IKN #195Premium

The IKN Weekly
Week 195, January 27th 2013
Contents
This Week: Fe erratum, Travel and perspective.
Fundamental Analysis: The return of the Gold Resource Corp (GORO) short.
Stocks to Follow: Overview, Gold Resource Corp (GORO), B2Gold (BTO.to), Aurcana (AUN.v),
Minera IRL (IRL.to), USA Graphite (USGT), Rio Alto (RIO.to), Focus Ventures (FCV.v), Lupaka
(LPK.to), IMPACT (IPT.v), OceanaGold (OGC.to).
Copper Basket: Overview, Nevada (NCU.to), Candente (DNT.to), Oracle (OMN.to).
The Lottery Ticket Basket: Overview, Darwin (DAR.v), Glass Earth (GEL.v), Eagle Star
(EGE.v).
Regional Politics: Bongara Correction, Newmont’s (NEM) reduced FY13 budget for Conga
Peru, Chile’s energy situation, Colombia Braeval (BVL.to) kidnapping update, Mali article, Delays
expected to mining projects in Baja California Sur Mexico.
Market Watching: Lachlan Star model adjustment, Selling the Galway Gold (GLW.v) spin-out,
Atico Mining (ATY.v) hits a second lens of massive sulphides, Tahoe Resources (THO.to)
(TAHO) awards power generation contract, OceanaGold (OGC.to) (OGC.ax) 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
Fe erratum
Please see the “Bongara correction” note in ‘Regional Politics’ below.
Travel and perspective
It’s an old joke, but it gets an airing here.
An American investment banker was at the pier of a small coastal Mexican village when a small
boat with just one fisherman docked. In the boat were several large yellowfin tuna. The
American complimented the Mexican on the haul and asked how long it took to catch them.
The Mexican replied, "only a little while."
The American then asked why didn't he stay out longer and catch more fish?
The Mexican said he had enough to support his family's needs.
The American asked, "But what do you do with the rest of your time?"
The fisherman said, "I sleep late, fish a little, play with my children, take siestas with my wife,
Maria, stroll into the village each evening where I sip wine and play guitar with my amigos."
The American scoffed, "I’m a Harvard MBA and can help you. You should spend more time
fishing and with the proceeds, buy a bigger boat. With the proceeds from the bigger boat, you
could buy several boats, eventually you’d have a fleet of fishing boats. Instead of selling your
catch to a middleman you could sell directly to the processor, eventually opening your own
cannery. You’d control the product, processing, and distribution. You’d need to leave this small
fishing village and move to Mexico City, then LA and eventually New York City, where you’d run
your expanding enterprise."
The Mexican asked, "But, how long will this all take?"
The American replied, "15 to 20 years."
"But what then?" asked the Mexican.
The American laughed, "That's the best part. When the time is right you announce an IPO, sell
your company stock to the public and become very rich. You’d make millions!"
1

"Millions... then what?"
"Then you retire. Move to a small coastal fishing village where you could sleep late, fish a little,
play with your kids, take siestas with your wife, stroll to the village in the evenings where you can
sip wine and play your guitar with your amigos."
I want to share with you a little about my three day break last week and thoughts arising from
it, as well as a little about just why I live where I live (I’ll try to keep that part as brief as
possible, as boring a client base to death isn’t a smart idea). The reason isn’t some sudden urge
to write my memoirs, but is on-topic and all about political and social risk for mining companies,
be they in Peru or any other area of Latin America that sees a project potentially affecting the
lives of nearby communities.
First, a little personal background and this gets cut to the bone, not from shyness but from the
desire for brevity. I was working in Buenos Aires Argentina when that country hit its big
financial crisis (the late 2001/early 2002 period). Once out the other side and finding myself
suddenly jobless and single, I took what can be described as an open-ended sabbatical and
travelled around South America (I’d been on the continent for five years and had hardly left
Buenos Aires all that time, so the urge to know more about South America was strong). I
bought a tent, a backpack and starting moving around, city-to-city, visiting the South
(Patagonia etc) and then North through Uruguay, Paraguay and Bolivia. It was a flexible
timescale and itinerary; if I liked a place I’d stay a while, if I didn’t I’d just move on to the next
blob on the map. In my mind was a vague idea of moving up through the Spanish speaking
South American countries, then through Central America and maybe making it to The USA, a
kind of nebulous target. One fine day I found myself in La Paz Bolivia and took the bus across
the border into Peru. Rather than go directly for an obvious tourist’s target like Cusco or Lima,
the call was to travel to the city of Puno, spend a couple of days, have a look at the famous
Titicaca, then move on.
I think it was day two in Puno when I met my wife but again, to cut that long story short we
got married and eight months later (she was premature, so all above board folks) our first
daughter came along. In other words my stay in Puno wasn’t a couple of days, it was four
years. By that time we’d bought a small piece of countryside outside Puno on the banks of the
lake, built on it and in the course of this very off-grid life the second child came along. Not long
afterwards we moved to Arequipa, came back on grid (as it were) and six years later I’m
writing these words.
OK, that’s the brief background stuff out of the way and now to the point of the exercise.
Please consider the map below, because it shows the exact location of a photo my wife took of
me last week, the one that made its way to the blog on Wednesday (1). It also shows the area
around Lake Titicaca (with the brown-shaded map parts Bolivia and the white-shaded map
parts Peru, we’re right on the border zone here, folks) and highlights two other spots, namely
the city of Puno (about 100km from where that photo was taken) and the Santa Ana project of
Bear Creek Mining (BCM.v), about 40km directly inland from that photo location. My in-laws are
from the area where the photo was taken. They lived there until just after my wife’s birth, then
moved to the city of Puno. In fact, my wife was born about half a mile from where that photo
was taken. The family still has all its farmland there and cousins, aunts, nieces and all the rest
still live and work the smallholding (it’s bigger than the average in the area in fact, but it’s not
much more than subsistence-plus-sell-extra farming) and my parents in-law, now retired, spend
as much time as they can on their land. That’s where I was last week, visiting the in-laws.
2

This region is “Nacion Aymara”, the Aymara people’s homeland that stretches from the South of
the lake through and deep into the Bolivia part of the Altiplano that’s not shown on this map.
My wife is 100% pure-blood Aymara and the lineage on both sides goes back to way before the
Inca empire. As some of you may recall, it was the Aymara people who protested against the
development of the Bear Creek Mining (BCM.v) Santa Ana project, cancelled by ex-President
Alan García in 2011.
I am, for what it’s worth, a fully accepted member of the wife’s blood family these days and get
the open door treatment from family and friends down there, which brings me to last week’s
break. It’s been a long while, years rather than months, since I’ve spent time in the region and
that’s mostly due to the way in which work and the city lifestyle of Arequipa fills in my time.
That’s not a bad thing either (I do like living here) but it struck me last week on my return as to
why I was so happy in my four years of off-grid life in Puno. It was a real memory jog to be in
the smallholding farmhouse (made of adobe bricks), share a meal with seven or eight others
cramped into the space while the evening rain (it’s the rainy season) hammered down outside
and talk and chat into the night. It was a memory jog to visit the local town on market day, see
the bustle, feel the intimate and friendly atmosphere of a town where everybody knows
everybody else and gets on with them (because, as my father in law said, “we are all blood”),
start chatting with perfect strangers and leave a new friend 20 minutes later. It wasn’t the first
time that the privilege of being both a gringo and immediately accepted into the bosom of this
community had struck me, but it was the first time in a long time; it was my memory jog.
3

Which brings me to Santa Ana. The Aymara region is poor in monetary terms; savings, growth,
formal employment and any number of yardsticks you can mention will demonstrate that in no
uncertain terms. However the people are truly, genuinely happy. They are well fed, healthy,
they own their own homes and land, owe nothing to anybody. The reasons Santa Ana was
rejected by locals (and eventually cancelled by a President who could see he was on a hiding to
nothing) are complicated, interwoven and yes, include such matters as “national identity” and
the wish to not have large numbers of interlopers in the Aymara territory. However, people
there simply do not want and do not need ‘development’ (and please excuse the inverted
commas, necessary this time) on other people’s terms. The need is key here, as it fits precisely
with the stay I enjoyed at my in-laws farmhouse last week. Although most of the neighbours
are not well off in strict financial terms, they enjoy full and satisfying lives in the style they
prefer. Also, we’re in the day and age in which those Aymara persons who prefer a more
sophisticated and modern life can leave the region and go to live and work in places that value
a more classical growth and financial based lifestyle more than the bucolic way of life. Choices
are made at an individual level as well as at a community level and those choices are always
respected. This isn’t some kind of Sharia society where rules are made, handed down from on
high and woe betide anyone that breaks them. For just one example, amongst the Aymara my
wife’s decision to marry a gringo raised not one eyebrow.
There’s a phrase in the Quechua language, “Sumaq Causay”, which usually gets translated in
English as “living well” but has wider meanings that include living a full and satisfying life to the
benefit of your neighbours as much as yourself. It’s a valued concept, is even part of national
constitutions these days (e.g. Ecuador) and it’s at the bottom of what happens when a local
community decides on what it wants in its future. There are umpteen examples to choose from,
but as the focus of The IKN Weekly is mining in Latin America we should focus on just this. In
our sector as I’m sure you’ve noticed, some communities welcome new mining projects with
open arms, others are not sure. Others still are vehemently against the arrival of a new mine on
their doorstep but the choice they’ll all make depends on Sumaq Causay (at least in the Andean
region, with the concept easy enough to understand in gist for other areas).
What’s your objective in life? You want more money? If so, that’s 100% good as long as that’s
your heart’s ambition. You want more money to improve your lifestyle? Now we’re really getting
along. You want things to stay the way they are even though they’re bad? That’s a little
stranger and smacks of entrenched, Luddite views, so I don’t think I could agree to that one.
You want things to stay the way they are because they’re good? Now that one, on the other
hand, seems as valid to me as the hunt for extra revenue. The immediate jumping to the
conclusion that “growth equals good” comes from western mentality, culture and way of life.
Hey folks, that’s my mentality too and I see far more good than evil in capitalism, but I’ve also
had my eyes opened by my own mostly accidental life circumstances and see that I cannot be
arrogant in any sort of assumption of what’s good for me is good for them. Growth can be a
good and positive thing and mostly is but when the alternative to 21st century development is a
lifestyle that’s positive and satisfying and gives Sumac Causay to all concerned, it’s no surprise
that our kind offers of more money and growth (at the expense of many inconveniences) are
rejected.
The final thing about Nacion Aymara is that it’s big, has a history that goes back to before the
Incas, it’s never been conquered by force, it’s well-organized and knows how to protect itself
(they are superbly friendly and pleasant people but do not piss them off under any
circumstances) which is why it’s an easy call to say that the Santa Ana mine will never, ever be
built. They don’t need the mine, they don’t want the mine, therefore the mine will not happen,
it’s as simple as that. However, there are many other areas or regions of Latin America that are
smaller, less cohesive, more open to the benefits of financial gain and may be sceptical about
mining projects today (or any other new investment vehicle for that matter) but with the
correct type of community relations team can be convinced of the benefits of said new project.
The key from now on will be empathy rather than arrogance, as the days of being able to
impose upon minorities and communities has long gone.
4

Fundamental Analysis of Mining Stocks
Shorting Gold Resource Corp (GORO) again
On Friday morning via the Flash update of that day (see appendix 1) your author announced
the re-opening of the short on Gold Resource Corp (GORO). Here we go into a little more detail
on why the decision has been made. But before we dive in and check the charts, I’d also like to
draw your attention to Appendix 2 below, as it’s an extended excerpt from IKN181 that talks
about the dividend policy at GORO. It’s an appendix because I want to return to the subject
and preferably you’ll re-read the whole of IKN181 of GORO, but the excerpt is too long to
clutter up the main body of IKN195 today.
As per the Flash update Friday, your author’s decision to uncover the short Friday was made
using the follow considerations
• GORO's 2013 guidance was mediocre. This was the stock that promised 200k AuEq
production for 2013 less than a year and a half ago and was still offering guidance of
150,000 oz AuEq a few short months ago. Its guidance as announced on January 17th
(2) of 80,000 to 100,000 oz AuEq is a long way short of that.
• We expect GORO to cut its dividend and our current best guess is from the current 6c
to 4c/share per month this year. We go into this puzzle in more detail below and
consider it key to the success of our short position. We’re also expecting (though it’s
not sure, again see below) that full year 2013 guidance for the monthly dividends is
announced next week.
• GORO faces class action suits and although the verdicts may be a long way off, we’d
expect the company will need to spend on lawyers in its defence. That’s extra G&A
expense in FY13, but the precise amounts (and in what quarters they get booked) is
not easy to call on a small company such as this.
• It makes sense in general portfolio management terms to hedge other long positions
with a short at the moment.
But of the four, the main reason for going short GORO: Quarterly Earnings overview
45
GORO centres on its ability (or lack of) to continue 40
paying a 6c/month dividend. What follows is the 35
math and logical reasoning behind your author’s call 30
and first up is a quick forecast of what the GORO 25
20 reported production of 23,783 oz AuEq means in
15
terms of its financial position in 4q12. The first
10
chart is the overall view chart that gives estimates 5
for revenue (recall that GORO’s “gold equivalent” 0
number is something of a sham, because most
revenue comes from silver an only normally around
30% from gold), costs and therefore gross profit. In
fact our previous 4q12 guesstimates for production
and revenue were pretty close to these already (see
IKN181 and previous analyses) and only minor
changes have been made to the model this week.
Costs breakdown looks like this (right), which can
be summed up by “we expect much the same as
the previous two quarters”.
Same with profits, as seen below. It’s always tough
to call a net profit forecast on a small company that
can divert funds for other uses at any given
5
11q1 11q2 11q3 11q4 21q1 21q2 21q3 tse21q4
source: company filings, IKN ests
srallod
fo
snoillim revenues
COGS
Gross profit
GORO: Costs breakdown
14
12
10
8
6
4
2
0
11q1 11q2 11q3 11q4 21q1 21q2 21q3 tse21q4
source: company data, IKN ests
m$U
COGS
G&A + stock comp
exploration
cons+dev

moment, so the forecast for the net number has been pitched at exactly $10m. Laugh at me
later when the real number come out miles from
mine.
GORO: Evolution of profits
50
45
The final quarterly chart I want to present today in
40
this quick re-cap is the working capital position 35
(below right) because this one is important. You’ll 30
25
note that although GORO has returned a net profit
20
for every quarter of 2012, its own financial position 15
has been drained. This, we contend, is due to the 10
overly heavy burden placed on the company by its 5
0
unsustainably high dividend payments. We expect
working cap to drop once again in 4q12 and expect
this trend to continue until such time as GORO
addresses the issue.
Now for the puzzle of whether GORO will keep up
with its 6c /month dividend payments and the
reasons why I say it’s not going to happen. The first
thing to consider is this chart, repeated from
company literature and IKN181, that shows the
general idea behind its payments.
Basically GORO wants 1/3 of “cash flow from mine
site operations” to go to dividends, another 1/3 to
taxes and the remaining third dedicated to growth,
whatever that word may mean. Firstly, I’m not
going to go into the weird logic behind “cash flow from
mine site operations” again as we did that in IKN181, but
for out purposes I draw your attention to the chart in
appendix 2 that shows its close relation to the more
standard measurement, gross profit. In other words, for
our purposes today gross profit is a good enough gauge
to decide whether GORO will continue to pay the same
dividends. So the first thing we need to do is to see how
close GORO has come to maintaining this ratio. Please
consider this next piechart that shows the percentage
distribution of dividends, taxes and “growth” for the first
three quarters of 2012. In this calculation we’re being
very generous to GORO management and assuming (as
seems to be the case in their pretzel logic math world)
that G&A is part of the catch-all term “growth”. As you
can see, even by being generous to the company the dividend payment is 37.4% of the pie,
some 4% higher than the model.
GORO: Percentage distribution of gross profits in
first three quarters of 2012
"growth" ;
divis; 37.39
39.43
taxes ; 23.18
But if we get real, assume that what’s paid out at the sumptuous head offices of GORO near
6
11q1 11q2 11q3 11q4 21q1 21q2 21q3 tse21q4
source: company filings, IKN ests
srallod
fo
snoillim
pre-tax profit
op profit
Net Income
80 GORO: Working Capital per qtr
70
60
50
40
30
20
10
0
01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 tse21q4
source company filings, IKN ests
srallod
fo
snoillim

Denver isn’t something that’s actively growing company assets (unlike things such as
exploration and cash treasury) the piechart changes to this:
GORO: Percentage distribution of gross profits in
first three quarters of 2012
growth ;
30.69
divis; 42.78
taxes ; 26.53
In other words, dividends are running hot by nearly 10% according to the model.
Next up are a couple of crucial points that come from the exchange GORO had with the SEC
during 2q12 and 3q12 when it clarified just how it calculated its dividend policy. The whole
thing is down in appendix 2 but I want to highlight just two extracts from the text, parts of the
letter sent by GORO to the SEC, that talk about how the dividend was calculated for 2012. I’ve
highlighted a couple of place in red
In response to the second question from the staff, we have clarified our disclosure to
state that we are targeting calendar year cash distributions to shareholders totaling
approximately one-third of cash flow from mine site operations (a Non-GAAP measure,
which is mine gross profit adjusted for non-cash items), subject to the laws of the State
of Colorado that govern distributions to shareholders. Our target shareholder
distributions are based on one-third of cash flow from mine site operations, and not net
cash flows provided by operating activities or any other measure from the Consolidated
Statements of Cash Flows. Furthermore, our target dividend distribution period is
the calendar year, so there will be quarters within the year when our La Arista
underground mine performs better or worse than what we forecast for the year.
As a result of these fluctuations, we may periodically make payments from existing
cash balances for limited periods of time. We have also expanded our disclosure to
state that our target shareholder distribution of one-third of cash flow from mine site
operations may be increased, decreased, suspended or discontinued at any time at the
sole discretion of the Board of Directors based on company development requirements
and strategies, current cash balances, spot gold and silver prices, taxation, general
market conditions or any other reason. Therefore, it is our intention to make cash
distributions to shareholders based on our calendar year forecast of cash flow
from mine site operation, subject to sufficient cash balances and the other criteria
identified above.
Why are those highlighted in red? Quite simply, when those lines were written GORO expected
to produce plenty more ounces and make plenty more profit than the 90,432 AuEq oz it
eventually reported for 2012. When the dividend was bumped up to 6c per share per month in
April (on the same day as the company AGM) its forecast for 2012 production was 120,000 to
140,000 oz AuEq, or 30k to 50k higher than the result. In other words, at that time it was
reasonably logical for management to forecast revenues that would allow them to pay 6c per
month to shareholders but as things turned out, maintaining its 2012 dividend schedule has
been a burden to such as extent that working capital has dropped by an IKN estimated $12m,
or nearly 23c per share. Now for the second extract of correspondence set by GORO to the SEC
in mid 2012:
“...we believe that based on current metal prices and the expected operating
performance of the La Arista mine, we believe that our cash flow from mine site
operations will be sufficient to fund our expected disbursements for operating,
capital, other expenses and our planned distributions to shareholders for at least the
next twelve months”
7

Again, ladies and gentlemen, that was not the case. This brings us back to the GORO
production forecast for 2013. We hear no more about the 150,000 oz AuEq from the company,
as the plan now is for between 80k and 100k. Therefore if we split that difference and forecast
GORO as producing 90k oz AuEq (basically the same as this year) then make reasonable
assumptions for gold price ($1,700/oz) and
costs (slightly higher than 2012, in line with
GORO: baseline mine financials, 2012 and 2013
U$m
industry cost creep) here’s how a thumbnail
160
2013 annual compares to 2012 (note: our 2012 revenues
140 COGS
bar include our estimates for 4q12). 120 Gross profit
100
And you know what? It’s the same. The only
80
difference is that this year GORO won’t be able 60
to make the excuse of “temporarily” draining 40
treasury to the tune of $12m in order to pay an 20
over-exaggerated dividend to its shareholders. 0
That’s because this year GORO’s forecasts are 2012est 2013est
that much lower than this time last year. Also, source: GORO data, IKN ests
as we expect GORO to set the 2013 monthly
calendar year dividend regime this month, next week will likely be put-up-or-shut-up time for
the company. However, please note that the other alternative is that GORO waits until the AGM
in one quarter’s time to re-set the dial, but if it does wait until then I have the distinct feeling
that the SEC, already watching this stock closely, will have more than a few words to say to the
company.
The difference as I see it is that GORO has to balance its books in 2013. It can’t allow treasury
drain to pay for the dividend any longer and because of that (and because FY13’s financial
outlook is much the same as the results of FY12), GORO will have to cut back on the dividend
in order to at least maintain its current treasury level, else face the wrath of the regulators.
Therefore the difference is around $12m on what it paid in FY12. That works out at 1.9c per
share per month, which we round to 2c.
The bottom line: According to reasonable financial forecasts and GORO’s own production
outlook for 2013, the company will have to pay a 4c monthly dividend instead of the current 6c
dividend in order to balance its book and not drain treasury.
How does that affect the dividend yield
Well folks, this one’s easy. At a 6c monthly dividend and the current share price of $14.19,
GORO offers a 5.07% annual dividend yield
(0.06 X 12) / 14.19, percentage thereof
However, if GORO does what I think it’s about to do and cuts its dividend to 4c, the yield drops
to 3.4%.
(0.04 X 12) / 14.19, percentage thereof
We can then take it one step further and say, “Well, if GORO goes back to a 5% dividend yield
but is only paying 4c a share per month, that means the stock will have to be at $9.60 to offer
the same attractive yield”, and that, ladies and gentlemen, is exactly why I went short GORO
last Friday. Or put in more visually pleasing terms...
8

GORO: Dividend Yield Percentage Spread
Share price (U$) at 6c/month at 5c/month at 4c/month
20 3.60 3.00 2.40
19 3.79 3.16 2.53
18 4.00 3.33 2.67
17 4.24 3.53 2.82
16 4.50 3.75 3.00
15 4.80 4.00 3.20
14.19 5.07 4.23 3.38
14 5.14 4.29 3.43
13 5.54 4.62 3.69
12 6.00 5.00 4.00
11 6.55 5.45 4.36
10 7.20 6.00 4.80
9 8.00 6.67 5.33
8 9.00 7.50 6.00
7 10.29 8.57 6.86
6 12.00 10.00 8.00
5 14.40 12.00 9.60
source: IKN calcs
...this table gives an idea of what kind of share price we can expect from GORO if its dividend is
cut, based on potential yields. As you can see, if the divi goes to 4c, even a more modest 4%
yield means that GORO drops to $12, some 15% lower than Friday’s close. However, we expect
that if GORO cuts the dividend it will suffer as much from another round of confidence crisis as
pure numbers, so there’s every reason to expect the yield to stay at 5% and the share price to
drop accordingly.
Conclusion
There are sidebar reasons to consider when making the call that GORO at a little over $14 is a
shorting opportunity. The class action suit and the lawyers’ fees, plus the desire to hedge the
current net long position of The IKN Weekly ‘Stocks to Follow’ list are two, but the main story
here is the dividend and as I think GORO is going to have to cut back on its payments in 2013
compared to last year, this is the real story behind this short.
The IKN Weekly re-opens its short position on Gold Resource Corp (GORO) and sets
a downside price target of $9.60 on the stock, representing a 32.3% upside to
Friday’s closing price of $14.19. If, as we believe, GORO cuts back on its payments to
shareholders, this stock is going down and the only question is by how much. My target is set
and my short is open.
9

Stocks to Follow
It was a tough week for the juniors, akin to a party that’s been enjoyed through the first weeks
of January getting its morning-after hangover moment. We saw just two of our open positions
make gains since last week (IRL.to, USGT short) and two stocks stay unchanged (AQM.v,
FCV.v). That means ten stocks lost ground week-over-week (not listing them all, the process of
deduction is easy enough this time) with the worse droppers being Lachlan Star (LSA.to down
10.0%), Lupaka Gold (LPK.to down 9.8%) and Aurcana Corp (AUN.v down 8.7%). As for the
winners, the short on USA Graphite paid the best (USGT short up 22.2%).
After considering the “this week” column of the table below, the one that indicates my personal
short-term expectation for each stock (which shouldn’t be confused with the more important
fact that all the stocks here are reco’d at their current prices, normally for longer-term reasons),
I’m forced to conclude that there are suddenly more bargains out there and as such, no less
than eight of the companies get green “buy” next to their names. I’m fully aware that it’s
tempting fate in the face of a weak sector and that late week sag in the price of gold (plus the
other metals) and that I could be accused of trying to catch a rather dangerous looking falling
knife. This call is more about the fundamentals of the company than short-term overall market
sentiment, however. These things look cheap and although that doesn’t mean they could look
even cheaper next week, I remain true to my fundies background.
With the addition of our GORO short on Friday we now have 15 open positions, our self-
imposed maximum. Of those positions, six are in the green and nine are in the red.
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$5.31 160.3% $6.29 tgt
B2Gold BTO.to buy C$3.66 28-nov-12 C$3.69 0.8% new $5.70 tgt new avg
Recommends
Minera IRL IRL.to buy C$0.73 22-jul-12 C$0.81 11.0% $1.56 tg, added, new avg
Aurcana Corp AUN.v buy C$1.07 11-nov-12 C$0.84 -27.4% $1.50 tgt near term play
OceanaGold OGC.to buy C$3.03 16-sep-12 C$2.75 -9.2% $5.34 tgt growth prod
Lara Expl. LRA.v hold C$1.15 08-apr-12 C$1.17 1.7% solid biz model, LT hold
Lachlan Star LSA.to hold C$1.50 30-sep-12 C$1.08 -28.0% lowered $1.77 tgt
Plata Latina PLA.v hold C$0.79 10-apr-12 C$0.44 -44.3% considering sale
Lupaka Gold LPK.to Spec buy C$1.12 23-oct-11 C$0.415 -62.9% holding
IMPACT Silver IPT.v buy C$1.14 13-jan-13 C$1.12 -1.8% new position, $1.85 tgt
USA Graphite USGT short U$0.93 08-jan-13 U$0.69 25.8% shorting otc pump, added
Gold Res Corp GORO short U$14.11 25-jan-13 U$14.19 -0.6% 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$0.16 -23.8% 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.
Gold Resource Corp (GORO): Short position opened. As noted in Friday’s Flash update
and in ‘Fundamentals...’ above, your author went short GORO again last week. In the end I
couldn’t find any extra lend on Friday so the position is perhaps 2/3rds complete and may get
topped up next week, but it’s still open and running and that’s what counts. We finished slightly
in the red but no matter, as what we’re looking for now is the January dividend announcement
that should come along next week and if, as I suspect, GORO calls the dividend payments lower
10

in 2013 than the 6c/share monthlies of 2012, the short should get the benefit.
B2Gold (BTO.to): Position added. As per last week’s move to make BTO a Top Pick, your
author added to his position early week and as a result the IKN Weekly cost average for the
position is up to $3.66 (from $3.45). Therefore it was a bit of a pain to watch BTO fail at $4
once again and drop (with all the others) Thursday and Friday and here we are again, basically
back at UNCH for the overall holding. I’ve left myself a little room to add some more to this
position, but not much and also, it’s getting to the point where the cash position (that mostly
came from the sale of FVI) isn’t one I want to dip into much more...I’m close to my comfort
limit now.
Aurcana Corp (AUN.v): AUN saw no progress early week and then got hammered on Friday
during the sector sell-off and overall was
the week’s most depressing result in your
author’s portfolio. However, nothing has
changed bar the price and the idea in this
office hasn’t changed since the “we give
AUN one more quarter” call from IKN194
last weekend. Also, we’ve previously
mentioned that AUN has this tendency to
produce sharp downspikes on occasion
which gets a visual reminder from this 12
month price chart. On the other hand, that
ski-slope down from $1.20 in October is
hardly encouraging.
Minera IRL (IRL.to): I had to laugh. In IKN165 dated July 1st 2012 (before we opened our
position on IRL) we reported on the ignorant views of one Carlos Rojas, trader and equities
analyst at Lima-based Andino Asset Management. At the time Rojas believed (and told
Bloomberg, who then told the world in English) that because the Puno region Aymara anti-
mining leader Walter Aduviri was back on the scene, IRL’s Ollachea project in the Northern
Quechua part of the Puno region would see anti-mining protests. Here’s a section from that
IKN165 note that makes your author’s views plain:
“...to hear that Aduviri may get to be leader of an Aymara group fighting against Santa
Ana and other mining concessions in his corner of Puno again, and then jump to the
conclusion that all mining projects in all of Puno are under threat from his re-
appearance, displays a total lack of understanding about the region. And as noted
above, this type of pig ignorance about the rest of Peru is not uncommon in Lima so
the comment picked up from Carlos Rojas comes as no surprise to me, but the
problem when you read it in Bloomberg in English 4,000 miles away is that you think
you’re reading some sort of intelligent local comment.
Cut to Friday and this interview with the very same Carlos Rojas appeared in Peru’s leading
biznews name, Gestion (3). Here’s the part that pertains to IRL:
Gestion: What should be the strategy of junior miners?
Carlos Rojas: First they need to be as low profile as possible and develop the
smallest projects possible, no matter if they have large-scale projects. Then they
should guve tangible benefits to the local population so that in case of problems, they
say, “Don’t take my mine away”. In the South, Minera IRL is a good example
Gestion: Due to the direct participation that it has given the local population...
Carlos Rojas: Yes. IRL has given them 5% of the mine and is building a zoo and a
museum in the town. For the company it’s a marginal investment. However, for the
community it’s an important investment because they see that beyond the mine, in the
future they could live through tourism.”
11

So, it’s nice to see Señor Rojas seeing a bit of light. In other news, I’ve fielded several mails
from you guys out there about the lack of liquidity in IRL stock, particularly the IRL.to ticker
that trades in Toronto. That criticism got passed along to management who tell me in turn that
they’re working on the issue, they’re keen on getting more liquid trading in the stock
(particularly in Toronto and in the Lima listing, as well as in London though there it’s somewhat
easier to move in and out) and that “plans are afoot” to improve things in the near future. What
that means precisely is not known, but one logical conclusion that could be drawn is the
potential for an equity placement in the near future. We know that IRL needs to raise capital for
the construction of Don Nicolas in Argentina and for the continued exploration of Ollachea in
Peru in 2013. We also know that more shares would mean better liquidity. Put them together
and it’s not a great leap of deduction, but only time will tell.
USA Graphite (USGT) (USGT.ob): The stock didn’t make $1 (so no extra adds attempted)
but instead dived back hard early last week and then fiddled around at the 70c-75c level. Plenty
of time for the real paydirt to happen here and as only the scumballs driving this pump and
dump know when the plug will be pulled, patience is applied.
Rio Alto Mining (RIO.to): RIO did ok in the face of dropping gold up to Wednesday and was
even up a bit at that time, but when its underlying metal dropped again on Thursday the stock
joined the rest of the sector in the sell-off, then got another dose of the same Friday (low
$5.22) before bargain hunters finally began nibbling and the stock came back a bit. In other
news, your author has a meeting scheduled with CEO Black next month (difficult to nail that
globetrotter down to one spot for more than a couple of days) so the usual fight to glean
snippets of extra information will likely ensue. And he’ll win, as usual
Focus Ventures (FCV.v): I caught up with FCV President David Cass last week and got some
snippets of information about the company. Nothing of great import but certainly enough to
pass along here.
• Regarding the flagship Santa Cruz/Reventón project in Mexico, Cass will be on site
there this week coming and at the end of that time the company will likely have a
nailed-down plan to drill. We’ll also have a better idea on whether the project’s first drill
results will be ready for publication before or after PDAC, but either way they should
start flowing in the March/April time window.
• Regarding the Aurora copper project in the Cusco region of Peru, he says that so far at
least the early stage results (sampling and geophys) have them very pleased with
results and there’s plenty of interest from bigger firms on a potential JV. He’s obviously
very constrained by what he can say on this due to confidentiality agreement (CA)
rules, but was allowed to say that there are three CAs already signed and perhaps the
same amount in progress. For what it’s worth, I’d add here that getting a CA is one
thing but the process to get a big company from CA to deal is nearly always a long and
drawn-out affair. I don’t have any extra special can’t-tell-you-that info from Cass (he
really is one of the straight shooter guys) but I personally won’t be holding my breath
on any deal here and count the potential for a JV deal in months rather than weeks.
However, the company enthusiasm for the project is strong and that’s a good thing.
• Regarding the latest company acquisition, the phosphate project in Colombia, the idea
is clearly to build a portfolio of similar projects in the LatAm region and from what I
gathered, this is an ongoing process. FCV wants to do more of these type of optioning
in deals on phosphates, it seems. I personally like this part of the company because it’s
clear that the market is giving it zero asset value on its share price, which means the
only way is up.
Overall, we again note the small stock price and upside potential of FCV. It only takes one good
hit from a drill or a deal to move a company like this into $20m market cap range, which is
more than a double from here. Yes of course it’s not that easy (if it were you’d be on your third
12

bottle of Dom Perignon by now instead of reading this) and FCV is a tinycap that implies high
risk, but all the same it’s an easy hold at these prices and could take out our nominal 25c share
price in a breeze given the right news. And with at least three irons in the fire and treasury to
throw at its projects, there’s a lot going on for such a small sized company.
Lupaka Gold (LPK.to): Three things to say about LPK today. First up its NR of last week (4)
which told of those final drill numbers from Crucero we mentioned in IKN194. The basic story is
that the holes from the A-1 zone came in as expected but the final holes from the Chaski zone
were again dusters, despite the drills intersecting “interesting” sulphide rock. Yes, those
geologists sure love their interesting rocks, don’t they? However, there was more positive news
in the NR as the company announced the hiring of a senior geologist, Julio Castañeda, who has
the type of CV and experience LPK needs for its 2013 exploration.
Second, we can expect LPK to release an updated 43-101 compliant resource report on Crucero
this quarter, 1q13. With the current all-category (indicated plus inferred) resource for the A-1
zone standing at just under 1.8m oz Au (1.15m oz of that indicated at a decent 1.03 g/t grade
at 0.4 g/t cut-off) and all of the 2012 drilling results to add to that total, we’d expect more
overall ounces thanks mainly to the step-out drilling at the North end of A-1 and also more of
those inferred ounces to become indicated ounces thanks to the infill drilling at the deposit’s
main body. Overall, over 2m oz is expected from the update and I’d personally like to see the
count reach 2.2m oz all-categories.
Third up, here’s a one month chart that compares the share price performance of LPK to
Southern Legacy (LCY.v), the new incarnation of Sinchao that owns the AntaKori project in
Cajamarca and in which LPK has an 17% equity holding (according to the latest corporate
presentation at least, dated “Winter
2013” (even though it’s summer in Peru)
and available on this link (5)) that’s
worth $3.45m as at Friday’s close. That’s
a nice little boost to LPK’s asset value of
course (along with the current treasury
position of an IKN estimated $11.5m)
but the reason to show you this
comparative chart is rather different. In
late 2012 LCY listed as a new stock on
Lima’s BVL stock market and in early
2013, the company rang the opening
bell, made an official start to trading of
the stock, gave interviews and
soundbites to anyone that would listen
and managed to get decent traction in
the local press. As a result, the company stock got bought nicely on the BVL and the benefit
shows in the Canadian listing, too.
LCY was sponsored by Kallpa Securities in Lima for its regional IPO and we now hear that
Kallpa is about to perform the same job for LPK. The company will soon get listed on the BVL
and if past history is our guide, the company and the brokerage will lay on the style and get
LPK noticed during the IPO and opening ceremony proceedings. It’s because of this that I’ve
today changed the LPK “this week” call to speculative buy, because it wouldn’t need much of
the same type of traction for LPK to move away from the current low-40s share prices and into
the 50s...even beyond, as long as Kallpa and the Lima PR machine performs as it did with LCY
during its opening. The exact timing of the Lima IPO is unknown (lawyers involved etc) but the
unofficial word is “soon”. Of course there are no guarantees on these things (e.g. gold goes
South and all bets are off) but given a level playing field and a modicum of luck, LPK could
provide a decent small trading win thanks to its new sponsor and listing in Peru.
13

IMPACT Silver (IPT.v): News from IPT last week (6) of the “hello we exist” variety, the first
NR out the company for nearly two months which mostly told of 2012 exploration successes. To
be honest it was a good NR and held plenty of information, but it’s not the type of release that
moves markets. Away from the drill numbers from several working mines and targets in the
RMZ area, we also got confirmation that the new Capire VMS open pit operation was on
schedule and due to deliver its first production this quarter, 1q13, so that was pretty good.
As for trading, that was pretty positive early
week and even made $1.20 on fairly
respectable volumes, but IPT suffered like
the rest of the complex on Thursday and
Friday and fell to a somewhat frustrating
low at the week’s closing bell.
IPT normally waits until the financials are
announced before disclosing production, so
we’re not expecting any hard numbers from
the company this month and will probably
have to wait patiently until late March/early
April for the YE financials.
OceanaGold (OGC.to): We do the OGC 4q12 numbers in ‘Market Watching’ below, here we
note that the stock traded very nicely on Monday and Tuesday on the back of the results, with
2X and 3X average volumes to boot, but also succumbed to the sector droop late week and
closed down 13c on last Sunday’s numbers. Bah.
The Copper Basket
After four weeks of 2013 The Copper Basket is showing a 8.07% profit to level stakes.
company ticker price 1/1/13 Shares out Market Cap current pps gain/loss%
1 NGEx Resources NGQ.to 3.40 158.5 491.35 3.10 -8.8%
2 Lumina Copper LCC.v 9.43 43.46 404.18 9.30 -1.4%
3 Augusta Res AZC.to 2.43 144.1 351.60 2.44 0.4%
4 Copper Fox CUU.v 0.83 397.65 338.00 0.85 2.4%
5 Nevada Copper NCU.to 3.50 80.5 289.80 3.60 2.9%
6 Hot Chili Ltd HCH.ax 0.72 286.78 226.56 0.79 9.7%
7 Western Copper WRN.to 1.39 93.78 144.42 1.54 10.8%
8 Panoro Minerals PML.v 0.62 176.25 111.04 0.63 1.6%
9 NovaCopper NCQ.to 1.80 51.89 104.30 2.01 11.7%
10 Reservoir Min. RMC.v 2.41 41.46 95.36 2.30 -4.6%
11 Candente Copper DNT.to 0.375 121.93 67.06 0.55 46.7%
12 Curis Resources CUV.to 0.70 56.31 51.81 0.92 31.4%
13 Oracle Mining OMN.to 0.80 49.03 43.15 0.88 10.0%
14 Yellowhead Min. YMI.to 0.59 60.97 40.24 0.66 11.9%
15 Strait Minerals SRD.v 0.08 56.86 3.98 0.07 -12.5%
NB: HCH.ax priced in AUD$, rest CAD$ Portfolio avg 8.07%
We saw six of our basket companies rise last week (AZC.to. HCH.ax, RMC.v, DNT.to, OMN.to,
CUV.to) and two of them remain unchanged (YMI.to, SRD.v), which leaves seven charges with
a weekly loss (NGQ.to, LCC.v, CUU.v, NCU.to, WRN.to, PML.v, NCQ.to). Of the winners, the big
move up was in Candente Copper (DNT.to up 23.6%) on a big rebound Monday that
14

consolidated, though the news about violence at Cañariaco on Friday reached wires not long
before the bell and is unlikely to have been factored in as yet. None of the losers lost in double
figure percentage style, so that’s probably a good thing.
The copper metal market did better than the PMs,
generally speaking, and although it registered the
slightest of losses on the week it was more about Friday
giving up gains than some big slump. In this light, the
honour’s even result of our basket last week was a
pretty faithful reproduction of the wider story.
Moving to inventories, worldwide stocks saw a very
slight drop of 0.9% to stand at 614,723mt. The LME
dropped 0.7%, Shanghai Futures warehouse stocks
dropped by 1.7% (3,448mt) and the smaller Comex
warehouse stocks went up by 0.8%, so overall little to
write home about. On the other hand, LME cancelled
warrants dropped again to 11.87% of total held
inventory which signifies that the post-Christmas blip
warehouse outflow is just about done. As we didn’t see
any drop from the spiked high registered late December, this suggests asthenic demand from
end users and should be a considered a near-term warning sign for the state of the market.
Cancelled Warrants at LME, IKN157 to date
35%
30%
25%
20%
15%
10%
5%
0%
15
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 591NKI
source: Cochilco, LME
rof
yrotnevni
EML
%
latot
yreviled
resu-dne
Looking a little further into the issue, this report (7) (one of many) that looks at smelter refinery
commissions, now being set for 2013, also indicates a market that’s being oversupplied with
copper concentrates at the moment. It’s worth reading the whole article (for extra flavour and
examination of the secondary nuances of the subject) but the main takeaway is that due to
increased supply of concentrates to the market and demand that’s presumed to be ok without
being great in 2013, the men-in-the-middle smelters, specifically Japan’s largest smelter
company and China’s largest smelter company, are getting better terms for their services and
will charge around 10% more this year compared to 2012.
Now for updates on some of our covered companies:
Nevada Copper (NCU.to): The lack of volume and price weakness in NCU last week (it was
down to $3.38 on Friday before rallying into the close) is not a good sign for the sector, what
with the company and its Pumpkin Hollow project generally understood to be one of the leading
contenders for the next copper project buyout. We could have picked on Lumina (LCC.v), NGEx
(NGQ.to) or others to make this same comment as well. The market didn’t like the bigger
market cap copper plays last week, which suggests lessened expectations for deals.
Candente Copper (DNT.to): There were a total of 26 injured (8) in the clash between the

100 police officers and approximately 400 protesting locals on Friday. Of those, two people
were seriously injured with gunshot wounds and are currently hospitalized in intensive care
wards, this despite the chief of police categorically denying the use of firearms. Presumably he
thinks the locals decided to shoot each other. No police officers were reported injured.
Meanwhile, after the violence and on Saturday, the Ministry of Energy and Mines (MEM) said (9)
that the locals’ claim of not being represented at the current round table was untrue and named
the delegate, one Elías Palomino. But Palomino’s pro-mining credentials are clear not only to
the protesting population in Cañaris who reject him as a true representative of the local
population but also to anyone who can use internet, as he was the president of the committee
that called the contested vote back on July 8th and gave DNT the “social licence” (as it is
known) for exploration work over the next three years. Also, Palomino spoke up against the
non-binding vote when 97% of locals voted against DNT’s presence by saying that an official
vote had already been cast and there was no point in going over the ground again, which put
him in direct conflict with other locals (10). Now, it’s fine that Palomino is there at the round
table and that he represents those local residents that support DNT at Cañariaco, but to have
him as the only representative is clear bias, which is why protesters say they are
unrepresented.
At this point it’s worth going back to the issue of the two votes in 2012 and particularly that of
the July 8th vote that gave DNT its social licence to explore, as locals see several problems in
what happened at and after that date (11). Firstly, in the week previous to the vote MEM
officials told locals that the vote would not go ahead and it therefore came as a surprise to
many locals that the meeting and vote happened. In the end, there were 800 people present
out of a total local population of 4,000 and according to the ‘social licence’ rules, 50% +1
person of any given community must be present at a vote in order for quorum and legitimacy.
For its part, DNT explains this numerical discrepancy by saying (12) that there are in fact just
2,500 people in the local area because that’s how many people are officially registered with the
government and of them, more than 1,200 asked for the public forum that took place in July
(even though only 800 showed up for the meeting and vote). In this way they deny that there
are 4,000 people in the area and claim legitimacy for the original vote. In fact it’s typical to
have people who are officially unregistered with the national government living in remote rural
areas of Peru and the simple fact that three thousand people voted in the September 30th event
(the one that got 97% rejections for DNT) shows that the population is above the number
claimed by DNT and probably true to the 4,000 number used by the protesters (sidebar:
Cañaris is a remote area, difficult to reach and any non-residents would stick out like a sore
thumb, so the likelihood of a vote-stuffing strategy in the September 30th vote is unlikely). The
bottom line to this section is that there are legitimate reasons to doubt that the July 8th vote
was representative of the locals’ views overall.
A second event in July 2012 may also explain why so many locals voted against the project in
the September 30th non-recognized poll. It goes without saying that the pro-mine cause says
that the ballot that day was rigged, but in fact the events of July 22nd, the day that DNT picked
up its social licence papers, need to be factored in as well. On the same day as the official
ceremony took place to hand over the social licence permit, DNT revealed for the first time to
locals that around 2km of the course of the local river, the Cañariaco, would be changed in
order to carry out the upcoming exploration work. On hearing this news a section of the
community presented an official objection to the awarded permit and demanded it annulled.
From then came the September 30th vote that was ignored by officialdom, then the 48 hour
holding of DNT personnel in November/December, then the granted of the water permit in
December that was made public in early January at the same time as the announcement that
the drills were turning at Cañariaco Norte, the event that gave rise to the latest round of
protests and now spilled blood.
I’ve gone into some more detail about some of the back story to Cañariaco a little more today
in order to show that it is indeed a mess. What happens from here is either more blood spilled
in larger quantities or a stoppage, temporary or otherwise, of work at Cañariaco that will allow
16

tempers to calm. The local protesters, far from backing down in the face of the police now on
site, are now more determined than ever (13) and determined to stop DNT from moving
forward while the government (and press) is trying its best to paint the anti-mining protesters
as radicals and even terrorists (and sadly, local DNT managers have also made public
statements to these effects). There may indeed be some far left radicals attaching themselves
to the protest now that it’s garnering national and international headline news, in fact
considering the M.O. of the leftist groups in Peru it’s likely, but there’s little doubt that the core
of the protest comes from true and legitimate local residents who simply do not want DNT
there and want to be left alone.
Temperatures need to cool, that is the number one priority. For this to happen, the wisest
move that DNT could make would be to accede to protesters conditions for negotiations (14)
and a) halt the current drill program then b) agree to a round table set up in the town of
Cañaris instead of the remote negotiating group that has just one person from the local
community who is clearly pro-mining and chosen to be present at the convenience of those hwo
want the project pushed through. There are clearly locals who support DNT’s activities at
Cañaris and there are clearly others against them, but until reasonable debate comes to the
fore instead of the current confrontational views of both sides, nothing will change and things
are likely to get worse, not better. DNT has said that one of the problems is that the
Lambayeque region doesn’t know much about mining and what it entails (15); well that’s fair
enough, so surely that means the company would welcome a scenario that allows it to put
forward its argument and show facts (rather than NGO spook-stories) about what the Cañariaco
mine would be and what it would do for the local community?
The bottom line to DNT today, late January 2013, is that it’s a clear and obvious avoid of a
stock. In fact it’s a clear shorting opportunity from its current 55c price, but the difficulties for
retail grunts to get a lend on a low price Canadian issue are so great that shorting is only a real
option for market pros and institutions with the right channels already set up (and even then
it’s not that easy on a sub-Loonie stock, not even for the pros). Therefore the official IKN call
on DNT is “avoid” which comes with a side-order of “like the plague” until such time that cooler
heads prevail. DNT has not done a bad job with its community relations, it’s done an awful job.
If the company starts repairing the mistakes it’s made (and swallows a helping of humble pie
along the way) this project still has potential. But the events of last week show that unless that
change of attitude happens, Cañariaco is on a road to nowhere.
Oracle Mining (OMN.to): Trading has been paper-thin, but OMN has recovered from the
worst of its late 2012 losses. If it can re-take the $1+ level last seen in October we’d probably
see traded volumes improve, too. We also had news from OMN last week (last Sunday in fact,
which could have been included in IKN194 if I’d seen it) (16) that announced a new company
President. Rod Campbell comes from being
the President and CEO of Canadian
brokerage house Clarus, which makes an
interesting profile for the head of a $43m
market cap junior exploreco with a need to
get more market radar. By way of a sidebar,
we note that Mr Campbell was in charge of
investment banking at Clarus, a job that has
recently been given to Ron Stewart, the ex-
Dundee head analyst who last month moved
over to Clarus. I’m sure there’s a story there
somewhere, but I’m not that bothered about
digging up the gossip, basically.
The Lottery Ticket Basket
17

After four weeks of 2013 The Lottery Ticket Basket is showing an 4.26% 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 19.24 0.100 0.0%
2 Bellhaven BHV.v 0.14 121.16 15.15 0.125 -10.7%
3 Fancamp Expl. FNC.v 0.125 109.8 13.73 0.125 0.0%
4 Glass Earth GEL.v 0.155 104.79 13.62 0.130 16.1%
5 Gryphon Gold GGN.to 0.085 194.64 13.62 0.070 -17.6%
6 Eagle Star Min. EGE.v 0.125 60.73 13.36 0.220 76.0%
7 AQM Copper AQM.v 0.08 105.57 7.92 0.075 -6.3%
8 Copper North COL.v 0.10 58.62 7.33 0.125 25.0%
9 FDG Mining FDG.v 0.13 45.59 5.47 0.120 -7.7%
10 Rio Cristal RCZ.v 0.025 149.26 5.22 0.035 40.0%
11 Cream Minerals CMA.v 0.03 155.34 4.66 0.030 0.0%
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 2.00 0.055 22.2%
15 Netco Silver NEI.v 0.025 47.01 1.18 0.025 0.0%
Portfolio avg 4.26%
Just two of our über-high risk basket members made gains last week (MLN.v, EGE.v) while
another five finished unchanged (AQM.v, FDG.v, DAR.v, IO.v, NEI.v), therefore eight stocks lost
ground (BHV.v, GGN.to, GEL.v, FNC.v, COL.v, CMA.v, RCZ.v, FV.v) but most of those were the
type of losses seen inside trading ranges and no great big deal.
I’m not going to dwell on this part of the Weekly today, as for one thing there isn’t that much
to report and for another, I’m still not totally sure that this experiment due to run through 2013
is worth our while. Let’s just fill in on three of the basket members and be done.
Darwin Resources (DAR.v): Your author’s site visit to DAR.v’s Suriloma project in La
Libertad, Peru in mid-February is now confirmed, with the bonus being that I travel and get
shown around by DAR head man Graham Carman, so plenty of time to pick his brains on the
company, its projects and prospects.
Glass Earth (GEL.v): Last week’s biggest mover on the list came from GEL and its 16.1%
drop. I didn’t see any specific news from the company and volumes were less than average on
all days, so it looks like the stock just got sold by somebody (or bodies) fed up with the state of
the juniors market and willing to take any price. In fact Friday saw the lowest price for GEL.v
since the dog days of early 2009, so if there are any speculators out there who like taking a
punt on oversold penny-sized juniors and trying to sniff out a quick rebound gain, there are
probably worse vehicles than this one next week.
Eagle Star (EGE.v): The to-date star performer on our lottery list did well once again last
week, touching 23c before finishing at 22c (which was still one of only two weekly winners).
Regional politics
Bongara Correction
Oops, big mistake. Last week in IKN194 we reported on social unease in the Peruvian
community of Bongara and said that it may affect the exploration work being done by
Votorantim Metais as it options into Solitario’s Florida project, as well as potentially affecting the
chances of Rio Cristal (RCZ.v, the Lottery Ticket Basket member) close by. Well in fact I made
18

an error because there is more than one place named Bongara in Peru and I got mixed up. I’ll
leave it to mailpal A to explain, as he was the first to kindly write in and correct my mistake and
did it in good style.
Just a quick note to point out some confusion in IKN194 over the location of Votorantim's Shalipayco zinc
project as presented in the regional politics section.
The news report from Correo you quote refers to the Shalipayco project in Junin (Central Peru) and not the
Bongara project in Amazonas Department (much further north). As such the Rio Cristal project is under no
immediate threat from the locals.
Bongara for sure will have its own challenges being located in an area of great biodiversity value, close to
the Rio Abiseo National Park and the "Cordillera de Colan" National Sanctuary which provide suitable
habitat for the "Mono Choro Cola Amarilla" a species once though extinct which is considered endangered.
Community is less likely to be an issue in Bongara as the main economic activity in the area is forestry and
not agriculture and the area is sparsely populated. The closest "Centro Poblado" is Yambrasbamba and has
less than 500 inhabitants.
Thank you A and sincere apologies to all readers for the gross error on my part.
Peru Conga: Newmont (NRM) confirms reduced spending plan for FY13
At a CIBC sponsored conference last week Newmont (NEM) revealed (17) that its 2013 budget
for Conga is $150m, which implies that the total budget for Yanacocha SA is nearly $300m
(NEM owns 51.35% of the company), however NEM’s CFO Russell Ball was at pains to stress
that 2013’s budget would be spent on “social support” and not mine construction. We note that
this phrase now includes the building of the reservoirs that will eventually replace the natural
lagoons which will be drained away as part of the Conga construction plan, in other words just
what we expected from the company while it spins its wheels and waits for the 2014 Regional
Governor election to oust Gregorio Santos. Also, once the reservoirs are up and running and
can show the population of Cajamarca that water supply to locals will actually improve thanks
to the project, rather than deteriorate, one of the key anti-Conga arguments will be rebutted.
Or at least, that’s the plan.
Chile: The energy situation
The President of Antofagasta Minerals (ANTO.L) and ex-Executive President of Codelco, Diego
Hernández, spoke (18) at the inauguration of the CELAC-UE summit in Chile (a meeting of
Central American and Latin American countries with European Union countries, with many of
the countries represented by their respective Heads of State). Hernández made mention of the
problems in Chile’s power grid and the bottleneck being caused by a lack of projects making it
off the drawing board and said that there was no obvious end to the energy deficit. He also said
that the alternative now being seriously considered by mining companies, that of building their
own power stations, was considered in previous years but rejected as being a poor substitute
for a better and growing national grid system. Finally, he made it clear that increased numbers
of player in the chile powergen business would be very welcome and to quote (translated):
“Without doubt it would be very healthy to see more players [in the sector] and I believe that
there are are many interested parties. The problem is being able to give them the
opportunities.”
Colombia: The Braeval (BVL.to) kidnapping update
The title of this report (19) in Colombia’s ‘La Hora’ dated yesterday Jan 26th sums things up:
“No trace of the miners kidnapped in Colombia by the ELN”, and as we noted last week,
Colombia’s armed forces often talk the “about to solve the crime” talk but regularly fail to do so.
The same report goes on to note that despite a large 24/7 air/land manhunt in the area, there’s
no sign of the victims of last week’s attack. We are also given the names of the five people
taken that include the Peruvians Javier Leandro Ochoa Aguilar and José Antonio Manami Saico,
the Canadian Jernoc Wober and the Colombian nationals William Batista and Manuel Francisco
Zabaleta.
Adding to this lamentable situation, word reaches your author that mining companies are also
getting caught in the crossfire (figuratively rather than literally) of a turf war between two sets
19

of paramilitaries, the Urabeños and the Rastrojos, in Northeastern Antioquia. The information
received, though from trusted sources, is anecdotal in nature only so not too many details will
be repeated here, but we can say is that area of the country has seen a immediate and rapid
drain of smart geological brains after threats that are not ignored were delivered by the far-
right wing paramilitaries.
Mali article
It’s not my geographical area and I’m not pretending any sort of insight on the current difficult
political situation there, but I know that there are mining companies exposed to Mali and
therefore readers of The IKN Weekly (for example those who suggested to your author that
EDV.to is a potential investment, there were several of you in 3q12 and 4q12) may benefit from
reading this concise but insightful article (20) that I came across last week in the UK Guardian,
written by somebody who does know the area and can give an educated opinion on what’s
gone wrong so far and how things may develop.I leave you with the link and no further
comment.
Mexico: Serious delays to mining projects in Baja California Sur expected
The situation is becoming legally and politically complex in Baja California Sur, with both the
pro-mining (companies, national government, sections of population) and the anti-mining
(regional government, sections of population) scoring points and claiming progress for their
positions. But the news last week from the area (21) strongly suggests that if no absolute
rejection of open pit mining is achieved by the anti-mining parties they will be able to
indefinitely delay projects in the region, which isn’t good news for companies such as Argonaut
Gold (AR.to) which is looking to move its San Antonio project forward. Put as simply as
possible, a couple of weeks back (and I mulled over reporting on the largely legal and technical
news at the time) the pro-mine team won a victory in the courtrooms when the judges ruled a
blocking order (known as ‘amparo’ in Spanish) that the regional government was using to stop
the companies from applying for a “change of land use” permit was illegal and the companies
could now get on and ask for the necessary permits. However, the anti-mine side (led by the
regional government) say that to make this ruling official there needs to be a public referendum
on the matter and an up/down vote on the presence of new mining operations in the State. In
other words, the regional government is looking to bog the process down in politics and take it
to a popular vote, which at the very least will delay new operations in the region for a long time
and also adds a whole layer of uncertainty as to whether the public will go for or against the
miners (and quite frankly, at this point I’d best guess that the general mood there is anti-
mining). We’ve mentioned on these pages previously our doubts about AR.to’s San Antonio
project and its timeline to operation that is, at best, highly optimistic. The latest news from the
region confirms our doubts.
Market Watching
Lachlan Star (LSA.to) (LSA.ax): Revisiting the 2013 forecast
This is one that saw me fiddling with the model last week on the news that LSA would be
mining from the higher grading pit areas in 2013. Along with other news from the company that
guides to lower cash costs in the year to come,
I’ve made three main changes to our model for 2013-01-27
• Production is now based on an average pad placement grade of 0.65 g/t Au. This is up
from the 0.56 g/t previously used due to the expected use of the higher grading 1.1 g/t
areas of the CMD mine this year.
• Cash costs are moved up to $1,000/oz Au. This is higher than scheduled by the
company as we err to the cautious side in our model.
20

• The 2013 target is now based on a 6X PE multiple to EPS, rather than the 8X of before.
In retrospect, I think I was pitching too high at 8X PE for a company that’s still in early
stages, has plenty to prove to the market operationally, is relatively high cash cost
compared to its peers and in the end is still a sub-100k/oz per year producer, which
means it’s not going to make it high up on most market participants’ radars.
There were a couple of minor adjustments here are there as well, but the above three points
cover perhaps 97% of the change to the target, which now looks like this:
LSA: Sales and earnings Target price & valuation data on 2013 production
Gold Price $1500 $1700 $1800 $2000 using four different gold prices
Sales (C$m) 112 148 135 150 12-month target $1.77 (on 6x annual EPS, Au at
Upside to target 64% U$1700/oz + cash at bank)
EPS 0.12 0.23 0.28 0.39 Mkt cap (C$m) $93 Enterprise value $113
Cash flow 0.22 0.32 0.37 0.48 P/sales ($1500) 0.63 EV/sales ($1500) 0.77
P/E ($1500) 8.8 EV/EBITDA ($1700) 3.8
P/E ($1700) 4.7 EV/EBITDA ($1800) 2.6
P/E ($1800) 3.8 EV/EBITDA ($2000) 2.2
cash flow defined simply as EPS + depreciation
We’ve dropped our 12 month price target to $1.77 on LSA (using $1,700/oz Au average for the
year) but as the stock has sold off since we last looked carefully that’s still a very healthy
potential profit from Friday’s close. (By the way, if you prefer a $1,650/oz average gold price
the target goes to $1.59).
Selling the Galway Gold (GLW.v) spin-out
It did indeed slip my mind while writing up IKN194 last weekend but I tried to make up for it by
noting it on the blog Monday (22). Galway Gold (GLW.v), the second of the two spin-outs from
the Galway Resources deal with Eike
Batista’s AUX began trading last week
and here’s how the week went (right).
As stated on several occasions, the
move to immediately dump the
Galway Metals (GWM.v) spin-out was
a given and we got 6c for that as soon
as possible, but we’d watch Galway
Gold (GLW.v) for a few days first to
see how the land lies. We could have
received mid-40 cents for the stock on
Monday or as low as mid-30 cents
Thursday/Friday, but in the end the
new spinco closed the week at 40c
(and notably, volumes were good
most of the week).
So to today’s call and the decision here is to sell the newly trading spinco next week, take the
money and run. The trade we entered was a pure arbitrage opportunity with a near-term
perspective so this call has nothing to do with the potential GLW.v might have as a decent
exploration play with prospective rocks and a reasonable address in Colombia. If you like the
idea of holding close-to free shares and letting them ride on the chances you’ll get zero
complaints from this end of the pipe and it’d be a perfectly valid strategy in my opinion. But for
me this one’s about the money and it’s about sticking to the plan folks, pure and simple.
Therefore and assuming I can get the 40c price GLW.v traded around last week, here’s what
we got for our time (a touch under two months) and effort (all ex-commissions, of course):
21

• Outlay: $2.19
• Cash received from AUX: $2.05
• Proceeds from GWM.v sale: $0.06
• Proceeds from GLW.v sale: $0.40
• Total income: $2.51
• Profit: $0.32
• Arbitrage percentage gain: 14.6%
By the way, we’ll leave the recorded gain in the 2012 closed trades (below) at 5.0% because it
hardly matters one way or the other. Also for what it’s worth, in my personal accounts I’d
expect to leave the whole deal with a post commissions profit of around 10% all done and
dusted (but I’m not going to work it out to the nearest tenth, either...it’s a win).
This trade was never set up to make massive gains but has done its job nicely served a decent
little win on virtually zero downside risk. I wish they were all like this one, ka-ching.
Atico Mining (ATY.v) hits a second lens of massive sulphides
We’ve noted ATY.v in previous editions of ‘Market Watching’ (e.g. IKN168, IKN177, IKN178) but
Thursday morning saw the news that proponents of Atico Mining had been hoping for (23) as
the company announced it had found a second lens, similar to the one currently being mined by
the local private mining company (not ATY)
with high returns for copper, gold and other
metals. As the thesis being used by ATY all
this time was for the likelihood of other
lenses of mineralization in the vicinity of the
one already known, the discovery was
indeed good news for the company and it
shot the share price higher on excellent
volumes.
I’m not going to rush to any conclusion on
this stock, however. The good things are
strong and proven management, clear
business plan and now exploration success.
The negative is the big bounce in the stock
and in this market, I don’t see any reason to chase a move like this one, 15% copper rock or
not, but I will be putting together a model in the days to come and considering potential
scenarios for the medium-term of the company (and from what’s on the table, there are several
directions this story could take on a corporate/financial level).
Bottom line: Definitely interesting, now on active watchlist, no rush to buy in at the first price
offered.
Tahoe Resources (THO.to) (TAHO) awards power generation contract
On Thursday APR Energy announced (24) that it had won the contract to supply all of the
electrical power to Tahoe Resources’ (THO.to) (TAHO) Escobal mine in Guatemala. This is an
interesting choice, as APR is the supplier of modular diesel-powered electricity generating units
which means that THO will not be reliant on the country’s national grid electricity system for its
power. I thought this was an interesting piece of news from the company and hardly one that
suggests the company is concerned about its future in Guatemala.
OceanaGold (OGC.to) (OGC.ax) 4q12 production numbers and thoughts
On Monday we got the production numbers from OceanaGold’s 4q12 (25) and they were really
good, not just good. The company also reported that first production had rolled off Didipio in
December (but wasn’t counted in the production numbers for 4q12, as the mine is still in
commissioning phase), but due to the discovery of teething problems in the tailings system the
mill was going to be switched off for a while in 1q13. That could be the piece of news that put
22

a dampener on any OGC rally (we voiced our moderate annoyance that the stock couldn’t put
together a weekly win above, harumph) but for my money, if the New Zealand ops can
continue the way they did in 4q12, OGC’s share price is fully justified on those mines alone and
Didipio is the gravy.
We’ll do the breakdown via charts and annotations and let’s start with ore mined per quarter as
OGC at Macraes and Reefton is back on
the type of rock movement schedule
we’d previously expected from the
company before glitches and hitches hit
the first three quarters of 2012. In fact
of all the charts offered up today, for me
this is the important one as it shows
OGC in NZ back running on all cylinders.
As the company noted in the NR last
week, gold grade will fluctuate in the
FY13 quarters due to expected changes
in the mined material but seeing the
physical earth moving back to where it
was is all we can ask.
As for those grades, OGC had a bonanza
quarter at both its mines as higher-
grading material showed up. It was
particularly good at the larger Macraes
operation with the best average
quarterly mill feed grades for over four
years.
So put together a return to decent mined
tonnages and better grades (then add a
sprinkling of slightly improved recoveries
at both ops) and this is what you get:
OGC: Gold production (mine breakdown)
90000
80000
70000
60000
50000
40000
30000
20000
10000
0
23
90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4
OGC: Ore mined per quarter
2.5
2
1.5
1
0.5
0
OzAu
Reefton gold prod(oz)
Macraes gold prod (oz)
source: company filings
That’s 76,844 oz gold, the best result since I’ve been tracking the stock (2q09). From that OGC
decided to sell 69,761 oz in 4q12 and replenish inventories that had been drawn down in the
previous quarter. The average received price in 4q12 was $1,665/oz. All good stuff.
The other bonus from higher production (esp thanks to those grades) is a lower cash cost, with
this chart giving us the lowdown. Cash operating cost was reported by OGC at $638/oz, the
lowest since 2010. If we then add the type of “other costs” to the mix that OGC typically
reports and then add 50 bucks for caution’s sake, our overall costs estimate for the quarter is
$1,088 per ounce.
90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4
source: company filings
rtq/sennot
cirtem
noillim
Macraes Reefton
Macraes & Reefton mill feed grade averages, per qtr
3
2.5
2
1.5
1
0.5
0
90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4
g/t Au
Macraes mill feed grade
Reefton mill feed grade
source: company filings

OGC: Cash op. cost and total costs per ounce
1600
1400
1200
1000
800
600
400
200
0
24
90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4
U$/ozAu
other cost ($/oz)
cash op cost ($/oz)
source: company filings, IKN ests for 4q12
This chart sums up the type of real profit
OGC: Total op cost vs received gold price, per quarter
margin we can expect from OGC this 2000
quarter and it comes to $577/oz (do the 1750
quickmath and that’s $40.2m before we get 1500
to corporate exes, tax etc). Once the typical 1250
office type deductions are made, here’s 1000
what we’re left with (below right). Our 750
operating earnings estimate is $34.5m, 500
after which comes other expenses (interest 250
expenses, financial cost, forex) then tax. 0
-250
The bottom line is that the market may
have been discouraged slightly by the
reported teething problem at Didipio (here’s the
segment)...
“Some areas requiring modifications have been identified including the tailings
delivery system that is being examined for
long term-term reliability as the plant
ramps up to 3.5Mtpa rate. With the plant
ramping up faster than expected, these
works will be undertaken over the next few
weeks resulting in the process plant being
temporarily off-line as is necessary to
facilitate these improvements.”
... but shit happens when a new mine is
ramping up, period. We fully expect any glitch
to be temporary and not of great import in the
greater scheme of things. Meanwhile, with both New Zealand operations now back on track the
company FY13 guidance of 285k to 325k oz Au (which does not include the expected strong
copper credits from Didipio) is beginning to look distinctly lowball. With that good looking cash
cost parameter that can only beneift once Didipio is running commercially, this is a profitable
300k oz per year gold company with a low political risk profile, a history of being able to add
resource ounces and mine life to its operations, with new production coming on line and a
rapidly improving balance sheet selling at an $800m market cap. If you prefer owning Argonaut
(AR.to 100k-120k oz Au production profile, $845m market cap) then fine by me, but I know a
real bargain gold producer when I see one and the time will come when the market stops
underestimating this company.
Conclusion
90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4
U$/oz
total op cost ($/oz)
received price/qtr
difference
source: company filings, IKN ests for 4q12 costs
OGC.to: Quarterly Earnings overview
140
120
100
80
60
40
20
0
-20
90q1 90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 tse21q4
source: company filings
srallod
fo
snoillim
revenues
COGS
Op. Earnings

IKN195 is done, we close with bullet points:
• We’re dropping our target price on Lachlan Star (LSA.to) (LSA.ax) to a more modest
$1.77, but it’s still a welcome member of our ‘Stocks to Follow’ list. LSA has things to
prove such as better grades and lower cash costs, but if it does the job in 2013 our
new target should be in easy reach.
• We short GORO and next week we’ll find out if all that talk about lowered dividends is
my imagination or not. Anyway, this time my money is where my mouth is and even if I
don’t get the type of result expected, I see very limited downside to this position at
current levels.
• Darnit, OceanaGold (OGC.to) (OGC.ax) looks cheap to me. I’ve just about bought
enough things for the time being, but...darnit, that 4q12 was strong.
• Candente (DNT.to) is a mess and until the company gets real, it’s only going to get
worse. Avoid (or short if you’re rich and powerful enough to have the right sort of
account and hotline to your brokerage’s head honcho office). No, forget that, just
avoid.
• Want a spec buy? Lupaka Gold (LPK.to) may well fit the bill thanks to the upcoming
flotation on the Peru stock exchange. For one thing, I won’t be throwing my losing
hand until that event is priced into my shares.
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://incakolanews.blogspot.com/2013/01/hi-all.html
(2) http://finance.yahoo.com/news/gold-corporation-announces-preliminary-2012-205000663.html
(3) http://gestion.pe/mercados/precios-mineras-estan-remate-bvl-son-ganga-2057508
(4) http://www.marketwire.com/press-release/lupaka-gold-completes-successful-drilling-season-at-its-crucero-gold-
project-tsx-lpk-1749277.htm
(5) http://www.lupakagold.com/i/pdf/ppt/Lupaka-Investor-Presentation-Winter-2013.pdf
(6) http://finance.yahoo.com/news/banner-impact-silver-corp-exploration-192718131.html
(7) http://in.reuters.com/article/2013/01/17/japan-copper-smelting-idINL4N0AM0I720130117
(8) http://www.elregionalcajamarca.com/2013/01/26/lambayeque-lista-de-heridos-reprimidos-por-la-pnp-en-canaris-
respecto-al-proyecto-canariaco/
(9) http://www.andina.com.pe/Espanol/noticia-mem-comunidad-canaris-si-esta-representada-mesa-desarrollo-
444958.aspx
(10) http://www.cepes.org.pe/notiagro/node/16325
25

(11) http://www.rpp.com.pe/2012-07-09-lambayeque-grupo-de-comuneros-dan-licencia-social-a-minera-en-canaris-
noticia_499983.html
(12) http://lamula.pe/2013/01/23/ingeniero-de-canariaco-levanta-fantasmas-del-mrta-y-el-movadef/paolososa
(13) http://lamula.pe/2013/01/25/alcalde-kanaris-huelga-continua-candente-copper-conflictos-p/jorgepaucar
(14) http://incakolanews.blogspot.com/2013/01/candente-copper-dntto-locals-of-canaris.html
(15) http://gestion.pe/politica/candente-falta-experiencia-minera-lambayeque-podria-generado-desconfianza-2057267
(16) http://finance.yahoo.com/news/oracle-mining-announces-addition-management-160000703.html
(17) http://www.bnamericas.com/news/mineria/newmont-invertira-us150mn-en-conga-este-ano-pero-no-construira-
mina-sin-apoyo-social-segun-gerente-de-finanzas
(18) http://www.aminera.com/mas-noticias-nacionales/46147-diego-hernandez-qno-vemos-muchas-solucionesq-en-el-
tema-energetico.html
(19) http://www.lahora.com.ec/index.php/noticias/show/1101456643/-
1/Sin_rastro_de_los_mineros__plagiados_en_Colombia_por_ELN.html#.UQPv-x3au88
(20) http://www.guardian.co.uk/commentisfree/2013/jan/25/west-misread-mali-sahel-intervention
(21) http://www.octavodia.mx/articulo/38846/promete-director-de-ecologia-nuevo-plan-de-desarrollo-en-la-paz-para-
este-ano
(22) http://incakolanews.blogspot.com/2013/01/watching-galway-gold-glwv.html
(23) http://finance.yahoo.com/news/atico-drills-119-meters-6-123000332.html
(24) http://www.aprenergy.com/content/apr-energy-starts-2013-strong-new-contracts-and-extensions
(25) http://finance.yahoo.com/news/oceanagold-fourth-quarter-2012-production-081300457.html
Appendix 1: Flash update of Friday, Jan 25th
Good morning, an hour before the open on Friday and back in the office after a very pleasant three day break.
Your author will be shorting Gold Resource Corp (GORO) as from today. In fact it's mainly a matter of uncovering
the previously held short shares to go short, a simple operation, but I will be looking to add a few more to the short pile
as well to reflect that we're now shorting from a $14-handle price rather than the $20+ price of before. Reasons to short
today:
1) GORO's 2013 guidance (as mentioned in IKN194 last weekend) was weak and unless the company is significantly
underplaying its hand (which would be a first for these serial overpromisers) the likely profits generated will not be
enough to cover its current dividend policy.
2) After the company's brush with the SEC, documented in IKN181 dated October 21st, I expect (though not 100% sure,
as second guessing a company such as this is tough) that GORO will make set its 2013 full year expectations for
dividends in its January dividend notice. I expect the dividend payments for 2013 to be cut from the 6c/month rhythm we
saw in 2012 (best guess is that it goes to 4c/month in 2013 average). The clear draining of working capital at GORO,
despite the company being a producing and profit-making company, indicates that the current dividend policy is too
much of a burden to the financial structure and needs trimming if guidance (see 1) above) is accurate. If the dividend is
indeed cut for 2013 I expect this to be a clear negative influence on the share price.
3) As the dividend news release mentioned in 2) above is likely early next week but may come today, I feel today is the
best window to uncover my short position.
4) We expect GORO will have to at least acknowledge the class action suits that have been brought against it soon.
This is a no-win for the company, with the best result higher G&A due to legal fees in the months to come. The worst
result could be financially very damaging for the company. This is another reason we expect dividends to be lower in
2013 than in 2012.
5) More generally and considering the state of play in the junior sector, it seems like a decent idea to hedge some of the
overall long position in my personal portfolio (esp having bought a fairly chunky addition to the BTO early this week and
watched it immediately drop). Although not a central reason for today's short call on GORO, it is a secondary thought
and recognized as an influence in the final decision.
Appendix 2: Extended quote from IKN181 on GORO, dated October 21st 2012
Will GORO cut its dividend in 2012?
Because if it does, this current price will be chopped down even further and our short position rewarded.
However, if the dividend policy remains as stands in 2012 I’d expect the rather myopic fans of this
26

company to support the price and see it drift back higher in roughly the same way we saw after the 2q12
production shock caused a sell off to under $17 that slowly rebounded to $21 and above (where we took
our short position recently). On consideration and taking into
account the company’s cash and working cap position, I think it will
be able to continue payouts until the end of 2012 and here’s how
that consideration works.
Let’s start with this little graphic (right)from the company, which
explains its basic dividend policy quite neatly. GORO aims to
deploy one third of what it calls “Cash flow from mine site
operations” (and is defined as seen in the chart) as a cash
dividend to shareholders and to date has paid monthly dividends
that amount to $63m since declaring commercial production. Now,
we need to state for the record that “Cash flow from mine site
operations” is one weird financial metric and bears little relation to
the amount of money the company makes, because as we saw in
2q12 GORO is perfectly capable of paying out more cash than it
earns (in other words tapping into its cash balance and negatively
affecting working capital) which is a practice frowned upon by just
about every reputable company I know of and even banned by
some company domiciles. However it’s not banned by the State of Colorado, GORO’s domicile, which is
important because the SEC recently asked GORO questions about this heterodox dividend payment
system as noted in this exchange between the US regulatory body and the company (3). Here’s what the
SEC asked GORO:
We note your response to comments five and eight in our letter dated May 30, 2012 that your
target is to distribute one-third of your mine gross profit as reflected in the Consolidated
Statement of Operations to shareholders. With regard to this dividend policy, please address the
following:
• As noted in our prior comment eight, you state that dividends are dependent on cash
flows when your response specifically indicates that dividends will be approximately
one-third of mine gross profit. This point should be clarified throughout your
document; and
• Further, you state that you intend to retain the remaining cash generated from your
mining operations to fund operating, capital and other expenses. According to your
cash flow statements for the interim period ended March 31, 2012, it appears that
dividends for this period were financed from your cash account and greatly exceeded
operating cash flows resulting in negative cash flows after remaining operating and
working capital items were paid. Please explain your basis in a one third of mine
gross profits dividend policy when you are operating at a cash flow deficit.
And here’s how the company responded:
We have clarified our disclosure in Form 10-Q for the period ended June 30, 2012 to reflect that we target
calendar year cash distributions to our shareholders totaling approximately one-third of cash flow from
mine site operations (See Non-GAAP measures below), subject to the laws of the State of Colorado that
govern distributions to shareholders. We have also expanded our disclosure to include that our target
dividend payment of one-third of cash flow from mine operations may be increased, decreased, suspended
or discontinued at any time at the sole discretion of the Board of Directors based on company development
requirements and strategies, current cash balances, spot gold and silver prices, taxation, general market
conditions or any other reason. We have also expanded our disclosure to reflect that we believe that based
on current metal prices and the expected operating performance of the La Arista mine, we believe that our
cash flow from mine site operations will be sufficient to fund our expected disbursements for operating,
capital, other expenses and our planned distributions to shareholders for at least the next twelve months
To sum that bit up, GORO says that it budgets dividends on annual projections rather than quarterly
results and that its policy is legal according to Colorado State. However, it did have to add in conditions to
its filing disclosures to make it clear that it could alter its policy if needed, at the board’s behest. It’s also
notable that GORO replied to this SEC mail before it cut its production guidance down to 85k-100k oz
AuEq, so they might not have the cash flow needed to fulfill previous expectations. A little further down the
same filing, GORO continues:
In response to the second question from the staff, we have clarified our disclosure to state that we are
targeting calendar year cash distributions to shareholders totaling approximately one-third of cash flow from
mine site operations (a Non-GAAP measure, which is mine gross profit adjusted for non-cash items),
27

subject to the laws of the State of Colorado that govern distributions to shareholders. Our target shareholder
distributions are based on one-third of cash flow from mine site operations, and not net cash flows provided
by operating activities or any other measure from the Consolidated Statements of Cash Flows. Furthermore,
our target dividend distribution period is the calendar year, so there will be quarters within the year when
our La Arista underground mine performs better or worse than what we forecast for the year. As a result of
these fluctuations, we may periodically make payments from existing cash balances for limited periods of
time. We have also expanded our disclosure to state that our target shareholder distribution of one-third of
cash flow from mine site operations may be increased, decreased, suspended or discontinued at any time at
the sole discretion of the Board of Directors based on company development requirements and strategies,
current cash balances, spot gold and silver prices, taxation, general market conditions or any other reason.
Therefore, it is our intention to make cash distributions to shareholders based on our calendar year forecast
of cash flow from mine site operation, subject to sufficient cash balances and the other criteria identified
above.
Here GORO explains its decision on basing dividends on annual budgets. In the SEC correspondence,
GORO also lays out its calculations for “cash flow from mine site operations”, the figure on which it
supposedly bases its dividend policy. In 1q12 the figure came to $34.621m and in 2q12 it came to
$18.501m. The total of $53.122m was used by GORO to justify its 2012 dividends in the first two quarters
of 32c per share, that’s to say $16.905m. Now that looks fair enough, because 1/3rd of $53.122m is more
than $16.9m.
That was then and this is now and what we need to do is get a handle on whether GORO will be able to
cover its rate of dividend payments expected in the second half of 2012, where we are now. Let’s also
underscore that GORO now knows that the SEC is looking at the company on this score, so it’s now less
likely to try and play things fast and loose. The first part is to work out how much it needs to cover and
that’s fairly simple, because since May it’s been paying a 6c monthly dividend so if the company doesn’t
want to disappoint its faithful, it needs to pay out 36c in the period July to December 2012, i.e. 36c or a
cash total of $19.02m, which we’ll call $19m for our purposes today.
As GORO looks on this “1/3 of cash flow from mine site” bizarro calculation on an annual basis, what we
need to do is consider the 12 months of 2012 all together. This means that GORO, in order to comply with
its policy and continue to pay 6c/month until the end of the year, needs to cover $35.9m in 2012 annual
gross dividends. In other words, its cash flow from mine site ops has to total at least $107.7m. From this
we subtract the $53.122m already indicated by GORO as its cash flow from mine site ops in the first half of
the year and we have a target for the second half of the year.
Therefore, after that rather sinuous route through a bunch of numbers we finally have a target:
GORO needs to do $54.6m (rounded) in “cash flow from mine site operations” during the second
half of 2012, e.g. $27m per quarter, in order to comply with its own policy and continue to pay that
dividend as stands without raising a second set of eyebrows at the SEC (I’ve underlined and bold-
typed that bit to help your eyes, because I realize the above route to the conclusion is a bit gobbledygook
and really, it’s the bottom line call that you need to know). an they do it, now that production forecasts have
been cut? At the time of the SEC exchange GORO was guiding for 2012 production of between 100,000
and 120,000 oz AuEq at a 53:1 silver/gold ratio. Today, that guidance is down to between 85,000 and
100,000 oz AuEq, presumably at the same silver/gold ratio but as GORO used 55:1 in its 3q12 release, we
can’t be 100% sure.
This chart suggests that GORO can cover its dividend policy in 2012. Only just mind you, but “just” is
enough to keep the SEC off its back for a couple of
quarters. Here we see GORO’s gross profit figure for GORO: gross profit vs "cash flow from mine
1q12 and 2q12, set alongside its disclosed figures U$m site operations", 2012
“cash flow from mine site operations” to the SEC. We 40 gross profit
then take The IKN Weekly estimates for 3q12 and 4q12 35 cash flow mine site ops
gross profit, derived from the estimates and forecasts in 30
the previous section 2) above. 25
20
We estimate “cash flow from mine site operations” at 15
$26.5m for 3q12 and $29m for 4q12, totalling $55.5 10
5
and about $1m more than the company needs to
0
continue with its dividend policy. It’s close and if
earnings fall off the rails (or costs come in higher than 1q12 2q12 3q12est 4q12est
expectations, or GORO has to quickly pay back that source: GORO data, IKN ests for 2h12
disputed $3.75m for the 2,300 oz AuEq of “missing”
metal, or any number of financial misses it might incur), it’s still a policy that will be under pressure. I can’t
write that I’m sure, or that I guarantee that GORO will continue its policy but after checking out the
evidence, I’d call it an 80% chance of happening and that’s good enough for my blood.
Before we leave this subject, I want to say clearly that I think GORO’s method of dividend payment
28

calculations is bullshit because that measurement they use doesn’t take into account charges for G&A,
exploration, construction&development etc. All those things are supposed to be paid by the 1/3rd of the
above pie chart that’s labelled “growth”, whereas in fact the dividend policy eats into far too much of the
real cash flow at the company, leaving little or nothing left over for its supposed growth and expansion
plans (we talked about this in IKN175). But what we’re doing in the above calculation today is using their
measure, the one they were forced to explain to the SEC. This situation is unsustainable in the medium
and long term because they’ll eventually deplete working capital and leaving nothing for capex. However,
with an estimated $60m in working cap and $45m in cash at end 3q12 they can play along for at least a
couple of quarters and as they have a 2012 annual budget planned here, they can also play along the
SEC for the two quarters left as long as 3q12 doesn’t come in substantially worse than in our current
model. But seriously, this dividend model is bullshit and not becoming of any serious company.
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
2009 and 2010 closed positions in appendices below
Stocks To Follow Closed Positions, 2010
Closed in 2010 closed close PPS
29

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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