IKN #193Premium

The IKN Weekly
Week 193, January 13th 2013
Contents
This Week: When “avoid” is the right call, The US macro show, Travel plans.
Fundamental Analysis: NOBS report on IMPACT Silver (IPT.v).
Stocks to Follow: Overview, USA Graphite (USGT), Minera IRL (IRL.to), Focus Ventures
(FCV.v), B2Gold (BTO.to), Rio Alto (RIO.to), Lupaka Gold (LPK.to), United Silver (USC.to), Plata
Latina (PLA.v).
Copper Basket: Overview, Panoro Minerals (PML.v), NGEx Resources (NGQ.to), Western
Copper and Gold (WRN.to, and a bit of copper fox), Curis Resources (CUV.to).
The Lottery Ticket Basket: Overview, Eagle Star (EGE.v), Gryphon Gold (GGN.to), Darwin
Resources (DAR.v).
Regional Politics: Guatemala: Three dead in confrontation at the Tahoe Resources (THO.to)
(TAHO) Escobal mine project, Colombia: The Páramo of Santurban is declared National Park,
Yukon rule changes, Mexico: More on the new head of the Semarnat environment bureau.
Market Watching: USA Graphite (USGT), Rio Alto (RIO.to), Esperanza Silver (EPZ.v).
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
When “avoid” is the right call
Disciple: “Does a dog have Buddha nature?”
Siddhartha Gautama: “Mu”
As the exchange of news releases on Saturday between First Quantum (FM.to) and Inmet
(IMN.to) demonstrate (1) the cordial “soft hostile” feel around FM’s bid to buy IMN is starting to
harden up. But what’s also evident is
how the market has come off its
original assumption that either a
counterbid or a sweetened bid was a
near certainty, with the evidence from
the money-talks-BS-walks end of the
show, the IMN share price action:
Friday’s IMN.to close of $71.74 is
under the FM $72 ticket-price on the
deal and either indicates players aren’t
expecting a counterbid or that there’s
a growing danger the deal will fall
through. As we noted in IKN189 when
analysing the deal just after it all
began, the risk to IMN shares is
greater than just a couple of dollars, as the move IMN enjoyed once it became clear FM was on
1

the chase is closer to $20. Here’s how we summed up the analysis in IKN189 at the time:
“...I don’t think today’s news from FM.to offers much of an arbitrage
opportunity to the smaller player, there are downside risks in both stocks, an
obvious counterbidder isn’t clear (though admittedly it’s always possible to get
one from some quarter or another) and even if a sweetener comes, chances
are that it’s not gong to be the size that makes smaller arbitrage plays
worthwhile.”
Of course, there’s still a long way to go with this story and this weekend’s moving up of gears
from both company boardrooms shows we’re entering a new phase, but the assumptions of
higher final prices for IMN is looking rather rash today, whatever might happen in the future.
These calls didn’t come from the higher percentage shareholders either, as this NR (2) from
15.92% shareholder in IMN, Leucadia, makes plain.
“...based on current publicly available information, and in the absence of changed
circumstances or new information (including an alternative transaction that would provide
greater value), Leucadia would intend to tender the common shares of Inmet...”
The people with real skin in the game don’t shout from rooftops, that job is left to our old pals
in the retail brokerage community, because at $72 or $75 a shares and trading a million shares
a day there’s a whole bunch of commissions to be made, which is why emergency updates and
newspaper reports were chock full of quotes and serious sounding advice from serious sounding
people with letters after their names about how FM would have to bid higher or shufflings of
the packs to consider just who would come in as White Knight (not if, but when).
Calls to “avoid” a trade or stock or company aren’t market glamour calls, they don’t get
remembered in, they don’t have the power to produce alpha, they’re never remember in the
same way as Gautama Buddha’s philosophical or religious responses (to cut a long story short,
the word “mu” means neither yes or no). They’re not the ones required from a world hungry for
action and decision and to cap it off, avoid calls are just as difficult to get right as a long/short
call. They’re not the ones that bring commish to broker houses either...what, you expected
independence and advice in the best interest of the customer? I like avoid calls.
The US macro show
Top of the bill next week is Ben Bernanke tomorrow, Monday. Here’s how the unsurpassable
Calculated Risk (3) presents the event in question:
Monday, Jan 14th 4:00 PM: Fed Chairman Ben Bernanke will speak at the University of
Michigan's Rackham Auditorium, "Chairman Bernanke visits the University of Michigan for a
conversation with Ford School Dean Susan M. Collins on monetary policy, recovery from the global
financial crisis, and long-term challenges facing the U.S. economy". The even will be streamed live,
and Bernanke will take questions on Twitter: #fordschoolbernanke
Expect the usual sifting of each syllable for stock/bond/commodity/whatever else friendly news.
Travel plans
Monday 14th (i.e. tomorrow) through Thursday January 17th your author will be out the office,
first travelling then doing work that’s unrelated to IKN and planned to cover three days (and
hopefully reality will match the plans). Expect blogging to be light until late week, but IKN194
next week will be the same service as usual (if you can stand the normal mediocrity we serve
up for yet another week).
2

Fundamental Analysis of Mining Stocks
This week we take a look at IMPACT Silver Silver Corp (IPT.v):
“No asset is so good that it can’t be bid up to the point where it’s
overpriced and thus dangerous. And few assets are so bad that they
can’t become underpriced and thus safe (not to mention potentially
lucrative).”
Howard Marks, Chairman, Oaktree Capital Management, 2012 client letter (4)
NOBS report dated January 13th 2013
IMPACT Silver Corp (IPT.v)
Company Overview
IMPACT Silver Corp (Canada: IPT.v, US pinksheets ISVLF, Frankfurt IKL.f) is a producing silver
mining company operating in Mexico. Its flagship asset is the producing/development Royal
Mines of Zacualpan(RMZ)/Mamatla silver district in Mexico State, three hours South of the
capital city. Share structure is as follows:
Shares out: 68.03m
Options: 4.22m
Warrants:zero
Fully diluted shares:72.25m (approx, see below)
Current share price: $1.14
Market Cap: $77.6m
Approx cash per S/O: 24c
All prices are in Canadian dollars unless stated. Forex U$1=CAD$1
Investment thesis
IMPACT Silver (IPT.v) is a company I’ve watched, at times more closely than others, for years.
However recently was the first time since late-2011 that I’ve taken a good look at the company
and its numbers and what I saw was a pleasant surprise. Up to mid-2011 IPT made big claims
of how it would rapidly grow to a one million ounce per year silver company and just for a while,
around the time 2010 turned into 2011, my skeptic’s view of its forecasts weren’t on the right
side of the trade. Then came a big glitch in mid-11 when it found that its main source of mineral
feed, the El Chivo mine, was depleting faster than anticipated and new sources of high grading
rock would have to be found to replace it. The stock took a nosedive and kept on diving from
that point to this, a position not helped by the 2012 gloom and doom market for juniors.
However, we’re now at a point where IPT has done the heavy lifting and is about to move its
production schedule back up. This is a company that is bringing to an end a transformation
period and will soon bring interesting production a revenue catalysts to the table, but equally as
important it’s managed to get through its extended turnaround period while looking after its
financial position well in the rough 2012. This combination means that there’s a potential share
price bargain in the offing and with the extended bear market for its shares, the company now
looks competitively priced.
3

Today’s analysis is very much a numbers-based affair and there are three parts to what follows:
• We look at the track record of the company financials in quarters and years gone
• We consider the impact (no pun intended) of the two new operations that are about to
come on line
• We estimate 2013 production and base a target price on our estimates
There are a lot of variable in any mining operation and in the case of the smaller miners, there is
always execution risk that affects a company even more than in a larger-scale, larger market
cap vehicle. I don’t want to ignore those operational risks when it comes to IPT and we go into
some detail about ops and what we want to see from IPT in the quarters to come, but these
factors are taking a backseat in today’s report. What I see in IPT is a numbercruncher’s
advantage; as long as things go reasonably well operations wise and as long as metals prices
don’t drop sharply, the figures and data that IPT offers today compare favourably to the type of
financial set-up we can expect from the company tomorrow. In brief, this looks like a good
window of opportunity to buy some cheap shares and sell them later when they’re not so
cheap...and that’s the whole reason this publication has existed for 193 weeks.
History, management, significant shareholders, company strategy
We’re not going into much of the history of IPT today, just covering the bare bones. The
company took its shape in 2006 when it was created by the people at Energold (EGD.v), the
contract drilling company, as a vehicle to own and run the mines at the historic Royal Mines of
Zacualpan/Mamatla silver district. The company is headed up by President/CEO Fred
Davidson, who is also the Pres/CEO of Energold. Sprott Asset Management is named as a
10%+ holder of IPT shares. Parent company Energold holds 6.98m share of IPT, representing
10.3% of shares outstanding. As at the last Management Information Circular, officers hold
1.76m shares (2.6% of S/O).
Since its inception, IPT has had a clear strategy of avoiding the normal track to production via
43-101 reports, PEAs, PFS’s, FS’s etc used by most Canadian junior mining companies. The
company policy is more of the traditional “let’s just mine it out and see”, which has its
advantages but also its disadvantages. The principal advantage is that it fast-tracks any
operation into production and means expensive studies and compliances are avoided. As IPT
was created by its parent to self-fund to production it had nobody to convince and no financing
pleas to make. This suited its main purchased assets at Zacualpan as the district is one of the
oldest and most prolific in Mexico’s long history of mining so the assumption that “the metal is
there, let’s just go and find it and dig it out” is a safer proposition than any brand new discovery.
The disadvantage is that the company has more problems convincing the market of its asset
worth and leaves a question mark hanging over mine life, vein life, potential nasty capex
surprises if a vein being mined suddenly stops giving, etc. Markets don’t like uncertainty and
IPT has suffers as a result, with the issue manifesting mainly via a reduced price multiple to
4

revenues and/or earnings. In fact, this is one of the factors that I’ve disliked the most about IPT
and as the sudden winding down of the Chivo mine operation and move to lower grade material
while the next higher grading vein, Oscar, was prepared in 2012 shows, these fears have
foundations.
IPT.v: Asset Breakdown
Financials overview
80
On occasion, the charts we use to sketch
70
out the past history of a company are of 60
secondary importance but in this case, the 50
story they tell is central to the buy thesis for
40
IPT. Due to this we’re going further back in
30
time on plenty of these charts to show how 20
balance sheet and P+L items have 10
developed over time. 0
Assets look like this and of all the charts
presented in this analysis today, this is the
most important of the lot. It shows a
company that has prudently added value
to its balance sheet for the past five years
and built a solid asset position. There
were two significant cash raisings during
4q10 and 2q11 to add funds, and since
that time IPT has deployed cash into its
fixed assets, mainly mine & property.
Today, with 4q12 financials closed and the
results due in a few weeks, we find
ourselves at the point where most of the
heavily capex lifting has been done, it has
new assets about to come online and
generate (rather than burn) cash and we
can expect the tendency for lower cash and
higher fixed assets to reverse.
The other ingredient that goes hand-in-hand
with assets is liabilities and as the second chart
shows, IPT has always run a minimum of debt
for an operating entity, never reaching $9m
total. Today’s current liability position of just
over $2m means that working capital, our next
chart (right), remains strong at an IKN
estimated $23m for 4q12, not bad at all for a
sub-$80m company and let’s remember, this is
a working miner with positive free cash flow
from its operations, not an exploreco that has
insatiable burn.
Shares outstanding show to two hikes that
happened when IPT went to the market to raise
working capital but barring those moments,
there have been no unpleasant surprises along
the way. Two raises in six years indicates a
company that plans its future carefully.
Now to revenues and this chart shows how
they’ve progressed. First here’s a chart that
shows quarterly silver production and sales,
whcih doesn’t get much comment here because
we talk more about the production profile in the operations section below; it’s offered up at this
point for reference purposes.
5
70q2 70q3 70q4 80q1 80q2 80q3 80q4 90q1 90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 tse21q4
source: company filings
srallod
SU
fo
snoillim
cash other current fixed assets
IPT.v: Debt Profile per Quarter
9
8
7
6
5
4
3
2
1
0
70q2 70q3 70q4 80q1 80q2 80q3 80q4 90q1 90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 tse21q4
source: company filings
srallod
SU
fo
snoillim
current debt long term debt
IPT.v: Working Capital
40
35
30
25
20
15
10
5
0
70q1 70q2 70q3 70q4 80q1 80q2 80q3 80q4 90q1 90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4
source: company filings
srallod
fo
snoillim
IPT.v: Shares Outstanding
80
70
60
50
40
30
20
10
0
70q2 70q3 70q4 80q1 80q2 80q3 80q4 90q1 90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 tse21q4
source: company filings
tuo
serahs
fo
snoillim

IPT: Silver production and sales, 2010 to date
300000
250000
200000
150000
100000
50000
0
6
01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3
Oz Ag
Ag production
Ag Sales
source: IPT data
Our subject here is financials and the sweet spot period (and the time when IPT’s share price
climbed to over $2.50) for revenues
was between 4q10 and 2q11 when the IPT: Revenues vs Mine Operating Income
combo of high silver prices and higher 9
production rhythm saw revenues and 8
mine operating income (or gross profits 7
if you prefer) shot much higher. That 6
came to a halt when IPT suffered the 5
double whammy of lower head grades 4
and lower received from 3q11 onwards 3
silver prices. It clearly hasn’t been easy 2
going for IPT in 2012 with those thinner 1
margins, but as the next chart indicates 0
the company has managed to get
through the last four quarters without
losing any money (in fact, 4q11 thru
3q12 shows an aggregate net profit of $332k,
which is better than nothing I suppose) while
deploying cash at its projects to improve
production this year.
Regarding revenues, there’s another aspect to
the cash generated by IPT operations that
needs a light thrown upon it. The chart below
considers the average London Silver Fix price
for each quarter (2010 to 2012) and then after
taking the number of silver (not all metal)
ounces produced and dividing them into the
amount of revenues booked, we see that the
gap between the two set of figures has risen
over the last two years. This is something
we’ve also seen at Fortuna Silver (FVI.to) for
those who recall that analysis and it smack of the middlemen (smelters, bullion dealers etc)
taking more commission from each ounce that leaves IPT’s mine gates. This difference peaked
in 4q11 but in the last three quarters it’s levelled out at around $5 difference between IPT’s
received revenues and the London fix. In essence, what this suggests is that if the London Fix
averages $35/oz, IPT will get $30/oz for its metal, etc. There is room for IPT to cut this gap and
improve its margins (better concentrate now that higher grade material starts being run, better
terms of contract etc) but for the sake of our analysis we’re going to assume this approximate
$5/oz gap continues into FY13.
70q1 70q2 70q3 70q4 80q1 80q2 80q3 80q4 90q1 90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 tse21q4
U$m
revenues
MOI
source: company filings
IPT.v: operating profit vs net profit per Qtr
5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
-0.5
-1
70q1 70q2 70q3 70q4 80q1 80q2 80q3 80q4 90q1 90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4
source: company filings
srallod
SU
fo
snoillim
MOI net profit

IPT: Difference between London silver fix average per quarter
U$/oz Ag and IPT revenues per ounce silver produced, 2010-2012
10.00
8.00
6.00
4.00
2.00
0.00
-2.00
-4.00
1q10 2q10 3q10 4q10 1q11 2q11 3q11 4q11 1q12 2q12 3q12
source: IKN filings, Kitco, IKN calcs
We move on to consider operational costs. This is another favourite chart and one that speaks
of the potential IPT offers if once the head grades improve at RMZ. We see how revenues per
tonne shot up in the 12 months between 4q10
and 3q11, when RMZ was running close to full IPT: Direct costs per tonnes vs revenues per
steam and when market prices for silver were tonne, 2008 to present
strong. Revenues dropped sharply in 4q11 250
and have stayed that way throughout the
200
transitional year of 2012, but with the Oscar
150
mine now about to come online, we can
expect better things from the green bars as 100
more money goes through the processing
50
plant per tonne. If we add to the mix the
potential for higher silver prices in 2012 (your 0
guess is as good as mine, but my guess is for
silver to trend back up to $35/oz in FY13),
revenues upside is easy enough to visualize.
But what I really like about this chart isn’t the
green bars but the red ones; IPT has kept its costs per tonne milled very nicely under control,
barring a small upside during the heyday quarters of 2011, but the control of costs means that
extra revenues from those new higher head grades is less likely to be diluted away from
company bottom lines.
Here’s yet another chart that has its appeal, though of a different ilk. Once you take the equity
numbers and crunch them a
bit, it’s possible to compare
how the underlying book
value has performed
compared to the share price
(we use a snapshot of share
price at end each quarter to
compare, rather than the
daily movements, but over
our longer-scale time period
it works just fine). As
mentioned above, the
company has slowly but
surely added asset value
and kept liabilities to an
absolute minimum, so as
you’d expect the Book Value
(BV) line shows gentle upwards movement. Meanwhile (and we can probably discount the 2007
period when IPT was more about rosy, pre-Lehman expectations than actual results) the share
price movements (red line) show the up and down as late 2010 gave plenty to look forward to,
but mid 2011 saw the negative influences of Chivo’s depletion take control. Then the green line
7
80q4 90q1 90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3
U$/t
revs per tonne
direct costs/tonne milled
source: company filings
IPT price and asset ratios
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
70q1 70q2 70q3 70q4 80q1 80q2 80q3 80q4 90q1 90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 tse21q4
BV/share
PPS end qtr
PPS/BV Ratio
source: IPT filings, IKN calcs

shows how the ratio between the two has progressed, with the high point of optimism in 1q11
but since then, gloom and doom. We’re now at the point where the three lines have almost
converged and although the run-up isn’t quite as harsh, the eye has to be drawn to the 3q08
quarter when they joined, up, only to see PPS and ratio rebound again on a better outlook for
the company.
I think we’re in the same position today. IPT has gone unloved for a whole year, traded volumes
are down, the stock evermore ignored as last year saw lower production and cash dedicated to
boring things like construction that depleted treasury instead of adding to it. But with that period
now coming to a close and the investment about to be turned into production and new sources
of cash flow, I expect that green line to start moving back up as share price improvement
outstrips book value additions.
Conclusion to the financials overview: There are two main things I draw from the above
analysis of IPT. The first addresses one of my main concerns about the company over the
years, that of its reliability and the lack of 43-101 resource back-up that can reflect through to
the financial results. Yes indeed, the loss of production from the Chivo mine last year wasn’t
something that could be previously predicted by IPT until the depletion became evident in mid
2011; with a previous 43-101 in hand, that problem would have been known previously and
adjustments could have been made. This is still one of the risks in holding IPT over a longer
term, because the same might happen to another of its producing mines. However, and this is
important, looking at the long-term financial record of IPT shows me (and the practical fact is
that I have to convince myself on these things before ever committing to write a NOBS report on
any story I like) that we can trust this company 1) remain operationally profitable, albeit at lower
positive cash flow 2) remain prudent and manage its financial position wisely and 3) be flexible
enough to transition from a soft moment for its production and results and get to a position
where it can recover its production parameters in a reasonably fast way (i.e. four quarters 4q11
to 4q12 of transition to a better future in 2013). What all this shows me is that IPT may be
following an unusual route in not having all those feasibility studies or reserves/resources to
count upon, but as a company it can be trusted to do the right thing and not to fall into a sudden
abyss if a problem arises. This is the main reason I went back as far as I have done on the
balance sheet and P+L items; I wanted to look at how IPT has handled itself over the longer
term and as the asset profile best shows (because when all is said and done, the bottom line to
any company is its balance) this company has done a good job in adding asset value.
The second conclusion draws slightly from this but also from what looks like a better year to
come for IPT than FY12. As long as plans execute reasonably well, IPT will be able to improve
its financial aspect in FY13 and again in the years following, thanks to its higher production
about to come on line (see more about that in Operations below) and its good record of keeping
costs under control. And as that final chart of price and book value ratios suggests, it’s either
now or very close to now that the low point in share prices can be expected, which gives IPT
that “right time right place” look about it.
Operations
There are three strings to IPT’s bow at the moment: current operations, about-to-begin
operations and exploration projects. For our purposes today we’re not going much into the
company’s exploration projects bar this quick word here; in general terms what IPT is looking for
from its explorations are to 1) back up the present and soon-to-be ops at RMZ and Capire and
2) look to start a new production zone close to both areas in the ‘Valle de Oro” zone that lies
between RMZ and Capire.
With that quick word on the pure exploration work at IPT, we move to our focus today. IPT’s
current producing assets in the Royal Mines of Zacualpan (RMZ) district are three underground
mines, namely San Ramon, Noche Buena and Gallega. These mines feed IPT’s nearby
Guadalupe processing plant, which has a plate capacity of 500tpd (but in the last two years has
averaged between 416tpd and 486tpd per quarter, so it’s never hit its full nominal capacity). In
3q12 the company reported that 50% of feed came from San Ramon, 27% from Noche Buena
and 13% from Gallega, with the remaining 10% coming from the now depleted Chivo mine
which closed in 4q12. The low grading Gallega mine has taken up the slack produced by the
Chivo mine depletion and in recent quarters the tendency has been for IPT to run more
8

throughput at Guadalupe but at lower average head grades. We expect that to continue in 4q12
(we await production numbers).
However, the first bit of good news is that at any moment now (the company says it’s waiting on
the final, straightforward explosives permit to be
expedited for the green light) the new Oscar IPT: Silver production and sales, 2010 to date
mine, also located in the RMZ district will come 300000
online. This is a higher grading vein system and 250000
is expected to improve head grades at
200000
Guadalupe and therefore silver production in
150000
2013. To give an idea of the difference, in 2q11
(the last quarter that the Chivo mine operated at 100000
full tilt) IPT reported average head grades of 208 50000
g/t at its plant, but by the last reported quarter of 0
3q12, that had dropped to 129 g/t. For a little
more perspective, the Chivo mine was
responsible for 42% of all feed in 2011 and 21%
in 2012, so its importance to overall grades is
clear. In production terms, this chart shows the difference in silver produced by IPT due to the
falling head grades.
As Oscar, a mine with metals comparable to the now defunct Chivo comes online we can
expect head grades to recover at Guadalupe. The upcoming 4q12 production and sales number
is expected to be the nadir, then improvement as Oscar feed begins to improve head grades in
1q13 (our present quarter), further improvement in 2q13 which then reaches the IKN average
estimated head grade of 190 g/t by 3q13. Put in simple terms, there’s every reason to expect
head grades to be up by 50% at Guadalupe come this time next year and ceteris paribus,
quarterly production at the plant should return to over 200,000 oz Ag per quarter.
Meanwhile, 2013 will see a second front of production start at IPT. The company is about to
commission its new Capire pilot production plant a few kilometres away from RMZ. This is a
different style of operation, being an open pit mine and dedicated $8m processing plant (bought
and paid for via internal cash flows and already raised cash). The construction is “nearly
complete” according to the company and first production is expected before the end of this
quarter. The Capire ops is based around a VMS type deposit that (unusually for IPT) has a 43-
101 compliant M+I resource of 4.9mt grading 45.74 g/t Ag to give 7.2m oz Ag. There are also
30,446 oz gold M+I as a by-product credit metal that adds around 20% to AgEq calculations,
plus minor Cu, Zn and Pb credits. There is also some minor inferred resource to add to the pile,
but economics are better based round the larger and more reliable M+I at the moment.
As for the plans, IPT intends to run a maximum 200tpd pilot plant at Capire for 2013 and 2014
until it understands more about the deposit and how to process the rock. Once it’s happier
about how to process and get the most out of Capire, that production can be scaled up (400tpd
or 500tpd has been mentioned by the company, then as much as 1,500tpd mooted). We note
that this strategy is very much true-to-form for IPT, as it has a preference to move forward
before exhaustive tests are done, get its operation underway and refine operations as it goes.
Theoretically at least, if IPT runs Capire at 200tpd for any quarter and gets the type of 85%
silver recoveries we’d expect from this type of VMS rock. We could see interesting and
potentially lucrative production from this new operation soon:
200 X 90 days X 45 g/t Ag X 85% recoveries = 22,318 oz silver production per quarter
With those interesting gold credits Capire is set to become a low cash cost operation as well. If
we set our bar at $10/oz and assume a $18/oz margin on those silver ounces, one quarter of
200tpd pilot production at Capire can add $400k/qtr to IPT’s mine operating income (2.3c anual
EPS) even before the company steps things up and goes for a higher run rate. However, we’re
definitely going to aim low for the time being on Capire in 2013 and pitch on the conservative
side. For 1q13 we assume zero production from the mine and for 2q13 we assume just 100tpd
average throughput and 60% recoveries. That gives this type of ballpark production parameter:
9
01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3
Oz Ag
Ag production
Ag Sales
source: IPT data

100 X 90 days X 45 g/t Ag X 60% recoveries = 7,813 silver production per quarter
Also, it’s unlikely that Capire will be able to make money in 2q13 as the start-up suggests high
cash costs, so we assume break-even only for those Capire ounces. However, it’s reasonable
to assume that by 3q13 and beyond IPT will have a handle on the rock and the processing, so
for the second half of 2013 we assume 150tpd average throughput and 80% silver recoveries,
with those interesting gold credits bringing down cash costs per ounce to the average company
level (more on that in a moment). That works like this for 3q13 and 4q13:
150 X 90 days X 45 g/t Ag X 80% recoveries = 15,627 silver production per quarter
So overall we’re not expecting miracles from
Capire in 2013, its first year of pilot production, IPT: Est. annual silver production from Capire mine
but by the time 2013 becomes 2014 we’d 160000
expect IPT’s brand new investment to be 140000
adding to the company’s revenues more 120000
significantly. Then come 2015, teething 100000
problems smoothed out and a larger capacity 80000
installed, Capire can start showing what it can 60000
really do with those 7.2m ounces of contained 40000
20000
silver.
0
Overall, this next little chart below puts FY13 FY14 FY15 FY16+
source: IKN ests
together the annual production of pure silver
ounces at IPT (quick sidebar, IPT is a pretty pure silver play with 90% of revenues coming from
its main metal) and the way we expect the new feed from the Oscar mine, plus the new
production from Capire, to affect matters. This
chart may be small but it’s at the heart of the
investment thesis here; IPT itself said
(admittedly after Chivo failed them mid-2011)
that 2012 would be the company’s transition
year, so with the new lines coming in 2013 we
can expect things to get back to close normal in
2013 and move nicely ahead in 2014 and
beyond, on to the longer term stated company
goal of becoming a 1m oz Ag/annum producer.
We also see that until Capire comes out of pilot
production it’s not going to contribute so much
to the overall production mix and even when it
does (here for example we assume a 400tpd
machine for FY15) it’s still a minor part of the whole. More important to the company in the near
and medium term will be getting the high grade of the Oscar mine running as part of the
production mix at Guadalupe, as that will add the type of ounce count that brings IPT back from
its 2012 lows. Finally on this chart, let’s be clear about our conservative attitude to what IPT can
offer production wise, in 2013 and in the years beyond. I’m aware that back in early FY11 the
company was telling us about how 2012 would be its 1m oz silver year (The reality? Around
600k oz...ha ha) and that kind of OPUD profile needs to be taken into account. If things start
shaping up well at IPT in 2013, if Oscar gets off the ground quickly, if Capire starts at a faster
pace than our assumed 150tpd by end 2013, the company’s management might start offering
up optimistic end forecasts for public consumption and hey, you never know, they might just
deliver on them too. I do not care, period. What I’m looking for are my reasonable, even low-
end, ramping forecasts to be hit and a company that can profile getting near 1m oz Ag by 2015,
not a company that says it can breeze past 1m oz by 2014. The point I’m making in my usual
long-winded manner is that there’s no need for great results, as mere improved ones will be
more than enough to lift this stock higher in the year to come and as, improvement looks baked
in, this looks like a good time to buy.
The bottom line to our overview of production is that 2012 was always going to be a low point
for IPT, it’s turned out that way but with two new sources of production now about to come
10
gA
zO
IPT: Ag production and forecast
1000000
900000
800000
700000
600000
500000
400000
300000
200000
100000
0
7002 8002 9002 0102 1102 tse2102 tse3102 tse4102 tse5102
AgOz
RMZ Capire
source: company filings, IKN ests

online in 1q13 and increase as the year moves on, barring unforeseen problems the worst is
past for IPT. There’s every reason to suppose a better production profile in FY13 and further
improvement for FY14 and beyond and as the level of costs per tonne at IPT has remained very
stable over the years and all the new operations are paid for without any debt incurred, we can
expect that extra production to move through the financials and show up in bottom line figures.
Valuing IPT
It’s time to put that all together and come up with a 12 month target price for IPT based on what
we know, what we believe, what we assume and what we can guess. Today’s valuation isn’t
based on cash flow potential for the year ahead, as even though things are likely to improve in
the year ahead it’s going to take at least a couple of quarters to see the benefits of Oscar and
Capire at a financial results level. Put simply I think hat basing IPT on the amount of EBIT or net
it can generate in 2013 is selling the company short and therefore prefer to consider potential
valuations on its asset value. For example, this is how our normal cash flow analysis target box
looks on our 2013 parameters alone (and it’s a 12 month target we’re looking for here), so by
taking $30/oz silver, plugging in the production/costs/etc parameters mentioned above, all
Mexico corporate items (the usual suspects) and considering the company treasury, the result is
a figure that’s as near to today’s share price as dammit is to swearing.
IPT: FY13 Sales and earnings Target price & valuation data
Ag U$/oz $25 $30 $35 $40 using four different silver prices
Sales (C$m) 23 27 31 35 12-month target $1.30 (on 10x EPS using Ag
Upside to target 14% $30/oz plus cash)
EPS 0.07 0.10 0.14 0.18 Mkt cap (C$m) $78 Enterprise value $55
Cash flow 0.09 0.12 0.16 0.20
However, there’s more to IPT in 2013 than sheer bottom line results, as they can be given time
to bloom in 2014 and beyond. If 2012 was the transitional year for the company, 2013 will be
the year IPT shows the fruits of its efforts and if they just show the reasonable improvements
we’re using as our guidelines, confidence and momentum is almost certain to return to the
stock. With the price/BV ratio back down at near
IPT price/BV ratio
1X today, improvement in production would see
3.5
this ratio increase and move back to towards
3.0
the 2X it demanded for most periods before its
2.5
operational bad news in mid 2011. The whole
2.0
point of a turnaround story is to see the stock
1.5
turn itself around and get back to where it once
belonged, so even with our conservative, 1.0
reasonable assumptions on Oscar and Capire 0.5
in 2012, once results show IPT moving back up, 0.0
its ratio should improve according thanks to its
continued balance sheet strength
As for how that might affect the share price, this
stylized chart for 2013 is unlikely to be able to
map the price move exactly (it’s likely to be
more staccato than our perfect world via
spreadsheet) but a move towards $1.85 by the
end of 2013 is more than reasonable, doesn’t
assume wonderful results from the new
production lines (merely reasonable ones),
doesn’t assume 3X BV multiples (just 2X and
the baseline IPT showed over two years)
Conclusion
IMPACT Silver (IPT.v) is coming out from a
protracted period of transition after spending
2012 investing in the future of the company. The company’s current price point looks attractive
11
90q1 90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 tse21q4 tse31q1 tse31q2 tse31q3 tse31q4
source: IPT filings, IKN calcs
IPT quarter end share price and 2013 ests
2.5
2.0
1.5
1.0
0.5
0.0
90q1 90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 tse21q4 tse31q1 tse31q2 tse31q3 tse31q4
source: IPT filings, IKN calcs

to the point of it being mis-priced, despite the risk that it will somehow disappoint once again via
a new operation failure of the type seen in 2011. Even a reasonable (I’ve used that word a lot,
and deliberately too) improvement thanks to high grade feed from the new Oscar mine and the
beginning of its new, separate operation at Capire is enough to bet on the company moving its
share price back up in the year to come.
The investments in Oscar and Capire, as well as its other exploration activities at its concession
areas, have drained on treasury but now that drain is virtually at an end with a company that still
boasts (an IKN estimated for 4q12) $23m in working capital. Meanwhile, it’s important to
distinguish that not only is IPT a producing junior, but it’s one that’s remained cash flow positive
at its operations, even in the worst of the 2012 quarters. The fact that it’s a producer and
making money, along with the prospects that profits will increase somewhat this year and even
more so in 2014 (silver price willing) are among the main preferred strategies for today’s IKN
Weekly: The house belief is that junior producers will perform better than junior explorecos or
any other company that has its well-being tied to the fate of the financing markets in 2013.
Then there’s the potential of IPT as a target for M&A activity to consider. At under $100m, with
producing assets and positive cash flow it’s the type of profile and price that the small/mid-sized
silver producers could consider as a quick an easy way to turn their treasury and/or equity into
production upside. It was just over six months ago that First Majestic (FR.to) closed the deal on
its purchase of Silvermex and its La Guitarra mine, which at the time was running at between
300tpd and 350tpd. That deal immediately added production ounces to FR’s profile and it’s not
beyond the realms of possibility that another silver junior would run the same kind of play
against another small producer. The way things stand, it makes more sense to spend $100m on
a producer and have a true asset enter your structure than spend the equivalent amount on a
purchase that sits as a financial liability until such time as it can be put into production. Or put
another way, when FR announced its friendly acquisition of Silvermex, that day the stock
finished down 3.9% at $15.82. When it announced its purchase of Orko Silver in December FR
dropped 10.4% to close at $20.29. Today FR is at $19.70 and has flatlined its way through the
renewed perkiness of the 2013 market. Or put another way, if I were Endeavour Silver, Fortuna
Silver or even (heaven forbid) Aurcana I wouldn’t be making a bid for Cream Minerals, Scorpio
or Soltoro; I’d be looking for ounces that wouldn’t drag on my treasury in any way, shape or
form. Exhibit One: IPT.v.
The IKN Weekly recommends IMPACT Silver (IPT.v) as a buy and sets a 12 month price
target of $1.85 on the stock, representing a 62.3% upside to Friday’s close. We base our
share price target on the assumption that with improvement in production and revenues, IPT will
be able to command the 2X asset multiple it traded at before its operational troubles hit. The
quote at the very top of this report from Howard Marks is a reminder that even companies you
overlook time and again can eventually reach a moment when a profitable trade is presented.
One doesn’t have to be a massive fan of IPT the company to see the value that IPT the stock
currently presents, with a low point reached in the share price, the near-term improvement in
production thanks to investment now expected, the continued strong financia position of its
books. Your author buy IPT next week and it will be a component of our ‘Stocks to Follow’ as
from IKN194, next weekend.
End of Report
Stocks to Follow
The second week of 2013 trading saw consolidation and individual stories making the fore,
which quite frankly is a good sign. Stocks that moved (both up and down) might not have been
members of our ‘Stocks to Follow’ list, but the mere fact that company valuations are allowed to
move on their own all of a sudden is good news for the state of the 2013 market and also for
the “good companies” amongst the generalized dross and bunkum of the Canadian lists. Let’s
hope (ugh, that word) IKN choices coincide with the wider consensus as the year progresses.
12

Anyhow, five of our 13 positions made gains during the week (BTO.to, OGC.to, USGT short,
FCV.v, USC.to), one was unchanged (AQM.v) and seven lost some ground () but most of the
moves both up and down were inside trading ranges. The exceptions were the win in USA
Graphite (USGT short +27.4%) and he loss in Plata Latina (PLA.v down 10.2%), but even then
there’s a case for the illiquid PLA.v being inside its recent range.
We currently have 13 open positions, two less than our self-imposed maximum. Of those
positions, six are showing a profit since inception (and any additions) and seven are showing a
loss. We’ll be up to 14 this time next week, most probably.
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$5.18 153.9% $6.29 tgt
Recommends
Minera IRL IRL.to hold C$0.73 22-jul-12 C$0.84 15.1% $1.56 tg, added, new avg
B2Gold BTO.to buy C$3.45 28-nov-12 C$3.89 12.8% $4.55 tgt
Aurcana Corp AUN.v buy C$1.07 11-nov-12 C$0.93 -13.1% $1.50 tgt near term play
OceanaGold OGC.to buy C$3.03 16-sep-12 C$2.79 -7.9% $5.34 tgt growth prod
Lara Expl. LRA.v hold C$1.15 08-apr-12 C$1.19 3.5% solid biz model, LT hold
Lachlan Star LSA.to hold C$1.50 30-sep-12 C$1.24 -17.3% $2.23 tgt, hi beta to Au
Plata Latina PLA.v hold C$0.79 10-abr-12 C$0.44 -44.3% considering sale
Lupaka Gold LPK.to hold C$1.12 23-oct-11 C$0.45 -59.8% holding
USA Graphite USGT short U$0.95 08-jan-13 U$0.69 27.4% shorting obvious otc pump
Smaller/Riskier
AQM Copper AQM.v hold C$0.31 16-oct-11 C$0.085 -72.6% 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$0.175 -16.7% 60c tgt, avg down Dec'12
Closed in 2013
n/a
2009, 2010, 2011 and 2012 closed positions in appendices below
Now for some notes on a selection of the above stocks.
USA Graphite (USGT) (USGT.ob): Short position opened. The various issues around this
short that was noted in the Flash update of Tuesday (see appendix 1 below) are dealt with in
‘Market Watching’. Here we’ll keep the commentary about price action.
You never know when the drivers of these scams will pull the plug and they can go much
higher before crashing, but fall they do. In this case I was plug dumb lucky to have opened the
short at the top of the price curve (I think it might have gone a penny or so higher, not much
more and not for long) and see the first big jam-cut down (a sure sign the pump’n’dump has
limited legs) just two days after but on other occasions the short position can take a big paper
loss before coming back to you; a strong stomach (and no dangers of margin calls) is
sometimes needed. Scoring a 27% win in four days of any new position is very welcome, but
let’s not kid ourselves about impeccably calculated timing, either. Luck has its part in this crazy
game, though after suffering months of seemingly bad luck, it’s nice to get a pleasant result
from that nice Mr. Market for a change.
But more importantly, just because it’s jagged down hard already, don’t think you’re too late to
get on and ride a short down lower (assuming you can get your borrow). This stock is a scam,
the bubble is now bursting, it will drop much lower than its current price of 69c and there are
still profits to be made. It’s the very nature of shorting that new money coming on as a stock
dumps makes better percentage gains than cash already deployed and if you’ve never thought
that through, take a moment to consider how it works; it’s not that difficult. Let it be known I
13

will not cover/close my above position in USGT until the stock is trading for pennies.
Minera IRL (IRL.to) (MIRL.L): Last week we wrote...
“If you’re looking to start/add to an IRL position I don’t think there’s any need to pay
a 9-handle for the moment, mid-80s should get you a fill as long as you apply patience.”
...and that was accurate enough. On another subject, I’ve had a couple of mails from you
people out there mentioning the difficulty of
getting a fill via the Canadian ticker, with one
of those mails coming early last week. This is
true and there’s nothing I can really do about
it except relay the messages over to IRL HQ
so that they’re aware of a market
disadvantage to their company. Thinly traded
stocks require patience to position, some more
than others, and the only practical advice I
can offer is to make your bid and stick with it,
rather than enter into mind games than askers
try to play. Make your simple and priced bid,
walk away, come back later, if it’s accepted
then fine, if not go again the next day.
Focus Ventures (FCV.v): FCV continues to do nothing volumes, even with news (5) last
week. The NR was again decent channel sample results, was again one of those NRs that geols
will like, again got a shrug from the market. We know this is what FCV is about as it moves to
define and drill Santa Cruz/Reventón, it’s the way of the exploreco that does its job right. A bit
tedious waiting for something to happen, but as we bought well on this position it’s not that
difficult a holdthru.
B2Gold (BTO.to): BTO was putting in an ok week until Thursday, when pre-bell it dropped
positive news on the market about its Otjikoto gold project in Namibia (6) and the stock price
suddenly started having a very good week. The results of the Feasibility Study at the 92%
owned Otjikoto project shows strong parameters (check the NR for the line item details, but
here we mention 112,000 oz pera annum average production over a 12 year mine life, $524/oz
op cash costs, a post-tax IRR (5% disc) of 23.6% using $1.550/oz gold) and the capex bill at
$244m has climbed by about $50m since the last study, but cost creep was expected and the
$244m total number is very manageable. What’s more, all permits are in hand and construction
has already begun at Otjikoto, with production ramp-up estimated to begin in late 2014. And
for the cherry on the cake, although BTO has the treasury to cover this project it has also
14

arranged a $150m debt financing with Macquarie that will make sure cash is plentiful for
Otjikoto and and all other exploration projects the company has on the go.
Now that we have FS parameters we’ll go into the numbers that we expect for Otjikoto in next
week’s edition and add a cash flows element to our current target price for BTO (at the moment
we’re using a simple NAV for this part of the whole). Today we’ll cut it short by saying that the
price move in BTO on the back of this news last week is fully justified and we expect more
where it came from, gold price action permitting of course. For once I got long at the right time
on this stock and although the second add price ($3.17 or below) didn’t show up, long is long.
Rio Alto Mining (RIO.to): We do the production numbers in ‘Market Watching’ below. Here a
quick note about trading action and as
this 10 day comparative chart to GLD
shows, apart from the small lift at the
start there (that was December 31st
and it’s a silly trading day anyway)
RIO has done little against its
underlying metal in 2013. That may
be a good thing, because the market
seems not to have fretted in the
slightest about the slightly lower than
expected 4q12 production number.
Lupaka Gold (LPK.to): We had drill result news from LPK on Tuesday (7) which was good
without being great and no market move came of it. The good bit was the highlight intersect of
46m grading a strong 1.42 g/t gold from a central portion of the A-1 deposit that hadn’t seen
such close grid drilling previously (maybe designed to turn inferred into indicated, time will tell).
The bit that wasn’t so great were holes #60 and #61 (check the drill map here (8)) that seems
to indicate the economic limit of A-1 is being reached to the North (unless the mineralization
takes a turn to the right). This isn’t a grand surprise but it does mean limits are now being set
on just how much A-1 can grow and I personally can’t see it getting much beyond 2.3m oz Au.
Hey, that’s still a nice deposit and the grade, especially the central sweet spot that would be
mined first in the event of the open pit happening, is robustly economic on a ciggypack level.
They’re also cheap ounces at around $16 each in-situ. Whether the market gives LPK credit for
those ounces is a different question that only 2013 will be able to answer, however.
The other notable bit of the NR that was a slight downer but all the same understandable was
that LPK is going to wait out the rainy season before beginning the next round of drilling.
Having been up to Crucero during the onset of the Andean high country rainy season on that
side of the cordillera, it makes a lot of sense to defer, save money and keep the ground from
getting too torn up by dill rigs, repeated footfalls etc, that may potentially annoy land owners.
United Silver Corp (USC.to): Friday saw USC announcing (9) the arrival of a new COO at the
company, Michael P. Gross. He’s a seasoned mining figure (see CV here (10) or his biog (and
photo fwiw) at his latest post of VP Expl at Northern Gold Mining (NGM.v) here (11)) and the
right sort of person needed to move USC’s Crescent mine from pure project into production. As
we’ve mentioned on these pages previously, moving Crescent into production isn’t one of those
exploreco pipedreams either, as the company already has most permits and bought/paid for
mill capacity at its disposal, as well as a financial backer that’s good at adding value to share
prices. The sub-20c prices we currently see still surprise me somewhat (though after the last 12
months shock-surprises have been beaten out of me) as the subsidiary businesses of USC are
arguably worth every penny of the current market cap even if we give Crescent away for free.
This is the stock that I could have put into out Lottery Ticket Basket this year but didn’t,
15

because for my taste it’s far more than a lottery ticket. This is my low downside/high potential
upside pennycrapper that has real asset backbone and cashflow to boot.
Plata Latina (PLA.v): Our spec silver exploreco managed to trade the sum total of just 500
shares last week, which indicates that the rebound we’ve seen in the juniors hasn’t permeated
itself down too far yet and is still being selective with its vehicles. Apart from its 3q12 revenues
filing, the last news we had from PLA was September 27th, which by my book means that we’re
overdue something from the company. Until we do have news, there’s no reason to expect an
upturn in volumes or fortunes. However here is a December 2012 corporate presentation
update (12) which states drilling is due to start on the second of its exploration targets,
Vaquerias, this month. At least we know they’re still out there.
The Copper Basket
After two weeks of 2013 The Copper Basket is showing a 10.99% profit to level stakes.
company ticker price 1/1/13 Shares out Market Cap current pps gain/loss%
1 NGEx Resources NGQ.to 3.40 158.5 527.81 3.33 -2.1%
2 Lumina Copper LCC.v 9.43 43.46 432.43 9.95 5.5%
3 Augusta Res AZC.to 2.43 144.1 380.42 2.64 8.6%
4 Copper Fox CUU.v 0.83 397.65 369.81 0.93 12.0%
5 Nevada Copper NCU.to 3.50 80.5 318.78 3.96 13.1%
6 Hot Chili Ltd HCH.ax 0.72 286.78 203.61 0.71 -1.4%
7 Western Copper WRN.to 1.39 93.78 154.74 1.65 18.7%
8 Panoro Minerals PML.v 0.62 176.25 121.61 0.69 11.3%
9 NovaCopper NCQ.to 1.80 51.89 105.86 2.04 13.3%
10 Reservoir Min. RMC.v 2.41 41.46 92.46 2.23 -7.5%
11 Candente Copper DNT.to 0.375 121.93 73.16 0.60 60.0%
12 Curis Resources CUV.to 0.70 56.31 48.43 0.86 22.9%
13 Yellowhead Min. YMI.to 0.59 60.97 40.24 0.66 11.9%
14 Oracle Mining OMN.to 0.80 49.03 37.75 0.77 -3.8%
15 Strait Minerals SRD.v 0.08 56.86 4.55 0.08 0.0%
NB: HCH.ax priced in Australian dollars, rest Canadian dollars Portfolio avg 10.99%
Gosh this is going well, as if 2012 never happened...
Just two stocks lost ground last week (RMC.v, OMN.to) which points to a strong five days for
copper explorecos. Of the thirteen stocks that moved up (not listing them all) the best moves
were seen in Curis Resources (CUV.to up 26.5%), Western Copper and Gold (WRN.to up
25.0%), Copper Fox (CUU.v up 14.8%), Strait Minerals (SRD.v up 14.3%), Panoro Minerals
(PML.v up 13.1%) and Candente Copper (DNT.to up 9.1%). Only Reservoir Minerals (RMC.v
down 10.1%) put in a significantly losing week. Therefore with two weeks gone, an overall
11% positive to the basket and just four of our 15 stocks in the red, there’s really not more we
could have asked from copper juniors (assuming you take an overall bullish stance, at least)
and 2012 is beginning to look like a bad dream...and yes I know it’s tempting fate to say things
like that way too early.
Moving to the macro copper section, copper prices threatened to go higher and moved above
$3.70/lb on a couple of occasions, but come Friday they dropped back into the mid-$3.60s and
ended basically unchanged on the week. Therefore it’s safe to say that considering our basket
plus the way the copper producer ETF (COPX) gained 2% on the week, the miners beat the
metal in the World Of Copper.
16

As for inventories, we still haven’t
seen a drop back to pre-Christmas Cancelled Warrants at LME, IKN157 to date
35%
numbers begin and that’s starting to
30%
look interesting too, though less
bullish than a net market long such 25%
as myself would like. Overall 20%
worldwide inventories moved up 15%
13,779mt (+2.3%) to 604,611mt, 10%
with the LME up 3.2%, Comex up
5%
1.4% and Shanghai up 1.3%.
0%
Cancelled warrants at the LME
dropped a bit to 20.265 of
inventories.
Related to this, Antofagasta media report (13) that the slow sales influence of the Chinese New
Year has already started, with cash deals for copper shipments now few and far between. Note
that 2013 sees the central day of the Chinese New Year on February 10th, a late one compared
with last year (Jan 23rd). Also, we had the preliminary China copper import data released for
December that you can see on this Reuters chart below and read about here (14) the bottom
line being that the sector gave us somewhat lacklustre results. Here’s a chunk of the script from
that Reuters note:
“Copper imports were the weak spot, with arrivals of anode, refined metal, alloy and
semi-finished copper products falling 6.6 percent from November to 341,211 tonnes, the
second lowest month for 2012. However, full-year imports were up 14.1 percent on
2011 and December's weakness was largely due to the import price being higher than
that in Shanghai and the drop in cash available for financing deals as Chinese firms
usually pay back loans at the end of the year.”
Now for updates on some of our covered companies:
Panoro Minerals (PML.v): PML had a good Friday after this Reuters overview report (15) was
published on the company Thursday afternoon. Nine times out of ten (and assuming nothing
drastic changes with the underlying fundamentals) this type of promo push that gets a share
price higher doesn’t stick, so if you’re considering PML as a potential for your portfolio let the
low 60s prices come back to you first.
NGEx Resources (NGQ.to): News Thursday (16) from NGQ was very good from a geological
and metal poundage point of view, as the company updated its 43-101 compliant resource
17
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 291NKI 391NKI
source: Cochilco, LME
rof
yrotnevni
EML
%
latot
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estimate for its Josemaria project. There is a little oxide resource as well, but the main story at
Josemaria is the sulphide copper/gold mineralization, using a 0.30% CuEq cutoff, is calculated
at
• Indicated resource: 656 million tonnes grading 0.36% Cu and 0.26 g/t Au (0.54% CuEq
grade) for 5.2Bn lbs Cu and 5.6m oz Au
• Inferred resource: 326 million tonnes grading 0.33% Cu and 0.19 g/t Au (0.46% CuEq
grade) for 2.4Bn lbs Cu and 2.0m oz Au
NGQ also announced initial metallurgical reports for the Josemaria rock that were more than
acceptable at this early stage (e.g. 85% Cu recoveries into a 25% conc, gold numbers ok too).
In other words, aside from NGQ’s main Los Helados property (we outlined that last week in
some detail) the company also has 7.6Bn lbs Cu with 7.6m oz Au sitting in its number two
project, just a few kilometres away from Los Helados. That’s all well and good, but the
problems with Josemaria are 1) it’s in Argentina, not Chile 2) that grade looks a little thin 2) it’s
in Argentina, not Chile 3) and did I mention that it’s in Argentina, rather than on the Chilean
side of the border? As this five day chart shows, the news was greeted with enthusiasm by the
market on Thursday and a high of $3.52
briefly hit (your author noted several
Canadian brokerages giving NGQ a real
promo turn both Thursday and Friday
morning) but then selling arrived and
although NGQ managed to gain 9c on the
week, that was wholly due to the money
that moved in on Tuesday pre-
announcement (uncannily matched by the
volumes on the Thursday
opening...coincidence of course, right?).
The action last week went some way to
confirm your author’s suspicions on NGQ;
1) the Argentina assets are best ignored for
the moment and 2) NGQ is already an expensive stock. That doesn’t mean that it can’t get
more expensive, but it does suggest that it’s going to take more than a resource upgrade in its
Argentina asset to move the market cap higher in a way that appeals to speculative cash.
Western Copper & Gold (WRN.to) (and a bit of CUU.v):
We got that mooted and rumoured Feasibility Study (FS) from WRN.to on Monday morning (17)
and as this five day chart shows, the crowd
liked what it saw. Now for a few thoughts:
Reader and industry professional ‘AM’ and I
chewed the cud over the WRN numbers.
After the little table we put together to
compare AQM to CUU a couple of weeks
back, AM did the same for WRN and CUU.
It’s probably a better like-for-like too,
because both WRN at Casino and CUU at
Schaft Creek are large, low grade and
Canadian judisdiction, as well as having 43-
101 FS studies (recall AQM is only at PEA
stage) that indicate projects of roughly the
same milling size. So with all that in mind,
I’ve taken the liberty of pasting AM’s side-by-side model here for your consideration. This isn’t
my personal table but I fully endorse its contents:
18

For what it’s worth, AM isn’t a proponent of WRN.to stock at this price, which is something else
on which we agree (and it’s up to you to decide whether great minds think alike of whether
fools seldom differ). However, AM and I both say that Casino is obviously superior as a project
to Schaft Creek. We noted little bits and extras too, such as how CUU uses $3.25/lb Cu to get
to its numbers, while WRN uses $3.00. Frankly both are higher than we’d prefer, though one
pushes the window that much further. Finally, we both agree WRN’s low grade mineralization in
such a remote spot that requires hefty capex (and it’s cheaper, but $2.5Bn is still $2.5Bn) is the
weak point in the story here. Aside the above table I’m not directly quoting AM’s mail, but what
I can do is paste a section of one of my replies to the mailpal, as it makes the point succinctly:
“...if you were the guy at Teck with your finger on the buy button here, and
you're in the decision meeting, and I'm there too, and we're both in the celestial
presence of the biggest Teck cheeses who are sitting in on the meeting to
gauge employee quality, and you say to the room that you think Teck should
commit to Schaft Creek....that's when I call you an utter dumbass and show the
room the Casino numbers. Then in 10 years' time I'm on the board of directors
and you're not, the end.”
The bottom line to WRN’s FS last Monday is that it was better than CUU’s, it was actually quite
good as long as one can trust those capex estimates, but it’s still a bulk lowgrader in the middle
of nowhere and that low grade, which means tight margins and less room for error if the plan
goes off kilter at any point, leaves little room for maneuver. I’d like to like WRN, I’ve never liked
it much, I do like it more than I did a week ago, but I’m still too leery to buy this story. I know
that “avoid” may not be the right call this time and it’s easy enough to imagine the current rally
taking hold and WRN going higher, especially as the company has had plenty of brokerage
coverage before and there must still be plenty of bagholders in the $2+ and $3+ price range
that would appreciate a promoted run. Therefore I personally choose to make my mistake by
sitting out on WRN instead of making my mistake by buying the stock. However and I want to
be clear, WRN has put together what seems to be a solid FS (we wait to see the full document
on SEDAR before any definite call) and the company is more likeable now. The jungledrums
about the FS and the share price run-up pre-release have been justified, so more fool me for
sitting this one out and missing the win. And there’s just one more thing to mention about the
19

price moves, as any market that can do this to CUU...
...cannot be trusted. Seriously, you guys up there will buy anything, won’t you?
Curis Resources (CUV.to): The other big mover of last week was Curis Resources (CUV.to),
which brought news to the market Tuesday about better recovery rates for its in-situ Florence
copper project in Arizona (18) and
now estimates global copper recovery
rates to reach 70% come full
production. However, the big move it
put in seems to be more about a
quiet, word-around promotion
campaign as on several occasions last
week I received mails from different
people, unrelated to each other, that
asked about CUV and why I’m leery
on its politics. It was one of those
patterns I’ve seen happen when other
stocks get a soft-IR push and added
to the thinnish volumes seen last
week (less than 100k shares traded all
week) I’m unconvinced about this
move. If you want to risk a positive political/judicial result and buy CUV at these prices (that will
turn out to be very low if the company gets its way and into production on current terms), I
suggest you wait for a price in the 60s. Personally, I’m not going near until there’s some final-
looking legal resolution, one way or the other.
The Lottery Ticket Basket
After two weeks of 2013 The Lottery Ticket Basket is showing an 11.64% gain to level stakes.
20

company ticker price 1/1/13 Shares out Market Cap current pps gain/loss%
1 Marlin Gold MLN.v 0.10 192.39 21.16 0.110 10.0%
2 Bellhaven BHV.v 0.14 121.16 16.36 0.135 -3.6%
3 Glass Earth GEL.v 0.155 104.79 16.24 0.155 0.0%
4 Fancamp Expl. FNC.v 0.125 109.8 15.92 0.145 16.0%
5 Gryphon Gold GGN.to 0.085 194.64 12.65 0.065 -23.5%
6 Eagle Star Min. EGE.v 0.125 60.73 12.15 0.200 60.0%
7 AQM Copper AQM.v 0.08 105.57 8.97 0.085 6.3%
8 Copper North COL.v 0.10 58.62 8.79 0.150 50.0%
9 Rio Cristal RCZ.v 0.025 149.26 6.72 0.045 80.0%
10 FDG Mining FDG.v 0.13 45.59 5.93 0.130 0.0%
11 Cream Minerals CMA.v 0.03 155.34 5.44 0.035 16.7%
12 Darwin Resources DAR.v 0.20 26.16 4.45 0.170 -15.0%
13 Inca One Res. IO.v 0.12 34.0 2.72 0.080 -33.0%
14 Firestone Ventures FV.v 0.045 36.32 1.82 0.050 11.1%
15 Netco Silver NEI.v 0.025 47.01 1.18 0.025 0.0%
Portfolio avg 11.64%
Week two of our new feature saw just three of the components move up (FNC.v, EGE.v,
COL.v), five move down (MLN.v, GGN.to, FDG.v, DAR.v, IO.v) and a full seven stocks remain
unchanged (BHV.v, GEL.v, AQM.v, CMA.v, RCZ.v, FV.v, NEI.v). The biggest upmoves were seen
in Eagle Star (EGE.v up 53.8%) and Fancamp Exploration (FNC.v up 11.5%), while the biggest
losers were Gryphon Gold (GGN.to down 23.5%), Inca One (IO.v down 20.0%) and Darwin
Resources (DAR.v down 10.5%). It was also a good week to return to the theme of volatility in
these tinycaps, with ups as well as downs always a potential result. This time, however, we’re
going to look at specific cases.
Eagle Star (EGE.v): The Tuesday AM NR from EGE (19) isn’t the first time the company has
delivered decent results from its
Bomfim phosphate project, but the way
in which pit 8 stands separately from
the previous seven pits and returned
good widths and grades caught the
market’s attention at what seems to be
a better moment to deliver good news.
The result can be seen in this price
chart, with great looking upward
movement on strong relative volumes
(well over a million shares changed
hands during the week). The 20c
closing price of Friday is the first time
the stock has closed at this level (i.e. all
in are winning) and thanks to that
volume surge, EGE is suddenly
tradeable, as well as having a good
story, (right place right time etc).
Gryphon Gold (GGN.to): This is the other side of the tinycap coin and shows what can
happen at any time to these tiny plays. On Monday GGN announced (20) that gold production
had been suspended for an estimated month due to a boiler failure at its refining facility. That’s
really not the right time to have a production failure folks, because according to the terms of
GGN’s loan agreement with its creditor, Waterton, principal payments have begun to be due.
The payments are at a reduced rate for for end December 2012 (just $50,000) and this month
($150,000 due Jan 31st), but then things get serious with $500k due to be paid on Feb 28th and
then $919,048 on March 31st and every month after that until November 2014. As i said last
21

week, it’s a pretty sharp deal and GGN has to comply, because Waterton is the type of shop
that won’t think twice about calling in its senior debt and getting itself a working goldmine all
for itself.
Anyway, the potentially rotten
consequences on the share price
weren’t lost on the market, which
dumped GGN at the bell and saw it
spend the rest of the week jumping
around the 6c to 7c range. Quite right
too, because if the company doesn’t
get its act together and fast, there’s
every chance of a bankruptcy here and
if that happens, you don’t want to be
holding GGN equity. Senior debt yes,
shares no.
Oh yeah, a director resigned as well. All in all not a good week for our über-high risk gold
producer stock.
Darwin Resources (DAR.v): There was more interesting surface sample news from DAR last
week (21) including a 130 g/t sample from the Northwestern “Surupampa” end of the target as
seen on the map provided in the NR (here’s the link (22)). However the rest of the NR made it
clear that the previously (and pretty sharp looking) timeline to start drilling at Suriloma by 1q13
(i.e. this quarter) isn’t going to happen and it looks as though 2q13 will be the earliest
reasonable time DAR can start the drills turning
OK, fair enough, we’re not long this story and can wait on the sidelines. However, it’s still a
story that interests your author, so final arrangements have now been made and last minute
problems aside, I’ll probably be going up to the site in the third week of February, along with
company head Graham Carman, to see what there is to see. Until that time there’s no rush on
anything here, but at less than $5m market cap, a tight structure and and interesting project
with a good address, if there’s something worth liking here the potential rewards are good, too.
Until February, then.
Regional politics
Guatemala: Three dead in confrontation at the Tahoe Resources (THO.to) (TAHO)
Escobal mine project
The news yesterday from Guatemala, as featured on the blog (23) (the death toll now at three
(24) with an unidentified body, presumably a member of the attacking group, found this
morning) is bad for everyone, not just the families of the two dead security guards, but
unfortunately it didn’t come as much of a surprise to your author. This is now headline news
and follow-up stories today Sunday morning carry more details and quotes (example here (25)
from a reliable Central America publication, plenty of others to choose from) such as Santa
Rosa regional Governor Henry Salazar saying, “There’s a great deal of tension, worry and fear
amongst the population” of neighbouring communities. We’re now in a regional elections
window in Guatemala which can only add to the rising volatility and we should also expect
some sort of crackdown or upping of government security forces presence in and around the
Escobal mine area, the type of measure that solves little but brings uneasy calm for a while.
As for how it will all play out, the issue is in too much of flux to be able to predict at all well,
with timescales also uncertain as to when decisions will be made. But what I do know is that
my repeated call, that of THO being far riskier than it’s made out to be by virtually all English
language news and analysis channels, has been confirmed correct this weekend. At the risk of
22

repeating too much too often, Guatemala is a place where I’d consider placing high risk
speculative capital in small, exploration stage companies (RDU.v, FV.v, other) as long as other
conditions were suitable, but I continue to shudder at the thought of a $2.6Bn market cap
company being sold to the world as a sure thing for future share price appreciation. It may well
turn out to be cheap today, but it may turn out to be very expensive. It’s at times like these
that “avoid” has to be the call.
Colombia: The Páramo of Santurban is declared National Park
Last week an official move was made by the government of Colombia to protect the upland
Santurban “Páramo”, the same locality that Eco Oro (EOM.to, once Greystar) was trying to
develop as a gold mine. The big drop in EOM came last year, but the company has been
holding out for some kind of development that would allow it to progress. Last week’s news
seems to have paid paid to that, however in its NR EOM.to said that (26) We should wait until
the boundaries of the new park are known and that until then, anything said or done was
“speculative”. However, as this report (27) amongst others points out clearly, Eco Oro (EOM.to)
has seven declared concessions comprising 6,120 hectares included in the area that’s been
designated as National Park. By the way, Continental Gold (CNL.to) at just over 1,000 hectares
is the second largest concession holder of lands now declared National Park land, but this an
early stage exploration target, not CNL’s flagship project, and what’s more CNL has already
stated its intention to voluntarily hand back the concession at the government’s request
(though hasn’t done so yet due to the “catastro” or claims freeze, the same issue we mentioned
last week).
These pages have warned against holding Greystar/Eco Oro for as long as your author can
remember. Last week’s new merely adds one extra layer of confirmation of this call, even
though it was hardly needed. As for wider consequences, those directly affected in the back
pocket by this official decision may try to play the “this makes all Colombia uncertain” card, but
that’s unlikely to hold much water. The real news that will set Colombia moving forward is the
eventual reform of the country’s mining law, which is delayed but with a little luck will see
resolution this year. With that set, Eco Oro’s travails will become a distant memory.
Yukon rule changes
Although outside of our normal catchment area for political happenings, this one seems worthy
of mention. Your author received a mail for reader ‘TK’ to alert on rule changes to permitting
for mining companies in the Yukon area. TK sent over this link (28) to a Globe & Mail article on
the permitting and consultancy rule changes in the Yukon area which is well worth reading, as
well as his own synopsis of the changes that come from the Yukon Cort of Appeal judgement
dated December 27th 2012. Here’s the body of TK’s mail:
This might be interesting as far as it affects any companies you might cover exploring the
Yukon. Key points from the article and the Yukon Court of Appeal decision
- "decision directs the Yukon government to consult with First Nations before
allowing prospectors to stake a mining claim"
- "The honour of the Crown demands that it take into account Aboriginal
claims before [my emphasis] divesting itself of control over land"
- "consultations be meaningful" - no lip service
- "one year to introduce a consultation mechanism" - an actual time frame
I don't know how different that is from what exists today, but it's a strong requirement for
consultation before approving claims. I'm sure the aftermath will employ many lawyers for
quite some time, whether by appeals or other.
Mexico: More on the new head of the Semarnat environment bureau
Following on from last week’s overview, here’s an (29) interview dated December 27th with
Juan José Guerra Abud, the new head of Mexico’s Semarnat environmental body, in which he
23

lays out his vision and that of the newly ruling PRI party for the role of the environmental
overseeing body and overall, it looks pretty good for those mining companies seeking positive
rulings on until-now delicate permits. Here’s the section of the interview that most concerns the
mining sector in Mexico (translated).
Q: What are the top priorities for [Semarnat] in this new administration?
Juan José Guerra Abud: That Semarnat is a facilitator of economic growth and
the care for biodiversity, that is a priority for President Peña Nieto. Stop the
trafficking of species, that tourist developments are done with respect to the
law, and also the reduction of greenhouse gases through more efficient
transport.
Q: Therefore, the orders are that projects are permitted so that the
country grows?
JJGA: That the country grows in a sustainable way, I want to make clear. To
grow economically, we provide help to this economic growth but respecting all
laws and rules and doing so in a sustainable manner.
Q: There have been criticisms about the way private company permits to
exploit natural resources have been awarded, above all in the case of
mining, with the arrival of Canadian companies. How will economic
development fit in with the protection of natural resources?
JJGA: With live under the rule of law, and be the company Mexican or
Canadian if it abides by the established laws we have (in Mexico), the authority
will protest any activity they undertake. If we don’t like our rules and regulations
we must change them, be that via Semarnat or Congress, but while the
stipulated laws are complied with we have to protect them. I know that there
have been examples of contradictions and discrepancies, above all in cases
that oppose mining activity. We mustn’t go to extremes as for many years,
hundreds of years, Mexico has been a mining country par excellence. In the
era of the Conquistadores we had mining and today we have mining. Mining
isn’t bad, it’s an economic activity and it generates development.”
From the head of the people that decide on the key Environmental Impact and Change of Land
Use permits in Mexico, I really don’t think that could be more friendly to the mining industry.
We also note that this new attitude has not gone unnoticed by the anti-mining groups in Baja
California Sur, the Northwestern region that has so far halted open pit mining projects at a
regional governmental level but fears (30) that with Guerra now in charge of Semarnat, things
will go against their campaign against open pit mining in their region. Your cards have been
marked, ladies and gentlemen.
Market Watching
USA Graphite (USGT) (USGT.ob), an OTC scam and short
We first mentioned USA Graphite (USGT) on these pages in the abridged Christmas edition
(IKN190) and then only really in passing. But mentioned it was, so the Flash update of Tuesday
January 8th (see appendix 1 below) has at least some precedent and didn’t come totally out the
blue. Since the short was taken we’ve seen USGT drop sharply, but as noted above there’s still
a profitable trade left to make for those not in and with the ability to find a lend on this stock.
However, another issue is that I’m keenly aware that shorting OTC stocks is somewhere
between difficult and impossible for a significant portion of readership, but I managed to find
myself a borrow via a friendly channel, therefore the trade really sat up and begged at me and
as such I took it, which made its disclosure necessary to all subscribers (in my view). Also,
although it’s difficult for many readers I know there are at least some IKN Weekly subscribers
who have the necessary channels to short US OTCs. Therefore a short call such as this can be
of active use for at least some of you, which is an even better reason to have disclosed my
trade Tuesday.
24

The other issue arising from this trade is that I’ve now resolved to make the occasional OTC
short trade part of the service going forward. I’m not going to go overboard on this sector of
the market, won’t start chasing after every pump and dump scamstock out there and won’t
start reco’ing “hypothetical only” short trades that have no lends available or the right sized
volume to position easily. But when the next glaring opportunity comes along (and as day
follows night there will be others) such as USGT at the moment, I’m not going to shy away
from the trade nor keep it away from the Weekly coverage any longer.
As for why it was chosen as a short vehicle, the place to start and finish, the analysis is at the
SEC website and the listings for USGT (31) so for the sake of explaining why I’m short and why
you should be too, here’s the overview of USGT promised in Tuesday’s flash update. Once you’d
had a look at those filings you’ll see that:
• As at its last financial report, USGT had $3 in treasury (three dollars and zero cents)
and a working capital position of negative $168,000.
• Including the recently awarded restricted share blocks to optioners of the moose
pasture land packages it has recently taken on board and the 30m shares awarded to
new CEO Wayne Yamamoto (who lives in Las Vegas and has experience in the gaming
industry, wouldn’t you know) there are now 207m shares outstanding. Even at Friday’s
close price of 69c, plenty lower than the 90c+ price of earlier days, that means UGST
boasts a market cap of $142m.
• The company has just one employee, the aforementioned CEO Yamamoto. As for its
business address, it hits right at the heart of one of Brent Cook’s favoured tells for
mining scams. In his words, “The closer you get to Las Vegas the worse it is”.
• However, the real scumbags behind this scam are two men named Michael Kessler and
Patrick DeBlois, who stepped down as President/CEO on November 8th. This report
dated December 9th (32) does a good job (so that I don’t have to do it) in showing how
the shell was created, sat upon by these gents and then via judicious use of share splits
and ultra-cheap financings, put a cool 92.4m free trading shares of the company into
their hands. Those are the shares sold to the suckers who buy into the pump job. The
report gleans all its information for said SEC filings.
• Away from the SEC filings and after Tuesday’s Flash update, I have been informed by
several quarters that the pump campaign for USGT has been intense, with a budget of
some $800,000 in disclosed fees and probably more besides. USGT promo material has
shown up in many readers’ email boxes, twitter feeds, via op-ups on financial sites etc,
all by reliable word.
The US OTC-only listed companies are iffy propositions at best, with OTC mining stocks having
a particularly bad reputation. When it comes to these things, the first place anyone should go to
check out an OTC miner is at its SEC filings page. Forget websites, blogs, company pages or the
innumerable penny stock websites, the DD starts and finishes at the SEC. The bottom line to
this story is that it’s easy money shorting USGT, example as it is of a particularly crude and
obvious pump and dump which is now entering the dump phase of its short existence, and
although I’m already nicely up in the position I intend to ride it down much further before
covering. Also, as mentioned above I see no reason why these type of easy shorting
opportunities can’t become a semi-regular part of The IKN Weekly service in 2013. They may
not be apt for all readers, but there are enough of you who can play them to make a difference.
Those Rio Alto (RIO.to) production numbers
We watch our Top Pick more carefully than any other stock on the list, simply because there’s
the most riding on it. Last week we previewed RIO’s 4q12 and sure enough, Friday morning
saw the release of the anticipated 4q12 production numbers (33) was that RIO produced
25

40,049 oz Au in 4q12 which made for a 2012 grand total of 201,113 oz Au. That’s was a couple
of K lower than our guess but given leeway just about fits with your author’s late-adjusted
assumptions as laid out last week, which were summed up by this segment.
In the end the Friday NR was shorter on the info than other RIO production reports. We didn’t
get costs parameters from RIO this time, nor
has the the company given any 2013 guidance
U$/oz Au RIO: COGS per Oz Au produced
yet (promised for this quarter, though) but
700
even so, let’s take a shot at what we can expect 564 600
600 526
from the 4q12 financials further down the line.
500 452
Here’s a chart with a conservative-side
guesstimate of cash costs for RIO at La Arena 400
in 4q12 set at $600/oz. This sits nicely inside 300
the 2012 guidance from RIO of $500 to $550 200
per ounce (in fact RIO could report a 4q12 cash 100
cost of $649/oz and still make that guidance),
0
but it also assumes the same type of cost
1q12 2q12 3q12 4q12est
pressure hike that we’ve seen in previous source: company filings, IKN ests
quarters. It’s also playing safe.
RIO: Realized gold price vs London PM Fix avg,
Now let’s consider how much RIO may get for 2012 per qtr RIO realized price
U$/oz Au London Fix
its wares. We know that after its 3q12 glitch the 2000
company will be keen on selling all its 1800 1664 1690 1584 1610 1611 1654 1680 1719
1600
production (or perhaps using a small portion to 1400
1200
forward pay its gold loan agreement, as 1000
discussed last week) so we assume sales of 800
600
40,000 oz of 4q12 production. This chart shows 400
200
that RIO typically gets between $26 and $43
0
per ounce less than the London Fix average
1q12 2q12 3q12 4q12est
spot, which is normal for a miner dealing with
source: RIO filings, London Fix data, IKN ests
middlemen, so we’re going to assume that in
4q12, RIO realizes an average price of $1,680/oz for its gold.
That gives us a mine operating income of $1,080/oz, or $43.2m, However, to add we must add
the 8,000 or so ounces that didn’t make it to the
RIO: Mine Operating Income (MOI, gross profit)
top line of the 3q12 financials because the sales
U$m and net income, 2012 per qtr
were finalized after the date limit for 3q. As we
70
discussed at the time, it may turn out to be over 60 MOI
net income
9,000 oz to add to 4q12, but we’re going to play
50
safe, aim to the low end, assume 8,000oz of
40
revenue are added. At the average selling price
30
of 3q12, that’s another $12.9m in cash flow to
20
the 4q12 numbers (costs are already backed out
10
in 3q12, recall). This means we’re looking at an
0
estimated MOI of $56.1m for 4q12, which stacks
1q12 2q12 3q12 4q12est
up like this (right) against previous quarters. source: RIO filings, IKN ests for 4q12
Our estimated net of $30m depends of course on a lot of things. It’s the 4q12 financials so tax
provisions can bring surprises on either side of the ledger, there’s the unknown about how
many (if any) gold ounces RIO uses to pre-pay its gold loan commitment. It also depends on
how much exploration expense is deducted this quarter (3q12 saw $4.37m come out on that
26

line item alone), but if we’re in the ballpark (unlike our 3q12 forecast that missed badly due to
those unsold ounces) we’re staring at a quarterly EPS of 17c, which compares in this way to the
other 2012 quarters:
RIO: Quarterly EPS, 2012
20 19
I’ll take that, a fwd EPS of 7.6X for a profitable 17 17
growth story that keeps hitting its marks and
15
has plenty of potential catalysts in the pipeline
for 2013. It’s also a fwd 9.3X PE on The IKN
10
Weekly target price, which is well within the
6
realms of the possible and enough to allow our
5
reiteration of that target. So the bottom line is
that RIO is still our only Top Pick as we move
0
into 2013 and we continue to be happy holders.
1q12 2q12 3q12 4q12est
source: company filings, IKN ests
Another word on Esperanza Resources (EPZ.v)
I’ve chosen to add precious metals exposure to the ‘Stocks to Follow’ list via IMPACT Silver
(IPT.v) over Esperanza Silver (EPZ.v), but tha doesn’t mean that this potential investment is
now being ignored. Far from it, as I stil consider EPZ either at or near the top of potential
purchases, but for the time being prefer not to commit to a pure exploration play. So far 2013
has started well, but the year is only two weeks old and before adding to the risk profile by
going with an exploreco again (after all that work of turning the open positions list around in
3q12 and 4q12, too) I just feel it prudent to wait a while longer. Those of you with a different
risk profile, or even those of you that think explorecos aren’t inherently risky compared to
producers today, could do a lot worse than this stock as a long trade, however.
Conclusion
IKN193 is done, we close with bullet points:
• We have a new short position in USGT, not something that is a mainstay of the
portfolio but a nice, easy moneymaking opportunity that’s already going the right way.
A few weeks more and it should be down into the pennies region, where the cover will
happen.
• IMPACT Silver (IPT.v) is our new object of attention, a stock that has “at its lows now”
written all over it. As the new production schedule filters into the company this year,
we expect it will start gathering the attention it used to get before things went wrong a
year and a half ago.
• Next week we’ll take a better look at B2Gold’s (BTO.to) feas study number for Otjikoto,
but there’s unlikely to be bad news in the analysis. The stock reacted well to the news
last week and gold permitting , every reason to anticipate following through this week
and that $4-handle back on the price..
• Also next week we’ll start closer analysis on some of the new Copper Basket plays. I’ve
already had a requests and interesting exchanges with readers on a couple of the
names (ok, i¡ll tell you; NGQ.to, NCQ,to and HCH.ax) and although Western Copper
(WRN.to) isn’t a new name, its positive FS last week means we need to give it more
think-time, too.
27
tuo
erahs
rep
stnec
SU

• My extended period off-the-road has now come to an end. Next week there’s work to
do and there’s already one site visit which is directly IKN related lined up for February.
I’m also looking to do an office door tour of Lima offices between now and then. Being
a homeboy is good, but it’s now getting a little stale; time to do some real work.
The top long-term pick is Rio Alto Mining (RIO.to). I thank you in advance for any feedback
sent in. Flash updates will be sent promptly if required by events.
I wish you good trading fortune, ladies and gentlemen.
Otto
Footnotes, Appendices, references, disclaimer
(1) http://incakolanews.blogspot.com/2013/01/first-quantum-fmto-and-inmet-imnto-its.html
(2) http://www.fortmilltimes.com/2013/01/10/2428737/leucadia-national-corporation.html
(3) http://www.calculatedriskblog.com/2013/01/schedule-for-week-of-jan-13th.html
(4) http://es.scribd.com/doc/119531251/Latest-Letter-from-Oaktree-Capital-Management-s-Howard-Marks-1-08-2012
(5) http://finance.yahoo.com/news/focus-provides-mexico-exploration-samples-133000816.html
(6) http://finance.yahoo.com/news/b2gold-corp-announces-robust-results-193452419.html
(7) http://finance.yahoo.com/news/lupaka-gold-intercepts-10-metres-133000271.html
(8) http://media3.marketwire.com/docs/lup17m.pdf
(9) http://www.usetdas.com/TDAS/NewsArticle.aspx?NewsID=20907
(10) http://investing.businessweek.com/research/stocks/people/person.asp?personId=25758652&ticker=NGM:CN
(11) http://www.northerngold.ca/management.php
(12)
http://www.plminerals.com/files/Presentations/PLMC%20Corporate%20Presentation%20December%202012%20FINAL
_v001_r829og.pdf
(13) http://www.soychile.cl/Antofagasta/Economia-y-Negocios/2013/01/11/147249/Compras-de-cobre-al-contado-de-
China-se-demoraran-hasta-despues-de-su-Ano-Nuevo.aspx
(14) https://customers.reuters.com/community/newsletters/metals/IM_Jan_10_2013.pdf
(15) https://research.tdwaterhouse.ca/research/public/Markets/NewsArticle/1314-L1E9C99TV-1
(16) http://finance.yahoo.com/news/ngex-announces-substantial-increase-mineral-141514826.html
(17) http://finance.yahoo.com/news/western-copper-gold-announces-positive-143000017.html
(18) http://www.newswire.ca/en/story/1096157/curis-updates-metallurgical-recovery-test-work-at-florence-copper
(19) http://finance.yahoo.com/news/eagle-star-intersects-more-high-151403222.html
28

(20) http://finance.yahoo.com/news/gryphon-gold-provides-operational-125500060.html
(21) http://finance.yahoo.com/news/darwin-samples-130-g-t-134500045.html
(22) http://files.newswire.ca/1151/FigureDarwin2.jpg
(23) http://incakolanews.blogspot.com/2013/01/breaking-tahoe-resources-thoto-taho-two.html
(24) http://economia.terra.com/noticias/noticia.aspx?idNoticia=201301131528_AFP_TX-PAR-JAW76
(25) http://www.lavoz.com.ar/noticias/sucesos/guatemala-al-menos-2-muertos-7-heridos-disturbios-mina
(26) http://finance.yahoo.com/news/eco-oro-announces-regional-park-185600520.html
(27) http://www.eltiempo.com/colombia/oriente/ARTICULO-WEB-NEW_NOTA_INTERIOR-12503016.html
(28) http://www.theglobeandmail.com/news/british-columbia/getting-a-stake-in-the-mining-patch/article7201598/
(29) http://www.eluniversal.com.mx/notas/892285.html
(30) http://www.octavodia.mx/articulo/38454/el-organismo-la-fe-de-mineras-canadienses-en-epn
(31) http://www.sec.gov/cgi-bin/browse-
edgar?company=USA+GRAPHITE&match=&CIK=&filenum=&State=&Country=&SIC=&owner=include&Find=Find+Com
panies&action=getcompany
(32) http://seekingalpha.com/instablog/5786461-penny-stock-realist/1350851-usgt-is-an-illegal-spam-pump-and-dump
(33) http://finance.yahoo.com/news/rio-alto-produced-201-113-050500257.html
Appendix 1: Flash Update Tuesday January 8th
Good morning, just under an hour after the market opened this Tuesday morning.
This is a quick note to say that I will be shorting USA Graphite (USGT) (USGT.ob) as of today. The recent price rise, plus the
welcome discovery this week that a lend of sufficient size is available, are the reasons for this move.
Expect full details of the trade in IKN193 this weekend. Suffice to say here that a more obvious shorting opportunity of an OTC
pump and dump is difficult to imagine.
Best, O
Stocks To Follow Closed Positions, 2012
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-ene-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-dic-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-abr-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
29

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
30

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.
31