IKN #191Premium

The IKN Weekly
Week 191, December 30th 2012
Contents
This Week: Lazy week, Next week’s macro.
Fundamental Analysis: The Lottery Ticket Basket 2013, an introduction.
Stocks to Follow: Overview, Aurcana (AUN.v), OceanaGold (OGC.to), United Silver (USC.to).
Copper Basket: Overview, Western (WRN.to), Copper Fox (CUU.v)
Regional Politics: Update on Conga and Gregorio Santos.
Market Watching: USA Graphite (USGT), Goldgroup Mining (GGA.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
Lazy week
As pre-warned, IKN191 is a pared down edition with the main price changes, just a few
comments on certain stocks after a quiet trading week, little in the way of political commentary
etc, all due to your author taking the majority of the Christmas week to do Christmassy things
with two small humans and their mother. The only chunky feature today is the presentation of
the stocks in the new Lottery Ticket Basket that will run through 2013, that’s in
“Fundamentals...” below. We’ll be back to normal service next week with the new Copper
Basker explained in depth and all the usual malarkey.
Next week’s macro
The one to have in mind, excepting of course the ongoing fiscal cliff circus, is the December US
jobs report due our Friday.
Fundamental Analysis of Mining Stocks
The Lottery Ticket Basket, 2013
As planned, we today publish the make-up of The Lottery Basket 2013, a new section for the
new year that started as a small article in ‘Market Watching’ a few weeks ago which resonated
with enough of you subscribers to deserve expansion. It’s ended up as a list of 15 plays that
should hopefully represent the tiny, beaten-down überdog end of the junior market in the year
to come and we’ll use our list to track whether there are any signs of life amongst the tiniest
and probably most distressed section of the junior world. The rules are simple enough:
• We choose 15 stocks and track them on a weekly basis, in much the same way as our
regular features ‘The Copper Basket’.
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• We are only interested in the smallest of the small, so limits are set of a maximum
$20m market cap and 20c share price as at today, December 30th 2012. If either of
those barriers are broken during tomorrow’s tradings (Monday December 31st) we’re
going to let it slide and the stock will remain included as per the official start date for
tracking, January 1st. However, note that we’re being strict about it today because the
plan to include Macusani Yellowcake (YEL.v) in the list has had to be dropped as it
closed with a market cap above $20m on Friday.
• Our stocks don’t have to be screaming fundamental bargains, we’re more interested in
seeing whether these distressed companies that all have their problems of one sort or
another, can triumph over their adversities and put in rebounds and rises. However,
your author has done some filtering to avoid adding truly broken or shady, scammy
companies to the list.
• Even though there are no formal recos on the list (bar already held name AQM) your
author has taken/will soon take a very small interest in each stock by buying at least a
few shares of each. The idea is to have skin in the game, thereby making sure the
chosen stocks have at least a shot of generating a profit. However, it cannot be
stressed enough that there are no game-changing sized purchases happening here,
nothing that will make any life differences. I’ve bought some of the names already and
will complete all purchases as soon as possible (next week or so probably, but 100%
certain by end Jan) but do not plan to sell any name before the end of 2013 (I’m not
playing silly games with myself or with you on this). However, if I decide to sell any of
the shares in any of these companies before the end of 2013 I’ll tell you before it
happens and I’ll step aside for 48 hours before making any sale.
So without further ado, here’s our Lottery Basket list for 2013:
company ticker price 1/1/13 Shares out Market Cap current pps gain/loss%
1 Marlin Gold MLN.v 0.10 192.39 19.24 0.100 0.0%
2 Bellhaven BHV.v 0.14 121.16 16.96 0.140 0.0%
3 Gryphon Gold GGN.to 0.085 194.64 16.54 0.085 0.0%
4 Glass Earth Gold GEL.v 0.155 104.79 16.24 0.155 0.0%
5 Fancamp Expl. FNC.v 0.125 109.8 13.73 0.125 0.0%
6 AQM Copper AQM.v 0.08 105.57 8.45 0.080 0.0%
7 Eagle Star Min. EGE.v 0.125 60.73 7.59 0.125 0.0%
8 FDG Mining FDG.v 0.13 45.59 5.93 0.130 0.0%
9 Copper North COL.v 0.10 58.62 5.86 0.100 0.0%
10 Darwin Resources DAR.v 0.20 26.16 5.23 0.200 0.0%
11 Cream Minerals CMA.v 0.03 155.34 4.66 0.030 0.0%
12 Inca One Res. YEL.v 0.12 34.0 4.59 0.135 0.0%
13 Rio Cristal RCZ.v 0.025 149.26 3.73 0.025 0.0%
14 Firestone Ventures FV.v 0.045 36.32 1.63 0.045 0.0%
15 Netco Silver NEI.v 0.025 47.01 1.18 0.025 0.0%
Portfolio avg 0.00%
As well as complying with our basic “sub 20c sub $20m” criteria, there is more method in the
apparent madness than just picking a bunch of total dogs. That little lot includes four stocks
with their main project in Peru, two in Canada, two in Mexico, then one each from New
Zealand, Nicaragua, Guatemala, Colombia, Argentina, The USA and Brazil. As for featured
metals, gold is the main target at seven of the companies, then silver has two, copper two, zinc
two, iron ore one and finally the only non-metal is one phosphate. In other words, we’re
concentrating on precious metals but have representation from other areas, however true to
form we’re keeping most of our focus on The Americas with just one company sitting outside
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our preferred catchment area. Therefore, with the polite and general introduction out the way
it’s time for a little biog on each component. You’ll get at least the following on each company:
1) Name, ticker, share price, number of shares outstanding, market cap
2) Why it’s being included
3) What might go right and/or what might go worng
4) A 12 month share price chart (and you’ll notice how many look similar)
As for the script of each, a lot depends on a) how much we’ve chatted on the name in previous
issues and b) how much I personally care about the stock in question. When it comes to
personal share holdings I’ll eventually hold at least a little of all names, but I like some more
than others which will probably show in the quantity of words spent on any given name.
We take them in market cap order, the biggest first and the smallest last. Onward!
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
Marlin Gold: Ticker MLN.v. share price 10c, shares out 192.39m, market cap $19.24m
Our most expensive stock on the list, which scrapes in under our pre-set market cap limit by
less than $1m. It’s alos a bit of a cheat (just a bit) because MLN is currently running a
backstopped rights issue that will add around 150m shares at 10c apiece. That raising, when
complete, will bring MLN up to a $35m-or-so market cap and give the company a fair portion of
the treasury it needs for its plans but it also means MLN is booked to have a much higher
market cap than our nominal limit.
However, I don’t care because a) on the day it all begins MLN fits our criteria and b) I really
want this company in on our roll-the-bones lottery list this year. It’s one of the more interesting
high risk plays because it’s a new structure and a new approach to an existing exploration and
development project, namely the ‘La Trinidad’ gold deposit in Sinaloa, Mexico.
Wexford Capital are the people behind the changes at La Trinidad, as during 2012 that financial
house gained control of the then Oro Mining via a hostile takeover, changed the name, changed
key officers and changed the plans. For a while a few years ago, La Trinidad was a hot property
and growing under the drillbit, but its limits then became apparent, it didn’t turn into the multi-
million ounce project that speculators had in mind and Oro Mining saw its share price droop.
However, Wexford and friends see the potential of the smaller deposit that was defined to a
decent standard and plans to put it into small scale production starting as early as 2014. The
numbers also add up, because although the low initial capex ($28m) and short five year mine
life producing less than 200,000 oz in total is hardly the stuff that would attract a buyout offer
from Barrick, it does show an IRR (pre-tax, but 8% discount) of a cool 53% at $1,500/oz gold
and an NPV of $79m. That’s the kind of profit margin that can return plenty to shareholders in
dividends and it also ignores the obvious upside potential of the La Trinidad deposit, which is
very likely to benefit from resource discovery at depth and better grade control (the gravelly,
sandy host rock is conducive to positive grade reconciliation once in production compared to
drilling results that almost certainly didn’t show true grade, in much the same way as RIO.to
benefitted at La Arena for those who recall).
Aside from the obvious ones about the gold price, the risks to MLN in 2013 start with the
prospects for raising the capex cash, because we understand that even after the current round
of raising the comapny will need another $17m to $20m to finance the balance of the project
and get the type of working capital it wants to explore La Trinidad and increase the resource
(mine life of eventual operation, etc). This means potential dilution, or balance sheet debt, or
the potential that the market goes South and raising cash becomes tougher than ever.
However, with Wexford it has a strong financial partner (after the current backstopped right
issue Wexford will own somewhere between 55% and 60% of the company, all depending on
who else steps up during the raising period). This is good for the comapny of course, but a
concern to retail players must always be how rapacious the majority holder will be and whether
it will play fair and share the love (and bottom line profits) with us smallfry. Just as one thought
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example, if the second round of financing comes during 2013 in the form of a financial debt
that’s built to heavily favour the lender andsucks away bottom line profits the equity price might
not sparkle as a result. Also in the mix are potential permitting issues that coud delay the
timline, though it must be noted that La Trinidad already has its main papers in order, the locals
are reportedly in favour of development (which is key) and there isn’t much in the way of
enviro anti-mine noise around it, either.
Overall, this is one of the stocks I’m personally keen about in this list (remember, we’re
throwing in the good, the bad and the ugly in the Lottery Ticket Basket and we’ll see how it all
washes out during the year to come) as it has things that other microcaps don’t have: A plan, a
path to near-term production that isn’t pie in the sky, and financial backers to get them there.
Bellhaven Copper & Gold: Ticker BHV.v, share price 14c, shares out 121.16m, market cap
$16.96m
BHV is a company we know quite well here at the Weekly, having followed its fortunes for some
time via the ‘Stocks to Follow’s list from September 2010 to May 2012. It wasn’t a good trade
and recorded a 44% loss (from 50c to 28c) but since we let it go, BHV has done very much the
same as a lot of other exploreco juniors and just kept on diving.
The main project at BHV is ‘Las Mina’, a gold target in Colombia. There are worse gold deposits
out there too, as La Mina holds 2.55m oz AuEq (there’s a decent copper kicker) that includes
1.6m oz straight gold and the grade, at 0.99 g/t AuEq, is better than most of the large bulk
tonnage open pit projects. In theory at least, BHV’s ounces (at around $10/oz Au in-situ,
forgetting the copper entirely) are very cheap so the question must be why that’s so. For my
money, issues include:
• Colombia’s ongoing regulatory delays have stopped explorecos from having a clear path
forward. Those delays mean that the BHVs of this world just spin their wheels
• We don’t know how much of the current resource is economic, as drill maps show quite
a lot of the good stuff at depth. A decent PEA would help BHV to dispel naysayers on
this score.
• The land concession is smallish and probably needs expansion
• Overhyped and promoted by shady individuals such as Thom Calandra
• New management team hasn’t convinced anybody of its worth
Another more general issue is that these days there are plenty of these 1m oz and 2m oz low
grade open pit bulk mining projects out there, so the ones that provide the least bottleneck in
economic, community acceptance and permitting terms are the ones that will get valued higher.
BHV needs to get its own act together and needs Colombia to get its act together else fail even
more but if those click into place, BHV may yet turn into a value alternative.
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Gryphon Gold: Ticker GGN.to, share price 8.5c, shares out 194.64m, market cap $16.54m
This one is on the list because it’s a rarity, a real life gold producing stock. Clearly it’s not
Barrick or Newmont, but it does produce and is likely to improve to cash flow positive status
during 2013 as production rises and per-ounce cash costs drop. GGN runs Borealis, a small
gold/silver heap leach operation in Nevada USA that has just kicked off production in late 2012.
Its last financial report showed that the mine wasn’t yet running profitably (nothing unexpected
about the high start-up costs and low production) but if the ramping up process goes to plan,
Borealis should be very cash flow positive during the year to come.
Which begs the question “why so cheap?”. The answer lies on the balance sheet, because GGN
has borrowed heavily from an aggressive financial partner, namely Waterton, to finance its
project. The payback terms are pretty sharp and as long as Borealis works it should get paid
off, but Waterton won’t take prisoners if it doesn’t get its cash and that’s the risk here for equity
holders. For those of you who like the idea of owning a very cheap gold producer GGN fits the
bill but comes with risks that are higher for shareholders than for the company as an ongoing
entity in itself (think Metanor MTO.v as an example of how a small goldie can move forward
and keep company insiders, bankers and workforce happy enough while offering zero zip squat
nothing to long-suffering shareholders). These are all lottery ticket plays and they’re all cheap
for their own good reasons, therefore acting on pumpy hype such as “GGN is a gold producer!
Operation will make a profit in 2013! Look how cheap it is! Get on now!” is done at one’s own
peril. It’s attractive enough for this basket, however.
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Glass Earth Gold: Ticker GEL.v, share price 15.5c, shares out 104.79m, market cap $16.24m
GEL is a company with two strings to its bow in New Zealand. Firstly and most importantly it
has 35% of the WKP property, with 65% majority partner Newmont having optioned into its
posirtion and given GEL a free ride on development, which sits close to the operating Martha
NEM mine. Secondly it has its own potential source of near-term cashflow via a small placer
gold deposit it’s looking to develop. The placer thing has always looked iffy to me, up to the
point when I consider it a red flag on the company management (why are they caring about
such a two-bit project anyway?). The thing to like about GEL is WKP, because NEM was in the
process of closing Martha down before making a few minor discoveries there, which was
enough to get its useful life extended a while. If NEM (as operator) like WKP enough, the
obvious exit and big win potential for GEL is that of NEM buying the other 35% and shipping
the ore to Martha for profitable processing.
The other ace that GEL holds is that Brent Cook likes the thing, and likes it after visiting the
property a couple of times as well. That kind of independent thumbs up on a geological deposit
(though Cook recognizes that GEL is one of the riskier shares he holds) is worthy of mention
and although there are no guarantees ever (Cook will be the first to tell you that he doesn’t pick
100% winners) it’s a definite positive for the mix.
Fancamp Expl.: Ticker FNC.v, share price 12c, shares out 109.6m, market cap $13.18m
Fancamp is a Canadian based junior with a whole bunch of projects on its books that are mainly
iron ore based. Rather than try to faze you with my own words I’ll let reader ‘RP’, who came up
with this idea and mailed it in, tell you what I was first told:
Fancamp, FNC, is worth less than its partecipations in Argex Titanium (9 M
shares) and Champion Minerals (15 M shares + many warrants but far OTM),
but it has got a lot more than those shares, a big (maybe too big) pipeline of
assets that could be of interest.
The thing I most like about FNC is its limited potential downside. Its 9m shares of Argex
(RGX.v) are currently worth $11.16m as at Friday’s close and its 15m Champion Iron Mines (its
new name, with ticker CHM.to) shares are currently worth $8.7m as at Friday’s close (and yes,
RP is correct about those warrants because they’re priced at $3 apiece, so let’s totally discount
them). In other words, those shares alone are worth nearly $20m, which isn’t bad for a $13.2m
market cap company.
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Fancamp is a leveraged play on iron ore, so if you think better times are to come for this
subsection of the market, FNC is a way you might think of playing with high risk cash. Along
with the shares held as seen FNC has its own book of properties that are currently being valued
at basically zero, but if iron ore starts to become fashionable again they’ll all be revalued. So on
the one hand you have leveraged upside, on the other you have backstop value in assets held
by the company. The risks from here include the lack of cash at bank, because if FNC
management decide that those shares are for selling yet it’s going to have to raise via equity
placement, thus dilution is on the cards.
AQM Copper: Ticker AQM.v, share price 8c, shares out 105.57m, market cap $8.45m
This is a company we know of old here at The IKN Weekly as it’s a sorry member of our current
Stocks to Follow list (and therefore already owned by your author), but all the same here’s a
quick word or three on why we consider it suitable for inclusion in this 2013 list.
The two things going for AQM are 1) its cash treasury that covers around half of its market cap
today and means the company can potter along in 2013 without any need to dilute and 2) the
Zafranal project, of which it owns 50% with the other 50% in the hands of Teck. Zafranal just
saw a 43-101 compliant PEA (scoping study) published on its prospects in December and
without being massive, the economics look solid enough.
What AQM needs to do in order to reverse its ill fortune is to get some sort of revised deal done
with Teck that allows Zafranal to move forward and the little guy here gets a free ride.
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Eagle Star Minerals: Ticker EGE.v, share price 10c, shares out 60.73m, market cap $6.07m
An interesting little company, with its focus on phosphates in Brazil. The flagship asset is the
recently acquired Bomfim phosphate target in the centre of the country (located well for the
sugarcane etc farmlands). The idea here is to include a smallcap exploreco with agro exposure,
as the potash/phosphate sectors got hit badly during 2012 and have recently shown the inklings
of a few green shoots (pun intended), so getting in on a small play that’s located well and has
an aggressive plan for exploration might just pay well.
Money is tight at EGE, even with the small financing of late August 2012 considered, so we
should expect EGE to finance itself given the opportunity.
FDG Mining: Ticker FDG.v, share price 13c, shares out 45.59m, market cap $5.93m
We have Nicaragua and we have gold in FDG, two things we like. What we don’t like is the lack
of cash that’s holding FDG back plus the somewhat pumpy attitude it had in 2011/2012 about
its marketing, but beggars can’t be choosers at the microdot end of the market and we’re now
moving into the $5m and below market cap sector, the lowest of our lows.
The main story at FDG is its Topacio project in Nica, which already has a 43-101 compliant
inferred resource of 340K oz gold grading an average of 3.9 g/t to its name (as per September
2012). That’s smallish for sure, but there’s more to like about Topacio including a) the resource
is most vein but near surface which means that according to the company at least 35% of the
resource is amenable to open pit production (check that grade again) and b) there’s plenty of
room for resource growth, as the main Topacio structure has now been traced to over 3.4km
and new surface access agreements mean that FDG can now get out there, explore the surface
mapping and eventually grow the ounce count significantly. Also, FDG reports that the 340k oz
Au has been calculated from just 7 of the known 25 veins on the property, so there’s obvious
upside from further exploration and drilling too (though it remains to be seen whether
potentially skinny veins add more ounces than economic robustness). We can expect drilling
from the company in FY13 as it tries to move its inferred resource into indicated territory (the
sign of a company that’s looking to do things the right way), so news is sure to flow.
The problem, aside from general exploration risk, is the lack of cash at bank. The company
raised $530k via placement two months ago and before that was running on fumes, so with
drilling planned that half a million isn’t going to last so long and more potentially dilutive
financings are in its near future. This shoestrong approach to working capital raising is
necessary at the moment, but if the markets really go South and suddenly there’s no source of
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financing available, even its reasonably modest drilling plans would have to go on hold, the
company mothballed and its pps would suffer as a result. FDG is one of the microcaps that will
benefit greatly from an upturn in sector fortunes, but that’s a double-edged sword.
Copper North Mining: Ticker COL.v, share price 12c, shares out 58.62m, market cap $12.6m
This company, spun off a couple of years ago from the now Western Copper & Gold (WRN.to),
is developing the Carmacks copper project in British Columbia, Canada. Carmacks is a small but
high grade deposit. Its chief issue is a lack of water rights, with BC authorities so far siding with
environmentalist protection groups over the granting of water permits. We understand that
COL.v is in the process of re-working its water permit application and if the company re-submits
and is successful, there’s a good shot at price appreciation here. In late 2012 COL raised
around $750,000 in working capital via a placement.
Risks here are environmental (permit denials continue etc) and market-based (copper has to
pick up).
Darwin Resources: Ticker DAR.v, share price 20c, share out 26.16m, market cap $5.23m
We’re right on the limit of our share price as of Friday, but DAR makes it in and that’s a good
thing because this is one that I think actually has a live chance in FY13 as long as things go
well for the stock. We mused on the potential of DAR.v in IKN185 and in IKN188, so check back
on those for more. We note here that the company has an interesting gold target in Suriloma,
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located in La Libertad Peru, has the cash and the plan to drill in in the first part of 2012 and has
the type of serious management team that gives the retail player a decent run for their money.
It’s also a project I like enough to want to visit in the New Year, a trip that will most likely
happen once the drills are turning (they’ll want to have something to show, I suppose).
This is one of the Lottery picks I most like of the bunch of 15 and there will be more to say on
the company as the year progresses, that’s for sure. An exploration drill play for gold, that’s
what DAR is today. We know the potential risks and the rewards of those (or at least we should
by now).
Cream Minerals: Ticker CMA.v, share price 3c, shares out 155.34m, market cap $4.66m
Cream Minerals has been described to me in the last couple of weeks as a broke company
holding on for dear life to one shitty asset,....but that’s how we like ‘em at this end of the
sector, folks! ☺. Its flagship asset is the Nuevo Milenio project in Mexico which was the reason
Endeavour Silver (EDR.to) once launched an unsuccessful hostile bid for CMA. Up until recently,
CMA claimed a resource at Nuevo Milenio with 9.66m oz Ag M+I plus 7.29m oz Ag inferred, but
after a BCSC review it’s had to retract that report and at present we don’t know what or when
CMA will re-file. CMA currently says March ’13, but these things aren’t set in stone.
Another problem here is the lack of cash at bank, as CMA is now running on fumes which
doesn’t help any review or re-file of its 43-101. The upside potential is that CMA re-floats with
the tide if silver gets a boost and/or it gets a 43-101 resoruce that’s acceptable to the BCSC. If
we take a leap of faith and assume the 16.95 m oz Ag all categories resources as per the 2012
technical report stands up, then each of those ounces is being valued at something like 27c in-
situ. On that score there’s clear room for share price recovery.
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Inca One Resources : Ticker IO.v, share price 12c, shares out 34.0m, market cap $4.08m
I’m sorry, did you say Cajamarca?
The main asset at IO.v is the ‘Los Socavones’ (literally “the undergound mine workings”) which
was explored and drilled by Sulliden back in 1998/1999 and dropped by that company because
it wasn’t big enough for their purposes. IO.v thinks there’s more at the site and that Sulliden
missed a decent development opportunity, but since taking it on hasn’t done much with it due
to a lack of permitting and the delicate state of political/social affairs in the Cajamarca region of
Peru. The project does have its merit and has a historic resource estimate (i.e. not 43-101
compliant, so take with liberal pinches of salt) 6.57 Mt grading 2.12 g/t Au and 25.2 g/t Ag,
implying 446,000 oz Au and 5.3 million oz Ag at a 1 g/t Au cut-off. There is also reportedly
copper, lead and zinc by-product credit potential from the rock.
As for its current share price, it’s already low due to the lack of action but will almost certainly
have to have its little journey further into the valley, as although it closed 12c Friday it only
popped there from trading between 8c and 10c on december 24th, trading is thin at the best of
times and it was showing a bid/ask of 8c/10c Friday afternoon without anything doing. In other
words, expect to see 8c before 15c shows up. However, we’re in these tinycaps because they’re
risky and because have holes galore in their stories, not despite of them. If IO.v gets an
agreement, gets to drill and gets some news into a market that wants to hear a gold exploreco
story all of a sudden, even this type of company’s price can rise fast.
Rio Cristal : Ticker RCZ.v, share price 2.5c, shares out 149.26m, market cap $3.73m
We’re now down at the bottom of the microcap barrel and beginning to scrape, with RCZ the
firs of our microcap’s microcap. The company runs the Bongará zinc exploration property in
Northern Peru, which it was until recently trying to JV with China’s Minmetals. That deal fell
through in October and RCZ is now trying to find another partner with which it can move
Bongará forward, because its current cash position is grim (it will still be working cap negtive
even if it manages to fully close the current $230,000 placement it’s running). As for Bongará,
there is plenty to like as long as Zn prices start moving, with strong mineralization present
(plenty of 20%+ Zn drill intercepts to show for previous exploration campaigns) and also an
interesting location, sitting as it does right next to the advanced stage Florida Zn project owned
by Brazil’s Votorantim. The best case for RCZ ownership today is that the big and rich Brazilian
company makes a bid for RCZ at these depressed prices and picks up an asset to complement
its current holding for a relative song while the Zn doldrums continue. That’s the reason to
include RCZ here; a high risk leverage play on a beaten to death company and its unloved
metal. You want them contrarian?
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Firestone Ventures: Ticker FV.v, share price 4.5c, shares out 36.32m, market cap $1.63mm
We’re zinc again and this time we’re Guatemala, which isn’t a good way to start things off.
However FV isn’t a totally lost cause because it’s been in the country for a long time and knows
all the political tricks backwards and also, though its main Torlon zinc property may be small it
is of particularly interesting and high grade, so if Zn goes on a run this is a stock that might
provide really strong percentage leverage.
Torlon is the reason to like FV.v today, a 1.89 million metric tonne deposit containing a 305m lb
zinc M+I resource grading a strong 7.32% average (ballparking Zn at a 90c spot price and an
85% recovery, that’s a “rock worth” of $124 per tonne and very mineable). The other is that FV
has found itself a sponsor in the form of Minéro Mining, a South african mining concern
operating out of Hong Kong that’s interested in Torlon and by the looks of things (nothing
certain yet however) is going to form some sort of JV or perhaps enter an optioning deal with
FV for the project.
Down at the very small end of our names, it won’t take much good news to turn anything into a
double. Equally, the chances are always there for a share price that’s cut in half. FV makes the
list due to it being a fair representative of the ultra risk/reward on offer, as does our final
offering and smallest market cap of the lot, below.
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Netco Silver: Ticker NEI.v, share price 2.5c, shares out 47.01m, market cap $1.18mm
Until recently NEI was silver in Argentina but the deal it had in mind for the Toruel property in
Rio Negro (held by Marifil Mines) fell through during the last quarter, basically because NEI
didn’t have the cash or the will to commit any further to the property or the country.
NEI today isn’t much more than a shell of a company, with a 3q12 working capital of less than
$20,000 (cash at bank $47k) and has now “commenced a search for a property of merit”,
according to the latest MD&A. It’s also notable that the company states its search is centred on
North America. If it finds something, NEI may be able to reactivate itself and asssuming that it
finances again, a minimum 5c level would be technically expected for that which makes the
current 2.5c interesting. However, the risk is that NEI goes back into its shell officially and gets
de-listed from the TSXV.
Conclusion
That’s our 15 for the 2013 season outlined for you all. They range from gold producers and
comapnies with plans for near-term production, right down to penniless entities scrambling to
do any sort of deal in order to stay afloat. 2013 promises to be an interesting time for juniors
(be that interest positive or negative) and by tracking the tinycap end of the market via our list,
we’ll be looking to see if any rebound can set in
Stocks to Follow
Seven the twelve stocks left open on our list made gains last week (RIO.to, BTO.to, AUN.v,
OGC.to, LSA.to, AQM.v, USC.to), one was unchanged (IRL.to) and four lost ground (LRA.v,
PLA.v, LPK.to, FCV.v), with the only biggish move during the subdued Christmas trading week
that of Aurcana Corp (AUN.v up 17.5%).
Please note that I took time to rearrange the names on the list and from today, the ones that I
most “like” are near the top of their respective groupings. In other words, the way in which
IRL.to and BTO.to head the “recommends” sub-section suggest that they’re the closest to being
promoted to the next Top Pick, while Lupaka and Plata Latina at the bottom of that grouping
are the ones that leave me most disgruntled at present.
With the loss last week of Galway (GWY.v) and Vena (VEM.to) from the list there are now 12
open positions, three less than our self-imposed maximum. Four of those stocks are in positive
territory, one is unchanged and seven are in negative land.
1

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$4.97 146.0% $6.29 tgt
Recommends
Minera IRL IRL.to hold C$0.73 22-jul-12 C$0.82 12.3% $1.56 tg, added, new avg
B2Gold BTO.to buy C$3.45 28-nov-12 C$3.45 0.0% $4.55 tgt
Aurcana Corp AUN.v buy C$1.07 11-nov-12 C$0.94 -12.1% $1.50 tgt near term play
OceanaGold OGC.to buy C$3.03 16-sep-12 C$2.76 -8.9% $5.34 tgt growth prod
Lara Expl. LRA.v hold C$1.15 08-apr-12 C$1.16 0.9% solid biz model, LT hold
Lachlan Star LSA.to hold C$1.50 30-sep-12 C$1.18 -21.3% $2.23 tgt, hi beta to Au
Plata Latina PLA.v hold C$0.79 10-apr-12 C$0.46 -41.8% considering sale
Lupaka Gold LPK.to hold C$1.12 23-oct-11 C$0.425 -62.1% holding
Smaller/Riskier
AQM Copper AQM.v hold C$0.31 16-oct-11 C$0.08 -74.2% holding thru for my sins
Focus Ventures FCV.v hold C$0.175 01-jul-12 C$0.185 5.7% revised tgt 25c
United Silver USC.to buy C$0.21 28-oct-12 C$0.18 -14.3% 60c tgt, avg down Dec'12
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
Vena Resources VEM.to dec'12 C$0.70 31-may-09 C$0.18 -74.3% Failed trade (caps F)
Galway Res GWY.v dec'12 C$2.19 24-nov-12 C$2.30 5.0% closed good ST arb trade
2009, 2010 and 2011 closed positions in appendices below
Now for some notes on a selection of the above stocks.
Aurcana Corp. (AUN.v): The idea was good enough, but as it turned out AUN bounced
straigh back to 90c+ on Monday’s open and stayed there which means that no near-term
fliptrade position was taken.
OceanaGold (OGC.to) (OGC.ax): OGC bounced up after the heavy selling of the previous
week, but nothing like as much as AUN did. If you’re looking for a potential rebound vehicle for
next week’s trading, this one with its producer status and decent volume fits the bill.
United Silver Corp (USC.to): It traded as low as 17c on a few occasions last week, I bought
some at 18c and averaged down as threatened last week, though stress that the position
remains small
1

The Copper Basket
After fifty-two weeks of 2012 The Copper Basket is showing a 49.46% loss to level stakes.
company ticker price 1/1/12 Shares out Market Cap current pps gain/loss%
1 Lumina Copper LCC.v 13.19 43.2 403.06 9.33 -29.3%
2 Augusta Res AZC.to 3.17 144.1 325.67 2.26 -28.7%
3 Copper Fox CUU.v 1.15 398.97 323.17 0.81 -29.6%
4 Nevada Copper NCU.to 5.18 72.8 243.88 3.35 -35.3%
5 Western Copper WRN.to 1.58 93.28 113.80 1.22 -22.8%
6 Candente Copper DNT.to 0.97 121.67 45.02 0.37 -61.9%
7 Baja Mining BAJ.to 0.80 338.5 35.54 0.105 -86.9%
8 Yellowhead Min. YMI.to 0.80 52.82 31.69 0.60 -25.0%
9 Regulus Res REG.v 1.24 99.88 26.97 0.27 -78.2%
10 Duran Ventures DRV.v 0.18 184.72 17.55 0.095 -47.2%
11 Excelsior Min MIN.v 0.63 56.12 13.75 0.245 -61.1%
12 Catalyst Copper CCY.v 0.08 274.48 13.72 0.05 -37.5%
13 AQM Copper AQM.v 0.39 105.6 8.45 0.08 -79.5%
14 Crazy Horse CZH.v 0.35 64.48 5.48 0.085 -78.6%
15 Strait Minerals SRD.v 0.150 56.86 4.83 0.085 -43.3%
Portfolio avg -49.46%
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.
Seven of our basket stocks went up (LCC.v, NCU.to, BAJ.to, WRN.to, DNT.to, AQM.v, SRD.v),
three remained unchanged (DRV.v, CZH.v, CCY.v) and five dropped in price (CUU.v, AZC.to,
REG.v, YMI.to, MIN.v) since last
weekend. Of those, the biggest wins
were recorded in Western Copper & 20% Copper Basket 2012 average, weekly
15%
Gold (WRN.to up 28.4%), Strait 10%
5%
Minerals (SRD.v up 21.4%) and
0%
Candente Copper (DNT.to up -5%
-10%
10.4%) while the worst losers were -15%
-20%
Copper Fox (CUU.v down 23.6%)
-25%
and Excelsior Minerals (MIN.v down -30%
-35%
9.3%). -40%
-45%
-50%
This means that the end of this -55%
rotten copper year has come and
our Basket lost just a few tenths shy
of 50%. The highs were reached
around PDAC time (that’s worth
remembering), April and May did the big sell-off damage, Bernanke’s QE3 saw the sector try to
rally but it was no use in the end, with the year’s worst numbers coming right at the end. Not
just for copper of course, but 2012 really was a year to forget...if that’s at all possible. Perhaps
“a year to remember and learn from” is a better strategy, though not many fond memories will
ensue.
1
ht8naj dn22 ht5bef ht91 ht4ram ht81 ts1rpa ht51 ht92 ht31 ht72 ht01 ht42 ht8 dn22 ht5gua ht91 n2pes ht61 ht03 ht41 ht82 ht11 ht52 ht9 dr32
source: IKN Weekly calcs, TSX
2102/1/1
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Inventories data saw world copper warehouse number move up slightly, +1.1% (6,553mt) to
586,873mt. The rise was again based in LME inventories (+1.8%) while Shanghai dropped
0.1%. Cancelled warrant were marked at 16.37% of LME inventories and we’ll expect
downward movement from both stocks and cancelled warrants next week, as the holiday stocks
of the last fortnight unwind.
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 881NKI 981NKI 091NKI 191NKI
source: Cochilco, LME
rof
yrotnevni
EML
%
latot
yreviled
resu-dne
The 2013 Copper Basket comment
Only slight dissent received on the names for the 2013 Copper Basket. Reader SL doesn’t like
the idea of Copper Fox (CUU.v due to project quality) or Candente (DNT.to due to outsized
political/community risk) staying in, but I’m going to stick with them even though they aren’t
my favourites, either. Reasons include the way I’m alwasy up for being proven wrong, the way
The Copper Basket tries to be representative of the sector, warts and all, the way both are fairly
decently traded vehicles and they’re also pretty much pure copper plays.
We’ll do the formal intros of our stocks next week (see IKN190 for the names) as well as
bidding fond farewells to the stocks that won’t be in the 2013 list, explaining why they’re
getting dropped.
Now for some updates on two of our covered stocks:
Western Copper & Gold (WRN.to): Last week I said that WRN might not have much more
pop left in it, this week proved me wrong. Some very strange action in WRN on December 26th
while Canada was closed, as the NYSE listing /WRN) reached $180 and above on strong volume
and then quickly faded. There wasn’ much chance to trade into the stock if you weren’t already
long, however. We understand that the updated feas study for WRN’s massive and low grading
Casino project is due soon, perhaps within the next week or two, and that’s what the fuss might
be all about. Careful about buying the rumour people, as “sell the news” is the other part of
that old saying.
Copper Fox (CUU.v): CUU traded very much as expected, dropping hard and then finding a
support level as asset protection plus lack of shorting opportunity kicked in. I’ve been made
aware of a fanatical following in this stock once again, with bullboard faithful being lured to an
inevitable financiual demise. Don’t buy into people clutching at straws people, as Teck would be
stark raving mad to throw its cash at such a marginal project. And Teck isn’t mad.

Regional politics
Conga protests to re-start in early 2013
The first few days of 2013 may see Conga return to the limelight, as protesters have threatened
to march on the construction site of the water reservoirs currently being built by Yanacocha in
order to stop their development and “will blame the mining company for any unfortunate
consequence of the action”. Also, the legal straitjacket is tightening around regional governor
Santos, with more investigations into apparent corruption during his tenure coming to light.
Market Watching
USA Graphite (USGT) is a short
For those of you looking for the next obvious short vehicle from the US OTC market (and there
are a handful that read the Weekly who fit the bill to your author’s certain knowledge), look no
further than USA Graphite, (USGT) (USGT.pk).
It has all the hallmarks of a pump and dump
• Hundreds of millions of shares outstanding via recent forward splits
• A heavy promo campaign via several different media (I’ve even received direct mails on
this one in my private mail account from the pumpers)
• Very questionable asset book and lack of working capital
• Lack of staff (current filings indicate just one employee)
And the list continues. Yes for sure it could go higher, but those with the penchant for this type
of trade (and assuming you can find your lend) should start shorting now and just keep
grabbing tranches if it goes higher. Another BS US OTC company that’s destined to dive to
mere pennies in the not so distant future.
Seriously, sometimes I watch these plays unfold before my eyes and wonder just why I bother
investigating and trying to find long opportunities. Making money by shorting OTC scams such
as USGT is like shelling peas.
Goldgroup Mining (GGA.to) sees more insider buying
Back in IKN188 dated December 9th we returned to look at Goldgroup Mining (GGA.to), owners
of the Caballo Blanco gold project in Veracruz Mexico that hit big permitting problems in 2012
and saw its share price whacked lower as a result. In IKN188 he idea put forward was that GGA
1

was now a potential buy because the company was probably going to re-file its EIA application
now that the new Peña Nieto government has taken charge in the country. At that time in
IKN188, one of the reasons to be interested in GGA was that insiders had started to buy its
stock, so it’s interesting to see last week’s insider trade action in this light as well:
As you can see, another 836,000 shares of GGA were bought by insiders between December
13th and December 24th. That’s pretty noteworthy buying under the circumstances and lends
weight to the theory put forward three weeks ago that GGA is going to re-file sooner rather
than later.
Conclusion
IKN191 is done, we close with bullet points:
• This week’s main (virtually only) content is the rundown of the new Lottery Ticket
Basket. Some stocks therein are more likeable than others, but they’re all included as
representatives of the type of extremely beaten down stock price that’s available after
the 2012 junior bloodletting. Time will only tell whether these tiny prices drop even
further or will stage a recovery, which is the main reason why we’re running this basket
in 2013 (and of course by popular demand for readership, it should be added). I’ve
tried to cover a representative cross section of what’s on offer and include things that
look quite interesting, potential value as well as a couple of out-and-out dogs with the
potential to bark a bit and wag a tail if given a fair run of luck. I’ve also tried to cover
geographical (in The Americas at least) and deposit type bases.
• I wish you a happy and prosperous new year. It was around this time last year that
thoughts of “well, 2012 can’t be any worse than how 2011 ended” were in my mind, so
I’m not going to tempt fate too much again this year. What I am looking for is a year
where the quality end of the juniors market fares better, because the efforts of the past
few months have been in order to position The IKN Weekly portfolio of Stocks to Follow
to take advantage of a cream-to-the-top move or two.
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
1

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
1

Stocks To Follow Closed Positions, 2009
Closed positions closed closing PPS
Cardero Res CDY/CDU.to May'09 U$1.20 03-May-09 U$0.87 -27.5% sold on negative news
Eastmain Res. ER.to May'09 C$1.04 06-May-09 C$1.315 26.4% trade closed
Radius Gold RDU.v May'09 C$0.165 03-May-09 C$0.235 42.4% trade closed
Latin Amer Min. LAT.v May'09 C$0.12 03-May-09 C$0.158 29.2% trade closed
Aquiline Res. AQI.to July'09 C$2.03 16-Jun-09 C$1.68 -17.2% took loss, bad timing
Chariot Resources CHD.to Aug'09 C$0.20 12-Jul-09 C$0.415 107.5% trade closed
Castle Gold CSG.v Sep'09 C$0.64 02-Aug-09 C$0.60 -6.3% ST trade didn't work out
Guyana Goldfields GUY.to Sep'09 C$2.30 12-May-09 C$4.50 95.7% profit taken
Los Andes Copper LA.v Sep'09 C$0.09 21-Jun-09 C$0.09 0% trade closed
Pediment Gold PEZ.to Oct'09 C$0.80 09-Aug-09 C$1.00 25.0% trade closed
Minera Andes MAI.to Oct'09 C$0.68 03-May-09 C$0.71 4.4% too much bad news
Dynasty Metals DMM.to Nov'09 C$4.18 03-May-09 C$6.01 43.8% half sold
Rusoro Mining RML.v Nov'09 C$0.55 03-May-09 C$0.57 3.6% underperformed
Important Disclosure
The information and opinions contained within this report reflect the personal views of the author and therefore all
material within should not be construed as accurate or reliable or be utilized as advice for investment or business
purposes. Independent due diligence and discussions with ones own investment and business advisor is strongly
recommended. Accordingly, nothing in this report should be construed as offering a guarantee of the accuracy or
completeness of the information contained herein, as an offer or solicitation with respect to the purchase or sale of any
security or as an endorsement of any product or service. All opinions and estimates included in this report are subject to
change without notice. It is prohibited to copy or redistribute this report to any type of third party without the express
permission of the author.
2