IKN #203Premium

The IKN Weekly
Week 203, March 24th 2013
Contents
This Week: Selling a small one, Cervantes and cancellations.
Fundamental Analysis: NOBS report on Oracle Mining Corp (OMN.to)
Stocks to Follow: Overview, United Silver Corp (USC.to), Rio Alto Mining (RIO.to) (RIOM),
B2Gold (BTO.to), Gold Resource Corp (GORO), OceanaGold (OGC.to) (OGC.ax), Lupaka Gold
(LPK.to), Lara Exploration (LRA.v), Aurcana Corp (AUN.v).
Copper Basket: Overview, Lumina Copper (LCC.v), Candente Copper (DNT.to), Nevada
Copper (NCU.to), NGEx Resources (NGQ.to), Western Copper & Gold (WRN.to).
The Lottery Ticket Basket: Overview.
Regional Politics: No money for mining companies? Think again, More Dominican Republic vs
Barrick Pueblo Viejo, Mexico: Tax laws to change in second half of 2013.
Market Watching: How your author sees 2013 developing for juniors, A quick word on the
Fortuna Silver (FVI.to) 4q12 numbers, Goldcorp (GG) Cerro Negro Argentina: Teething
problems with workforce, Tahoe Resources (THO.to) (TAHO), Sulliden Gold (SUE.to) redux.
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
Selling a small one
A headsup here, so everyone sees it easily: I’m planning to sell my losing trade United Silver
Company (USC.to) which started very small, got slightly less small after a second purchase,
then went back to very small again as the bottom dropped out of its share price between then
and now. Time to take a failure on the chin (see below).
Cervantes and cancellations
“Has de poner los ojos en quién eres, procurando conocerte a ti mismo, que es el más difícil conocimiento que pueda
imaginarse”
You must look at who you are and attempt to know yourself, which is the most difficult lesson imaginable.
Cervantes, Don Quijote, 1605
Your author has received several subscription cancellations in the last three or four weeks.
Happily, with them sometimes come notes like this one from SF:
My subscription is coming due and I am gong to cancel it. My risk tolerance is too low for the PM
sector so I'm changing to more passive investments.
You do have a great letter, and your ethics of not buying until after you tell your subs is
impressive.
Thanks,
(name and address withheld)
Ethics* aside, it’s the type of mail I welcome. Put in terms that apply to others as well as SF,
he’s taken a good look at himself and in the market for juniors, has decided it’s not for him any
1

longer and has therefore done the right thing by his standards and along with the move away
from the junior mining sector, he’s not going to renew his (in his case annual) subscription to
this publication. That, people, is a pass grade from the Cervantes and to be crystal clear, I
applaud the above decision of SF without reserve or quarter as well.
When it comes down to brass tacks it’s all about risk tolerance, which is one of the most
subjective matters of all in any sector of the investment world. Risk tolerance runs from the
highest risk things you can do with your cash (Welcome to Las Vegas, enjoy those comped
suites) all the way down to the guy who sticks his savings in cash under the mattress because
those banks are going to steal his savings one of these fine days, so screw the 2% interest
they’d pay him. There are no right answers to risk tolerance, but there are a few questions that
you should be asking yourself about your own risk profile for example, whether you feel
uncomfortable about any of your investment risk today. If not, would you consider adding more
risk exposure to your investment portfolio or if so, why are you still holding uncomfortable risk?
One of the things I admire in the decisions made by people such as SF is the ability not only to
recognize an error (“Hmmm...i don’t like the risk I’ve taken on”) but also have the stomach to
do something about it (“Ok, too much risk, let’s not do this any more, I’ll sleep better at night”)
and thereby improving their life quality. On this subject, here’s a quote from a post last week at
a blog written by and for CFAs (1):
Let’s be clear on what the data show: People who are invested outside of the
bounds of their risk tolerance are the ones who freak out when the market
pulls back, and they demand that their adviser sell at the low. Then they wait
until it “feels safe again” and jump back into the markets at the high.
Now that’s from a client/broker perspective (it’s a CFA writing for other CFAs about their word,
after all) and somewhat different to the relationship you and I, through this publication, have
The above is considering the nebulous entity known as “the market” in general, whereas we sail
through some of the choppiest waters of the lot in this juniors world. Junior mining stocks can
move up or down 30% without rhyme or reason and it hardly needs saying that kind of
movement isn’t the place where you bet your mortgage money. But most importantly I don’t
manage any of your money, not a cent of it (I have enough to worry about with my own,
thanks) so at best The IKN Weekly is a third party service to which you pay good money for
assistance in making your own decisions. However, the baseline issue of risk and its
management is precisely the same and part of your financial exposure to the junior world is the
cash you send to me, to her, to him and to all those other paid-for information services.
Back to this “encouraging you to unsubscribe” thing and over the months I’ve been asked about
this attitude by a few of you, regarding the semi-regular theme for nigh on a year that asks you
all to consider, and consider carefully, whether you want to be involved in a sector as volatile
and currently difficult as the juniors and if not, then advising that you should drop this
subscription (as all others you might have to newsletter services for that matter). The questions
that arrive at this desk are along the lines of, “Is this a reverse-psychology thing?” or “Are you
serious about trying to drive people away from your work?”. Once or twice, “Are you plain
mad?” has been the tone. My answers to those three are “no” “that’s the wrong question” and
“I don’t know, ask my wife” but the Q/A to expand upon is the first one. No, this isn’t some kind
of trick or mind game. No, I’m not going to try any bullshit marketing ploy with you in order to
keep you hanging in there. Yes, I will continue to assume you are sentient beings who are
smart enough to make up your own minds. Yes, I have this thing about wanting readers who
really want and can use this publication. No, I don’t want you to feel obliged to keep paying for
something you might eventually begrudge. If you like The IKN Weekly then I’m more than
happy to provide it as a service for you in exchange for the money our family uses to maintain
our lifestyle (still kind of amazed about it, even after 200+ editions in fact). If you don’t like it,
don’t buy it.
And now for the punchline: Fact is, I’m keen on clearing as many people out of the junior
market as possible at this time because it’s becoming clearer by the week that we’re bottoming
2

and there’s going to be plenty of good money to be made. The fewer participants the better
and if The IKN Weekly can help the process along, so much the better. For more on this I refer
you to the “How your author sees 2013 developing for juniors” piece in ‘Market Watching’ below
and I’ll wrap up today’s intro with another quote from Cervantes’ masterwork.
“Confía en el tiempo, que suele dar dulces salidas a muchas amargas dificultades.”
Trust in time, that often gives sweet escapes to many bitter difficulties
*Personally I don’t think it’s a question of ethics, merely common sense. Nothing particularly special there.
Fundamental Analysis of Mining Stocks
With the publication last week of the 43-101 compliant resource for its Oracle Ridge property,
and of its 2012 annual financials and MD&A, I decided to take a closer look at Oracle Mining
Corp (OMN.to) last week. The following sums up the findings and also fits in with the general
plan for 2013 of examining in more detail some of the Copper Basket component companies.
NOBS report dated March 24th 2013
Oracle Mining Corp. (OMN.to)
Company Overview
Oracle Mining Corp (Canada OMN.to, US OTC: OMCCF, Frankfurt:) is an exploration stage
copper company operating in The USA. Its flagship asset is the 100% owned Oracle Ridge
project, a past-producing mine near Tucson, Arizona. Share structure is as follows:
Shares out: 49.03m
Options: 4.08m
Warrants: 4.9m
Fully diluted shares: 58.015m
Current share price: $0.69
Market Cap: $33.83m
Approx cash per S/O: $0.18
All prices are in US dollars unless stated. Forex U$1=CAD$1
Management and share structure
Oracle Mining (OMN.to) is the phoenix that rose from the ashes of Gold Hawk Resources (ex-
GHK), the gold mining company that took over, refurbished and re-opened the Tamboraque
mine in Peru and has done a good job until one day it hit a big problem with its inherited tailings
dump, had to immediately close and in the ensuing financial snafu eventually (cutting a long
story short) sold out to Nystar, a company that had the financial power to remedy the tailings
3

site problem and get the mine back up and running. Gold Hawk was the loser in the deal and
was in no way to blame for the problems with the historical tailings at the mine (though could be
guilty of not seeing the potential problem it was buying into when first striking its deal), but the
episode did show that the team has a good eye for identifying old mine workings that could be
brought up to modern resource standards and re-opened.
This is the premise behind OMN, the new company name and project for the old company
structure that is now doing roughly the same thing as before, but this time instead of gold and
Peru the target is copper and Arizona USA in the shape of the Oracle Ridge mine
The share structure at OMN is dominated by three block groups.
• The approx 15.2m shares owned by directors and officers
• The 9.8m shares (and 4.9m warrants priced at $1.02) owned by MF2 Investment, a
wholly-owned subsidiary of the big metals traders Red Kite. Red Kite via a separate
deal also owns a 3% net smelter royalty on Oracle Ridge production.
• The 7.8m shares owned by Richstone Mining Investment Ltd, a Hong Kong private
corporation owned by a certain Cong Bin Liu.
These three blocks cover 32.8m of the 49m current shares out, along with warrants and the
NSR owned by Red Kite. This structure has its advantages, for example it’s a project with
clearly strong-handed, long-term backers on board. It also makes for a tight structure that would
suggest strong share price performance if the stock ever became popular withe the wider
market. However there are downsides too, starting with the likelihood of low liquidity levels for
the open market stock and the potential of getting stuck in a lightly traded position in the event
of a market downturn.
To sum up, the team at OMN has the right make-up for this project and it has attracted the type
of backing from larger money that gives the structure financial backbone. However, it’s unlikely
to make for a good market vehicle if you’re looking for a trade rather than a longer-term
investment.
Financials
We look at the books as usual, but there’s no magical insights for OMN as this company is a
simple corporate set-up, with cash that comes in via raisings of various shapes that’s then spent
on asset development. It’s your actual, standard exploreco model to which I’ve added estimates
for the 1q13 numbers to give an idea of how things are expected to develop, in the near-term at
least. Also, before we set off please note that there’s no point in our going back further than
2q11 in the charts, as previous to that point was when the structure was still Gold Hawk. Final
final quick note: OMN reports in US dollars rather than Loonies.
Assets and liabilities first and here they are. Cash isn’t capitalized so we see a constant rise
and fall as it’s spent on exploration and development. Liabilities are normal run of company stuff
as well as regular payments on notes that are subsequently rolled over as maturity is reached
(we assume).
OMN.to: Assets Breakdown per qtr
50
45
40
35
30
25
20
15
10
5
0
4
11q2 11q3 11q4 21q1 21q2 21q3 21q4 tse31q1
source: company filings, IKN ests
srallod
fo
snoillim
OMN.to: Liabilities Breakdown per qtr
8
fixed 7
other current
6
cash
5
4
3
2
1
0
11q2 11q3 11q4 21q1 21q2 21q3 21q4 tse31q1
source: company filings, IKN ests
srallod
fo
snoillim
current debt LT debt

From those two we get working capital, which gets boosted by the larger backers (Red Kite et
al, see above) on occasion but we can also
estimate that the current treasury isn’t going to 20 OMN.to: Working Cap per qtr
last out the year, so there’s every reason to 18
16
expect a further round of raising from OMN
14
before 2013 is done.
12
10
Here’s the share count and although that 8
6
49.03m is shaded as an estimate for end 1q13,
4
it’s confirmed as correct by the company to
2
March 11th and almost certainly the right 0
number. As mentioned above, OMN enjoys a
tight share structure thanks to its large block
holders and considering its outlined plans for
capex raising (see below) it looks like
management is keen on keeping things as tight
as possible. This is good.
As for operations, just one chart to show you
today (bottom right). This one compares the
cash OMN spends on exploration and
development to its total comprehensive loss
(which takes exploration expenses and then
adds G&A, other financial expenses and forex
adjustments). We see that the drilling work and
contracting for the 43-101 report pushed up the
burn rate in the last couple of quarters. That
should ease a little for the current quarter and
the rest of 2013, with the last main expense
hurdle of the feas study now close to
completion (should be with us 2q13 or perhaps
3q13 latest).
The bottom line is that OMN is a pretty
shipshape company. It’s more expensive than
the average small exploreco to run, probably a
combo of the acceleration through permitting
now happening and the fact that it operates in
the USA (I’m kind of used to the lower burn
rates we see in places like Peru or Colombia). But (so far at least) OMN has done a good job of
keeping the share structure tight, the big backers on board inspire confidence and its finances,
as long as things go well and it hits its development targets on the way to the capex raising and
mine construction, make it look healthy enough
The Oracle Ridge Mine infrastructure
This is one of the stronger points of the OMN story. The deposit was first discovered in 1873
and has been mined off and on since that period, with owners that include the (very) old time
Phelps Dodge company back in 1910. Its last period of mining activity was in the years 1991 to
1996, when it was estimated at least 900,000 tonnes was mined at a grade of 1.8% copper
(though some anecdotals point to head grade being lower than the expected 1.8% during this
period. The mine was close in the 1990’s for the same reason as many others: the copper price
that fluctuated between 80c/lb and 90c/lb at the time couldn’t support the economics.
Oracle Ridge is located some 15 miles northeast of the city of Tucson, in an uninhabited area.
The company and the 43-101 technical report compilers report an excellent infrastructure
combo, with easy road access to the location, high tension power lines running just 10 miles
away and water (likely sourced from an unallocated water basin, which makes permitting that
5
11q2 11q3 11q4 21q1 21q2 21q3 21q4 tse31q1
source company filings, IKN ests
srallod
fo
snoillim
60 OMN.to: Shares Out
55
50
45
40
35
30
25
20
15
10
5
0
11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 tse31q1
source: company filings, IKN ests
serahs
fo
snoillim
8 OMN.to: Net Loss & Exploration exps, per qtr
7
6
5
4
3
2
1
0
11q2 11q3 11q4 21q1 21q2 21q3 21q4 tse31q1
source: company filings
srallod
fo
snoillim
Exploration
Tot comp loss

much easier too). Other advantages include previous mine infrastructure already on site (e.g.
tailing facilities need improvement, rather than starting from scratch) and the tailings make-up is
historically non-acidic which makes for easier, cheaper tailings management (as well as an
easier permitting track). The bottom line is that Oracle Ridge’s combination of a previously
mined deposit, a politically safe jurisdiction with a location sufficiently far from any significant
population centre and all the things (labour, access, water power) you need to build and run a
mine is near-impossible to beat.
The mine is 100% owned by OMN, but as noted above there is a 3% NSR held over it by Red
Kite. As for the key issue of permitting (important anywhere, absolutely vital in The USA, as
cases such as CUV.to and AZC show), things are in general good for OMN and although
permits are being awarded to the company from the relevant bodies (e.g. (2) the amended APP
was announced on March 6th just in time for PDAC, which is almost certainly a coincidence,
right?), things are going more slowly than anticipated by the company. For example, the APP
(the Arizona enviro permit) had been expected in 4q12 by OMN, but it arrived late 1q13. As
things stand, Oracle Ridge is now missing two more major permits (there are always others, but
they tend to come automatically when the big ones are in place), namely the 299 Right of Way
permit which is issued by the US Forest Service and a 404 Permit, the one that let’s the
company operate the mine, that’s issued by the Army Corp of Engineers. Those permits will
show up once OMN has a feasibility study for the project, which is the stage the company is
working on today.
The Oracle Ridge Mine resource
We now move an overview of the company’s main asset, the Oracle Ridge mine. Main source
materials for this section are the 43-101 technical report published to SEDAR in October 2012,
and also the very recently announced 43-101 compliant resource for the asset as per the
company NR of March 18th (3). For those interested in this company, both those documents are
strongly recommended as further reading. For those wanting a lighter overview, the company
website says that it’s “currently updating” on a corporate presentation, so wait a few days
perhaps to get the rose-tinted quickread view of things from the OMN IR department if you
prefer.
So to the latest news and OMN took a decent step forward on its development track ast week
with the publication of a 43-101 resource for Oracle Ridge (up to that point the project had been
hung upon historical, non-compliant estimates along with decent OMN-era drill results that
largely backed up those historical numbers). Here’s our take on how the numbers stack up:
OMN: Oracle Ridge 43-101 Resource
Resource Grade Contained Metal
type tonnes (m) Cu % Ag (g/t) Au (g/t) % CuEq Cu (Mlb) Ag (Moz) Au (oz)
indicated 9.9 1.64 13.4 0.15 1.98 323 4.2 48000
inferred 6.9 1.58 12.7 0.09 1.87 217 2.8 22000
totals 16.8 540m lbs 7m oz 70,000oz
source: IKN calcs from OMN data (totals not 43-101 compliant)
Now for notes on that table:
• First up, remember and be clear that we can add together indicated with inferred if we
want to, but the company has to abide by the stricter 43-101 rules and keep the two
sets of numbers separate. We add them to give an overall view of the resource and
what it contains and in this case, it’s one of those “reliable inferreds” that hangs together
better than the average, thanks to the uniform nature of the resource, the historical
data, the data gleaned from previous mining and the new exploration and development
done by OMN. It’s one of those resources that has more than its measure of
trustworthiness, despite a portion of it still sitting in the inferred category.
• Copper is the main metal and the grade is strong at 1.64% indicated and 1.58%
inferred. We also note a decent silver kicker that looks as though it could add
6

substantially to project economics via a by-product credit. There’s also some gold
present that could help things along.
• The cut-off is set at 1% Cu (note, that’s Cu, not CuEq) which assumes a $45/tonne
operating cost for the mine and looks like a very conservative, cautious number to me. I
like that, it’s the sign of a serious company trying to do mining and engineering things
the right way, rather than a company trying to wow the market. In my own cash flow
valuation work (see below) I was tempted to put in a lower op cost per tonne than this,
but in the end I ran with the company number. However, I think costs could come in
significantly lower than $45/t.
• Copper base price is cut at $2.80/lb, which is a reasonable level for this day and age;
none of the high assumption price silliness we’ve seen from projects such as Schaft
Creek (CUU.v) but we’re not in a $2/lb or $2.50/lb assumption world any longer, either.
At present I’m comfortable seeing base case price assumptions of between $2.75/lb
and $3/lb from copper explorecos, so this one fits right in.
• The total 43-101 compliant tonnage total number (16.8 million tonnes) suggests a mine
that could support a processing facility of 3,000 tonnes per day (tpd) and give the
operation a 15 year mine life. That sounds about right to me, especially as OMN has
made a point in all of its literature in the last year of mentioning how around 60% of the
potential mineralization in the zone is still unexplored. This is also a mill size that fits
with current company capex estimates of $125m or so to get to production day one.
The bottom line to the Oracle Ridge resource is that it’s a good one. Not massive and under no
circumstances are we talking about a copper mega-mine to rival the La Escondida or even the
Rosemonts of this world, but in our 2013 market grade is clearly king and that’s what Oracle
Ridge brings to the table. Grade not only brings forgiveness on costs, but also the potential for
meaningful cash flow from a smaller operation, which means less initial outlay. With its
infrastructure advantages, a 43-101 resource that holds up to examination and large-scale
backers of the project already in place that will be keen on seeing the mine move into operation,
this small junior already holds natural advantages over many of its peers.
Valuing OMN
This one is all about the potential for Oracle Ridge to become a profitable mining operation, it’s
as simple as it comes in the mining world. The exit strategy is not a sell-out, nor is it to add
asset value over several years of
drilling and exploration. No, OMN
is a company managed by a team
of mine builders that wants to
build a working mine of the size
that a small company can handle.
However, before going any further
and running cash flow valuations,
we do need to consider how OMN
plans to raise the cash to build its
mine. The chart right is taken from
2012 company literature and
though now slightly out of date it
gives us a good enough visual
idea of how OMN sees the capex raising and outlines the general idea.
• As things stand today, OMN has already raised $10m (in fact net proceeds were $8.8m)
by selling the 3% NSR to Red Kite.
• Also as things stand today, OMN has a letter of intent signed with Credit Suisse for a
U$70m loan facility. This is of course non-binding and depends on both sides remaining
7

happy about the idea, as well as things such as permits in place etc, not to mention
niceties such as the final interest rate charged.
• Next OMN has another LOI, this time with the already committed backer Red Kite, for a
financing package for another $25m on top of that NSR already sold.
• That brings us to $105m of the estimated $125m needed by OMN to build its machine,
and the rest is expected to be raised via straight equity placements, it seems.
So that’s the theory and overall it’s not a bad plan. The debt load placed on the OMN balance
sheet is going to be fairly hefty, but it’s only going to be put there once everything has been
green-lighted for the build-out (permits, construction decision etc). However, the build-out may
end up costing more than the $125m evisaged last year and although we won’t really know until
the feas study comes out (and even then it will be up for debate) for the time being my model
will assume a higher capex and therefore more share-based financing than the company is
currently estimating (you should know I like my financial models firmly on the conservative side
by now).
Our valuation model. It’s time for some numbercrunching, with our assumptions to plug into
the model. We assume the following:
• A 3,000tpd machine is built at Oracle Ridge, which costs OMN $150m to get to
production day one. That $150m is financed by the money raised from the LOI deals
(above), plus around 50m shares sold via equity placements. This brings our estimated
share count to 100m (rounded) once the mine is in production. As for the debt side of
the raising, we assume in our model year that the company pays off $20m of its debt
(principle and servicing), a rate that would see the balance sheet cleared of debt by end
year 6.
• Eventual ore head grade of 1.5% Cu and a combined silver equivalent (AuEq) by
product from gold and silver of 20 g/t (that’s around 13 g/t Ag and 7 g/t AgEq from the
gold input). Recovery rates are assumed at 90% for copper (which is the historical
average for the deposit, according to pretty reliable but non-43101 records) plus a
guesstimated lowball 60% for the AgEq credit.
• We use a range of copper prices in our model (see table below) but base our
calculations for valuation purposes on $3.50/lb. The AgEq credit is calculated at a flat
$30/oz for all scenarios.
• Operational costs are set at $45/t, which is used because it’s the company sut-off
guidance. As mentioned above, I think OMN is being very cautious with this number
and expect something lower is easily achievable, but I’m going to run with this figure (for
the same reasons as the company model, methinks).
• A 5% royalty of production, plus the 3% NSR due to Red Kite. Then tax, worker
participation, depreciation (a modest $2m annual there...bite me), SG&A ($6m
guessed).
And here’s how those numbers work, with our preferred $3.50/lb copper price highlighted, but a
range from $3 to $4 there for your consideration as well:
8

OMN.to: Income items for model year at various copper prices
At 3,000tpd thruput $3.00 $3.50 $3.70 $4.00
Sales (U$m) 107.1 122.9 129.3 138.7
Cash COGS 49.3 49.3 49.3 49.3
Depreciation 2.0 2.0 2.0 2.0
SGA 6.0 6.0 6.0 6.0
Op income 44.5 59.5 65.5 74.5
Interest 20 20 20 20
Workers Part. 2.0 3.2 3.6 4.4
Tax 6.8 10.9 12.6 15.1
Net income 15.8 25.4 29.3 35.1
Shares out 100 100 100 100
EPS 0.16 0.25 0.29 0.35
Sust Capex -5 -5 -5 -5
FCF/sh 0.13 0.22 0.26 0.32
Sources: OMN/IKN data, IKN ests
Our model points us towards a company that can generate an annual EPS of 25c at $3.50/lb
Cu, as well as paying back its debt load quickly and paying that 3% NSR to Red Kite, all using a
$45/t cost assumption that’s almost certainly at the top end of the real number. In other words
this is a robust model and that’s all thanks to the grade, people, it’s what grade does for a
company. So to our target generator:
OMN: Sales and earnings Target price & valuation data for OMN.to
Cu Price $3.00 $3.50 $3.70 $4.00 using four different copper prices
Sales ($m) 107 123 129 139 24-month target $1.53 (on 6x annual EPS using
Upside to target 121% copper at $3.50/lb)
EPS 0.16 0.25 0.29 0.35 Mkt cap ($m) $34 Enterprise value $31
Cash flow 0.18 0.27 0.31 0.37 P/sales ($3.00) 0.28 EV/sales ($3.00) 0.25
P/E ($3.00) 4.4 EV/EBITDA ($3.00) 0.7
P/E ($3.50) 2.7 EV/EBITDA ($3.50) 0.5
P/E ($3.70) 2.4 EV/EBITDA ($3.70) 0.5
cash flow defined simply as EPS + depreciation
We sticking with the $3.50/lb copper assumption and apply a 6X PE ratio to give us a $1.53
price target. The balance here is that on the negative side we’re still a while away from any
operation, on the plus side the low perceived political risk will help the company a lot come the
day. So by using a 24 month timeline instead of our usual 12 month, we’re giving OMN the
leeway it might need to get all its papers and capex cash into line. After humming a hahing
about it, 6X seems fair enough for that mix in today’s market.
Conclusion
This isn’t a buy for me right now. That’s said out loud at the top of this conclusion segment to
remove any doubts you may have about my position or opinion, however there is plenty to like
about OMN and those of you actively looking for investment (rather than trading) exposure to
copper right now should put this one on your shortlist.
What makes OMN attractive is the combination of things:
• Assuming the permitting goes well and the right permits get granted, the investment
community will like its address a lot, from a political and from and infrastructure
standpoint.
• The big backers of the project are likely funders for the next stages as well, which
suggests that share structure will stay tight.
• Now that we have a 43-101 compliant resource, the economics that Oracle Ridge offer
9

are more transparent and what we see is a deposit that boasts the type of strong grade
that gives it plenty of leeway. Market matters out of its control (costs, copper prices) can
move adversely and OMN will still have a profitable mining project on its hands,
something that many other juniors cannot boast. Also, the high grade means a lower
throughput machine is needed, and that means a lower capex bill and less exposure for
those financiers.
• The team has a proven track record not just of exploration, but of building and operating
mines.
The stock sold off last week and reached 52 week lows, which I consider an unfair reaction to a
good resource number. If it traded more average volume there would be an obvious fliptrade
here, but as it is OMN isn’t for those who like to dip in and out of juniors, the only logical way to
play this company is to take an investment position. This is why I’m not a buyer today, because
I’m still leery about the state of the copper space, for the near-term at least. There’s also things
such as the upcoming feas to consider, as well as the permits that OMN needs to secure in
order to move forward, secure its debt
financing and make that all-important
construction decision. All that’s just a long-
winded way of saying “there’s no need to
rush into this stock right now” and that’s the
true bottom line message of today’s NOBS
report.
Oracle Mining (OMN.to) impressed me with
its new resource and I’m looking to be
impresses further by its feas later this year,
at which point we’ll be able to fine tune the
economic parameters presented today. It fits
the market’s new desire for robustly
economic, smaller scale projects that can be
moved into production without begging and
scraping at the feet of tier 1 miners or diluting shareholders to kingdom come. There’s plenty to
like here, I’m going to watch the company closely from now on.
End of report
Stocks to Follow
Our 14 open position stocks saw seven go up (RIO.to, OGC.to, LRA.v, PLA.v, LPK.to, GORO
short, USC.to), two remain unchanged (AQM.v, FCV.v) and five lose ground (BTO.to, IRL.to,
AUN.v, IPT.v, MLN.v), so for the third week running we can meekly suggest a mild
improvement in matters overall. There were no big losers either, while on the plus side were
the chunky percentage moves in Lupaka Gold (LPK.to up 20.6%) and United Silver (USC.to up
10.0%), while in the more liquid positions we saw decent money come in for OceanaGold
(OGC.to), particularly in the Canadian listing, which makes a change.
There are currently 14 stocks on our open list, one less than our self-imposed maximum. Just
three are in the green, but if things continue to quietly improve, that ratio could change soon
enough.
10

Company Ticker this week Avg Price Reco date Current PPS Gain/Loss% Notes
Top Picks
Rio Alto Mining RIO.to buy C$2.04 07-apr-11 C$4.67 128.9% $6.29 tgt
B2Gold BTO.to buy C$3.42 28-nov-12 C$3.16 -7.6% $5.70 tgt 4 buys
Recommends
Minera IRL IRL.to buy C$0.73 22-jul-12 C$0.64 -12.3% $1.56 tg, added, new avg
Aurcana Corp AUN.v buy C$1.07 11-nov-12 C$0.72 -32.7% $1.50 tgt near term play
OceanaGold OGC.to buy C$3.03 16-sep-12 C$2.91 -4.0% $5.34 tgt growth prod
Lara Expl. LRA.v buy C$1.15 08-apr-12 C$1.28 11.3% solid biz model, LT hold
Plata Latina PLA.v hold C$0.79 10-apr-12 C$0.45 -43.0% considering sale
Lupaka Gold LPK.to spec buy C$1.12 23-oct-11 C$0.38 -66.1% holding, tgt 61c
IMPACT Silver IPT.v buy C$1.14 13-jan-13 C$1.00 -12.3% new position, $1.85 tgt
Gold Res Corp GORO short U$14.11 25-jan-13 U$12.65 10.3% short, $9.60 tgt
Smaller/Riskier
AQM Copper AQM.v hold C$0.31 16-oct-11 C$0.06 -80.6% holding thru for my sins
Focus Ventures FCV.v spec buy C$0.175 01-jul-12 C$0.16 -8.6% revised tgt 25c
United Silver USC.to selling C$0.21 28-oct-12 C$0.11 -47.6% 60c tgt, avg down Dec'12
Marlin Gold MLN.v spec buy C$0.075 10-feb-13 C$0.07 -6.7% trade closes end April
Closed in 2013
USA Graphite USGT feb'13 U$0.93 08-jan-13 U$0.17 81.7% tgt made, trade closed
Lachlan Star LSA.to feb'13 C$1.50 30-sep-12 C$0.95 -36.7% sold to reduce port risk
2009, 2010, 2011 and 2012 closed positions in appendices below
Now for some notes on a selection of the above stocks.
United Silver Corp (USC.to): Selling. Patience has officially run out. Still nothing in the way
of newsflow from this mistake of a trade and although it scored a decent percentage win last
week, volumes remain thin and it wasn’t anything more than the stock bouncing round within
its subdued trading range....again. It’s worth drawing your attention to the new corporate
presentation though, dated March 13th and found on this link (4). The main information gleaned
came from the “short and medium-term objectives” slide near the end of the PDF. Here are the
four bullet points:
• Increase the confidence of the mineralized material already developed by
drilling and underground development
• Define additional mineralized material through surface and underground
exploration
• Complete cost engineering for development work and subsequent production
• Position the mine to return to production by completing a secondary exit and
backfill system
With the best will in the world, ladies and gentlemen, that list doesn’t look anything like a
company with plans to put Crescent into production in the near term and get cash flowing. The
decision that seems to have been made internally to defer the move to production may well be
for the best reasons (I most suspect costs don’t work at this silver price), but all the same it’s
not why I went long the stock. The clincher in deciding to close this small (though twice
bought) position is the state of play in its neighbour and our idea of a buyer for USC, U.S Silver
and Gold (USA.to). That company has also seen big headwinds on its share price in 2013, which
isn’t so surprising considering its high cash cost profile and resulting leverage to the metal, but
does mean that USA.to isn’t in any sort of position to make an offer for USC that its main
backer Hale would be interested in.
The silver lining (pardon the pun) here is that it was never a big position and that by admitting
the obvious defeat, I free up a space on the list for a better trade. After all, they can’t get much
worse. Therefore, this time next week USC will be a closed position on the list and I’ll start
11

selling my own position Wednesday onwards (at least some of it will go to mark price between
Weds and Friday, usual order).
Rio Alto Mining (RIO.to): No news on that resource update for the La Arena oxide, so the
assumption is that it turns up next week. It’s close to hand, that’s for sure.
B2Gold (BTO.to): I have a copy of that initiation report published by GMP (George Albino
author) and will send it to anyone that asks (by the way, Google threatened me with nasty
things for linking brokerage reports on the blog a few weeks ago, so it’s invites by mail only
these days). I’ve taken several reads at the report and that’s because it’s a good one, with a
conservative approach to a NAV-based target price of $4.75 that would, theoretically at least,
leave plenty of scope for upgrading the target if it came to pass.
The stock seemed to appreciate GMP’s attention, climbing on the day of release and on good
(though not stellar) volumes. In the end BTO lost 2c on the week but that’s of less importance.
A quiet week.
Gold Resource Corp (GORO): After GORO reported Monday afternoon the promised update
report was sent out Tuesday morning. On tuning in to the conference call later that day we got
more strong hints of an imminent cut in the the monthly dividend. As expected, there was a lot
of excess BS on the CC, carefully staged as it is by only accepting e-mailed questions (no room
for sudden embarrassments or supplementary follow-ups that ask too much), but after the
long-windedness and in the same staged manner, the subject of dividends did come up, Here’s
how it went:
“...we've got one more question. do you anticipate being able to maintain a dividend at a run rate
of $0.72 for 2013?”
CEO William Reid: “It's certainly is our goal to continue that at the $0.06 per month rate. As I said,
we have to look at our budget for this year and the cash that flows in and balance that against the
improvements that we're making, capital improvements right now. I would say hypothetically, if we
need a little of that money to continue with the improvements, we might be looking at $0.01 or
$0.02 reduction, but we don't know that at this point in time, and it's something we're going to look
at very carefully. But I can guarantee you, our intent is to continue to pay as much back to the
shareholders as we can at any point in time. But if we need that money to expand, then we may
have to use that. There's no decision on that yet, and we just have to see how things go.”
If that isn’t softening up the patsies, I don’t know what is. Expect the dividend to be cut to 4c in
April. GORO finished the week virtually unchanged and traded in a pretty tight range, as well.
OceanaGold (OGC.to): OGC had a good week, popping higher on an influx of money at its
Canadian ticker on Thursday (for a change, it’s usually the Aussie listing that drives the price
and Canada takes up the arbitrage) and seeing the gain consolidated on Friday. There wasn’t
anything in the way of newsflow and the move looked strictly market related as somebody
(singular or plural) took a new position.
Lara Exploration (LRA.v): It’s been virtually a year in the making, but at last we have news
(5) on a deal for LRA’s Sami property in Peru. It’s always been a project earmarked for a larger
JV partner and that’s what LRA found in Antofagasta (ANTO.L), the big Chile copper firm that’s
been expanding its country footprint noticeably in the last couple of years. The deal, assuming
it moves from Letter Of Intent (LOI) stage to a definitive agreement (and with the serious
nature of the partners here, that’s extremely likely) is a fairly straightforward optioning-in, with
ANTO committing to spend $6m over four years (with $500,000 in year one) in return for 55%
and eventually if all goes well up to 75% of Sami, while LRA gets its usual and preferred free
ride.
12

Sami (fwiw the word is Quechua for ‘lucky’) has always been considered somewhat of an
(unpolished) jewel in the crown at LRA and I know the team weren’t prepared to option it at
any old terms nor, more importantly, to any old junior that wouldn’t have the type of
exploration budget that fits the bill for this very large project containing several prospective
targets. In fact, even above things like the Liberdade discovery in Brazil (JV’d to Codelco and
subject of that excellent drill assay just before PDAC), LRA head honcho Miles Thompson
considers Sami to be the company’s best shot at a home run. The small blurb in the NR does a
fair job in summing up Sami concisely, so let’s quote it here:
The Sami Project, located in the Ayacucho and Huancavelica departments of southern Peru,
comprises approximately 50,000 hectares of mineral rights. The Company has completed
exploration work that has outlined 20 gold-copper targets associated with high and low
sulphidation epithermal and porphyry style alteration assemblages, with quartz veining,
siliceous bodies, hydrothermal breccias and oxidized vein stockworks.
Anyway, a deal is now in place for Sami and we can add another string to LRA’s news bow
going forward.
Lupaka Gold (LPK.to): Somebody (and by the looks of the buying, it seems like we are
talking about one individual) decided they wanted
to own a few LPK and as a result the stock short
to the higher end of its recent trading range,
which made for a decent percentage win on
modest volume. It was Canadian buying too, as
the Lima stocks exchange ticker has done virtually
no business for the company so far and has all the
look of a damp squib to date.
I’m looking to hook up with LPK next month and
meet the new COO Julio Castañeda. At that point
it will be time to make a hold or sell decision on
this position, methinks.
Aurcana Corp (AUN.v): We’re coming to the end of the quiet period for AUN and having
made the strategic decision to give the company 1q13 to show its mettle (and having regretted
that call, the next few weeks, that should bring 4q12 earnings, 1q13 production numbers and
1q13 results, will decide if we go any further with AUN as a long position.
The Copper Basket
After twelve weeks of 2013 The Copper Basket is showing a 8.70% loss to level stakes.
13

company ticker price 1/1/13 Shares out Market Cap current pps gain/loss%
1 NGEx Resources NGQ.to 3.40 158.5 451.73 2.85 -16.2%
2 Augusta Res AZC.to 2.43 144.1 381.87 2.65 9.1%
3 Lumina Copper LCC.v 9.43 43.46 346.81 7.98 -15.4%
4 Copper Fox CUU.v 0.83 399.61 287.72 0.72 -13.3%
5 Nevada Copper NCU.to 3.50 80.5 225.40 2.80 -20.0%
6 Hot Chili Ltd HCH.ax 0.72 286.78 192.14 0.67 -6.9%
7 Reservoir Min. RMC.v 2.41 41.46 114.84 2.77 14.9%
8 NovaCopper NCQ.to 1.80 51.89 96.52 1.86 3.3%
9 Western Copper WRN.to 1.39 93.78 80.65 0.86 -38.1%
10 Panoro Minerals PML.v 0.62 176.25 79.31 0.45 -27.4%
11 Candente Copper DNT.to 0.375 121.93 46.33 0.38 1.3%
12 Curis Resources CUV.to 0.70 56.31 42.80 0.76 8.6%
13 Oracle Mining OMN.to 0.80 49.03 33.83 0.69 -13.8%
14 Yellowhead Min. YMI.to 0.59 60.97 28.66 0.47 -20.3%
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 -8.70%
Another jag down last week, with the basket average losing exactly 3% (to the hundredth).
Just two of the basket made gains (LCC.v, RMC.v) and another two were unchanged (WRN.to,
SRD.v), which means eleven of the 15
Copper Basket 2013 average, weekly
were losers (not listing them all). Worst
14%
losses were seen in Curis Resources 12%
(CUV.to down 11.6%) and Nevada 10%
8%
Copper (NCU.to down 8.8%). 6%
4%
2%
That weekly tracker chart (right) is 0%
looking horribly similar to this time last -2%
-4%
year, when PDAC 2012 marked the -6%
moment the sector drooped permanently -8%
-10%
into negative territory.
On the the copper macro scene and one
article in particular from last week needs
featuring here, a most interesting Reuters piece (6) on the state of copper warehouse
inventories and how Glencore in particular seems to be playing the system in order to maximize
its own profit, via the somewhat out of the way Malaysian port of Johor. It’s yet another report
that’s unfair to excerpt as there’s a lot of ground covered, so I strongly recommend that you
check out the link (8) and read the whole thing, but just to give some flavour here’s one
section:
Copper stocks in Shanghai and LME warehouses are the highest in about 10 years,
and bonded stocks in Shanghai near records.
It is also a result of a change in China's export duties which makes it easier for
Chinese companies to export mountainous domestic stockpiles back into
international markets.
But where it ends up depends on who is prepared to pay the best price. And it is
becoming increasingly apparent the strongest contender of them all is Glencore's
warehousing arm, Pacorini.
"China's smelters are just doing what is best for them. They will ship it to whoever
gives them the best price. In Asia, that's Pacorini," said a hedge fund source.
It certainly gives another angle on the current inventory build in copper around the world, and
also goes some way to explaining why copper prices are holding up well enough at this $3.50-
or-so level. On the subject of inventories, we saw another big jump last week to 870,550 metric
14
ht6naj ht31 ht02 ht72 r3bef ht01 ht71 ht42 dr3ram ht01 ht71 ht42
source: IKN calcs, TSX data
31/1/1
morf
egnahc
%

tonnes (mt) in total warehoused copper (+5.4%), with the LME warehouses up 7.0% to
562,475mt, Shanghai up 3.2% to 239,273mt and the smaller Comex up 0.3% to 68,802mt.
However, there was an uptick in cancelled warrants from the recent lows (that have been very
low) and that’s a good thing. LME cancelled warrants jumped to 11.55% of inventories and that
change is easy to see on the regular chart.
Cancelled Warrants at LME, IKN157 to date
35%
30%
25%
20%
15%
10%
5%
0%
15
751NKI 951NKI 161NKI 361NKI 561NKI 761NKI 961NKI 171NKI 371NKI 571NKI 771NKI 971NKI 181NKI 381NKI 581NKI 781NKI 981NKI 191NKI 391NKI 591NKI 791NKI 991NKI 102NKI 302NKI
source: Cochilco, LME
rof
yrotnevni
EML
%
latot
yreviled
resu-dne
Now for updates on some of the basket stocks:
Lumina Copper (LCC.v): After my rant of last week LCC jumps 10%, which is the way of
these things and I should damned well know better, frankly. Mind you, the only thing that’s
changed is the price on a bit of in-out trading action and the project is still as untouchable as it
was last weekend.
Nevada Copper (NCU.to): If it’s correct to suppose that NCU is a bellweather copper
company in the way that it has an advanced and economically attractive copper project in what
is understood to be a politically and socially safe jurisdiction, its performance in March is telling
us something loud and clear: No buyouts happening.
Candente Copper (DNT.to): This story goes on and on, so rather than saying the same thing
in a different way, here’s a translation of this short news report (7) that contains the most
relevant information on DNT’s political risk situation this week. I’ll leave you with the report and
no further comment, bar that DNT is not a buy (and not even a trade, sadly).
The appointed advisor to the Lambayeque Government Regional Cabinet, Antonio Eneque
Soraluz, said that the Environmental Impact Study for the Cañariaco mining project, located n the
Lambayeque district of Cañaris, had been done in a very superficial way.
“The Environmental Impact Study has been done in a very light way, as it only qualifies damages

or effects but does not quantify them. It says that the impacts (of the project) are category 2
type, which is to say of moderate impact, but in Cañaris there would be population displacements
and that is directly a category 3 impact”, said Eneque, who is a professional biologist.
The regional authority made it clear that the aforementioned document presented by the
Candente mining company was approved in Lima by the Ministry of Energy and mines, not by the
Regional Government of Lambayeque.
NGEx Resources (NGQ.to): A report in the Argentine press about NGQ (8) has San Juan
governor José Luis Gioja quoted as having met with the company during PDAC and is now keen
on promoting the projects NGQ is developing on the Chile and Argentina sides of the frontier as
bi-national development, saying that it would be the
second of its type after Barrick’s Pascua Lama, also in
San Juan (on the Argentine side of the fence at least).
Here’s Gioja’s words (translated):
“We met with the mining company executives who are
wortking on two projects in the North of San Juan
(Josemaria and Filo del Sol) that have continuity to the
Chilean side [of the border] (in the los Helados project).
They told us that they have very good exploration
results. It’s going to be the second bi-national project.”
“The idea is to have a new protocol and a new bi-
national project. It would be the second mining project
developed jointly with Chile. What needs to be resolved
is the limits of the project because it’s not totally
explored yet, but the company told us that all indications
are that yes, the mineralization continues to the mining
projects that are in San Juan.”
Meanwhile, NGQ reported its annuals on Friday evening
and there’s nothing really out of the ordinary to note
(which is good: no news is good news on these things). The company burned $6.8m in
exploration expenses in 4q12 and was left with around $8m in working capital, which means
that the $34m it raised earlier this year was money brought on board at the right time. Given
the same type of burn rate in 2013, NGQ has sufficient funds to reach well into 2014. As for
newsflow, the current drilling programs at its projects on both sides of the border are sue to
finish next month (the winter then sets in up at Southern hemisphere altitude) and the drilling
results are due published during 3q13.
Western Copper & Gold (WRN.to): WRN also reported its year on Friday evening and again,
no big surprises on first and second read-through of the report (though admittedly this isn’t a
company I currently run a spreadsheet on, so it’s more eye than calculator).
One element that caught said eye was any mention of permitting, the next big stage of the
development track for Casino now that we have the full feas study for the project. In the MD&A
WRN says that talks have started with First Nations peoples and the plan is to submit its
application to the Yukon Environmental and Socio-economic Act Board (YESAB) by the end of
this year. Also, one positive is that with the cash raised late last year WRN says its fully funded
through the permitting phase with treasury that should last until 2015.
The Lottery Ticket Basket
After twelve weeks of 2013 The Lottery Ticket Basket is showing a 0.15% gain to level stakes.
16

company ticker price 1/1/13 Shares out Market Cap current pps gain/loss%
1 Eagle Star Min. EGE.v 0.125 69.48 22.93 0.330 164.0%
2 Marlin Gold MLN.v 0.10 192.39 13.47 0.070 -30.0%
3 Fancamp Expl. FNC.v 0.125 109.8 13.18 0.120 -4.0%
4 Glass Earth GEL.v 0.155 104.79 12.57 0.120 -22.6%
5 Bellhaven BHV.v 0.14 121.16 12.12 0.100 -28.6%
6 Gryphon Gold GGN.to 0.085 194.64 9.73 0.050 -41.2%
7 FDG Mining FDG.v 0.13 45.59 6.84 0.150 15.4%
8 AQM Copper AQM.v 0.08 105.57 6.33 0.060 -25.0%
9 Copper North COL.v 0.10 58.62 4.69 0.080 -20.0%
10 Rio Cristal RCZ.v 0.025 149.26 4.48 0.030 20.0%
11 Darwin Resources DAR.v 0.20 26.16 3.40 0.130 -35.0%
12 Inca One Res. IO.v 0.12 34.0 3.23 0.095 -20.8%
13 Cream Minerals CMA.v 0.03 155.34 2.33 0.015 -50.0%
14 Netco Silver NEI.v 0.025 47.01 2.12 0.045 80.0%
15 Firestone Ventures FV.v 0.045 36.32 1.63 0.045 0.0%
Portfolio avg 0.15%
The Lottery Ticket Basket stays in the green by the skin of its teeth, but with seven of the
names UNCH on the week, there really isn’t too much we can read into things. Or perhaps
that’s the main takeaway in itself, the distinct lack of interest that the market is giving to the
tinycap end of the mining scene. Anyway, there were two uppers (FDG.v, NEI.v) and six
downers (MLN.v, BHV.v, FNC.v, EGE.v, COL.v, IO.v) to go with the un-moved, with none of
them scoring a 20%+ move and getting officially noticed.
With the quiet, non-event week past there’s not that much to say about this sector, so I’m
going to leave any individual company commenting for next week.
Regional politics
Next week we run our quarterly Regional Risk update, with scores and country outlooks galore.
This week we have just a couple chunkettes of newsworthy developments.
No money for mining companies? Think again
It’s more a case of there being no money for mediocre mining companies.
By way of the quickest of overviews Milpo (Lima stock ticker: MILPOC1) is one of the longer
standing Peruvian mining companies (founded in 1949) and is now 50.06% owned by Brazil’s
Votorantim Metais Peru mining company. Its current market cap (approx 1.1Bn shares out
prices at 2.15 Peruvian Soles per share) stands at approx U$909m at today’s exchange rates. It
is a profitable mining company with four operating mines and a asset book of several
exploration and development projects, including the Magistral copper/moly project in Ancash.
Meanwhile, S&P rates the company a BBB- credit risk and forecasts it to earns U$150m in
profits this year.
In other words, Milpo is a company in good shape operationally, with strong growth prospects
and one that enjoys the backing of one of Latin America’s biggest mining operators. Thanks to
this combination, it had no problem last week issuing U$350m in corporate bonds at a 4.625%
interest rate, below the expected rate thanks to strong competition for the issuance (9). It’s
interesting to reflect on the credit potential of the quality end of the mining sector at a time
when explorecos are gasping for funds and their assets are now reaching firesale valuations. At
17

some point, we could expect the Milpos of this world to use funds for acquisition purposes. For
more thoughts on this subject, refer to the “How your author sees 2013 developing for juniors”
segment in Market Watching today.
More Dominican Republic vs Barrick Pueblo Viejo
The latest from this soap-opera is that the Dom Rep government on Danilo Medina “is
interested in reaching a speedy solution” (10) to its problems with Barrick Pueblo Viejo. That’s
hardly surprising, but it’s also now common knowledge that the two sides are currently
“secretly” negotiating (because the government has leaked the information to all and sundry)
with the Canadian embassy acting as mediator in the process, which suggests that an
agreement could be close to hand.
Meanwhile, the head of Dom Rep’s overseas investment association (Asiex), one Salvador
Demallistre, said during a presentation on Thursday in relation to the Pueblo Viejo spat (11)
that the legal framework for foreign companies
wanting to invest and do business in the
country was guaranteed. Which means the
exact opposite of course but it’s the kind of
thing he has to say at these times. It goes
without saying that the dispute could do
damage to Dom Rep’s image as destination for
mining activity, be it exploration or eventual
production from a discovery. To that effect, it’s
worth noting that GoldQuest (GQC.v), the
company mentioned on these pages (badly, but
eventually corrected) a couple of weeks ago
just after PDAC, has seen its PPS drop sharply
(shown over two months here compared to the
TSXV index). Quite possibly a reaction to new-found Dom Rep risk aversion
Mexico: Tax laws to change in second half of 2013
More leaked out last week (12) on the now much-anticipated mining law reform that will add
royalties to the State burden for miners in Mexico for the first time. The understanding on the
timing of congressional debate and eventual approval of the law is that the ball will start rolling
in September in the new congressional sessions that begin that month. The strategy being
adopted by the Peña Nieto government is to state that Mexico’s corporate/company tax profile
is similar to peers countries (e.g. Chile, Peru, Australia) and that those countries also levy
royalties on mining operations, therefore the government doesn’t see Mexico’s competitivity as
being affected by the extra layer of taxation. Sounds logical enough. However, Mexico has
studied several different royalty schemes used by peer countries and hasn’t selected one as a
reference model yet, though form the comments that come from industry insiders it’s fair to
assume that Mexico is favouring the type of progressive royalty used in Chile and Peru, where
higher levels of production and therefore revenue demand higher percentage royalties to the
State.
Market Watching
How your author sees 2013 developing for juniors
Here’s the comment from last week’s wrap-up that sums up the way I see things developing for
the rest of 2013:
“I keep returning to Rick Rule’s line about quality having bottomed while the
broader junior markets will continue to be weighed down by the crud it
carries. As an observation it continues to resonate with me as spot on, two
weeks after hearing it.”
18

Yup, I’m giving credit to Rick Rule again (fanboy rah rah hey hey yeah) but would like to
expand a little on that thought. Specifically, I put together this conceptual chart that gives a
visual on how I see 2013 and 2014 going for juniors. Notes underneath.
Notes on the above:
• The X-axis is time, but has been left deliberately vague. This idea is less about nailing
down the exact moment when this-or-that happens and more about the way in which
I’m looking for the juniors to develop in the medium-term.
• The Y-axis is price and is left unscaled, not specific dollar levels, no percentage
changes.
• Then we get to the three mapped lines.
• The blue line represents how I see the development of what can loosely be described
as “quality small producers”. These companies are either well-run, profitable producers
or the exploreco with a world class asset and enough cash to feel more than
comfortable about life (e.g. it plans to sell to a larger miner and has the cash to get to
that point, or it plans to build the mine itself and has the cash (or nearly all the cash) to
fund the build-out). Examples of this category include my own favourites at this time,
the Top Picks Rio Alto Mining (RIO.to) and B2Gold (BTO.to).
• The red line are the “acceptables”. These are the stocks that are either fairly decent
producers that are either making some profit or are moving to a position where profits
are in the pipeline, or they’re owners of a good exploration-stage asset but look a bit
tight on cash.
• The green line represents the dogs of the sector. They have poor or mediocre projects,
19

or they’re running an operating loss with metals currently priced where they are, or
they’re running on fumes cashwise, or they’re over-promo’d things for market
dreamers, or they’re just the plain box-standard junior scam story of old. That and a
hundred other definitions that need no ramming down the throats of this esteemed
audience.
So that’s the chart and the point of it is the central section of the X-axis, the period “early 2013”
which represents now or thereabouts. The angles of the curves are open to debate (Have they
dropped that much/little? Will they recover more quickly/slowly) but the concept should be
obvious by now:
• I see the quality names bottoming around now, by which I mean they might have
already seen their lows or we might have to wait a few more weeks, but we’re close
enough.
• I see the ‘acceptables’ with some more to drop yet, but they’re hardly lost causes and
worthy of your patience. Also, there may well come a time when rotating out of the
highest quality names and into those that have more potential upside will make sense
• I see no end of pain in sight for the dogs, which is a much-repeated meme amongst
the mining sector chattering classes of course (and I’m not claiming any original
thoughts here, just saying that I agree with the thrust of the panel-led arguments of
the last few weeks, on this issue at least.
So that’s the general idea folks, feel free to put this graphic in front of my nose six months or a
year down the line and ridicule my pathetic forecasting if you so desire. For the moment, it also
means that I will remain heavily weighted into the stocks I consider the highest quality
components of the ‘Stocks to Follow’ list here at the Weekly, which means RIO.to and BTO.to
will continue to hold the most portfolio cash. If and when an improvement sets in with the
better of the bunch, we can think about rotating into the more speculative names.
A quick word on the Fortuna Silver (FVI.to) 4q12 numbers
Really, the quickest of words to cover this stock, one I’ve followed more closely than most over
the years. The 4q12 and YE numbers didn’t impress and it’s that costs input rising at Caylloma,
once again, that’s the main sore thumb. Another is the lack of results from the 2012 exploration
campaign, particularly in Mexico, which means another pile of of exploration cash has been
earmarked for this year.
There is also a question mark hanging over FVI and its expansion plans, as by the company’s
own timeline it will have to go into M&A mode in order to add the production growth it intends.
This begs the question as to how it will do that, as its cash treasury is fine for a smaller
purchase, but adding something more meaningful would mean a dilutive paper trade. The
bottom line is that there’s no reason to own FVI at a 16X PE right now, in my opinion. If you’d
like something a little more in-depth on FVI, mail me and I’ll get busy, but don’t expect any
different bottom line call than “avoid”. Meanwhile, for those interested this link (13) has copy of
the 2012 YE conference call transcript attached.
Goldcorp (GG) Cerro Negro Argentina: Teething problems with workforce
Nothing concrete yet, but there’s enough periphery issues arising around the Goldcorp Cerro
Negro project to merit a word or two here. Exhibit A is a story (14) about a Goldcorp Cerro
Negro 4x4, which was stopped by police at a checkpoint and was found to contain union
officials on their day off (which is against company regulations, as they had no right to use a
company vehicle for their own purposes), as well as drugs (marijuana) and guns (the men said
they were going to do some hunting, though how effective pistols are against Patagonian ducks
is debatable).
Exhibit B is the decision by union officials last Friday (15) to organize a work to rule (go slow
20

day), which they say is a first warning shot before a full scale strike is called. This came after a
union meeting called on March 11th (16) to make official workers’ demands for better pay and
conditions at the project.
The two stories, that of union misuse of company property and that of union demands for
higher salaries (as well as a few other secondaries, such as half pay while travelling to and from
the remote project) are only loosely related, but have a common thread of a company that’s
has less than full control over its workforce.
Tahoe Resources (THO.to) (TAHO)
A quick update that I’ve saved for the subscribers’ only thing that. follows on from the coverage
on the blog last week (17). According to reports (18) from Guatemala, the three people that
escaped from the kidnappers in the Jalapa region (the fourth was found dead) are blaming a
congressman, one Amildo Morales, for their capture. Morales has already flatly denied the
claims (of course), but according to the escapees (who were not supposed to have escaped and
should by rights be dead by now, as the criminal intentions were clear) the kidnappers told
them that Morales organized the crime and “...because he supports the mining companies”. The
kidnapping occurred after a meeting in the San Rafael Las Flores area, close to the Tahoe
Resources Escobal mine, at which locals apparently voted 99% to 1% to prohibit the Escobal
mine from operating (obviously, an unofficial and unenforceable vote). The victims say they
were followed after the meeting and ambushed about 12km from the meeting site.
That’s the latest and apart from the threat of protest action next week if government officials
don’t get to the bottom of the crime, it’s how we stand today. The situation is not an easy one,
as there is clearly more than meets the eye to the locals’ demands and there is apparently a lot
of narco money in the area, which doesn’t like or want foreign companies in the zone. There
are also more straightforward protests about the mine and its environmental impact from
residents, plus we need to stress that the chances that Tahoe or the local mining company
were directly involved in any sort of criminal activity are so slim as to be negligible. However,
what we do have is obvious and militant bad blood towards THO at Escobal, which is the very
same company that expects to get its operating permit approval for the mine during 2q13 and
be in FCF+ production by next year.
The problem, once again, boils down to the weakness of institutions in Guatemala. If we had a
government with the necessary structure and reach to be able to permit Escobal and get the
local population in line with the idea, then it would have already been permitted. Whether
totally justified, wholly unjustified or somewhere between the two, there is no doubt of the ill-
feeling towards Escobal from people who have already flexed their muscles in a difficult to
police region of a difficult country. We know that President Pérez Molina wants the mine to go
ahead, but it’s clearly as much of a political calculation as anything else, with the “red rag to a
bull” syndrome in play. If he signs off on the operating permit in the current atmosphere and it
results in serious loss of life, the negative fall-out could be wide ranging for his mandate (and
he knows it).
Sulliden Gold (SUE.to) redux
Two updates on this story, first this Q&A from a longer interview (19) with our old friend
Gregorio Santos, governor of Cajamarca region:
Reporter: Sulliden Shahuindo goes ahead or doesn’t go ahead?
Gregorio Santos: Shahuindo has done everything that miners do to prevent
[the project] going ahead. As always, without considering technical-
environment needs, without considering the population and its area of
influence: But [the viability of the project] will be decided by the people of
Cajabamba.
Reporter: Cañariaco goes ahead or doesn’t go ahead?
Gregorio Santos: The will of the historical people such as those of Kañaris
21

must be respected.
Second, this report (20) which tells of complaints about the public consultancy meeting held on
March 13th and local population plans to protest the presence of SUE at Shahuindo. Locals
around Cajabamba say that they were prevented from attending the public consultancy meeting
by police road blocks, but the same police allowed people from outside the area past and to the
meeting who were travelling in specially hired buses. Then it goes on to say that locals will
report on the irregularities on April 1st and outline their plan of action against the mining
company and its project. Here’s the quote (translated) from the community leader du jour:
“On April 1st we will present a report on the annulment of the public meeting and from
there we will announce our strike action. We’re mobilizing people from Cajabamba to
Cajamarca so that Sulliden doesn’t continue with its abuses and leaves the region.”
Bottom line (and after today I think we’re done with this story and no further updates needed
for a while): This is a stock to avoid, period.
Conclusion
IKN203 is done, we close with bullet points:
• The “How your author sees 2013 developing for juniors” piece is one of those that
distills several weeks’ worth of ideas into one place. Consider it the roadmap The IKN
Weekly will use for the next few months.
• My first reaction on watching the dumpage in Oracle Mining (OMN.to)on its resource
news what “looks unfair, those are good enough numbers”, which is why I dialled them
into a spreadsheet later that day. Once I’d done so (and after fielding the GORO
update) it soon became clear that OMN has a really decent shot at taking Oracle Ridge
to production. There’s a lot of water to flow under the bridge between now and then ,
not least with a nervy looking macro copper scene, but the package is strong for a sub-
$50m market capper. Don’t be surprised if I buy this one at some point in the future.
• No, I haven’t forgotten about Colossus (CSI.to) and I’m watching its pps action closely,
but those fundies issues need clarification before I’m a buyer. And I haven’t discarded
the idea of a short position in Tahoe (THO.to) either, but I am getting a bit greedy and
looking for a better entry point than the one currently offered. A rally to $20 would be
more than enough to tempt me in, considering that the permitting track has serious
political risk question marks over its head now.
• Time to say goodbye to another abject failure of a trade. United Silver (USC.to) isn’t in
the right costs bracket for our needs (in more ways than one) and the right call is to
bail, take the loss (another one, darnit) and make space for a higher quality name that
better fits our thesis for 2013.
• It’s Easter week, ladies and gentlemen, time of good cheer for all of those with faith.
It’s also a shortened market week of course. Next weekend it’s the end of 1q13 (wow,
already?) and also Regional Risk Review time her at The IKN Weekly.
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
22

Footnotes, appendices, references, disclaimer
(1) http://blogs.cfainstitute.org/insideinvesting/2013/03/22/using-risk-to-make-better-investing-decisions/
(2) http://news.oracleminingcorp.com/press-releases/oracle-mining-receives-aquifer-protection-permit-f-tsx-omn-
201303060858177001
(3) http://news.oracleminingcorp.com/press-releases/oracle-mining-announces-ni-43-101-resource-estimat-tsx-omn-
201303180860552001
(4) http://www.unitedsilvercorp.com/i/pdf/USC_Corporate_Presentation_13thMarch2013.pdf
(5) http://finance.yahoo.com/news/lara-agrees-terms-sami-option-113000995.html
(6) http://www.reuters.com/article/2013/03/22/copper-glencore-johor-idUSL6N0CE5G820130322
(7) http://www.rpp.com.pe/2013-03-21-chiclayo-eia-de-canaris-fue-realizado-de-manera-ligera-dice-consejero-
noticia_578330.html
(8) http://www.tiempominero.com/index.php?option=com_content&view=article&id=4710:argentina-otro-proyecto-
minero-que-exigira-acuerdo-con-chile&catid=35:mundo&Itemid=60
(9) http://m.df.cl/peruana-milpo-emite-bonos-por-us-350-millones-en-el-extranjero/prontus_df/2013-03-21/202714.html
(10) http://www.aminera.com/noticias-generales/118-internacionales/47078-esperan-acuerdo-entre-estado-dominicano-
y-minera-extranjera-.html
(11) http://www.panoramadiario.com/finanzas/articulo/articulo/239/asiex-en-republica-dominicana-el-estado-de-derecho-
esta-garantizado/
(12) http://mx.noticias.yahoo.com/esperan-reforma-minera-semestre-a%C3%B1o-212253143--finance.html
(13) http://www.fortunasilver.com/i/pdf/fs/FVI-Transcript_032113.pdf
(14) http://www.opisantacruz.com.ar/home/2013/03/18/goldcorp-reconocio-como-suya-la-camioneta-detenida-con-
armas-y-drogas-en-guer-aike-y-desvinculo-su-responsabilidad/15908
(15) http://www.opisantacruz.com.ar/home/2013/03/13/personal-de-cerro-negro-inicio-quite-de-colaboracion-y-el-
viernes-van-al-paro/15870
(16) http://www.opisantacruz.com.ar/home/2013/03/12/personal-de-minera-cerro-negro-en-alerta-y-movilizacion/15865
(17) http://incakolanews.blogspot.com/2013/03/tahoe-resources-thoto-taho-has-nothing.html
(18) http://www.s21.com.gt/nacionales/2013/03/20/sobrevivientes-indigenas-inculpan-diputado-jalapa
(19) http://lamula.pe/2013/03/23/gregorio-santos-favre-sabe-como-edulcorar-y-domesticar-a-los-politicos-sin-importar-
los-medios/AlanEle
(20) http://www.gatoencerrado.net/store/noticias/72/72935/detalle.htm
23

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'11 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
24

Stocks To Follow Closed Positions, 2010
Closed in 2010 closed close PPS
B2Gold Corp BTO.to Jan'10 C$0.88 08-nov-09 C$1.49 68.2% target made, trade closed
Radius Gold RDU.v Jan'10 C$0.18 23-aug-09 C$0.40 122.2% target made, trade closed
MAG Silver MVG mar'10 U$5.60 23-nov-09 U$7.28 30.0% closed in pdac week
Riverside Res RRI.v mar'10 C$0.435 20-sep-09 C$0.60 37.9% closed in pdac week
Amarillo Gold AGC.v mar'10 C$0.81 31-may-09 C$0.70 -13.6% closed in pdac week
B2Gold Corp BTO.to apr'10 C$1.24 18-feb-10 C$1.50 21.0% target made, trade closed
Lumina Copper LCC.v apr'10 C$0.84 14-jun-09 C$1.55 51.2% total position now sold
Troy Resources TRY.to may'10 C$1.10 03-may-09 C$2.25 104.5% sold on negative results
AuEx Ventures XAU.to may'10 C$2.51 24-may-09 C$3.38 34.7% trade closed
Nevada Copper NCU.to jun'10 C$3.27 14-mar-10 C$2.03 -37.9% need to lower Cu exposure
Carpathian Gold CPN.to jun'10 C$0.39 14-mar-10 C$0.35 -10.3% too exposed to cap raising
Amerix PM Corp APM.v jun'10 C$0.065 08-nov-09 C$0.05 -23.1% victim of macro bear
Antares Minerals ANM.v jun'10 C$1.42 06-dec-09 C$2.10 47.9% sold half
Vena Resources VEM.to jun'10 C$0.37 31-may-09 C$0.23 -37.8% sold half
Minera Andes MAI.to sep'10 C$0.75 28-jul-10 C$0.95 26.7% ST trade closed
Gold-Ore Res GOZ.to sep'10 C$0.52 01-aug-10 C$0.75 44.2% target made, trade closed
B2Gold Corp BTO.to sep'10 C$1.45 25-may-10 C$2.01 34.5% target made, trade closed
Blue Sky Uran BSK.v oct'10 C$0.41 19-may-10 C$0.22 -46.3% v small v bad trade closed
Dia Bras Expl DIB.v oct'10 C$0.14 30-aug-09 C$0.35 150.0% target made, trade closed
S. Amer. Silver SAC.to nov'10 C$1.38 24-oct-10 C$1.60 -15.9% loss on short, small fail
Ventana Gold VEN.to nov'10 C$7.92 27-jun-10 C$13.51 70.6% trade closed on buyout
Lumina Copper LCC.v nov'10 C$1.42 11-aug-10 C$3.65 157.0% trade closed
Antares Minerals ANM.v dec'10 C$1.42 06-dec-09 C$8.40 491.5% trade closed
Rio Alto Mining RIO.v dec'10 C$0.69 23-mar-10 C$2.16 213.0% trade closed
Coro Mining COP.to dec'10 C$0.585 03-oct-10 C$1.24 112.0% target made, trade closed
Stocks To Follow Closed Positions, 2009
Closed positions closed closing PPS
Cardero Res CDY/CDU.to May'09 U$1.20 03-May-09 U$0.87 -27.5% sold on negative news
Eastmain Res. ER.to May'09 C$1.04 06-May-09 C$1.315 26.4% trade closed
Radius Gold RDU.v May'09 C$0.165 03-May-09 C$0.235 42.4% trade closed
Latin Amer Min. LAT.v May'09 C$0.12 03-May-09 C$0.158 29.2% trade closed
Aquiline Res. AQI.to July'09 C$2.03 16-Jun-09 C$1.68 -17.2% took loss, bad timing
Chariot Resources CHD.to Aug'09 C$0.20 12-Jul-09 C$0.415 107.5% trade closed
Castle Gold CSG.v Sep'09 C$0.64 02-Aug-09 C$0.60 -6.3% ST trade didn't work out
Guyana Goldfields GUY.to Sep'09 C$2.30 12-May-09 C$4.50 95.7% profit taken
Los Andes Copper LA.v Sep'09 C$0.09 21-Jun-09 C$0.09 0% trade closed
Pediment Gold PEZ.to Oct'09 C$0.80 09-Aug-09 C$1.00 25.0% trade closed
Minera Andes MAI.to Oct'09 C$0.68 03-May-09 C$0.71 4.4% too much bad news
Dynasty Metals DMM.to Nov'09 C$4.18 03-May-09 C$6.01 43.8% half sold
Rusoro Mining RML.v Nov'09 C$0.55 03-May-09 C$0.57 3.6% underperformed
Important Disclosure
The information and opinions contained within this report reflect the personal views of the author and therefore all
material within should not be construed as accurate or reliable or be utilized as advice for investment or business
purposes. Independent due diligence and discussions with ones own investment and business advisor is strongly
recommended. Accordingly, nothing in this report should be construed as offering a guarantee of the accuracy or
completeness of the information contained herein, as an offer or solicitation with respect to the purchase or sale of any
security or as an endorsement of any product or service. All opinions and estimates included in this report are subject to
change without notice. It is prohibited to copy or redistribute this report to any type of third party without the express
permission of the author.
25