IKN #187Premium

The IKN Weekly
Week 187, December 2nd 2012
Contents
This Week: The Christmas/New Year IKN Schedule, U.S. jobs.
Fundamental Analysis: Part one of coverage on B2Gold (BTO.to)
Stocks to Follow: Overview, Galway Resources, B2Gold (BTO.to), Lachlan Star (LSA.to), Rio
Alto (RIO.to), AQM Copper (AQM.v), Lupaka (LPK.to), Minera IRL (IRL.to), Vena (VEM.to).
Copper Basket: Overview, Candente Copper (DNT.to), Baja Mining (BAJ.to), Yellowhead
Mining (YMI.to)
Regional Politics: Overview, Chile: Atacama still coming to terms with 21st century community
relations, More Guatemala Tahoe and criticism, A fiscal cliff bottom signal from Peru, Ecuador:
Correa campaigns using pro-mining speeches
Market Watching: Liberty Silver (LSL.to) (LBSV.ob) update, Richmont Mines (RIC) (RIC.to): A
further thought on critical mass, Lottery ticket ideas.
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
The Christmas/New Year IKN Schedule (just to make things clear)
After the quick reference during the intro of IKN186 last week, I received a few mails asking me
exactly what the schedule is over Christmas and the new year for The IKN Weekly. When mails
like that appear it’s clear that the messenger didn’t do a good job, so here’s a quick line or
three to clear things up. The IKN Weekly will work like this over December and January:
• Up to and including IKN190 scheduled for December 23rd: Normal service
• IKN191, scheduled for December 30th and falling in the middle of the Christmas to New
Year’s period: A reduced service:
• IKN192 (January 6th 2013) and onwards: Normal service.
In other words, over the Christmas period just one edition will be cropped down and reduced to
the minimum.
Next week’s main macro driver will be the November U.S. jobs report, out Friday.
That and the fluctuations in the price of gold, of course. And any further legs of the tax loss
selling season, as well.
Fundamental Analysis of Mining Stocks
Today we re-start coverage of B2Gold (BTO.to, and note its BGLPF ticker on the US otc market
does reasonable trade and is a convenient potential vehicle for those of you in the USA) after
calling buy on the stock as per threats of the last few weeks and the Flash update of
Wednesday 28th morning just after the opening bell (see appendix 1 below).
1

Preamble
There’s an awful lot of ground to cover to get a real handle on today’s BTO and as late as
Friday evening, I was looking at the prep work, trying to work out what I wanted to put into a
NOBS report and what I wanted to leave out. In the end I’ve decided on a two-part coverage
note, in the style recently used in the opening coverage of Minera IRL (IRL.to) that worked
quite nicely, because I want to touch on everything that BTO is doing right now to a greater or
lesser extent at that will come in the formal NOBS report to get published next week, as well as
the numbercrunching and explanation of our formal price target.
The thing is, as BTO is set up as a longer-term trade and a position we’ll likely hold for a while,
the bits-and-pieces fundies can wait for a week. What’s more urgent in my view at least are the
strategic reasons as to why BTO is a buy right now, at the current prices offer by the market
which I consider a particularly good bargain for such a company. So that’s how I’ve split the
task at hand, with the conceptual reasons behind the trade today and the boring farty back-
house stuff coming next week (feel free to unsub between now and IKN188, you’ve been duly
warned that I plan on giving you large scale soporific material).
So to business and I want to concentrate on the three main reasons BTO is a buy today, early
December 2012:
1) The price is right, as thanks to the recent drop we’re getting shares at a decent
discount to recent prices and, more importantly, the prices at which I believe BTO will
trade 12 months from now (gold price permitting, of course)
2) The short-term timing is right. In the next month we have two news catalysts that
will spark interest in the stock. Those are the merger with CGA Mining (CGA.to) that’s
set to go through at the end of this month and the 4q12 production, revenues and
guidance for 2013, all of which I expect to be stronger than the market expects
3) The long-term prospects are good. BTO is growing aggressively, by both organic
and M&A, and is being led by the same proven team that did the same thing with Bema
Gold before selling at a fat profit. The roadmap could hardly be clearer and the
company already has clear plans to move into the 500,000 oz/year production capacity
by 2015.
Today’s note lays out the investment case for BTO, leaving next week’s to run a more classic
NOBS fundies report and catch up with all the ins and outs of BTO, a company with plenty of
moving parts.
The price is right
Of all the items to be discussed this week and next this is the easiest and what’s more, your
author is unashamed and unafraid to reel out a price chart and appeal to your animal instincts
and visceral senses using a little, basis technical analysis. Here’s a four year price chart of BTO,
that on which I’ve added three red lines (very basic parameter highlights and that’s really as far
as I’ll ever go on this subject...I’m pushing my own window already). It also includes MACD and
RSI signals as I know some of you out there like those, but what I’m about is pure price action.
What we see is a stock that’s done very well over the last four years, moving from 50c or so
once Lehman/subprime had washed through to the $3 to $4.50 range of the last couple of
years. Today we find BTO trading at just under $3.50/share, lower than recent highs that
peaked just before the announcement of the friendly takeover bid for CGA Mining (CGA.to).
2

The next price chart homes in on the last two years at BTO as compared to its underlying metal
(via proxy of the gold ETF, GLD). This time period discards the explosive expansion period and
also allows us to see how the company has got on compared to its metal. We see that three
times in the last 18 months, BTO has gone through a period in which it significantly
outperforms gold, only to retrace and return to the metal’s own performance line. We also see
that BTO has on occasion briefly broken under the GLD percentage performance and I doubt
there’d be a TA aficionado in the house who wouldn’t be surprised at another one of those
downspikes in the near future on considering that chart, but overall today looks like a fairly
decent place, considering previous performance to take a position (as long as gold continues to
behave itself of course, if not all bets are off). What the chartist would want from a set-up in
BTO today would perhaps be a 30% to 40% outperformance compared to gold in the next six
months.
3

The near-term in BTO looks good.
Two items to lay out for you here. The first is the upcoming business combination with CGA
Mining (CGA.to). On December 20th the plan of arrangement meeting goes ahead to approve
the merger agreement between BTO and CGA Mining (CGA.to), owners of the Masbate gold
mine in The Philippines. As we fully expect the merger to be approved by both sides there’s
every reason to expect “New BTO” to kick off 2013 as a much bigger and higher producing gold
entity. One of the reasons we like bTO is its aggressive growth profile and in one fell swoop this
deal will move BTO from a company looking to move towards 200,000 oz production in 2013 to
one that should break 400,000 oz. It is of course an all-paper deal, with the company set to
print 254.34m shares (assuming that CGA option holders exercise all derivatives). This will turn
the current share count of 392.69m into 647.03m, which is plenty of paper of course and if we
use Friday’s closing price for BTO as our benchmark, the ‘New BTO’ will run a market cap of
$2.24Bn.
As the deal nears completion we’d expect BTO to beneift from the closure and removal of the
slight amount of uncertainty the market might have over its success (I’m fully confident that
this friendly and uncontested deal will be seen as a win-win by all parties and will happen
smoothly). Once done, the effect will be that of the whole greater than the sum of parts, as we
fully believe New BTO will be valued at a higher NAV and/or cash flow multiple due to its larger
level of production that brings it close to the mid-tier barrier of 500,000 oz/year. As for risks
connected to the deal, my initial concerns centred around CGA’s political risk from exposure to
The Philippines, and area that I don’t know very well (although BTO seemed from the start to
be confident about the profile of the company it was buying). After investigation into the issue,
I’m also satisfied personally that the Masbate asset is a good and solid addtion to BTO, as
although The Philippines has its troublesome spots for mining and resource extraction
companies, the Masbate island (after which the mine is named, of course) has a welcoming and
transparent attitude towards mining activity, which in this case has been helped by the CGA
team who have done a good job of community and political relations since working there. We’re
going into more detail about the nuts and bolts of the CGA deal and the assets in the NOBS
report next week, today the bottom line statements are laid out.
The second item that I believe will positively affect BTO’s near term future, indicating that we’re
currently in a good window to buy the stock, is the 4q12 production and revenues expectations
for BTO in its current stand-alone state. The two BTO assets, La Libertad and El Limón in
Nicaragua are running and according to both past performance and the ratio of sales to
4

production, we’re looking for the company to beat both production and sales records quite
handily this quarter, as this chart sets out:
We forecast BTO as selling at least 43,000 oz
gold in 4q12, which may turn out to be more as
the company does seem to have held back
3,500oz Au from in sales (compared to
production) in the last two quarters). Therefore
our somewhat conservative total sales number
can then be added to an average realized gold
price of an IKN estimated U$1,730/oz (so far
this quarter and with December to go, gold has
averaged U$1,734/oz on the London PM fix and
BTO usually records a realized price very close
to London average spot prices), compared to
the realized price of $1,671/oz reported by BTO
in 3q12, to give us this chart:
We forecast BTO as recording record sales, and
by quite a way, in the current quarter. Along
with its expansion by M&A with CGA.to, we’d
expect this newsflow to act as a positive catalyst
for the company in the first weeks of 2013.
Along with the 4q12 results, we also expect BTO
to make official the start-up of operations at the
high grade Jabali vein close to its La Libertad
mine and mill, which is expected to add to
production in FY13 and gives BTO more
opportunity to give aggressive guidance for FY13
come the right time (e.g. production report and then later earnings report).
One more chart before moving on is the way in which revenues are expected to turn into
earnings. We expect costs of production to stay roughly equal to 3q12, as the company starts
to beneift from the infrastructure and capital cost work done earlier in the year at its operations
(pre-strip work, access and ventilation work etc). This is forecast to see BTO with operating
margins of over $40m for the first time, or 10c operating revenue per share if you prefer. We
contend that on this result alone and without the production and revenue upside to come in
FY13, the current $3.50-or-abouts share price is more than justified.
BTO.to: Quarterly Earnings overview
80
70
60
50
40
30
20
10
0
-10
5
90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 tse21q4
source: company filings
srallod
fo
snoillim
BTO.to: Quarterly Gold Production (oz)
50000
45000
40000
35000
30000
25000
20000
15000
10000
5000
0
revenues
COGS
Op. Rev
Again, the above charts are taken from the wider selection we’ll offer up next week in the long,
boring NOBS report that fills in the details and gets us up to date on the company’s operations
and financials. Today we cut it short to remain on-topic about the reasons to buy.
90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 tse21q4
gold produced (oz)
gold sold (oz)
source: company filings
BTO: Sales revenues per quarter
80 74.4
66.9 67.1
70 63.9
57.3
60 53.5 54.5
50.5
50
40
30
20
10
0
11q1 11q2 11q3 11q4 21q1 21q2 21q3 tse21q4
U$m
source: BTO filings, IKN ests for 4q12

The long-term prospects are good
Come next week, we’ll do the list of both producing assets at New BTO plus its long list of
pipeline projects that the company will develop in the months and years to come for organic
growth. But when it comes down to the nitty-gritty, the thing to most like about BTO’s longer-
term outlook is summed up in this chart:
BTO: Gold production growth profile
000s oz Au
800
700 Gramalote (50%)
Other Nica
600
Otjikoto
500 Masbate
Limón
400 Libertad
300
200
100
0
2010 2011 2012est 2013est 2014est 2015est 2016est 2017est
source: BTO data, IKN ests
Unlike many other junior gold mining companies, there’s decent reason to believe in most of
the items on this chart as well. The overriding factor is that BTO management, in both its
current incarnation and while running Bema, has a solid reputation for delivering on promises
and hitting (and beating) its guidance numbers. This year the company is on track for an IKN
estimated 156,000 oz Au, but looking ahead:
In 2013, Masbate is expected to add 200,000 oz to the production profile. Limón may see a
marginal production increase in line with the improvements seen in FY10, FY11 and FY12, but
Libertad should see a decent hike thanks to the new high grade production from the Jabali vein.
Overall, next year should see a big jump to an IKN estimate 418,000 oz Au.
In 2014, we’re tentatively pencilling in extra production of about 50,000 oz from “other
Nicaragua”, projects that BTO now holds either wholly (e.g. the ex-Radius Gold properties that
BTO bought this year) or other JV, such as the promising development property its currently
JVing with Calibre Mining (CXB.v, more next week on that). This may be a little sharp on the
timeline and it’s not a great deal for FY14 (just 30k oz Au assumed) but it does lay down a
marker for the potential of its other Nicaraguan properties that in subsequent years are
estimated as adding ~50k oz Au to the totals. Meanwhile, further organic growth at Masbate
and Libertad moves our 2014 production estimate to 470,000 oz and BTO knocking on the door
of its target.
For 2015, and 2016 the big change will come as long as BTO can deliver on its current expected
timeline for its Otjikoto property, which was added to the stable when BTO bought Auryx last
year. This mine is currently slated as a 100,000 oz/year operation. Meanwhile, the Nicaraguan
assets continue to produce at steady rates. Regarding particularly Limón on this matter, the
mine has a decades long history of being able to add more resource ounces as the known
resources and reserves are depleted and we’d expect that trend to continue, giving the
operation a much long mine life than current reserves and resources seem to allow. Therefore,
come 2015 we expect BTO to have hit its 500,000+ oz production goal, be a very attractive
potential takeover target for some major somewhere and even if still independent, to be able to
command a high premium to NAV and/or cash flow (whatever you prefer).
The final year on the chart hints at the potential for Gramalote, the big JV property it holds with
Anglogold Ashanti in Colombia. The current development schedule slates Gramalote as opening
6

in 2016 and being capable of 300,000oz to 400,000 oz per year. We’d expect that timeline to be
shuffled back somewhat (we’re best-guessing a year right now) and we’re assigning just
150,000 oz to BTO for its 50% ownership, too. However, if Gramalote does become reality by
then and if all our other assumptions are in place, BTO is now a 750,000 oz per annum
producer and before we leave, note that we’re not assuming production from BTO’s other
potential organic growth assets such as Cebollati in Uruguay, Mocoa in Colombia, Bellavista in
Costa Rica, plus the Masbati near-mine, Pajo and Colorado projects that come as minor parts of
the CGA.to buyout package.
Conclusion
Part one of our re-opening coverage on BTO concentrates on the reasons why the stock is my
idea of a buy right now. The long-term prospects at BTO are the reason I truly like the stock,
but the combination of the relatively cheaper entry price that admittedly and according to those
charts could get cheaper. Plus the nearer-term catalysts of a successful merger (which is really
an acquisition) of CGA Mining and the likelihood of better than market expectation numbers for
the current 4q12 period and resulting strong guidance for 2013 are the reason why I’m keen on
the stock now. If BTO spikes down further I’ll happily add between now and Christmas, as the
chunk picked up last week was modestly sized (as per in the Flash update) so there’s room to
grow. If not, I’ll add at higher price but what I don’t want to do is miss out on owning BTO in
the way I’be missed out previously, trying to be skinflint for a nickel here or a dime there and
missing out on a dollar-plus upmove as a result of my stupidity.
However, there is an even more basic reason why I’m now an owner of BTO late August I’ve
been turning the coverage at The IKN Weekly around, moving away from the very small and
the exploreco and towards the producers and quality companies. When it comes to junior golds
in LatAm, BTO is on a par with the best of them (by which I mean Rio Alto) and is the epitome
of a quality gold name that treats all stakeholders well, be they workers, neighbours, suppliers,
customers, host governments or those of us mad enough to dabble in the markets. With the
change in emphasis at The IKN Weekly it was only a matter of time before BTO made its
reappearance on our ‘Stocks to Follow’ list, the only question was when and at what price. As it
happens I think we’ve found a good window thanks to last week’s sectorwide weakness. We
begin our coverage today with a fairly modest $4.75 12 month target on the stock, representing
an upside of 37.3% to Friday’s close. That’s not mind-bogglingly big but it is the type of target
that can easily be moved up if hit in good order. BTO is one for the more serious, longer-term
places in you portfolio.
Stocks to Follow
This time last week we had twelve open positions and from then to now just three of them
made upmoves (VEM.to, LRA.v, LSA.to) and one was unchanged (PLA.v). The other eight
dropped, with the bigger downmoves seen in AQM Copper (AQM.v down 23.5%), Focus
Ventures (FCV.v down 15.9%) and Lupaka Ghold (LPK.to down 15.1%). As for the upmoves,
the best by quite a way was in Vena Resources (VEM.to up 28.1%).
With the addition of Galway Resources (GWY.v) and B2Gold to our list we now have 14 open
positions, one less than our self-imposed maximum. Seven of those stocks are green, seven are
in the red.
7

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$5.06 148.0% $6.29 tgt
Recommends
Vena Resources VEM.to hold C$0.70 31-may-09 C$0.205 -70.7% target lowered to 42c
Lupaka Gold LPK.to hold C$1.12 23-oct-11 C$0.395 -64.7% holding
Lara Expl. LRA.v buy C$1.15 08-apr-12 C$1.32 14.8% 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$0.88 20.5% $1.56 tg, added, new avg
OceanaGold OGC.to buy C$3.03 16-sep-12 C$3.33 9.9% $5.34 tgt growth prod
Lachlan Star LSA.to Spec buy C$1.50 30-sep-12 C$1.44 -4.0% $2.23 1st tgt
United Silver USC.to hold C$0.245 28-oct-12 C$0.225 -8.2% new position 60c tgt
Aurcana Corp AUN.v buy C$1.07 11-nov-12 C$1.02 -4.7% $1.50 tgt near term play
Galway Res GWY.v buy C$2.19 24-nov-12 C$2.24 2.3% new arb play, near term
B2Gold BTO.to buy C$3.45 28-nov-12 C$3.46 0.3% new position $4.75tgt
Smaller/Riskier
AQM Copper AQM.v hold C$0.31 16-oct-11 C$0.065 -79.0% considering sale
Focus Ventures FCV.v hold C$0.175 01-jul-12 C$0.185 5.7% 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.
Galway Resources (GWY.v) Position opened: In fact strictly speaking it’s “position added”,
as the shares bought last week joined those bought at
$2.17 a few weeks ago (to make for the $2.19 cost
average as seen above), but you know what I mean.
Anyway, we even got a minor piece of timing right as
just a few hours after the Monday open GWY put out a
NR (1) that covered the plan of arrangement meeting
set via the documents filed on SEDAR the week before
and mentioned in IKN186, at which pint the stock
jumped a few pennies and basically stayed jumped all
week (it beats me why people can’t be bothered to
check SEDAR for these things).
8

Be clear again that this is a short-term play: We expect a jump when the deal is closed and
we’ll either sell on that jump or wait until the cash comes to the account and the spinoff shares
start trading to reap the harvest. Very low downside risk, perhaps 15% upside, short timescale.
Sometimes it’s not necessary to shoot for the stars in a junior mining stock to make a few
bucks.
A final word here: For what it’s worth I don’t consider the cash that’s been moved to GWY as
an equity or share investment in my current portfolio, instead it’s still considered cash (or
borrowing from balance sheet terminology a “cash equivalent”) due to the limited time and
specific reasons for its appearance here. I don’t expect this position to be around at the end of
this month (or if it is, not for many days of 2013) and it’s more an attitude of parking a bit of
spare cash that I don’t intend to use for the time being in a place for a short-term gain.
B2Gold (BTO.to): Position opened. As per our Flash update Wednesday (see appendix 1
below) the new position in BTO was opened as envisaged, with a modest initial amount and a
sub-$3.50 price. Friday saw BTO give back the rebound gains of the previous two days and in
the end we were lucky to splash a bit of green on the screen, even though that’s mere short-
term vanity in this trade and we’re most definitely looking at the longer term.
Lachlan Star (LSA.to): Here’s how we rounded off the chat on LSA in closing IKN186 last
week:
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
In the end it was just 6%. Sorry about that. In fact the stock managed to touch $1.50 but apart
from the early Monday flourish (hope that was you) and a single 200k block Thursday, trading
remained light during the run-up and the Friday
weakness was no surprise.
LSA is our higher cash cost, higher beta to gold
play. It needs to execute in 4q12 and grow
along the lines of guidance. According to my
cold and steel-eyed calcs, there’s plenty of
upside available at current gold prices as long as
LSA executes reasonably well and generally
shows the growth it’s been promising, without
knocking it out the park either. The other good
thing here is that local grumbles seem to have
died down in the Andacollo town where LSA
operates, so we’re back to just about optimum
political and social risk here we like Chile and always will, current in-country gripes or not). As
long as a bit of volume arrives in the stock there’s no reason why it can’t continue to buck the
junior sector trend and go higher next week as well.
Rio Alto (RIO.to),
Did you want to buy RIO at a discount price? Then last Wednesday was your day. I’m not going
to dwell on our Top Pick stock this week, but merely reiterate the call on the stock, note that
there’s nothing wrong in-company, again remind readership that RIO’s 3q12 was always
programmed as the soft quarter (but even so seems to be suffering from its 3q numbers) and
say that at current prices it’s a great buy or addition for those who want to build a position.
9

AQM Copper (AQM.v): Folks, I know how much of a disaster this trade has become and I
know it just gets worse every week, but there comes a point when it just gets funny, stupidlow
and worthy of a spec-punt in a stock and that might well be now in AQM. The reason is purely
financial, as according to the company’s latest quarterly, filed last week on November 27th, as at
September 30th the company had $8.3m in working capital. As the burn rate has dropped
significantly from the previous $2m per quarter now that there’s no drill work going on (just a
pre-feas bill to pay), we’d fully expect AQM to finish the year with at least $6m in working
capital (i.e. cash net of debt).
As of last week AQM had 105.6m shares out and as of Friday’s close they’re priced at 6.5c each.
That gives us a market cap of ~$6.9m. In other words, give or take a few hundred thousand
AQM is now trading at cash value, its 50% of Zafranal is being priced by the market at zero.
I think that’s too low. Scrub that, I know it’s too low.
Lupaka Gold (LPK.to): Here’s the main body of a mail received Friday from reader ‘MZ’
Lupaka has been dropping like a stone these past few days. Would you consider
adding at these levels? I'm worried it's a leak of drill results. Are you familiar enough
with their drilling schedule to know if that's a possibility?
I'm caught up on my IKN issues, so I know your stance on them in general. However,
good value is simply good value when the price drops enough.
My answer has to be based around the arguments put forward in IKN184 dated November 11th,
which ran the numbers and considered the assets held by LPK in relation to its market cap.
Here’s an update of the bullet points and quickmath on LPK from that note:
• Shares out 81.75m
• Share price 39.5c
• Therefore market cap of $32.3m (approx $12 of that covered by cash at bank)
• The IKN assumed 43-101 resource of 2m oz Au at Crucero A-1 zone (which takes
current M+I+I resource and assumes ounces added by recent successful outstep
drilling to the North)
Put that together and you have an in-situ price for the Crucero gold of just over $16/oz and an
EV/ounce of $10/oz. As a sidebar, we note that LPK owns 9.84m shares of Southern Legacy
(LCY.v) and at Friday’s closing price for LCY of 25.5c they’re ostensibly worth $2.5m. Final point
is that due to the share price slump most of the options and warrants are priced much higher,
so there’s not much in the way of overhang to worry about. On adding it all up you get a lot for
your $32.3m in market cap. The Chaska zone drilling is still early stage and hasn’t borne fruit
1

(time and patience required) but the A-1 zone is a good deposit and on ballpark calculations
and assumptions looks like it can be mined under a robust economic plan.
That all sounds pretty good and the type of value-laden proposition MZ was writing about. My
problem is that I called the stock great value at 45c in IKN184! Here we are three editions later
and another 10%+ has been chopped off the share price and although those ounces are cheap,
until they’re shown as economically mineable and a machine is built on top they’re going to stay
in the ground, which means you can’t spend those ounces of gold anywhere; they’re worth
zero. This is the speculation of course, this is why we invest in a company that says it will add
value and all that jazz, but if you MZ, are looking for rock bottom value and a share price that’s
fully backed by tangible assets rather than a cheap valuation of in-situ resources that might get
more expensive but might get cheaper still, then a stock like AQM above is more the thing to
look at. OK, that might be a bit harsh on LPK and in fact I do think its assets are extremely
undervalued, but we’re also in a market that could indeed push juniors with no positive free
cash flow down to residual values. Plus I’ve been beaten up by this stock and its AAG buyout
corporate merger stupidity already (sold to you, suckah!) so I’m feeling all bitter and twisted.
Minera IRL (IRL.to): A quick overview of the Ollachea feasibility study announcement is the
order of the day, but first we note for the record
that trading was light even after that NR (2) and
once again, we look to the Don Nicolas finance
package as the real price catalyst that will set
the tone for IRL in 2013, rather than the very
good, solid, robust Ollachea feasibility that lived
up to expectations...therefore didn’t surprise
anyone. In that context the action in IRL was
pretty well understandable, no problems seen at
this end. Here’s the Canadian ticker chart that
shows the market’s big yawn at the significant
company milestone (the London MIRL.L ticker’s
pattern was very similar).
As for the feasibility study news, what we got from the company in both its NR and the
conference call was very much as expected. There were a few adjustments and changes to the
study as it moved from pre-feas to the more reliable feas stage, including a slight raising of the
ticket price for capex (to $177.5m), the cash cost was tweaked to a life of mine average of
$499/oz, grade dropped slightly because an area of higher grading material was left out of the
final mine plan for practical reasons, etc etc. But the main takeaway, the headline economics of
an NPV of $264m (7% discounted) using a modest $1,300/oz gold price for a post-tax 22.1%
IRR looks solid indeed.
In fact, the main takeaway from both the NR and the ConfCall (we await the chance to read the
actual document, as its not been filed on SEDAR yet and the company has 45 days to do so) is
that this is a serious company going about its job in a serious way and offering a serious project
that has all the hallmarks of becoming a real mine. IRL’s idea of impressing the market is my
idea of the best way too, when you bake in a whole bunch of conservative-end assumptions
and criteria and even after that, offer up a plan that shows robust economics. In fact, after
perusing the document the only slight issue I have is that of a forex assumption of U$1= 2.65
Peruvian Nuevos Soles (PEN), whereas at the moment the exchange rate is at 2.58 to the dollar
and the way things are going, I’d expect it to be at 2.50 by the time Ollachea begins to be built.
I’m going to wait until I get my hands on the full feas document before checking on the forex
sensitivity on this score, but it’s also the kind of items that’s covered in the 10% project
contingency, capex at least.
On last note: During the conference call, CEO Chamberlain gave away a pretty big clue about
the way in which IRL expects to go about the business of raising capital for both the Don
Nicolas and Ollachea projects. In response to an anal yst’s question, Chamberlain said that the
company expects to have the Don Nicolas finance package together by early 2013 (in the first
1

quarter, he said), which isn’t particularly big news. He then went on to say that the Ollachea
Environment Impact Assessment (EIA) permit should be filed before the end of this year and
as the company has already done a lot of compliance work in conjunction with the Peru
authorities, IRL estimates receipt of the EIA permit in six months from submission (i.e. mid
2013, which would be pretty good if it works out that way). However he also said that Ollachea
financing can’t be done, dusted and finalized before EIA approval. So put that little lot together,
stir a little and these conclusions and deductions result:
• Ollachea and Don Nicolas will be financed separately. Not a surprise.
• Minera IRL will therefore need some working capital to tide itself over for corporate
matters and exploration/development at Ollachea in at least the first six months of
2013. As the profits generated from Corihuarmi don’t cover all that and as Chamberlain
has said that the current working capital level at the company of $5m at bank is his
idea of a strict minimum, that means we’re likely to get a modest round of equity
financing soon.
• That bit about being unable to raise capital for Ollachea before EIA approval isn’t true if
the company raises via equity placement, because a company can go to market any
time it likes and raise capital for specific purposes, there’s nothing stopping it at all. The
way in which Chamberlain specified “cannot” raise until EIA strongly suggests that IRL
fully intends (and probably has a term sheet all ready to roll) to raise the cash for
Ollachea in the same way it intends to raise for Don Nicolas, via debt financing.
• Of course, those such as I outside the company can’t bet on this and until it’s all a done
deal, even those inside won’t know for sure, but I’d bet money on IRL raising via debt
for both projects after listening in on the CC last week and state for the record that’s
probably the way it’s going to happen.
• And this, ladies and gentlemen, will be a very good thing, a much better prospect than
running a large scale dilutive equity placement that drains away longer-term share
value from my little chunkette of IRL ownership today.
Vena Resources (VEM.to): A veritable rush of blood to the head, as VEM’s share price finally
decides to stop dropping and start defending a price rack.
There’s no use reading too much into things as there’s an awful long way between even the
price today and something even semi-respectable, but I admit that the upmove on at least
some volume was a welcome sight at this desk so let’s see if there’s any meat on these bones
and whether VEM has some positive news up its sleeve in the near future. Hope springs eternal,
or something like that.
1

The Copper Basket
After forty-eight weeks of 2012 The Copper Basket is showing a 49.48%% loss to level stakes.
company ticker price 1/1/12 Shares out Market Cap current pps gain/loss%
1 Copper Fox CUU.v 1.15 398.97 418.92 1.05 -8.7%
2 Lumina Copper LCC.v 13.19 43.2 384.05 8.89 -32.6%
3 Augusta Res AZC.to 3.17 144.1 354.49 2.46 -22.4%
4 Nevada Copper NCU.to 5.18 72.8 248.98 3.42 -34.0%
5 Western Copper WRN.to 1.58 93.28 63.43 0.68 -57.0%
6 Baja Mining BAJ.to 0.80 338.5 42.31 0.125 -84.4%
7 Candente Copper DNT.to 0.97 121.67 34.68 0.285 -70.6%
8 Yellowhead Min. YMI.to 0.80 52.82 33.28 0.63 -21.3%
9 Regulus Res REG.v 1.24 99.88 29.96 0.30 -75.8%
10 Duran Ventures DRV.v 0.18 184.72 18.47 0.10 -44.4%
11 Catalyst Copper CCY.v 0.08 274.48 16.47 0.06 -25.0%
12 Excelsior Min MIN.v 0.63 56.12 12.35 0.22 -65.1%
13 AQM Copper AQM.v 0.39 105.6 6.86 0.065 -83.3%
14 Strait Minerals SRD.v 0.150 56.86 5.69 0.10 -33.3%
15 Crazy Horse CZH.v 0.35 64.48 3.55 0.055 -84.3%
Portfolio avg -49.48%
Repeat Note: I DO NOT OWN ALL THE STOCKS IN THE COPPER BASKET. I DO NOT RECOMMEND THEM AS BUYS.
THEY ARE CHOSEN AS A REPRESENTATIVE BUNCH OF THE COPPER JUNIOR EXPLORATION SECTOR, NO MORE NOR
LESS. In fact I currently own just one of the stocks on the list, 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.
Another year low of The Copper Basket,
just a whisker away from 50% down. Just
two of our stocks made gains on the week
(WRN.to, SRD.v) and one remained
unchanged (DRV.v), which leave a full
twelve losers. Worst shows came from
AQM Copper (AQM.v down 23.5%),
Excelsior Mining (MIN.v down 15.4%),
Regulus Resources (REG.v down 10.6%)
and Candente Copper (DNT.to down
8.1%), while the largest percentage
upswing was from Strait Minerals (SRD.v
up 11.1%).
Copper inventories, beginning of month 2012
700000
600000
500000
400000
300000
200000
100000
0
1
21.naJ bef ram rpa yam nuj luj gua pes tco von ced
source: Cochilco
reppoc
sennot
cirtem
Copper inventories: percentage held per exchange
70
LME Shanghai Comex 60
50
40
30
20
10
0
21.naJ bef ram rpa yam nuj luj gua pes tco von ced
20% Copper Basket 2012 average, weekly
15%
10%
5%
0%
-5%
-10%
-15%
-20%
-25%
-30%
-35%
-40%
-45%
-50%
LME Shanghai Comex
source: Cochilco
ht8naj dn22 ht5bef ht91 ht4ram ht81 ts1rpa ht51 ht92 ht31 ht72 ht01 ht42 ht8 dn22 ht5gua ht91 n2pes ht61 ht03 ht41 ht82 ht11 ht52
source: IKN Weekly calcs, TSX
2102/1/1
morf
egnahc
%

As for inventories, the world total dropped 8,834mt (1.6%) to stand at 503,164mt week over
week. That drop was totally covered by the 8,845mt that left Shanghai Futures Exchange
warehouses, which for the second week running suggests a pick-up in demand in the world’s
most important copper market. Here are some monthly charts (that one of a few weeks ago
was a bit too bust for me, I’m going for monthly coverage from now on) that show total
warehouse inventories at LME/Comex/Shanghai and also the percentage each group of
warehouses hold compared to the total.
We see that LME remains on top, Shanghai has caught up a lot of the gap but is still roughly
10% lower, then Comex remains a fairly steady entity. Finally, LME cancelled warrants
remained slack last week, which offers a counterweight bearish signal to the action in Shanghai.
On Friday they stood at 13.92% of LME contracts.
Cancelled Warrants at LME, IKN157 to date
35%
30%
25%
20%
15%
10%
5%
0%
1
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 781NKI
source: Cochilco, LME
rof
yrotnevni
EML
%
latot
yreviled
resu-dne
Now for comments on a couple of basket stocks
Baja Mining (BAJ.to): As this report in local Mexico media notes (3) , the Boleo copper
project is now getting political attention as construction advances and the thing is looking more
likely to become a reality. Local Mexico politicos got together with the Boleo team for talks and
general PR opportunities, which is a good pointer to the advancement of the project because
the savvy local politicos would never set up a photo opportunity with a project they thought
was failing.
I’m still unconvinced about BAJ as a trading option at this point however, even a high risk
speculative trade vehicle. The company has lost the majority ownership of Boleo (the MMB
subsidiary) and the project is now being funded through via the Korean consortium’s cash
advances, all of which eventually dilutes BAJ the stock further out the picture. It might appeal
to those who see sentiment changes on newsflow better than I do, but on fundies alone it’s an
easy pass.
Candente Copper (DNT.to): Things are going from bad to worse at DNT and the stock is
now being hammered down on what looks like tax loss selling. Back in IKN179 when the vote
by locals to reject DNT’s presence at Cañaris was discussed, we made our position as clear as
possible with commentary such as this:

After that edition I received a mail from somebody, who will remain nameless but does have
close relations with the DNT team, who
said that I was being harsh on a team
that had made great efforts to integrate
with the local community. That’s as
maybe, but there’s still no news on the
drilling permits from Peru’s mining
ministry (MEM) that DNT said they’d get
expedited at that time which suggests a
greater reality of MEM listening to the
locals and unwilling to sign off on a
permit that might create even more
trouble. This may be part of the reason
DNT has dropped a further 30% since
IKN179, an edition that came after the
big waterfall drop.
Yellowhead Mining (YMI.to): A quick line to note that since I sold my position in YMI the
stock has basically trod water at or around the low to mid 60c prices, bar a very short-lived
spike or two.
Regional politics
Chile: Atacama still coming to terms with 21st century community relations
I liked the interview with Carlos Nicolás, President of the pro-Atacama Chile development
organization Corproa (Corporación para el Desarrollo de la Región de Atacama) in the latest
edition of Chile’s monthly mining magazine, Area Minera (issue 72). The subject matter is
development in the Artacam region (as you might expect) and the main point of order are the
rulings and judgements being handed down by the Chilean courtrooms that have been stopping
development projects from going ahead. The rulings have usually sided with local communities
and groups who have complained about the lack of consulting by the big companies who want
to build these projects, with recent headline cases being the halts slapped on the Castilla power
station (4) (Eike Batista capital) and the El Morro gold copper mine (70% Goldcorp (GG), 30%
New Gold (NGD)) (5). The Castilla power station is seen as most important by Carlos Nicolás, as
according to him the lack of power supply to the region is the current big project killer and
bottleneck, more so than environmental permitting of water procurement. But what comes
across is the frustration of a business development leader who has suddenly and most likely for
the first time in his life, come across people who don’t agree to the development plans set out
and instead of mounting ineffectual protests that are ignored by all, have taken legal recourse
and have had success. The sense of bewilderment, frustration and anger he shows against the
people protesting and the judges siding with them is almost amusing. You can find the whole
thing in Spanish on pages 16 to 18 on this link(6) but here are a few choice passages as
translated by your author.
“This zone has been the most affected by court rulings that have detained important
project because it’s the only one at the limit of the Central Interconnection System for
electricity in the country and has no other way of getting energy supply from other
sources. This has greatly increases the cost of projects and detained practically all the
projects that haven’t already passed the point of no return, that’s to say the ones that
haven’t already started construction. All projects that haven’t already started have been
postponed due to costs that make them inviable. We hope that the government makes
every effort to revert this soon so that we can continue with our regional development.”
“The truth is that I don’t understand why the judges have ruled in this way, any
argument is used today to stop a project. There can be a thousand reasons but
basically is that they (those against regional economic development) are using the
judicial resources and this branch of the State is giving them everything and stopping
1

projects. This is causing great damage to the country. I believe that the Judiciary is
overstepping their role, I’m not the right person to provide the solutions but what I can
say with certainty is that they’re causing damage to the economic development of the
country and especially to this region.”
“Our most serious problem is power supply...Our priority is in energy supply, the other
problems won’t stop project development therefore we have to concentrate in what is
truly relevant.”
“It’s the responsibility of the national government (to solve the main problem), they’re
the ones who have to improve the terms under which the Judiciary can operate so that
they don’t continue meddling in areas which are not of their concern. These are
projects that have complied with the laws of Chile, that have been approved in
environmental matters and then afterwards, for any old reason, halted. There’s a policy
of detaining projects, this is my perception.”
“...they (the judges) are twisting the spirit of the law, I’m not saying that they’re acting
outside the law, but they bend it to come to the rulings they are giving.”
“Without doubt (this is affecting Chile’s image regarding foreign investors) because it’s
converting us into a country that’s less serious. Because when a company that’s
investing a large amount of money starts a construction project and then afterwards a
different power takes control, be it for a legal ruling or a different interpretation of the
law, the delay obviously takes away a lot of trust...”.
IKN back and there’s plenty more where that came from. In fact I do understand the guy’s
frustration, however we now live in different times for the mining industry and that even applies
to the most pro-mining country in Latin America. We again witness something akin to the
changing of the guard, where old arrogant attitudes towards local communities and areas
affected by mining and development are being kicked out, either voluntarily or by force. Make
sure the companies you invest in have their community relations program based on 21st century
principles, which is a sentiment that leads us nicely into the next section of ‘Regional Politics’
today.
More Guatemala, more Tahoe, more criticism
Last week the Tahoe Resources (TAHO) (THO.to) conflict with locals around its Escobal project
(see Weeklies passim) went official national politics when three local mayors around the mine
project site (San Rafael) were invited to the Presidential Palace for round-table talks with
representatives from the mining company and the national government, represented by the
Minister of Energy & Mines and the Minister of Government (a catch-all portfolio concerning
general government and political business) and President Otto Pérez Molina (7). This is now a
high-profile case in Guatemala be in no doubt, and over time I’ve noticed just how much mining
companies hate being the centre of attention.
The local mayors’ main complaint was that Mina San Rafael (the wholly owned subsidiary of
THO that operates the project in Guatemala had ignored locals, not lifted a finger to inform
them, including the local political leaders, about what was going on etc etc, an attitude that was
a big contributory factor to the recent anti-mine protests and boiling over of violence. Quoting
Elmer Guerra, mayor of Jalapa after the meeting took place:
“There is no information about the mining company projects, what they consist of,
what impact they generate or the timeline they are going to work”.
“We see irresponsibility on the part of the mining company, as they have initiated
operations without taking into account the municipalities.”
And also (8), “Nobody has come forward to give us information and this has caused
disinformation to reach high levels of violence”.
As for the the THO people, the mining company spokesperson said that as from January 2013
the company would begin a publicity and orientation campaign to allow those affect to know
1

more about what was happening at the mine and in the company. The reason given by PR rep
Rita Flohr was, “...above all, due to the recent events of a social nature.”
It beggars belief to see the arrogant and pompous attitude that THO management have had up
to now regarding locals and after seeing its zero-efforts towards locals laid bare last week, it
really is no surprise to see it with the rising level of community disapproval it now faces. When
arch-stupidity is noted at a managerial level, no matter on a geological, engineering, mining,
operational or community relations level, run away from a junior mining company fast.
A fiscal cliff bottom signal from Peru
I modestly propose that when the “Fiscal Cliff” is used as the excuse of the Peru state news
agency to explain the drop in its local stock market, it’s time to bottom-tick this wholly phantom
reason for market nerves. This report (9) notes that the Peruvian end of Scotiabank used the
Fiscal Cliff as the reason behind the apparent disconnect between the performance of metals
and the performance of mining company shares on the Lima exchange (along with a goodly
does of technical analysis, always good for a brokerage weekly stock market report filler).
Ecuador: Correa campaigns using pro-mining speeches
This weekend we once again heard President Rafael Correa use (10) his “We cannot be beggars
sitting on a sack of gold” argument to promote the development of large-scale formal mining in
Ecuador, defending the projects already approved and criticizing the anti-mining movement for
its “infantile” attitudes. It’s notable that Correa isn’t afraid of driving forward on this campaign
issue and keeping his pro-mine credentials front and centre with just over two months before
the Presidential election vote. This might be because he’s way ahead in the polls and a virtual
lock for re-election (true) so confident about promoting some parts of his manifesto that are
less popular than others, but it also makes it clear that Ecuador will be welcoming to mining
activity on his government’s own terms in the next Correa government.
The problem is with those terms, because alongside long delays in the advancement of the
country rules for mining companies, Ecuador also has those high state burdens that would
weigh heavily on a country with an established mining culture like Peru or Chile, let alone a
new-to-formal-mining state like Ecuador with little by way of roadmap for mining companies to
operate under and often hostile locals around their projects egged on by well-established
environmental activists and organizations.
If the Correa II government coming next year (and be in no doubt, Correa wins) gets a bit
smarter about mining and relaxes the heavy burdens it wants to charge on mining companies
(and the best first step it could take is scrap or seriously alter the windfall tax as currently
stands) then there might be room for a punt on companies in this space. But unless there is
change Ecuador and juniors working there remain an easy avoid, best intentions of its President
or not.
Market Watching
Liberty Silver (LSL.to) (LBSV.ob) update
The main feature of IKN179 was the exposé on Liberty Silver (LSL) that came (sadly unplanned
that way) just after the stock had been halted by the SEC in The USA and TSX/IIROC in
Canada. The title of that long(ish)form piece was, “Liberty Silver (LBSV.ob) (LSL.to): A scam
and a screaming short (if it ever trades over a buck again)”.
And in fact, much to my surprise (I honestly thought it would immediately sink without trace
and didn’t count on the obvious share price manipulation that followed) it did indeed manage to
trade above a buck, as this chart indicates:
1

However, the chart also indicates the “screaming short” part of the title was spot on. LSL closed
Friday at 40c, sinking further last week on the news that three of its directors were resigning
(11), one of the classic signals of impending doom in the junior world (no matter what good
reason is offered by the company of the departing officer, and there’s always a good excuse for
those who want to hear one). The call we made against LSL was against an obvious pump job
that had been set up by the guilty and had sucked in the naive (or not-so naive). Sadly, once
the SEC had slapped it cease trade and moved LBSV trading to the US Grey Sheets it became
nigh on impossible to get a lend on the stock (even on the TSX and even as it climbed hard
back above $1, another sure-fire signal of a bullshit move), so the call on LSL was theoretically
fine but didn’t have much practical use.
The moral of this story is to do your own DD. Yes, there were out-and-out scumballs pumping
this stock to the world, but there were also reasonable and decent people that looked at the
stock and mistakenly got on board the pump, even those at company board level who now feel
so sheepish that they resign, who were well and truly suckered by a pump and dump lowlife
and his entourage. And you never know, next time around it might be me who gets suckered
by one of these poor excuses for a human being so I’m not joking when I say it’s up to you to
take responsibility for your investment actions. Beats me why you pay good money for these
opinions, frankly.
Richmont Mines (RIC) (RIC.to): A further thought on critical mass
Via the blog on Friday (12) I mentioned the unholy mess that Richmont Mines (RIC) (RIC.to)
unleashed upon the market in its late Thursday NR (13) when announcing the closure of one of
its unprofitable mines and the deferral of another of its projects. Here’s the body of the
argument from the post:
“...it's a salient reminder that there are a lot of juniors getting hammered by rising costs of mining,
be they in production and getting margins squeezed or in exploration and trying to create the
proverbial silk purse from sow's ear by fiddling with the numbers (they call it "optimizing" cos it
sounds cool) of their crappy marginal project. It just so happens that RIC gave us examples of both
in one shot yesterday but that company is not alone, not by a long way.
On further thought and exchange with a mailpal (who will read these words, so a quick
thankyou for the exchange and sounding-board opportunity, sir) I’d like to raise another
somewhat unconnected point on which my mailpal and I agree.
I’ve seen a couple of buy call on RIC made by anal ysts since the Thursday debacle, with the
general thrust being that on the numbers, what RIC has left by way of producing assets is more
1

than enough to justify the new, sold-off price and a rebound may be on the way. Therefore said
analyses called buy (or spec buy) on the stock.
The point made to my mailpal was that on first pass of the straight plain numbers, the metrics
for buying RIC now look about right but I quickly remembered my own mistakes made
previously about “liking the numbers” on small gold producers. The one that came to mind was
Gold-Ore Resources (ex-GOZ.to before being bought out by Elgin, ELG), a stock I liked a lot due
to its relative value and cash flow multiples. In the end I managed to scramble out of that trade
with skin intact, but not before the market had kept me underwater. There are several reasons
as to why my thesis on GOZ didn’t work (and how I was lucky to escape with a modest profit)
but it all really boils down to the size of the operation at its producing mine, Björkdal. When
you’re a 100k oz/annum Au producer or aspire to be one, the market looks upon you with
different eyes than a producer in the 40k or 60k or 70k per year category. With its changed
circumstances, no matter how uneconomic or unworkable its ops of projects had turned out to
be, RIC has lost critical mass by shrinking away from the size of company that might attract
M&A activity to one that is far more easily ignored. Put simply, who wants to own a 50k or 60k
gold producer anyway? A quick off-top-of-head list:
• I like Rio Alto (RIO.to) because it’s already way outperforming its original production
schedule, it’s over 200koz Au and will go higher next year, it’s adding oxide resource
ounces and with its sulphide stage 2 production plans has the clearest path possible
mapped out for production increases.
• I like Lachlan Star (LSA.to) because it’s already moved its production rhythm up from
50k to 65k oz, looks set to reach a 75k oz per year rhythm in the next quarter(s) and
has clear set plans to move to 100k oz.
• I like OceanaGold (OGC.to) because it already has production of well over 200k oz
Au/year from its New Zealand ops that will go plenty above 300k oz as Didipio comes
online.
• I like B2Gold (BTO.to) because it’s producing, it’s on its way to being a 200k/year
producer all on its own and that will be 400k/year with CGA.to incorporated into the
structure. Then on top it has plenty of organic growth in the pipeline and a proven
aggressive approach to mergers and deals (Auryx, CGA) that will add to its absolute
size and asset value.
• I don’t like RIC.
Lottery ticket ideas
Things are by no means good in the world of juniors (no need to dwell on a point raised
umpteen times on these pages), but it’s particularly stressed at the tinycap end of the market.
Which brings up the idea of a lottery ticket play, the idea being to sink outright gamble money
you’re fully prepared to lose in a basket of beaten to death stocks now trading in the pennies.
So let’s see what the $100 you spent on Powerball tickets (that all lost) over the last two weeks
or that fun weekend in Vegas or Atlantic city could buy you today (pre commish and at Friday’s
close prices):
• Focus Ventures (FCV.v): 540 shares
• Radius Gold (RDU.v): 588 shares
• Bellhaven Copper & Gold (BHV.v): 714 shares
• Macusani Yellowcake (YEL.v): 1,111 shares
• AQM Copper (AQM.v): 1,538 shares
• Firestone Ventures (FV.v): 2,500 shares
• Netco Silver (NEI.v): 2,857 shares
• Rio Crystal (RCZ.v): 3,333 shares
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Of course you can add a zero to that bunch and play for higher lottery stakes if you like (it’ll
likely do the commission charge percentages you pay a lot of good too) , but even for one C-
note all of those offer up a lot of fun for very low stakes. Now for sure there are a whole bunch
of shares in the same type of price position, but those are my idea of a lottery pot for the
reasons explained in the six bullet points coming up:
• They’re all under 20c, a personal cut-off limit. You can pick another price frame if you
like, higher or lower, that’s up to you. After all, the ones above aren’t some kind of
directive, more like a kick-off point to aid your own thoughts.
• I’ve followed all the names to a certain extent, via DD and ownership as well (hey, let’s
do it right: by way of full disclosure, still own FCV.v and AQM.v of course (see above)
owned BHV.v and YEL.v this year until selling both at a loss, owned RDU.v a number of
times in previous years as a trade vehicle and have done quite well with the stock
overall, never owned NEI.v but looked at it carefully earlier this year, FV.v looked at it
in previous years, kept half an eye on it this year).
• They have reasonably decent projects to move forward (argue the toss on that if you
like, but in my opinion they’re are no outright scammy projects as flagships anywhere
there and some are really very promising) and are run in an at least acceptable manner
(often good), giving the potential lottery ticket holder more chance of a win if things go
right.
• The top five ideas (FCV, RDU, BHV, YEL, AQM) all backed up by a decent cash treasury.
This means that if times continue to be rough they can go into hibernation and keep
their structure intact and if things get a bit brighter they can go about their business.
These companies have the cash to survive an extended period without suffering any
(further) serious dilutions.
• The other three (FV, NEI, RCZ) are riskier in that respect because they’re all low on
cash and running on fumes. That’s why they’re not just very cheap but extremely
cheap, however when it comes to the lottery ticket play it’s the type of negative one
might be willing to swallow.
• All have their problems to overcome, from political risk holding back development,
projects that haven’t sparkled, macro issues not going the way of the company’s
targetted metal (or metals), etc. So in one way or another they’re all hit by out least
one issue that makes them “out of fashion”, but it’s part of the charm of the lottery
ticket play. Yes, these negatives can be long-term issues that don’t go away, but they
can also suddenly turn around and bring a new positive light onto the beaten up
cheapstock.
Summing up we could go into each company in detail, but that’s not really the point of the
exercise here. The proposal is more one of taking a high risk on lowly-priced stocks, perhaps
just picking one or two, perhaps assembling a basket of these dogs, and taking a price risk on
the current state of the capital markets rather than on any particular company and its fundies.
My guidance above is for just eight stocks (and I’m sure you can provide more that would fit
the bill, so feel free to mail in with yours and maybe we can put extra names on the list next
week) but overall mine are chosen because they limit risk by not being scams, being run by
people with their hearts in the right place (at the very least), with decent plots of land to move
forward if bad luck changes to good luck, and with five of the names further mitigated by a
decent cash treasury that can see them through extended bad times intact. Those eight above
are merely ideas, they are definitely not specific recommendations and you might have much
better names for the general frame. They’re chosen as representative and better choices than
companies that are for all intents and purposes dead, such as CCY.v, CZH.v, _______ and a
host of others (provide your own favourite in that space).
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This is the time of year when tax loss selling often exacerbates losses in the tinycap end of the
market and by the looks of things, 2012 is turning into a vintage year for that specific price
pressure. For those of you with free cash that you’re willing to risk going to zero in return for
potential high rewards if things turn around, now may be the time to put together a lottery
portfolio.
Conclusion
IKN187 is done, we close with bullet points:
• Two additions to the list this week, with GWY making a debut on what promises to be a
very limited appearance on our list and BTO showing an attractive enough entry point
to get its re-debut. This week we run over the idea behind the punctual call in BTO,
next week the grisly details and numbery things. Deep breath...
• My idea of a lottery ticket isn’t that of the New York State or Powerball operators, but
it’s still high-end risk and any cash you place in such a theory must be cash you’re able
to see 100% dissolve without frets or worries. However, my idea of a lottery ticket
gives you much more chance of winning something.
• Lachlan Star (LSA.to) ran well against the general horridness of the tide and recorded
that short-term win. I see no reason why it can’t continue to rally as long as gold
behaves itself and call it for more ST gains this week, too.
• We move into December and, barring one or two bright spots, professionally speaking
at least I’ll be very glad to see the back of this tough year for the sector. Tax loss
selling continued last week and more in the week to come would surprise nobody. A
time when discretion is clearly the better part of valour.
The top long-term pick is Rio Alto Mining (RIO.to). I thank you in advance for any feedback
sent in. Flash updates will be sent promptly if required by events.
I wish you good trading fortune, ladies and gentlemen.
Otto
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Footnotes, Appendices, references, disclaimer
Appendix 1: Flash update published Wednesday November 28th
Good morning, the market opened a few minutes ago, gold has dumped and mining equities are generally down sharply
and "good morning" is a protocol phrase more than anything else.
I'm happy to hold a cash position and don't want to break into it too much, but the sub-$3.50 prices that have shown
again today in B2Gold (BTO.to) are too tempting. So even with the falling knife risk clear in my head, I'm going to take a
modest opening position in BTO today and add the stock to the 'Stocks to Follow' list as per this weekend.
We'll do the numbers Sunday in a full NOBS report.
Best, O
(1) http://finance.yahoo.com/news/galway-resources-ltd-obtains-interim-165800022.html
(2)http://finance.yahoo.com/news/minera-irl-ltd-announces-definitive-070000551.html
(3) http://www.oem.com.mx/elsudcaliforniano/notas/n2789617.htm
(4) http://www.cooperativa.cl/eike-batista-tras-rechazo-a-castilla-si-no-nos-quieren-vamonos/prontus_nots/2012-08-
30/063404.html
(5) http://www.reuters.com/article/2012/04/30/us-goldcorp-idUSBRE83T0CL20120430
(6) http://www.aminera.com/pdfrevistas/am072.pdf
(7) http://www.prensalibre.com/noticias/comunitario/Alcaldes-exigen-informacion-minera_0_819518070.html
(8) http://www.s21.com.gt/node/288914
(9)
http://www.tecnologiaminera.com/tm/noticia.php?id=8848&ad=Acciones+mineras+de+BVL+mostrar%EDan+poco+dina
mismo+por+abismo+fiscal+en+EEUU&foto=imgNoticias%2Fbvlmina1.j
pg
(10) http://www.prensa-latina.cu/index.php?option=com_content&task=view&idioma=1&id=763851&Itemid=1
(11) http://finance.yahoo.com/news/liberty-silver-announces-annual-shareholder-131236965.html
(12) http://incakolanews.blogspot.com/2012/11/richmont-mines-ricto-ric-and-costs.html
(13) http://www.marketwire.com/press-release/richmont-mines-announces-immediate-closure-francoeur-mine-provides-
update-on-wasamac-nyse-amex-ric-1732024.htm
Stocks To Follow Closed Positions, 2011
Closed in 2011 closed close PPS
Sunward Res SWD.v jan'11 C$1.05 21-nov-10 C$1.63 55.2% target made, trade closed
Serengeti Res SIR.v mar'11 C$0.245 05-dec-10 C$0.285 16.3% sold pre-tgt, ST trade fail
Fronteer Gold FRG apr'11 U$2.37 03-may-09 U$15.24 543.0% buyout, trade closed
Minefinders MFN apr'11 U$9.09 07-nov-10 U$16.89 85.8% target made, trade closed
Metalline Min. MMG may'11 U$1.04 26-jan-11 U$0.89 -14.4% exit, resource disappointed
Peregrine Met PGM.to jul'11 C$0.87 06-mar-11 C$2.60 198.9% buyout offer, closed
Dynasty Metals DMM.to jul'11 C$4.20 03-may-09 C$2.85 -32.1% Sold. Fail. Move on.
Aura Silver AUU.v aug'11 C$0.22 13-oct-10 C$0.16 -36.4% Bad pick. Take loss
U.S. Silver USA.v aug'11 C$0.52 26-jan-11 C$0.71 36.5% closed to make room
B2Gold Corp BTO.to sep'11 C$2.80 12-may-11 C$4.27 52.5% target made, trade closed
Bear Creek Min. BCM.v sep'11 C$3.80 27-may-11 C$4.17 9.7% macro sell call victim
Minefinders MFN sep'11 U$14.70 10-aug-11 U$15.15 3.1% macro sell call victim
Great Panther GPR.to sep'11 C$3.03 22-aug-11 C$2.64 -12.9% macro sell call victim
Fortuna Silver FVI.to sep'11 C$1.07 03-may-09 C$5.36 400.9% sold 20%, macro sell call
Focus Ventures FCV.v nov'11 C$0.40 20-apr-10 C$0.20 -50.0% cut losses, bad trade
Regulus Res. REG.v dec'1 C$1.17 14-aug-11 C$0.52 -55.6% cut on news of poor 43-101
2009 and 2010 closed positions in appendices below
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Stocks To Follow Closed Positions, 2010
Closed in 2010 closed close PPS
B2Gold Corp BTO.to Jan'10 C$0.88 08-nov-09 C$1.49 68.2% target made, trade closed
Radius Gold RDU.v Jan'10 C$0.18 23-aug-09 C$0.40 122.2% target made, trade closed
MAG Silver MVG mar'10 U$5.60 23-nov-09 U$7.28 30.0% closed in pdac week
Riverside Res RRI.v mar'10 C$0.435 20-sep-09 C$0.60 37.9% closed in pdac week
Amarillo Gold AGC.v mar'10 C$0.81 31-may-09 C$0.70 -13.6% closed in pdac week
B2Gold Corp BTO.to apr'10 C$1.24 18-feb-10 C$1.50 21.0% target made, trade closed
Lumina Copper LCC.v apr'10 C$0.84 14-jun-09 C$1.55 51.2% total position now sold
Troy Resources TRY.to may'10 C$1.10 03-may-09 C$2.25 104.5% sold on negative results
AuEx Ventures XAU.to may'10 C$2.51 24-may-09 C$3.38 34.7% trade closed
Nevada Copper NCU.to jun'10 C$3.27 14-mar-10 C$2.03 -37.9% need to lower Cu exposure
Carpathian Gold CPN.to jun'10 C$0.39 14-mar-10 C$0.35 -10.3% too exposed to cap raising
Amerix PM Corp APM.v jun'10 C$0.065 08-nov-09 C$0.05 -23.1% victim of macro bear
Antares Minerals ANM.v jun'10 C$1.42 06-dec-09 C$2.10 47.9% sold half
Vena Resources VEM.to jun'10 C$0.37 31-may-09 C$0.23 -37.8% sold half
Minera Andes MAI.to sep'10 C$0.75 28-jul-10 C$0.95 26.7% ST trade closed
Gold-Ore Res GOZ.to sep'10 C$0.52 01-aug-10 C$0.75 44.2% target made, trade closed
B2Gold Corp BTO.to sep'10 C$1.45 25-may-10 C$2.01 34.5% target made, trade closed
Blue Sky Uran BSK.v oct'10 C$0.41 19-may-10 C$0.22 -46.3% v small v bad trade closed
Dia Bras Expl DIB.v oct'10 C$0.14 30-aug-09 C$0.35 150.0% target made, trade closed
S. Amer. Silver SAC.to nov'10 C$1.38 24-oct-10 C$1.60 -15.9% loss on short, small fail
Ventana Gold VEN.to nov'10 C$7.92 27-jun-10 C$13.51 70.6% trade closed on buyout
Lumina Copper LCC.v nov'10 C$1.42 11-aug-10 C$3.65 157.0% trade closed
Antares Minerals ANM.v dec'10 C$1.42 06-dec-09 C$8.40 491.5% trade closed
Rio Alto Mining RIO.v dec'10 C$0.69 23-mar-10 C$2.16 213.0% trade closed
Coro Mining COP.to dec'10 C$0.585 03-oct-10 C$1.24 112.0% target made, trade closed
Stocks To Follow Closed Positions, 2009
Closed positions closed closing PPS
Cardero Res CDY/CDU.to May'09 U$1.20 03-May-09 U$0.87 -27.5% sold on negative news
Eastmain Res. ER.to May'09 C$1.04 06-May-09 C$1.315 26.4% trade closed
Radius Gold RDU.v May'09 C$0.165 03-May-09 C$0.235 42.4% trade closed
Latin Amer Min. LAT.v May'09 C$0.12 03-May-09 C$0.158 29.2% trade closed
Aquiline Res. AQI.to July'09 C$2.03 16-Jun-09 C$1.68 -17.2% took loss, bad timing
Chariot Resources CHD.to Aug'09 C$0.20 12-Jul-09 C$0.415 107.5% trade closed
Castle Gold CSG.v Sep'09 C$0.64 02-Aug-09 C$0.60 -6.3% ST trade didn't work out
Guyana Goldfields GUY.to Sep'09 C$2.30 12-May-09 C$4.50 95.7% profit taken
Los Andes Copper LA.v Sep'09 C$0.09 21-Jun-09 C$0.09 0% trade closed
Pediment Gold PEZ.to Oct'09 C$0.80 09-Aug-09 C$1.00 25.0% trade closed
Minera Andes MAI.to Oct'09 C$0.68 03-May-09 C$0.71 4.4% too much bad news
Dynasty Metals DMM.to Nov'09 C$4.18 03-May-09 C$6.01 43.8% half sold
Rusoro Mining RML.v Nov'09 C$0.55 03-May-09 C$0.57 3.6% underperformed
Important Disclosure
The information and opinions contained within this report reflect the personal views of the author and therefore all
material within should not be construed as accurate or reliable or be utilized as advice for investment or business
purposes. Independent due diligence and discussions with ones own investment and business advisor is strongly
recommended. Accordingly, nothing in this report should be construed as offering a guarantee of the accuracy or
completeness of the information contained herein, as an offer or solicitation with respect to the purchase or sale of any
security or as an endorsement of any product or service. All opinions and estimates included in this report are subject to
change without notice. It is prohibited to copy or redistribute this report to any type of third party without the express
permission of the author.
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