IKN #194Premium

The IKN Weekly
Week 194, January 20th 2013
Contents
This Week: The metals beat the miners, The PDAC hump, MLK Day tomorrow.
Fundamental Analysis: B2Gold (BTO.to) promoted to ‘Top Pick’.
Stocks to Follow: Overview, USA Graphite.
Copper Basket: Overview, Candente (DNt.to), Panoro (PML.v), NGEx Resources (NGQ.to),
Reservoir (RMC.v), Curis (CUV.to).
The Lottery Ticket Basket: Overview, Rio Cristal (RCZ.v), Bellhaven (BHV.v), Eagle Star
(EGE.v), Gryphon (GGN.to), Firestone (FV.v).
Regional Politics: Chile: La Escondida’s bonus agreement, Peru: Locals reject presence of
mining companies in Bongara area, Colombia: The Braeval (BVL.to) kidnapping, Colombia: The
Páramo limits, Argentina woos Canada, Yukon rule changes redux, Guatemala: A good editorial.
Market Watching: Gold Resource Corp (GORO) production numbers, Aurcana 4q12
production numbers and thoughts.
I remind subscribers that no part of this newsletter can be copied, reproduced or
given to any third party without the express permission of the author.
This Week
The metals beat the miners
As this chart shows, last week was a good one for silver the metal, it was acceptable for gold,
but precious metals producers and juniors, along with the copper producer ETF, all put in a
negative week.
1

The PDAC hump
It hasn’t escaped your author’s attention that the tendency of the last few years, with 2012
very much part of the rule rather than any exception, is that the market for junior mining
companies tends to peak at PDAC time, with the industry’s biggest conference in March marking
a high water moment. If 2013 follows the same kind of pattern (and so far there’s plenty of
evidence of new-found optimism among market players) it would therefore make sense to take
some speculative positions and ride them for the next two months or so. Or another way of
considering the PDAC phenomenon is to patiently hold those underwater stocks (hey look at
me, I got those) and then use the window as a place to rid thee of the thy turbulent priests
(with apologies to Henry II).
MLK Day tomorrow
No US markets for you. However it is the national holiday day which never fails to reminds me
that The United States of America, for all the criticism it may receive, is still a great nation.
Fundamental Analysis of Mining Stocks
B2Gold (BTO.to) moved to ‘Top Pick’
We have had two pieces of news from B2Gold (BTO.to) in the last few days. Firstly the
Feasibility Study (FS) for the company’s Otjikoto project in Namibia was published on January
10th (1). Secondly production results for 4q12 and guidance for 2013 came last week (2). Today
we look at both these events and to pre-empt the note, we like what we see from both and as
a result we are going more aggressive and less conservative on our valuation for BTO as of
today and moving the company to ‘Top Pick’. This also means your author will be taking a
larger position in the stock as from next week. We’ll take the two events in reverse order and
then put it all together with the new valuation, so here goes with the 4q12 numbers first:
The 4q12 production numbers
Friday January 18th saw the numbers for production and 2013 guidance from BTO and we liked
what we saw. We’d anticipated a good
quarter from the Libertad mine and has BTO: gold production by mine
our estimate pegged at 30,000 oz 50000
production, so the 30,113 oz result was
40000
pleasing to your author’s eye. The bonus
prize came from Limon operations, which 30000
reported 14,211oz Au production, which
20000
was the best quarter at that mine for nine
years and a full 1,700 oz over our house
10000
forecast.
0
In IKN187 we noted that BTO seems to
have held back around 3,500 oz gold from
the market and we mused on whether the
company would sell that inventory in 4q12. Interestingly, the indications are that BTO has done
the reverse and added to inventory again rather than sell it down. With the gold production
figure of 44,324 oz and sales of 41,627, it implies that the company has held back 2.697 oz to
market and its gold inventory now stands at over 6,000 oz. $10m in back-up inventory is a
good thing, methinks. We also note that considering the stated 4q12 revenues ($70.8m), the
BTO average received price for gold was exactly $1,700/oz in the quarter.
2
01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4
oz Au
Limon prod
Libertad prod
source: company filings

Now for 2013 guidance and we agree with BTO’s guidance for the newly incorporated Masbate
mine of 200,000 oz Au. We’re interested in the Limon forecast of between 54k and 58k oz,
because that implies the new record rhythm set in 4q12 will be maintained throughout FY13.
We’d previously pitched a little lower than that and have moved our guidance up accordingly.
However, the BTO guidance of between 131,000 oz and 137,000 oz Au smacks of
underpromising, because with the mine already running at 30k/qtr and the new, higher grading
material about to be added to the mix from
the Jabali vein, your author contends that
the BTO guidance is low and will stick to his
previous forecast of 150,000 oz Au from
Libertad in FY13. All this adds up like this
on the 2013 guidance chart and then we
see further out the influence of Otjikoto and
its 141,000 oz average production in the
first five years at the mine starting 2015.
There is also that tentative production
increment from Gramalote (49% BTO) on
line in 2017, but that’s a tougher one to call
accurately at the moment (it might even
come on line earlier).
Here’s the same information presented in a consolidated chart with the production and forecast
numbers noted.
BTO: production and IKN forecast production, per annum
900 791
800
700 620 641
600
470
500 428
400
300
144.5 158
200 108.7
100
0
3
0102 1102 2102 tse3102 tse4102 tse5102 tse6102 tse7102
BTO: Gold produced vs gold sold
50000
40000
30000
20000
10000
0
OzAu
source: BTO data, IKN ests
For me, this second guidance chart really rams home the critical year for BTO that is 2013, as
the jump in production will be significant assuming all goes well. As the company has an
enviable track record of delivery, and the current cash cost guidance shows all mines to be
01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4
OzAu U$m BTO: Quarterly revenues
80
gold produced (oz)
gold sold (oz) 70
60
50
40
30
20
10
0
1q10 2q103q104q10 1q112q11 3q114q11 1q122q123q12 4q12
source: company data source: company data
OzAu BTO: annual production and estimates
900
800
Gramalote (50%)
700
Other Nica
600
Otjikoto
500 Masbate
400 Limón
300 Libertad
200
100
0
2010 2011 2012 2013est 2014est 2015est 2016est 2017est
source: BTO filings, IKN ests

shaping as very profitable, we now expect great things from BTO this year and its aggressive
growth profile. Overall, it’s just the kind of company that the market will pay a premium to own
and due to that, we’ve adjusted our price targets for the producing sum of the parts (see
below).
The Otjikoto FS
The last time we looked and placed a valuation on this part of the BTO stable was in IKN190
when we gave the project a valuation of 44c per share to our overall target of $4.50, based on
a simple and estimated in-situ valuation for the gold on site ($200/oz and 1.4m oz Au).
However we also said this when wrapping up the note:
“...there’s still plenty to like about this company and it cannot be stressed enough that The IKN
Weekly attitude is to be conservative about valuations. We’re particularly interested to watch and
see how the Otjikoto Namibia project moves forward in the year ahead, as New BTO already has
the necessary funds to bring it to production and that alone is an obvious way to add extra value
to our model.”
So with the FS (or at least its news release, with the full document yet to be filed on SEDAR)
now out, it’s time to take that closer look. We’ll do that in the style as used in IKN190 for the
valuations of other BTO assets. The only variation is that we use “average year” calculation for
the Otjikoto project, rather than specify our parameters on 2013 as in the operating mines
(Masbate, Libertad, Limon). In the model we use various gold prices, from a low-end $1500/oz
to $1800/oz, which is higher than the house estimate for 2013 (that’s $1,730/oz (3)). We also
use the following:
• Life of mine (LoM) average production of 112,000 ounces. We could have plumped for
the production figures set for the first five years of 141,000 oz, but prefer to leave that
as upside bonus to our numbers that makes certain capital payback goes quickly and
smoothly.
• Cash costs at the LoM average $689/oz. There’s a case to be made for setting there
higher, but BTO has been a reliable outfit over the years rather than one that over-
promises, so we’ll trust the word of management on this one.
• BTO’s 92% participation for the mine (8% is owned by a local co-operative).
• Corporate tax at 37.5% (the rate for precious metals miners there), royalty at 3%
(ditto)
• Interest expense that averages to $4m per annum over LoM (we consider the terms
and four year payback schedule of the recently annoucned $150m credit line BTO has
taken with Macquarie, average it out, then err to caution)
• Take a guess at $5m for pro-rata SG&A and yes, that’s a guess.
• Other minor items
With the model in place, here’s how we expect Otjikoto to operate financially once up and
running:
Otjikoto avg annual production & revenues, various gold prices
Year $1500 $1600 $1700 $1800
Au sold. 000s ozt 103.0 103.0 103.0 103.0
Revenues (U$m) 154.6 164.9 175.2 185.5
tot cash cost U$/ozt 689 689 689 689
MOI (U$m) 61.9 71.9 81.9 91.9
MOI/share (645.2m S/O) 0.10 0.11 0.13 0.14
source: BTO data, IKN ests
4

Moving to the selected and estimated income statement items:
Otjikoto: Est. Inc. statement items, LoM avg year, various Au prices
$1500 $1600 $1700 $1800
Sales (U$m) 154.6 164.9 175.2 185.5
Total COGS 71.0 71.0 71.0 71.0
mine site expl 2.0 2.0 2.0 2.0
SGA (pro rata) 5.0 5.0 5.0 5.0
Royalty (3%) 4.6 4.9 5.3 5.6
Op income 54.9 64.9 74.9 84.9
Interest 4.0 4.0 4.0 4.0
Tax (37.5%) 19.1 22.8 26.6 30.3
Net income 31.8 38.1 44.3 50.6
Shares out 645 645 645 645
EPS 0.049 0.059 0.069 0.078
Capex 29 30 10 10
FCF 0.121 0.132 0.111 0.120
Sources: BTO data, IKN ests
Once that is done we use the $1,700/oz gold case for our target projection. However, we are
using a lower FCF multiple of 7X than the other moving parts of BTO (see below) to reflect the
project status of the mine and its two year construction period. As that time is closed down, we
could reasonably up the multiple.
Target price & valuation data for Otjikoto only based on
average production year at $1700/oz gold
$0.77
12-month target based on (7x FCF)
All this means that we’ve upped our Otjikoto target component from 44c/share to 77c/share,
i.e. an extra 33c is added to our price target.
Adjusting the target
We like the look of Otjikoto and as a result we have upgraded that part of the puzzle’s valuation
per share. We also liked the look of both BTO’s 4q12 numbers and its strong looking guidance
for 2013 and on the back of that, your author has decided to upgrade the sum of each parts.
This is being done via a rise in the multiple to earnings awarded to BTO. In IKN188 one of the
observations on my preferred conservative approach was
“I don’t see any real reason why I can’t use a 10X multiple for the producing assets,
especially the large reserves and long mine life scenario of Masbate, instead of the 8X
multiple used in the calculations.”
On consideration, I think that I was indeed being too conservative in that approach. Now that
BTO has a “developing star” aura to its name and its 2013 is looking stronger than expected,
I’m willing to make that hike up to 10X cash flow for the three producing mines in the stable
(though please note, Otjikoto as a project will stay at 7X for the moment). The move to 10X
multiple plus the other part of the BTO story now look like this:
• Limón: 59c per share based on 2013 operations (was 47c)
• Libertad: $1.67 per share based on 2013 operations (was $1.32)
• Masbate: $1.94 per share based on 2013 operations (was $1.55)
5

We now add in the new valuation for Otjikoto:
• Otjikoto: 77c per share based on average LoM production and FS parameters
We then add the other parts, which do not change:
• Gramalote: 1.9m oz gold (M+I+I total) at $100/oz in-situ = 190m, or 29.5c per share.
• Other projects*: $80m NAV, or 12c per share
• Net cash at end 2012 (BTO and CGA combined, incl debt): $190m, or 29.5c per share.
This brings our adjusted sum-of-parts valuation for BTO to comes to $5.68 share, which is
rounded up to $5.70 as our price target. This represents a 44.3% upside from Friday’s close of
$3.95.
Conclusion
BTO is beginning to look like a great purchase at any price under $4, not just at our original
entry point of $3.45 in November and as a result of the strong quarter, the strong guidance for
this year and the positive feasibility study for the Otjikoto mine which now has all permits and
financing in position, it all boils down to one, simple statement:
I want to own more BTO.
Therefore, the only way to truly reflect this extra enthusiasm for BTO and to reflect the
substantial addition i plan to make to my BTO holding, we upgrade BTO to Top Pick at the IKN
Weekly and the stock joins our only other Top Pick recommendation , Rio Alto (RIO.to) at the
top of the pile. The main risk to this now aggressive recommendation, apart for any unexpected
company execution glitch, will be weakness in the underlying price of gold so if you are not as
confident as this desk on gold’s prospects in 2013 (I don’t expect some magical zoom moment,
just a gradual appreciation in the year that comes on an average along with temporary up and
down spikes) and prefer Nouriel Roubini’s outlook for the barbarous relic, this investment is not
for you. However, given a fair playing field in gold BTO looks as good a place to be long as
anything out there in the sector.
The IKN Weekly assigns a Top Pick rating to B2Gold (BTO.to) and sets a new target
of $5.70 per share which implies a 44.3% upside to Friday’s closing price. The reasons for
the upgraded target are set out above.
Stocks to Follow
Seven of our stocks went up last week (RIO.to, BTO.to, OGC.to, LRA.v, PLA.v, LPK.to, FCV.v),
six dropped (IRL.to, AUN.v, LSA.to, USGT short, AQM.v, USC.to) and the new position IPT.v
ended unchanged from the early week purchase price. The best move was put in by Focus
Ventures (FCV.v up 8.1%) though I personally enjoyed the 6.0% rebound in RIO.to more than
that one. The bigger moves were to the downside, headed by USA Graphite (USGT short down
28.6%) and AQM Copper (AQM.v down 11.8%).
With the addition of IMPACT Silver (IPT.v) we now have 14 open positions, one less than our
self-imposed maximum. Of those positions, six are in the green, one is unchanged and seven
are in the red, some more than others.
6

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$5.49 169.1% $6.29 tgt
B2Gold BTO.to buy C$3.45 28-nov-12 C$3.95 14.5% New $5.70 tgt now top pick
Recommends
Minera IRL IRL.to hold C$0.73 22-jul-12 C$0.80 9.6% $1.56 tg, added, new avg
Aurcana Corp AUN.v buy C$1.07 11-nov-12 C$0.92 -14.0% $1.50 tgt near term play
OceanaGold OGC.to buy C$3.03 16-sep-12 C$2.88 -5.0% $5.34 tgt growth prod
Lara Expl. LRA.v hold C$1.15 08-apr-12 C$1.25 8.7% solid biz model, LT hold
Lachlan Star LSA.to hold C$1.50 30-sep-12 C$1.20 -20.0% $2.23 tgt, hi beta to Au
Plata Latina PLA.v hold C$0.79 10-apr-12 C$0.48 -39.2% considering sale
Lupaka Gold LPK.to hold C$1.12 23-oct-11 C$0.46 -58.9% holding
IMPACT Silver IPT.v buy C$1.14 13-jan-13 C$1.14 0.0% new position, $1.85 tgt
USA Graphite USGT short U$0.93 08-jan-13 U$0.887 4.6% shorting otc pump, added
Smaller/Riskier
AQM Copper AQM.v hold C$0.31 16-oct-11 C$0.075 -75.8% holding thru for my sins
Focus Ventures FCV.v hold C$0.175 01-jul-12 C$0.20 14.3% revised tgt 25c
United Silver USC.to buy C$0.21 28-oct-12 C$0.17 -19.0% 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): Added. The average price of this short has dropped by
two pennies because I added an extra handful to the position on Friday. If it goes above a buck
there’s every chance I’ll add more again, so if the pump continues I’ll be happy.
Rio Alto Mining (RIO.to): RIO did well last week on the announcement Wednesday that the
stock is now eligible for Peru pension
fund purchase (6), which suggests a new
source of demand for this paper and
indeed, on the day of the news RIO
traded over 290,000 shares in Lima,
which is around 3X average volumes for
the company on that exchange.
Meanwhile over in Canada the stock did
this, i.e. moved up on volume and
looked good.
Focus Ventures (FCV.v): Two pieces of news from FCV last week and neither about the
flagship Santa Cruz/Reventón project in Mexico; not bad at all for a company so small. First on
Wednesday we had an update about the Aurora copper project in Cusco region, Peru (4). As
well as telling us that the current mineralization may well get larger if the geophys footprint
delivers on its promise, the interesting bit for me is how FCV reported confidentiality
agreements (CA) with several companies for an upcoming drill campaign. As FCV’s idea has
always been to farm out Aurora on an optioning deal and get a free ride on a percentage of the
property (quite simply, Aurora is too big and any drilling campaign for a company of FCV’s size)
this looks like a step in the right direction. If the company can nail down a deal with a larger
partner, Aurora would be another positive result for FCV and its project generator model.
Then came more news Thursday when FCV announced (5) that via its wholly owned subsidiary,
7

Agrifos, it had acquired the right to option into 70% of a phosphate property in Colombia. The
terms of the deal are pretty user friendly and mean that FCV now has three phosphate projects
in its Agrifos package, two in Peru and one in Colombia. As the market currently gives FCV zero
value for this part of its business and phosphates might just turn into a market darling du jour
for 2013 (see EGE.v below), this second string at FCV may turn out to be a bonus prize in the
making. As for trading, The stock did ok even though volumes remain thin.
Lupaka Gold (LPK.to): We hear that some time this month we’re due results from the last
four holes of the current drilling campaign and the holes are from targets other than A-1, which
probably means we’ll get some more from the Chaska zone. This is the target that hasn’t shown
much up to this point and as volumes and prices aren’t exactly anticipating strong news, your
author’s breath is not bated on this one.
Plata Latina (PLA.v): We actually got some news from PLA for a change, when on Friday the
company announced (7) it was raising $3m via an bought deal equity finance underwritten by
Canaccord. The deal is for 7.5m units priced at 40c (unit = 1 share + 1/2 warrant priced at 65c)
and there’s an overallotment option for another 1.25m shares if Canaccord gets busy on the
sale.
What strikes your author about this deal is that $3m is a small sized placement for a brokerage
of Canaccord’s scale. It’s also a bought deal and from a company that’s been very quiet for
months. Maybe times are tough in the brokerage biz and any deal is better than no deal, but it
still seems a little strange that a small company with a smallish raising to do gets to play bought
deal with a larger house, however it should be pointed out that in this case it’s a good sort of
strange and mysterious. More like intriguing, in fact.
Lachlan Star (LSA.to): We had “jam tomorrow” news from LSA on Tuesday (8) when the
company basically said “ok, things weren’t so great in the last quarter but we’re now mining the
highest grade area at CMD, the Chisperos pit which grades at 1.1 g/t so things are looking up”.
I plan on revisiting the numbers for LSA in the week to come, so more on this company in
IKN195. Holding through until then.
The Copper Basket
After three weeks of 2013 The Copper Basket is showing a 6.19% profit to level stakes.
company ticker price 1/1/13 Shares out Market Cap current pps gain/loss%
1 NGEx Resources NGQ.to 3.40 158.5 530.98 3.35 -1.5%
2 Lumina Copper LCC.v 9.43 43.46 415.04 9.55 1.3%
3 Copper Fox CUU.v 0.83 397.65 361.86 0.91 9.6%
4 Augusta Res AZC.to 2.43 144.1 341.52 2.37 -2.5%
5 Nevada Copper NCU.to 3.50 80.5 305.10 3.79 8.3%
6 Hot Chili Ltd HCH.ax 0.72 286.78 215.09 0.75 4.2%
7 Western Copper WRN.to 1.39 93.78 147.23 1.57 12.9%
8 Panoro Minerals PML.v 0.62 176.25 112.80 0.64 3.2%
9 NovaCopper NCQ.to 1.80 51.89 107.41 2.07 15.0%
10 Reservoir Min. RMC.v 2.41 41.46 92.87 2.24 -7.1%
11 Candente Copper DNT.to 0.375 121.93 54.26 0.445 18.7%
12 Curis Resources CUV.to 0.70 56.31 50.68 0.90 28.6%
13 Yellowhead Min. YMI.to 0.59 60.97 40.24 0.66 11.9%
14 Oracle Mining OMN.to 0.80 49.03 39.71 0.81 1.3%
15 Strait Minerals SRD.v 0.08 56.86 3.98 0.07 -12.5%
NB: HCH.ax priced in AUD$, rest Canadian dollars Portfolio avg 6.19%
8

Six up (NGQ.to, HCH.ax, NCQ.to, RMC.v, OMN.to, CUV.to), eight down (LCC.v, AZC.to, CUU.v,
NCU.to, WRN.to, PML.v, DNT.to, SRD.v) and one unchanged (YMI.to) is the result of last week’s
action on our Copper Basket, with the
biggest moves all downers, thanks to
the drops seen in Candente (DNT.to
down 25.8%) Strait (SRD.v down
12.5%) and Augusta (AZC.to down
10.2%). Overall the basket average
dropped four points due to the heavier
weight of the downers to the uppers
but all the same, with just four stocks
in the red and eleven in the green it’s
been a good January (so far) for this
corner of the market.
The copper macro saw mixed news last
week, with metals prices first sinking
and then recovering later week thanks
to the China GDP (and other) numbers
that were slightly stronger than
expected. As things turned out, Cu was
basically flat on the week
Meanwhile, inventory numbers were somewhat more bearish. Worldwide inventories have been
expected to drop after the Christmas blush, but last week rose again by 2.6% to stand at
620,087mt. Of the big number, LME stocks rose by 4.5%, Comex rose by 1.7% and Shanghai
dropped by 0.3%. Perhaps the most interesting dataset came form the LME numbers, which
also gives a breakdown of changes in regional LME warehouses. In fact the LME European
warehouses saw a rise of 9.8% and the U.S warehouses went up a whopping 13.8%. Only its
Asia warehouses saw stock drawdowns to the tune of 6.7%, which jives with the Shanghai
data. In other words, the higher inventory levels are happening outside of China so it’s not that
easy to blame the pre-Chinese New Year lull for the current numbers. At the same time,
cancelled warrants at LME dropped to 15.29%, which suggests that end users aren’t taking up
the slack.
Cancelled Warrants at LME, IKN157 to date
35%
30%
25%
20%
15%
10%
5%
0%
9
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 491NKI
source: Cochilco, LME
rof
yrotnevni
EML
%
latot
yreviled
resu-dne
Now for updates on some of our covered companies:
Candente Copper (DNT.to): There has been plenty happening at Candente’s Cañariaco
project on the political front and events include today Sunday, so it’s worth watching this story
carefully because DNT offers both volume and volatility at the moment, which adds up to a
potential trade opportunity.

The two main events, aside from the posturing (9) we saw in the press and from the
government last week, have both happened this weekend. Firstly on Saturday (10) a “mesa de
desarrollo” (literally ‘table of development’, better described as a round-table meeting on
development issues) was set up by most of (not all of) the interested parties in the Cañariaco
story, including the mining company, the national government, the local government and
representatives of at least some of the local population. The state news agency Andina is linked
above and talks of how this formal negotiation is set to improve living standards for the people
of Cañaris. This initial meeting of this round table noted the problems at Cañaris and the lack of
development in the community and set a date for the next round of talks, February 2nd. It was
also decided that the round table would meet on the first Saturday of every month for the next
year. All that’s good, and it’s been accompanied by a large dollop of pro-government news
reports in national media (eg “all houses in Cañaris now connected to electricity grid”, “far left
wing agitators behind Cañaris protests”, “social fund to be set up...” etc etc) but it didn’t stop
the town from seeing significant protests and road blocks today Sunday, as this report from
Peru’s best news radio company, RPP, indicates (11). Here’s a translation of the report, because
it does a good job in few words:
“Around 500 people from the Andean district of Cañaris in Lambayeque have blocked
roads to get the attention of authorities and demand the removal of the mining
company, Candente Copper (from the area).
“The people brandished poles and covered the roads that connect Cañaris with rocks.
An RPP reporter had to walk eight hours in order to interview the president of the
community, Cristóbal Barrios.
“According to Barrios, early on Monday (i.e. tomorrow) the protesters will leave for the
mining camp located some 6km away.”
This further report (12) states that the protesters’ intention is to visit the mine camp in a pacific
manner in order to explain their position to the employees present. It also noted the presence
of around 100 police officers in the area who are on a watching brief and not trying to unblock
roads (that would be considered an incitement). Meanwhile, getting the views of the opposition
to the Cañariaco mine project has been difficult via media channels, but this site (13) (14) run
by a local “regidor” (loosely translated, the job title of a full-time assistant to the mayor in
Peruvian cities and towns) has a photo of the protest posters seen around the town and
environs and also gives information on the anti-mine position. It says that the locals are not
being correctly represented at the round table meeting, as only two local people from one
community that is not directly affected are present there. It states that today is the first day of
an indefinite strike, rather than a single day protest and the people protesting are doing so in
defence of their national identity, ancestral culture, the forest areas, organic agriculture, rivers
and springs and their own quality of life.
The bottom line to this story is that for the moment at least, there is no trade available in DNT.
If the strike action of today had been averted, DNT could have put in a rally tomorrow and
during the week. As things stand it’s too delicate to be able to go long the stock (and far too
difficult to go short, what with the price and the market in which it quotes) so unless the locals’
protest fizzles out, we prefer to stay on the sidelines and simply hope that the situation doesn’t
deteriorate into outright violence.
Panoro Minerals (PML.v): We weren’t surprised to see the stock come off the highs set last
weekend on the Reuters-supported promo, but PML levelled out at 63c instead of its 60c/61c
previous level, so the net result has still been positive for the stock. Your author also notes a lot
of chatter about this stock in the Peru market world, with the fliptrader types talking the stock
up...maybe they’ve been left holding bags.
NGEx Resources (NGQ.to): News from NGQ Monday (15) was of an equity financing of 10m
shares at $3.40 a pop (no warrant) to raise $34m that was immediately and fully subscribed so
it was clearly put together for larger insto cash that wanted a piece of the company. The
10

placement makes a lot of sense for NGQ on a corporate level (as the saying goes, if they offer
you money take it) but capped any chance of share price appreciation over the week. NGQ
fiddled around between $3.34 and $3.41 all week.
Reservoir Minerals (RMC.v): We got news last week (16) RMC has been awarded new
concessions covering 188km2 in the key Timok area (the same location that saw the big hit
from the Freeport option) for new grassroots level exploration. This puts the company’s land
position there at over 290km2 and means there’s plenty of bootleather geology work in store
for its team. The new lands won’t be a market mover immediately but as the company
obviously likes the area, it may turn up new discovery announcements in the medium-term
future.
Curis Resources (CUV.to): Interestingly, I received tout e-mails on this company from
people paid to promote its story that arrived right at the top of the price hike of last week, the
trip above a Loonie seen late Monday/early Tuesday. What me? Suspicious? No, surely not.
My position is simple on CUV: I know the
underlying numbers are good if the Florence
copper project goes ahead (we can run
through them here if you desire, suffice to
say that a working in-situ recovery operation
here has all the makings of a cash flow
machine). I know there’s significant local
opposition in the town of Florence to the
project happening, be that opposition
justified, ignorant or any point in between
those two. I know that I’m not a buyer of
this stock until CUV has rock solid
judgements on its side and that the people
of the local town are used to the idea that
the mine happens. The stock looks like a binary play today so if you like playing flip-a-coin don’t
let me stop you.
The Lottery Ticket Basket
After three weeks of 2013 The Lottery Ticket Basket is showing an 12.40% gain to level stakes.
company ticker price 1/1/13 Shares out Market Cap current pps gain/loss%
1 Marlin Gold MLN.v 0.10 192.39 18.28 0.095 -5.0%
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 14.82 0.135 8.0%
5 Gryphon Gold GGN.to 0.085 194.64 14.60 0.075 -11.8%
6 Eagle Star Min. EGE.v 0.125 60.73 13.06 0.215 72.0%
7 Copper North COL.v 0.10 58.62 8.21 0.140 40.0%
8 AQM Copper AQM.v 0.08 105.57 7.92 0.075 -6.3%
9 Rio Cristal RCZ.v 0.025 149.26 6.72 0.045 80.0%
10 FDG Mining FDG.v 0.13 45.59 5.47 0.120 -7.7%
11 Cream Minerals CMA.v 0.03 155.34 5.44 0.035 16.7%
12 Darwin Resources DAR.v 0.20 26.16 4.19 0.160 -20.0%
13 Inca One Res. IO.v 0.12 34.0 3.23 0.095 -20.8%
14 Firestone Ventures FV.v 0.045 36.32 2.36 0.065 44.4%
15 Netco Silver NEI.v 0.025 47.01 1.18 0.025 0.0%
Portfolio avg 12.40%
11

Week three saw just four risers (GGN.to, EGE.v, IO.v, FV.v), then five UNCH (BHV.v, GEL.v,
CMA.v, RCZ.v, NEI.v) and six droppers (MLN.v, FNC.v, AQM.v, FDG.v, COL.v, DAR.v), but the
overall basket percentage went up a click thanks to the big wins registered in Firestone
Ventures (FV.v up 30.0%), Inca One (IO.v up 18.8%) and Gryphon Gold (GGN.to up 15.4%).
The biggest drops were seen in Marlin Gold (MLN.v down 13.6%) and AQM Copper (AQM.v
down 11.8%). On this subject for a second, due to the nature of these tiny priced stocks and
how many of them can swing a double figure percentage move just by adding or subtracting a
penny, from now on I’m only going to report moves of 20% or above separately.
What we’re seeing so far in 2013 from the tiny end of the market is no real rising or sinking
moves on a general tide, rather individual stock-specific issues affecting prices. In the end, the
idea and the practical use behind putting together this basket for 2013 is to see whether money
begins to trickle down to the lowest echelons after the drought of 2012 so although still early
days, the lack of direction goes a little way to leaven the new optimism we’re seeing in the
broader market.
Rio Cristal (RCZ.v): See the piece in ‘Regional Politics’ below the concerns the
Votorantim/Solitario ‘Bongara’ project in Peru, because RCZ is parked right next to this thing.
Bellhaven (BHV.v): We got one of those “what we’re going to do in 2013” NRs from BHV last
week (17) that didn’t make many waves judging by thin trading in the stock that averaged
around the 50k/day mark. The plan includes drilling at La Mina as well as other exploration
activities and the company is also promising newsflow on its development processes throughout
the first half of 2013, so if all else fails at least BHV will be doing the “hey hello I’m here don’t
forget about me” on a regular basis.
Eagle Star (EGE.v): We saw more new Wednesday on good phosphate intercepts at EGE’s
Bomfim project in Brazil (18) and then one day later, Thursday morning, saw news (19) that
IKN fully expected for 2013 and was beginning to suspect in the near future after the PPS run-
up we’ve seen. Yes, EGE has cashed in on
1) its Bomfim success and 2) the market
traction that the company found (one
doesn’t always follow the other, as we
know) and is now raising $1.2m by
placing 6m units at 20c a pop (1 unit =
share + half warrant at 30c).
You can’t blame them for taking the
opportunity to replenish treasury in a tight
market and the subsequent price move in
EGE, finishing the week 1.5c higher than
the placement pricing, suggests that the
financing is going well.
Gryphon Gold (GGN.to): GGN came back some after last week’s drubbing when the company
announced (20) it had found the necessary replacement parts quicker than expected and things
would be back to normal by this weekend. However, we repeat that the company is on a tight
repayment schedule for the debt taken to fund its mine and even two weeks out may prove a
big hurdle.
Firestone Ventures (FV.v): Biggest mover of the week was FV on the back of news (21) that
it had agreed to option into up to 100% of the Whale Cove gold exploration project in Nunavut,
Canada. The notable factors here are that a) the relatively new FV CEO Pamela Strand is 33%
owner of the company vending Whale Cove to FV (so the company clearly gets first dibs on the
target) b) the fact that the new project is in Canada and is gold seems to have gone down well
with a market unsure about Guatemala risk exposure and the prospects for zinc (we’re talking
12

about the company’s main Torlon project) c) the terms of the deal are pretty user friendly, with
$250k in cash and 2m shares and an obligation to spend at least $2m, all those spread over the
next five years.
The stock traded up on the news Monday on a better than average 120,000 shares traded (but
let’s keep things firmly in perspective, that’s less than $8,000 all-in) then stayed there for the
rest of the week on thin volumes. Not exactly a company maker, but at the very least a pretty
percentage boost for our basket. If you’re risk-tolerant to want some of this company on the
news, I doubt you’ll need to pay over 6c as long as patience is applied.
Regional politics
Chile: La Escondida’s bonus agreement
Workers and management at the world’s biggest copper mine, La Escondida, came to an
agreement last week on pay to prevent any industrial action and the centrepiece of the deal is
pretty impressive: a one-time bonus payment of twenty-three million Chilean pesos (CLP), or
U$48,740 in a currency more easily understood. Strangely, the best piece of reporting on this
came from Chile’s Mercurio (22) who interviewed the wife of the union leader who led the
negotiation. She said the deal was a good one and compensates her family correctly for the
time they have to spend living apart. She said the plan was to buy an apartment in Santiago
with the bonus money, no less. She also added at the end...
Q: Are you happy with the amount?
A: Yes, it’s money that we didn’t have, so what else can you say. But it’s embarrassing to receive
so much when other workers fight for 100 thousand peso (U$211) pay rises. This happens
because the negotiations in this country are poor. People ask why miners ask for so much, as if
we were shameless. Maybe this issue will be more egalitarian for all in the future.”
...which smells like another round of cost creep for Chilean companies, mining or otherwise in
the air.
Peru: Locals reject presence of mining companies in Bongara area
The Bongara province in the Junin province of Peru plays host to both Rio Cristal (above,
Lottery Ticket) and the bigger, more advanced Florida project (mainly zinc, other co-
product/byproduct metals ie silver, lead etc in the typical ‘Andean Mix’) owned by Solitario
Exploration (SLR.to) that’s being optioned into by Brazil’s mining bigboy Votorantim Metais. The
main town in Bongara is Carhuamayo, with a population of approximately 8,500 people. With
the scene set here’s a direct translation of this news report (23) dated January 14th and run in
the regional section of Peru national daily ‘Correo’. A quick final note; the text refers to lake
“Yanacocha-Shalipayco”, but this is unconnected with the famous operating gold mine owned
by NEM/BVN. The word “Yanacocha” Quechua for ‘Black Lake’ or ‘Dark Lake’ and there are
many lakes in the highland region of Peru with the same name.
In a public meeting in the city of Carhuamayo, where the population’s authorities
analysed the problem on environmental pollution, grassroots members complained
about the pollution of lake Yanacocha-Shalipayco, and blame the mining company
Votorantim Metáis, which is in the process of exploration in the Carhuamayo
jurisdiction.
The president of the Rural Community of Carhuamayo, the engineer Filemóm Campos
Carhuaz, said that the location where exploration works were taking place are
community property and have been recognized since ancestral times as such.
Meanwhile the mayor of Junín province, Luís Solórzano Talaverano, said that
municipal order #010 has been implemented which requires consultancy (between
communities and business activities) on environmental matters in the province of
Junín.
13

He also stated that the area under exploration is part of the Junín National Nature
Reserve buffer zone, which makes mining exploration and exploitation impossible.
IKN back and we warn those considering this project as a potential investment opportunity to
carefully consider the apparent rise in political risk in the Bongara region. As for the arguments
put forward by the community, some are up for debate but the point made about mining
activity being impossible in a national reserve buffer zone is a strong one, so be aware that the
locals probably have the law on their side here. If we take at face value that the objections are
recent and stem from lake pollution, it’s up to the mining companies present (chiefly
Votorantim) to do the right thing and clean up the act before local opinion takes a further turn
for the worse.
Colombia: The Braeval (BVL.to) kidnapping
The news late last week (24) that the ELN, the second-string left wing terrorist group that sits
second to the FARC on that side of the political spectrum, had kidnapped five members of a
mining exploration party being run by Braeval (BVL.to), a recently floated public company that
started trading only last month, including two Colombians, one Canadian national and two
Peruvian foreign nationals, is a serious and unwelcome development. The best guess from local
analysts is that the ELN has made this move to get itself a seat at the negotiation table next to
the FARC in its current peace talks, but what we do know is that the kidnapping was a well
planned event rather than an opportunistic pick-up of people in the field, as the mining camp
itself was attacked by the guerrilla. As
noted on the blog Friday (25) your author
first heard that that the mining party was
attached to Colombia Crest (CLB.v) and
although that preliminary information
turned out to be false, CLB also has
exploration ongoing in the same region that
the kidnapping took place (the A flag marks
the spot on this map). The two kidnapped
Peruvians have been identified in the local
press (26) and already (27) President
Ollanta Humala of Peru has talked directly
with President Santos of Colombia
regarding the incident and has sent two
Peruvian police officers to Colombia in order
to help investigations and provide direct
liaison with the families of those affected.
We have less information on the captured Canadian and Colombian nationals but I can assure
you that this event is being taken very seriously indeed South of the Darien Gap.
As well as the most important matter, that of the well-being of those kidnapped which is
unknown at present, we must consider the wider implications of the kidnapping. Firstly, this will
certainly affect the image of Colombia as a relatively safe place to go hunting for mineralization
and knock back the perception it has gained of being on top of terrorist threats. Perception here
is important and we’d expect Colombia and those exploration companies exposed to it to take a
hit on rising political risk. However, that extra risk may not be truly justified as it looks as
though the ELN has chosen its target carefully. The Snow Mine project that Braeval has been
developing is North of the main Middle Cauca area that’s centre of much of the exploration and
development activity in Colombia at the moment (CNL at Buritica, Anglo at La Colosa,
Anglo/BTO at Gramalote, Batero, Seafield, Bellhaven to name just a few companies) and is also
cut off from the main infrastructure of the country. Normally, access to the are is via river
transport although flying in via light charter plane is also possible. The local villages are home
to a reported 600 people, with the main economic activity artisan-type mining (something that
attracts terrorist groups). It all points to the people at BVL.to being much clearer sitting ducks
than the vast majority of explorecos in the country that are close to main roads and enjoy
relatively normal and safe locations in which to do business.
14

Therefore, we tentatively suggest that the wider implications for the junior miners in Colombia
of last week’s kidnapping is limited, as BVL is a softer target than the rest and, in hindsight,
perhaps asking for trouble by being where it is. However, we must be clear that the incident is
likely to cause nerves in the market for Colombia issues and (heaven forbid) if a second
kidnapping of the same type were to occur, the damage will be much greater to the image of
any company in the country. A better result would be a swift freeing of the hostages that would
demonstrate Colombia’s capacity to react to terrorist attacks. That might come by way of a
military operation to free the people or some sort of settlement (perhaps allowing the ELN
terrorists to sit at the same table as the FARC?) or other means. Anything that frees the
captives works for me, frankly.
In other Colombia political risk news, the unilateral cease fire truce announced by Colombia’s
FARC-EP terrorists back in November when the current round of peace negotiations began
always had a limit date and that’s today, January 20th (28). This means we may get an
acceleration of violence from the FARC though it should also be noted that the cease fire was
somewhat porous and 57 cases of violence attributed to FARC during the cease fire period have
been reported.
The latest from the area is that according to some reports (29), the Colombian army is closing
in on the assumed location of the ELN terrorists and the more optimistic analyses say that the
kidnapped people may be free in the next couple of days. Sadly, it wouldn’t be the first time
that the Colombian army has overstated its hand against these insurgent groups and therefore
we adopt a ‘seeing is believing approach.
Colombia: The Páramo limits
There are times when you have to simply hold up your hands and say “I was wrong”, and this
is one of those moments. In mitigation the news came as a surprise to most everyone in the
sector, but it turns out (30) the at the new national park in the Páramo de Santurban region of
Colombia only takes a small slice of the Eco Oro (EOM.to) concession away form the company
and what’s more, all the important territory that the company would like to work in an eventual
mine is not included inside the new national park border. As a result of this news, EOM shot up
on Friday by 122% on heavy volume for the shares.
The company has plenty of other issues to contend with around its project, including plenty of
local opposition to a mine, be it a new footprint reduced plan or not that will not lie down on
this news. Then there are technical aspects of the project itself which are enough in itself to
remain sceptical about it ever becoming a mine. However, there’s no denying that EOM cleared
a major hurdle last week thanks to this ruling.
Argentina woos Canada
Last week and ahead of the Cambridge House Vancouver show, Argentina’s Mining Minister
Jorge Mayoral paid a visit to Vancouver in order to express Argentina’s desire to attract more
mining FDI to the country (31). The event was sponsored by RBC and the main thrust of the
exercise was to state that Argentina intends on giving mining companies a clear, stable and
attractive legal playing field under which miners can do business. Mayoral also noted that the
country expects record investment of ARGP$20Bn (U$4.04Bn at official rates) this year, with
specific high capex projects such as Barrick’s Pascua Lama, Goldcorp’s Cerro Negro and Vale’s
Rio Colorado potash project mentioned.
Yukon rule changes redux
After last week’s small piece on the Yukon and a recent ruling that seems to set precedent for
First Nations consultancy, I received several pieces of feedback from you people (thanks, you
know who you are). Most of it was sent in confidence and cannot be repeated here, but what I
can say in general terms is it’s fair to say companies working the Yukon region that have a
previously established and cordial relationship with First Nations peoples are unlikely to feel any
effect from this new ruling (and let’s leave it at that). However, I’m quite sure that reader ‘B’, a
15

person who knows the are as well as anybody and whose opinion on Yukon related matters is
based on deep knowledge and experience, won’t mind my quoting from one section of his
correspondence:
The court ruling was in response to a challenge by one of 14 first nations. 11 of the 14
Yukon First Nations have signed land claim agreements (a decade or so ago) that
gave them self rule, large tracts of land, cash settlements and self-governing nation
status.
The Ross River band,who won the court ruling ... generally support mining as long as
they are given respect and a fair deal from the mining company. I think they are using
threats to mining as a tool for dealing with the government.
Guatemala: A good editorial
On Thursday, Guatemala’s Siglo21 newspaper ran a thoughtful and balanced analysis (32) of
the country’s current mining-related community disturbances by way of an editorial. Here’s a
translation of nearly all the editorial (just left out a non-essential cultural reference) but before
leaving you with the note my only comment is that it’s good to see the issue getting serious,
intelligent and open debate, rather than falling into the entrenched and often extreme views
proposed by opposing sides:
“Izabal, San Marcos, Huehuetenango, Totonicapán, Jalapa, Santa Rosa,
Guatemala; seven of Guatemala’s 22 departments currently have social
conflicts and what’s worse, they’re all due to mining activity in the country. A
recent survey in the newspaper ‘Prensa Libre’ showed that 66% of the
population were against this economic activity, while in the capital city things
were almost even, with 51% in favour and 49% against mining in Guatemala.”
“...mining activity is causing three definite results in our country: 1) profits for
direct investors 2) specific social conflicts in communities 3) the polarization of
public opinion. We therefore need to examine the causes of the problems and
suggest some solutions. Firstly, we contend that the main cause of the
problem is the liberalization of the natural resource market in Guatemala. By
which is meant that it’s not a dilemma between “the mining model” versus “the
ecological model” or agrarian model, but the lack of a national development
plan in which the mining industry plays its part.”
It cannot be denied that among opposition there is a group of people who
oppose mining on principle and for the following reasons a) true
environmental motives b) economic/social motives, in the sense that the
community does not participate or benefit c) ignorance of overall benefits of
mining d) also, as spokespersons and defenders of the transnational mining
companies allege, there are those that do it for pure monetary gain. But
whatever the reason this opposition exists and the main point is that it is
becoming a problem for national governability and development.
“How could it have been avoided? Via two things; 1) plenty of technical and
verifiable information regarding the concrete impacts or benefits for all
concerned 2) a referee or validating body for the interests of both national and
communities that would also respect private investments. But both of those
things are missing, because neoliberalism overrides both and legislates only
for the (rich) minority.
“In this model, transnational companies from industrialized nations look to
consume basic resources from periphery countries in an intensive and cheap
way. Due to this, in the era of Álvaro Arzú (IKN note: President of Guatemala,
1996-2000) a mining law was passed that was a veritable open door to private
company piracy which had a double effect: a) the government renounced its
constitutional duties and b) the State auctioned off national resources to the
cry of “great deals on offer!”. Thanks to this, Guatemala rose up the ranking of
16

“free and competitive economies”. Note that by simply pointing out such things
some people are considered enemies of capitalism. But what is really being
suggested is that without a national development plan in which the State takes
a substantive role the current conflicts will only get worse. Until this happens,
the urgent matter is to promote a national dialogue that will help disactivate
the rising problems and find substantive solutions.”
Market Watching
Gold Resource Corp (GORO) production numbers
Thursday afternoon saw Gold Resource Corp (GORO), subject of our recent short position that
went well but could have been even better had I held for a while longer, report its 4q12
production and 2013 guidance (33). The 4q12 production came in at 23,783 oz AuEq (we don’t
know how much of that is silver or at what gold/silver ratio the conversion was made) which
brings 2012 total production to 90,432 oz AuEq. The last time we covered GORO in any detail
back in IKN181, we guesstimated 4q12 to come in at 25,000 oz AuEq so we weren’t far away
and in fact a little on the optimistic side as things turn out.
However, the really bad news for holders of this company was the 2013 guidance, which has
now been dropped from the previous 150,000 oz AuEq to 100,000 oz AuEq. Amongst other
things, it implies that GORO is unlikely to be able to cover the same 6c/month dividend levels it
set in 2012 because we’ve seen working capital drop despite the company’s throttling back o
exploration expenses (which, supposedly, are 1/3 of the place that GORO will spend its profits).
GORO is now at a much lower level than the point at which we opened our short coverage and
took our short position, but it’s still expensive at its current $758m market cap (as per Friday’s
close) and there is a shorting opportunity available here. Your author’s best guess is that the
right time would be just before the end of January when the company will announce its January
2013 dividend and set the expected dividend level for the rest of the year. As anything under 6c
will be greeted by backers as a large bucket of cold water to the face, there’s a trade in the
offing here. I haven’t made a final decision as yet (frankly, more interested in adding to BTO)
but uncovering my short shares is a potential course of action.
Aurcana 4q12 production numbers and thoughts
On Thursday Aurcana (AUN.v) reported 4q12 production numbers (34) and without beating
about the bush they were lower than expected by your author (and the market in general). As
this five day chart indicates, the stock
sold off slightly on the results from what
I consider a cheap level, but it also has
to be said that the ratchet down in price
was deserved.
Total silver produced by AUN came to
336,956 oz and total silver equivalent to
624,810 oz, which the company
compared favourably to 4q11 production
numbers in the NR but what really
concerns is the comparative to 2q12 and
3q12, as seen in the chart here. We’ve
noted previously that the new Shafter
production would not be counted until 1q13 so no particular problem about that, so the
production shortfall lies squarely at the La Negra facility. On the subject, the company added
extra information via a Q&A with Gecko Research which can be found here (35) (thank you
reader F for the headsup and link) that blamed two main factors for the lower output:
1) There were “seven to eight” fewer working days due to holidays which the company
17

called a one-time event. However, one wonders why this holiday couldn’t have been
planned into rosters and suggests a tight staffing situation. With AUN already reporting
that some La Negra employees were shipped over the Shafter to assist in ramping and
training matters, this fits on a second level. Also, that “7 or 8” comment is slightly odd;
surely the company should know the exact number?
2) Mine development causing lower grades. In order to accommodate an upcoming
production increase, previously mined lower grading material was processed which
allowed U/G operations to prepare new areas. That sounds fair enough to me, but it
would have been more shareholder-friendly to have had prior warning of this move,
clearly part of a medium-term plan for La Negra.
As well as adding reasons for the miss Gecko reported AUN saying, “For Q1, the production
numbers at La Negra already looks (sic) much better”. As for Shafter, AUN expects average
throughputs at between 600tpd and
AUN.v: Silver & Silver Equivalent production per qtr
700tpd, with boilerplate capacity
2010 to end 2012
expected to be hit by end 2013. This
800000
is in line with previous guidance and
700000
acceptable to your author’s position 600000
on the stock.
500000
400000
Now for thoughts on this position in 300000
our ‘Stocks to Follow’ list and in my 200000
considered opinion this stock is 100000
beginning to be a pain in the 0
proverbial hind quarters. The original
investment theory behind AUN
(NOBS report IKN184) was to take a
position and enjoy new market
optimism on the stock as the Shafter mine came online in end December 2012. The necessary
announcement happened on time (we remind readers that AUN has previously been guilty of
over-promising on its plans for Shafter and had disappointed plenty of holders through 2012, so
the strategy was to buy now that the company had finally stopped crying wolf and was about to
deliver on its delayed plans) but the general market malaise and now the lacklustre showing
from La Negra in 4q12 has scuppered the short-term strategy. After due consideration your
author is now left with three options:
a) sell now and take the small loss
b) allow the company its chance to grow through 2013, bring Shafter up to full speed
c) give AUN another opportunity in 1q13
Of the three, the one to which I’m least disposed is b). Its talk of moving up through the gears
this year is fine and fair enough, but it’s too much to ask from a company with a mediocre track
record of delivering on time. Option a) isn’t out of the question and as reader F noted in his
mail, while AUN missed other companies such as Fortuna Silver (FVI.to) hit guidance nicely and
saw stock price rebound so a fair option would be to cut, run and re-deploy the cash in
companies that have proven delivery. However, the decision is to run with option c) and give
AUN one more quarter to show what it’s capable of doing. I may regret this because it breaks
(or at best severely bends) the “if a story changes, run away” rule of thumb. However, we’ve
had enough specific guidance for the quarter in progress from the company management to be
able to make a reasonably empirical judgement come the end of this quarter. Plus the fact that
starting any new mine (Shafter) or upgrading throughput and production (Negra) comes with
teething problems for the best of them, so cutting the company a little slack for one quarter
isn’t out of the question. Therefore, come 1q13 announcement time we will need AUN to deliver
on what it has stated about current operations, particularly these three items:
• Shafter running at least 600tpd in 1q13
• La Negra “looking much better”
18
01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4
Oz Ag
Au
AuEq
source: company filings, IKN ests

• La Negra mill upgrade construction to be completed by end 1q13
If so, then holding through a disappointing 4q12 would have been worth the trouble. If not, it
will be time to leave AUN, no ifs buts or excuses. The bottom line is that taking the small
monetary (though somewhat larger numerical 14%) loss wouldn’t hurt either pocket or ego and
has been seriously considered and I know I’m taking a risk by sticking with this company for
another quarter, allowing “the story to change” slightly and trusting a management team with a
spotty track record just enough to give it a quarter’s worth of grace. However and after thought
AUN stays on these pages and we will hold through to see how 1q13 goes, but the
jury is out.
Conclusion
IKN194 is done, we close with bullet points:
• Rio Alto (RIO.to) has been our sole Top Pick for a long time (if memory serves, 10
months since we bailed on FVI) but that changes as from today with the upgrade of
B2Gold (BTO.to) to that level. If, as I suspect, 2013 will be the year when quality
counts in the junior mining sector, this is exactly the type of company that I want
longer in my portfolio. I’m adding to my pile next week.
• The Candente Copper (DNT.to) situation in Cañaris is now coming to a head. The
government’s move to set up a round table is welcome, but it doesn’t seem to have
stopped the protests on day one of the now indefinite strike by a large section of the
affected community. For the moment we see no trade potential here, but we’ll be
watching developments carefully and if anything actionable to the upside happens,
you’ll get a Flash update.
• The political risk news out of Colombia isn’t good either, with the kidnapping of the
Braeval (BVL.to) personnel bound to cause nerves in the junior world. We currently see
a low risk of a repeat performance of the kidnappings as Braeval’s location was more
exposed than the average junior in middle Cauca, however it would only take one more
similar incident to get investors running for cover and asking questions later.
• The other potential trade to have caught my eye is the potential of a renewed short
position in Gold Resource Corp (GORO). The 2012 production numbers were mediocre
but expected. However the low-pitched 2013 guidance means that GORO is unlikely to
be able to maintain its current dividend payment routine. I’m giving myself the week to
decide on what to do on this score and again, if action is taken a Flash update will find
its way to you before I uncover my short, not afterwards.
• Aurcana’s (AUN.v) 4q12 was a disappointment and the jury is now out. The stock gets
until the next production report but if things haven’t improved by then and managerial
guidance doesn’t turn into reality, it’s goodbye AUN.
• Posting may continue to be light on the blog next week, as author and family have
been invited to stay a few days at his in-laws house in middle of nowhere countryside,
Peru. Work will get done (i.e. I’m taking my laptop and I’ll be looking carefully at LSA.to
just for one thing) but I’m unsure as to whether internet will be available all day. But
however next week goes, I’ll definitely be back in the office by Friday so expect a full
and normal edition of the Weekly when IKN195 comes around.
19

The top long-term picks are Rio Alto Mining (RIO.to) and B2Gold (BTO.to). I thank you in
advance for any feedback sent in. Flash updates will be sent promptly if required by events.
I wish you good trading fortune, ladies and gentlemen.
Otto
Footnotes, Appendices, references, disclaimer
(1) http://finance.yahoo.com/news/b2gold-corp-announces-robust-results-193452419.html
(2) http://finance.yahoo.com/news/b2gold-corp-reports-record-fourth-113000493.html
(3) http://incakolanews.blogspot.com/2012/12/ten-ikn-random-predictions-for-2013.html
(4) http://finance.yahoo.com/news/geophysical-survey-peru-outlines-potential-133000053.html
(5) http://finance.yahoo.com/news/focus-acquires-high-grade-phosphate-133000330.html
(6) http://finance.yahoo.com/news/rio-alto-now-eligible-investment-120000830.html
(7) http://finance.yahoo.com/news/plata-latina-announces-c-3-123700815.html
(8) http://finance.yahoo.com/news/lachlan-star-limited-announces-resumption-134500375.html
(9) http://www.incakolanews.blogspot.com/2013/01/candente-copper-dntto-there-will-be.html
(10) http://www.andina.com.pe/espanol/noticia-mesa-desarrollo-ayudara-a-mejorar-calidad-vida-canaris-444071.aspx
(11) http://www.rpp.com.pe/2013-01-20-lambayeque-pobladores-realizan-protestas-en-canaris-noticia_559611.html
(12) http://noticias.latam.msn.com/pe/peru/articulo_rpp.aspx?cp-documentid=255811434
(13) http://regidordelvalle.blogspot.com/2013/01/kanaris-inicia-paro-indefinido-en.html
(14) http://delvalleparatodos.wordpress.com/2013/01/20/kanaris-inicia-paro-indefinido-en-contra-concesion-minera-
kanariaco/
(15) http://finance.yahoo.com/news/ngex-announces-34-million-private-220000290.html
(16) http://finance.yahoo.com/news/reservoir-awarded-two-timok-exploration-213500928.html
(17) http://finance.yahoo.com/news/bellhaven-provides-plan-first-half-123000616.html
(18) http://finance.yahoo.com/news/eagle-star-intersects-more-high-143000784.html
(19) http://finance.yahoo.com/news/eagle-star-minerals-arranges-1-153445386.html
(20) http://finance.yahoo.com/news/gryphon-gold-announces-installation-replacement-115500153.html
(21) http://finance.yahoo.com/news/firestone-announces-acquisition-whale-cove-143000940.html
(22) http://www.aminera.com/mas-noticias-nacionales/46000-fabiola-apablaza-qcon-el-bono-de-escondida-queremos-
comprar-un-departamento-en-santiagoq.html
(23) http://diariocorreo.pe/ultimas/noticias/3044235/edicion+huancayo/rechazan-exploracion-minera-en-reserva-de-jun
(24) http://www.reuters.com/article/2013/01/18/bogota-kidnapping-
idUSL1E9CID6220130118?feedType=RSS&feedName=marketsNews&rpc=43
(25) http://incakolanews.blogspot.com/2013/01/is-colombia-crest-clbv-victim-of.html
(26) http://www.peruthisweek.com/news-3453-two-peruvians-kidnapped-by-guerillas-in-colombia/
(27) http://peru21.pe/politica/ollanta-humala-hablo-juan-manuel-santos-sobre-secuestro-peruanos-2113267
(28) http://colombiareports.com/colombia-news/peace-talks/27775-colombia-prepared-for-end-of-farc-truce-santos.html
20

(29) http://www.rpp.com.pe/2013-01-19-ejercito-colombiano-tiene-cercados-a-secuestradores-de-peruanos-aseguran-
noticia_559471.html
(30) http://finance.yahoo.com/news/development-eco-oros-angostura-project-205500363.html
(31) http://noticias.terra.com.ar/inversores-canadienses-interesados-en-proyectos-mineros-
argentinos,f6be8a90ce93c310VgnCLD2000000ec6eb0aRCRD.html
(32) http://www.s21.com.gt/dialogo-critico/2013/01/17/mineria-minorias-estado
(33) http://finance.yahoo.com/news/gold-corporation-announces-preliminary-2012-205000663.html
(34) http://finance.yahoo.com/news/aurcana-reports-fourth-quarter-2012-130000121.html
(35) http://www.geckoresearch.com/node/4725
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
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
21

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