.16 3.45 -33.4%
5 Western Copper WRN.to 1.58 93.28 60.63 0.65 -58.9%
6 Baja Mining BAJ.to 0.80 338.5 45.70 0.135 -83.1%
7 Candente Copper DNT.to 0.97 121.67 37.72 0.31 -68.0%
8 Yellowhead Min. YMI.to 0.80 52.82 34.86 0.66 -17.5%
9 Regulus Res REG.v 1.24 99.88 33.46 0.335 -73.0%
10 Duran Ventures DRV.v 0.18 184.72 18.47 0.10 -44.4%
11 Catalyst Copper CCY.v 0.08 274.48 17.84 0.065 -18.8%
12 Excelsior Min MIN.v 0.63 56.12 14.59 0.26 -58.7%
13 AQM Copper AQM.v 0.39 105.6 8.98 0.085 -78.2%
14 Strait Minerals SRD.v 0.150 56.86 5.12 0.09 -40.0%
15 Crazy Horse CZH.v 0.35 64.48 3.87 0.06 -82.9%
Portfolio avg -47.44%
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 two of the stocks on the list, namely Yellowhead Mining and AQM Copper. 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 backed off from year’s 20% Copper Basket 2012 average, weekly
lows last week, managed to put in a 15%
10%
1.19% average gain and broke the run of 5%
bad results. Of our 15 names, nine of 0%
-5%
them made gains (LCC.v, CUU.v, AZC.to, -10%
-15%
NCU.to, BAJ.to, YMI.to, AQM.v, MIN.v,
-20%
CCY.v), two were unchanged (CZH.v, -25%
-30%
SRD.v) and just four losers registered
-35%
(WRN.to, DNT.to, REG.v, DRV.v). Best of -40%
-45%
the percentage gains were seen in
-50%
Excelsior Mining (MIN.v up 26.8%), Baja
Mining (BAJ.to up 22.7%), AQM Copper
(AQM.v up 21.4%) while big source: IKN Weekly calcs, TSX
losers were Duran Ventures
/DRV.v down 16.7%) and
Candente Copper (DNT.to down
12.7%).
As for the world macro update,
overall inventories were hardly
changed, down 0.1% to
511,548mt with LME slightly down
and Shanghai slightly up +2.8%),
so that trend continues as does
the reduced levels of cancelled
warrants, now at 14.85% of LME
warehouse inventory.
1
2102/1/1
morf
egnahc
%
Cancelled Warrants at LME, IKN157 to date
35%31.91%
30%
25% 21.91% 19.81% 24.6 2 0 3 % .17%
20.89%20.67% 21%
20% 16.21% 19.1 1 0 6 % .0106%.4 1 0 8 % .3 1 9 6 % .06% 18.1 1 8 5 % .8 1 9 8 % .61% 19.1 1 0 7 % .3186%.34% 14.85%
13.76% 13.78% 14.57%
15% 11.07% 11.5191%.7210%.81%
10% 8.7 6 1% .87%
5%
0%
751NKI 851NKI 951NKI 061NKI 161NKI 261NKI 361NKI 461NKI 561NKI 661NKI 761NKI 861NKI 961NKI 071NKI 171NKI 271NKI 371NKI 471NKI 571NKI 671NKI 771NKI 871NKI 971NKI 081NKI 181NKI 281NKI 381NKI 481NKI 581NKI 681NKI
source: Cochilco, LME
rof
yrotnevni
EML
%
latot
yreviled
resu-dne

Now for updates on two of our basket stocks.
Augusta Resources (AZC.to) (AZC): The early week sell-off we predicted on the back of the
permitting delay news happened on schedule Monday, but then AZC went into rally mode, had
a very good Friday in particular and managed to finish up on the week, which was a strong
result taking everything into consideration.
Nevada Copper (NCU.to): Monday brought solid news from NCU that initially saw the stock
sell off but come the end of the week, that nice Mr. Market had apparently decided it was
likeable. The news (4) was the publication of NCU’s pre-feas on its stage 1 underground
operation at Pumpkin Hollow, a plan that makes use of the different deposit types at the project
(some lower grading, some higher, some apt of open pit, some U/G targets) but is also
seemingly being used as a marketing ploy, because a staged approach to production at
Pumpkin Hollow means a lower initial capital cost and the resulting free cash flow can be
earmarked for growth at the mine. This in turn means that NCU has widened itself as a
potential M&A target because Pumpkin Hollow can now offer project economics that appeal to a
medium-sized mining company as well as the bigboy main player tier ones. On that score, the
first that comes to mind has to be Capstone, what with its strong financial connection to the
stock via the Pala investment vehicle that’s deep into both companies.
As for the PFS, there are plenty of quotable numbers in the document (well, the NR at least as
we haven’t seen the 43-101 on SEDAR yet) but the one that really matters is the $328m in
capex, for the reasons seen above. From what I’ve seen so far, the other parameters look
reasonable too, with things such as a 24.3% IRR and a 2.7 year payback period using a
$2.75/lb copper price over a 12 year mine life. There are small gripes, such as the $221m in
sustaining capital which smacks of a company trying to keep the front end capex ticket price
artificially low for style (over substance) reasons, but even that can’t take away the robust look
of the on-paper economics here. As for the mining, that’s a 92% copper recovery into a 24%
concentrate, which isn’t expecting any deleterious elements so that’s a good, marketable
product. Gold and silver payable by-products help keep cash costs down.
The PFS NR rounds off with NCU’s Pres/CEO Bonifacio representing that the company is all
willing and good to take this stage one operation into production itself by 2015, which is of
course exactly what it has to say no matter that the obvious exit strategy here is and always
will be a buyout. Therefore, the question is whether NCU can attract the right bid above it’s
current ~$250m market cap price, so let’s argue via looking at what’s been happening in recent
“friendly lowball” bids for beaten down juniors. Even though they’ve been nominally gold names
deal such as Andina’s bid from Hochschild, Extorre’s from Yamana, and the partial buy in of
CMH into Batero have seen decent mark-ups paid on prevailing (i.e. beaten down) market
prices. As NCU spent most of 2011 above $5, anything below that price may be considered
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lowball by many longer-term holders though on balance (and considering the nastiness of 2012,
perhaps $4.50 would be enough to tempt a board to endorse a deal. Therefore my best guess
floor for a friendly bid price would imply any bidding company would need to commit around
$330m into buying out the company and then almost $350m (once capital float requirements
were factored in) to build a stage one operation at Pumpkin Hollow. I have to say that without
being a knockdown bargain, that type of ticket price offers logical and attractive economics for
a new copper mining operation and the type of price that a tier-two type base metals name
such at CS.to could handle (and in the specific case of CS.to, it might even leapfrog over its
Santo Domingo Chile project with its tougher capex barrier).
The bottom line today is that I’m not a
buyer of any copper name because I’m
pretty sure it’s not the sector to look for
M&A right now, at the end of 2012. We
also need to consider NCU as a potential
victim to tax loss selling and another
reason to stay away from this company in
the short-term (though I freely admit that
call may turn out to be wrong, it’s more of
an educated hunch than anything
quantifiable). But market timing matters
aside, last week’s news simply confirmed
NCU’s attractiveness as a junior copper
exploration play and if its not the best of
this bad bunch at the moment, it’s darned
close. If you like copper’s immediate term prospects more than I and you’re looking for risk
leverage, NCU is one to seriously consider. Good company doing things well.
Regional politics
Peru: Gregorio Santos now under legal pressure
This week’s single most significant political happening in Latin America mining isn’t getting
much press coverage yet, but it will. The regional president of the Cajamarca region, Gregorio
Santos, who’s known to most of you as the focoal point of the anti-Conga/Anti-mining protests
in the Cajamarca region of Peru, has so far managed to avoid presenting himself at a national
Congressional anti-corruption commission that’s been looking into cases of alleged and
apparent corruption by Santos during his time as regional president of Cajamarca. However that
has just changed (5) because the commission has managed to get full Congressional approval
that obliges Santos to attend national Congress and answer the charges of corruption made
against his name, else be arrested and brought to the commission table by the police. As that’s
not something Santos will want, he’s now virtually certain to appear before the commission
during the allotted time, which is likely to be Wednesday November 28th but may be delayed
until first week of December. Santos has stated that he will voluntarily appear on the 28th if
called that date (6).
Another part of the Congressional move against Santos is that the commission has begun the
process to lift banking secrecy from Santos, which isn’t an easy process in Peru and can take
time even if successful, but if Congress gets what it wants it would mean that banks would
have to provide details of all Santos’ bank accounts and financial transactions.
That’s the situation facing Santos, now for a bit of analysis. Come next week Santos is bound to
state at some point that the national government is mounting a witch hunt against him, with
talk of trumped up charges likely, too. I’d agree with the first part as it goes without saying that
stripping Santos away from active power in Cajamarca (and nationally) would help the Humala
government’s stated pro-Conga/pro-mining cause greatly. However, there are very few
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innocent people in Peruvian politics and nearly all players have skeletons in closets, with the
box standard norm being illicit financial gain from positions of power. It’s one of those
situations where by stepping out of line and opposing the executive, Santos is asking for trouble
and will get investigated when others with the same type of murky past who don’t rock any
boats will be given the benefit of an official blind eye. That’s the process we now see unfolding
and it wouldn’t surprise this observer in the slightest to see the process result in Santos’
disqualification from office (he’s made it clear that he wants to run for Congress in 2014 once
his stint as regional president is done) or even criminal charges. The slow grind of corrupt
political process against corrupt politicians is how Peru’s establishment rids itself of its enemies.
We’ve yet to see how the details of the Santos corruption case unfold, as there are many
aspects getting mention at the moment, including Panamanian bank accounts, juicy regional
government contracts won by friends of Santos, kickbacks that ensue, etc. As for the potential
fall-out, the obvious result is that Conga suddenly gets easier to move forward but we should
also consider the other projects on de facto hold in the Cajamarca region such as Galeno
(China’s Lumina) and even a resurgence in interest for the Sulldien (SUE.to) Shahuindo project
that lies close to Santos’s political stronghold of Bambamarca, in the Cajamarca region. A fading
Santos star would help that beaten down name’s permitting track that is due to happen during
2013, though it should be said that risks around that company will remain high with or without
a strong anti-mining presence at regional government level.
Inside Story Americas – Time to monitor Guatemala’s mining sector
I added this video (7) to the blog this weekend, an Al Jazeera 25 minute English language
extended report on Guatemala’s mining industry that centres its focus on Goldcorp’s (GG)
Marlin mine. It’s a good report that doesn’t give a particularly balanced view around that the
controversy, because even though both PDAC and Goldcorp was invited to put their case they
refused to take part (score one PR black mark to the Canadian mining industry). Therefore the
report bases around the views of two wholly anti-mining guests and one that considers the
economic side and is more balanced but still comes out with a negative view of what goes on
there. In mitigation the presenter does rebut his guests by giving pro-company lines and views
along the way, but it’s hardly a full debate.
Alll the same, this report is interesting and contains enough sober and reasonable challenges to
GG’s presence in Guatemala (that extrapolates to all mining company presence in the country)
rather than the worst type of knee-jerk extremism arguments against mining to be taken
seriously as counterweight to a purely pro-mine position. If nothing else, the report and its
guests are another large slice of evidence about the way anti-mine brigade are using Guatemala
as their latest cause célèbre.
Guatemala THO update
The fall-out from last week’s serious rioting in Guatemala around Tahoe Resources (THO.to)
(TAHO) Escobal mine project continues (as reported on the blog, here’s one post (8)) is at a
national level and the debate there has now moved to the way in which mining has become a
focal point for social conflict. The most telling moment was to see President Otto Pérez Molina
commenting on events (9) and thus opening the debate on the national political level. There’s
no surprise about the line Pérez Molina took, that of defending the rule of law and condemning
the rioters (therefore tacit support of THO from the President as is also fully expected). He
called the mob’s burning of vehicles and the hotel “terrorist act”” and said that the theft of 50
tonnes of explosives from the truck supplying Escobal was particularly irresponsible as it could
have and still may cause many civilian deaths. Since President Molina’s comments, the
Mataquescuitla area has seen intense police and army activity searching for the 11,000 sticks of
stolen “emulsion” (an improved-potency water-resistant dynamite) but according to reports
dated this weekend (10) the explosives have not been found.
Dominican Republic/Haiti: The elementary level of environmental debate
I was sent a report (11) from The Dominican Republic’s main daily newspaper ‘El Dia’ on
Saturday morning from A Reader who wasn’t particularly versed in Spanish but had been told
that the article was “very good” by the person that had forwarded it to him from the
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DomRep/Haiti island. What I read make my heart sink somewhat, as if this is the level of
debate considered good by local players, there’s a long long way to go. The argument was from
the pro-mining side (at least there’s that) but the arguments put forward are old, hackneyed
and have been shown over time to be echo chamber type statements that do nothing to
convince the general public or counter anti-mining propaganda. Here are a few examples of the
tone and thrust:
“In the Dominican Republic the River Yuna, that passes the nickel mining operations of
Falconbridge, is less polluted than all the urban rivers in the country where there is no
mining including the Camú of De la Vega and the Masipedro of Bonao, and the
pollution in the Yuna dosns’t come from the mine but from the population areas of
Bonao, and those people know it.
“The hole in the ozone layer wasn’t caused by mining, but neither is the feared
greenhouse effect due to mining operations because this terrible damage to our
environment was produced by our comfortable lifestyles...”
“It’s easy to raise a glass of water and say emphatically that we don’t want mining
because water is worth more than gold, but we say it while showing a glass whose
crystal was made of silica extracted by mining...while we write anti-mining press
releases in a computer that also uses microchips made of gold. Mining helps the anti-
miners.”
IKN back: There’s nothing wrong with pointing out these simple facts, but if this is the peak of
pro-mine debate about mining on the Dom Rep/Haiti island then I can confidently state that the
public relations campaign to promote mining and discount the arguments of environmental
activists and anti-mining groups is in its infancy. Anti-mining groups have come across these
lines of argument a thousand times in other parts of the world and know exactly how to
counter them, but the wider issue is that just by using them in the vanguard of the debate
indicates how much water is left to flow under this bridge before mining is established on the
island.
Peru: water prices for mining companies to rise
More cost pressure to report for Peru mining companies. The State National Water Authority
(ANA) announced last week (12) price rises for the use of water in industrial mining and
agricultural operations. The new system will come into effect in the first six months of 2013 and
will now be based on two criteria: First the amount of water used and secondly a payment
calculated on the amount of residual contaminants left in the water once used by the company.
During the announcement, the head of ANA said that agricultural use will see the highest price
increases (he also noted that agro uses 86% of Peru’s water resources) while mining
companies, particularly those that do a good environmental job already, will see the lower end
of cost increases, though the specific percentage increases have not yet been made known by
ANA.
Peru: La Zanja expansion program opposed by regional politicians
Another environmental story. Buenaventura’s (BVN) La Zanja mine opened three years ago and
is now looking to expand operations, but the project is now opposed by regional leaders
including the Vice President of the Cajamarca region, César Aliaga, in this video (13) who
opposes the mine expansion due to worries about existing pollution levels from the mine that
are apparently affecting local rivers. His view is backed up by that of the President of the
Lambayeque region, Humberto Acuña, and for the same reasons as the river flows from
Cajamarca into Lambayeque (14).
The reason for the excess pollution, according the mayor of the Pulan district where La Zanja is
located, is that the Peru water authority (ANA) passed an order allowing BVN to deposit its
waste waters into local streams if first treated wand filtered, but the company is dumping
untreated waste water instead. The mayor says that the Mining and Energy Ministry has so far
turned a blind eye to the problem.
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Argentina’s debt “default” and how it might affect mining
Although of limited interest to these pages, the well-covered decision of judge Griesa in New
York to force Argentina to pay all its debt obligations on December 15th (which has a grace
period until January 15th so that might turn out to be the real D-Day) and therefore include the
“holdout” bonds held by the so-called Vulture Funds may potentially affect the country’s mining
industry. The general idea, which has already surfaced in some opinion articles (15) in
Argentina, is that if the country’s efforts to avoid payment obligation between now and mid-
December are unsuccessful and if the country decides that it’s best to give in from its hardline
position and pay out the vulture funds, then it will need extra sources of funding in 2013 to
cover its budget requirements. It’s extremely unlikely that Argentina will “go bust” in any way
shape or form as the country holds more than enough in international currency reserves to
cover its payment obligation, but as depleting reserves would put more pressure on its own
currency (and therefore add to inflationary pressures) the CFK government would likely look to
raise taxes to cover at least part of any shortfall, with likely targets the agro or mining
industries. This one isn’t set in stone by any means and there’s a long way to go before we
know the endgame of the debt story, but it’s a latent risk to keep in mind when considering
Argentina mining exposure. Here at The IKN Weekly we have stuck our head over the parapet
via the limited exposure that Minera IRL (IRL.to) has in the country.
Market Watching
MAG Silver (MVG) (MAG.to) update
We’ve followed MAG Silver’s (MAG.to) (MVG) travails at its Cinco de Mayo project quite closely
in recent issues and in the last couple of weeks it’s also made blog coverage as the events
came to a head and caught media headlights. Here’s a little more.
In a pro-mining report (that can almost be called an op-ed), reporter Lourdes Díaz of the Diario
de Chihuahua went into detail (16) about the events and political background around the Cinco
de Mayo property run by MAG Silver’s wholly owned subsidiary El Cascabel (translation
‘rattlesnake’, for your information) from the point of view of the mining company. She noted
that the apparent local fears of water depletion by MAG stem from the diamond drilling
operations to extract core that have been misunderstood as drilling for water wells disrupting
the underlying water table, claims that MAG flatly deny. She also lists the economic benefits
that Mag has brought to the area during its six years of exploration, but skirts around the issue
of Ismael Solorio’s death. Finally, without saying it out loud she seems to back up the MAG
Silver view that the recent meeting to ban the company from the area was called illegally and
that the vote may have lacked the
necessary transparency. Overall, the
report is typical rebuttal material but
at least the company is getting its
views across in the place that really
matters, not just in Vancouver and
Toronto.
Secondly, we should be clear that
Cinco de Mayo is but a minor part of
the MAG asset book, with its main
value firmly at the Juanicipio JV with
Fresnillo. I’ve seen three or four
Canadian brokerage reports this week
that put Cinco de Mayo at between
11% and 15% of its overall NAV and
have no argument with those calls, so considering the price drop we’ve seen since this issue
came to a head it all looks pretty much baked in. The only risk that could truly affect MAG’s
share price in a significant way from now on is if the company were officially implicated in the
death of Ismael Solorio and his wife, as that might make MAG radioactive as a partner in its
1

other projects and freeze all chances of a deal with Fresnillo (either a buyout or a decision to
construct at Juanicipio). As the company has flatly denied any involvement of that sort (as it
damned well should) and there may be all sorts of local political reasons behind Solorio’s death
(this is after all a hot narco zone) aside from the dead man’s accusations of beatings and/or
threats of violence from mining company employees in the days before his murder, I’d currently
rate any linking of MAG to the deaths as very unlikely.
As for balance sheet effects to MAG from being booted out of Cinco de Mayo, there is the
potential for a big hole to appear there in relative terms, but it’s not a company-killer situation
either. According to the latest quarterly, Cinco de Mayo accounts for a chunky $43.2m of the
total $71.1m that MAG books as exploration and evaluation assets. That in turn is roughly half
the company’s total booked assets of $135m (with $45.83m in cash and then other line items
making up the rest). If Cinco de Mayo was indeed closed off to MAG forever, the company may
eventually have to take a write-down/write-off on that $43.2m of asset value it considers for
Cinco de Mayo. But even if MAG has to swallow the big bitter pill and fully write down Cinco de
Mayo after time has passed (definitely not going to happen in the near future, the company will
pursue all legal recourse before giving up the ghost and it already says it has a strong case to
prove illegality of the November 17th vote), the overall asset value of Cinco de Mayo compared
to its market cap of (currently) U$581.7m is small, which is due to the fact that it’s the minority
partner at the main Juanicipio property and gets zero fixed asset value to book from there. So
there is perhaps a nominal financial hit to take further down the line...but accountancy, yeah?
These things matter to nerds like me more than anyone out in the real world.
The bottom line here is that MAG will ride out this storm as a company, knock-on effects to its
other operations in Mexico are very unlikely and the real-world worst case situation, that of
being barred from operating further at Cinco de Mayo, looks already baked into the share price.
Personally MAG has never been my idea of a great investment because I’ve always doubted the
chances of the company’s only real exit strategy, that of a buyout from Fresnillo, and the
management’s propensity to cash in via very chunky insider selling which benefits them over
us. But the rocks are world class and I understand the attraction so if you’re a recently suffering
shareholder, here on the back of the now apparently baked-in Cinco de Mayo shenanigans is
not the time to jettison MAG. That time was a few weeks ago when (errr..ahem) these pages
repeatedly warned of the rising social risk it was running.
Fortuna (FVI.to) (FSM) back at $5
Admittedly only just five, with Friday afternoon’s last trades getting the stock to a $5.00 close
for the week, but the trade option we pointed to over the last couple of weeks seems to have
panned out as required. Which is nice
There is new on FVI too, not quite as cheering as the PPS action either. We’d previously
reported that the visit to the San José del Progreso region by the “Justicia Para San José del
Progreso” group, were to spend three days visiting the zone around FVI’s San José mine on
November 19th to 21st. On November 22nd the group published its initial findings here (17) that
were widely reported in local and Mexico national press both during and after the visit (one
example of many here, dated November 20th (18)). Go read it all if you so desire, but here’s an
example of the rhetoric:
According to the interviews carried out, there is a close relationship between
the mining company and the municipal authorities, who have bought the
support of many people through money and social programs.
I chose that one as an example of the no-win situation FVI has against such groups. I mean,
how else will they buy support than “through money”, a redundant and deliberately provocative
phrasing if ever there were one? Secondly, gaining the support of communities via social
programs is what good mining companies do, isn’t it? Or put slightly differently, if they hadn’t
tried to “buy the support” of people they’d be eviscerated by the community for doing nothing
in the area. There are plenty more examples, but let’s just cut to the five points in conclusion
made by the fact finding mission:
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We call for the following:
1) From the federal government: the cancellation of the San José mining project and the
immediate departure from San José del Progreso of the Cuzcatlán mine, subsidiary of Canadian
company Fortuna Silver, as well as the reparation of the social, environmental, and cultural
damage done by the mine.
2) From the Oaxacan state government: urgent measures to reconcile the community of San José
del Progreso and to reconstruct the damaged social fabric of the community, so as to avoid future
loss of life.
3) From the State Electoral and Citizen Participation Institute and the Rural Prosecutor of the
Congress of the State of Oaxaca: conditions and guarantees of a transparent and democratic
election process for municipal and rural authorities, in which the mining company should not be
involved.
4) From the Cuzcatlán mining company: that in the short term, it move its Community Relations
Office and avoid sending dump-trucks and heavy load vehicles through the downtown area of San
José del Progreso.
5) From the Human Rights Defender’s Office of Oaxaca: a Recommendation for the protection of
human rights defenders in San José del Progreso.
Oaxaca de Juárez, Oaxaca, November 22, 2012
All of which is very interesting but isn’t going to happen. There’s a world of difference between
the anti-mining arguments set up against Goldcorp in the above Al Jazeera note, which came
from anti-mining activists but were for the most part reasoned and inside the realm of a serious
attempt at dialogue, and the deliberately sensationalist actions of this action committee. It goes
without saying that nearly all mining operations get complaints from local community members
and in the case of FVI, it’s also likely that locals do have certain grievances that the mine
should investigate and act upon for the sake of a good and pro-active community relationship.
However, this case also shows all the normal fabricatory M.O. of the more extreme anti-mining
NGOs and it’s not going to convince anyone with real power to move against FVI’s operation in
San José. For those of you long FVI, there is a risk potential of affecting FVI’s plans to expand
(e.g. the failed attempt to install the company’s grey water pipeline recently may be a key
factor in moving production higher as planned) but true political risk of closure etc is minimal at
the most.
Photo of the anti-mining meeting, November 20th: Pretty well attended
Still undecided on B2Gold (BTO.to)
Last Week the considering and wondering whether it’s time to buy BTO. This week, another
missed boat.
1

I will console myself slightly with the fact that last weekend’s $3.53 was nowhere to be seen all
last week, with an immediate jump on Monday’s bell and a stock that rarely dipped below
$3.65, but it would still be easy as pie to be 3% or 4% ahead. We also note that Scotiabank
took the opportunity to dive in and open coverage on BTO Tuesday November 20th, calling buy
with a $6.00 12 month target on the stock.
OK, autocriticism aside, the reason that I didn’t dive into BTO last week is that the thinly traded
market didn’t look very convincing. For sure BTO did well and by watching instead of acting
when it went to (and under $3.50) the week before last I may have missed the best of the
entry points, but if a position is taken in BTO it’s going to be of the “serious investment” type,
not one of the GWY arb, GORO short or even AUN.v “sweet spot” shorter term timeframes that
aim for lower returns in a shorter period. So if the best price in BTO has gone, so be it and I’ll
still buy if the market looks reasonable. Be clear that BTO is still top of my shortlist today.
Conclusion
IKN186 is done, we close with bullet points:
• Your author will add to his Galway (GWY.v) next week and due to the size of the
planned position, it’ll make the list as of IKN187. It’s an exploreco play and not the
current focus of attention, but its circumstances mean that it will likely be closed (and
at a reasonable arb profit) sooner rather than later. That and the very low downside
risk attached to the name today makes it a place to park some spare cash while the
marketplace sorts itself out.
• B2Gold (BTO.to) is the other potential purchase, but still no personal decision. The
sotck had a good week last week, though.
• For those of you who like the chances of a continued rebound next week that takes its
cue from Friday’s positive and likeable action, my best guess is that a flip-trade in
Lachlan Star (LSA.to) could pay well. I’m looking further down the timeline and so this
flip isn’t for me, but a 10% rebound by this time next week, as long as gold behaves,
wouldn’t surprise me in the least.
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• Watch the Gregorio Santos story, as anything that impedes his progress will be good
for mining pol risk in Cajamarca and Peru in general.
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) https://research.canaccordgenuity.com/_layouts/researchnoteviewer.aspx?pubid=85173
(2)http://finance.yahoo.com/news/minera-irl-ltd-announces-upgraded-070000464.html
(3) http://www.gowebcasting.com/events/minera-irl/2012/11/21/minera-irl-upgraded-resource-estimate-don-nicolas-
project-argentina/play
(4) http://finance.yahoo.com/news/nevada-copper-announces-positive-feasibility-210500186.html
(5) http://www.rpp.com.pe/2012-11-23-gregorio-santos-movadef-es-sendero-luminoso-todo-el-peru-lo-sabe-
noticia_543189.html
(6) http://peru21.pe/politica/gregorio-santos-ira-al-parlamento-primera-semana-diciembre-2104773
(7) http://www.incakolanews.blogspot.com/2012/11/inside-story-americas-time-to-monitor.html
(8) http://www.incakolanews.blogspot.com/2012/11/tahoe-resources-thoto-taho-has-no.html
(9) http://noticias.emisorasunidas.com/noticias/nacionales/perez-molina-califica-acciones-terroristas-sucesos-
mataquescuintla
(10) http://www.s21.com.gt/nacionales/2012/11/24/buscan-11-mil-candelas-explosivos-jalapa
(11) http://www.eldia.com.do/columnas/2012/11/21/99812/La-mineria-y-la-contaminacion
(12) http://gestion.pe/economia/desde-2013-mineras-pagaran-mas-utilizacion-agua-2052295
(13) http://enlacenacional.com/2012/11/19/autoridades-de-cajamarca-y-lambayeque-se-pronuncian-en-defensa-de-
cuencas/
(14) http://www.destape.net/nuevo/node/403
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(15) http://sur.infonews.com/notas/ademas-del-7d-ahora-el-15g
(16) http://www.insetecmexico.com/portal2/notacompleta.php?id=1668
(17) http://justiciaparasanjosedelprogreso.org/2012/11/23/preliminary-statement-of-the-civilian-observation-mission-
justice-for-san-jose-del-progreso/
(18) http://www.sdpnoticias.com/local/oaxaca/2012/11/20/reportan-sin-incidencias-mision-civil-de-observacion-en-
oaxaca
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
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
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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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