IKN #211Premium

The IKN Weekly
Week 211, May 19th 2013
Contents
This Week: This is not a video game, However we need to be clear about last week compared
to our 2013 roadmap, OT: The tourists.
Fundamental Analysis: Rio Alto (RIO.to) (RIOM) 1q13 results, the gold drop, the price drop
and how RIO looks for the rest of 2013.
Stocks to Follow: Overview, Minera IRL (IRL.to) (MIRL.L), Tahoe Resources (TAHO)
(THO.to), Gold Resource Corp (GORO), Lara Exploration (LRA.v), IMPACT Silver (IPT.v), Duran
Ventures (DRV.v).
Copper Basket: Overview, Candente Copper (DNT.to), Curis Resources (CUV.to), NGEx
Resources (NGQ.to), Strait Minerals (SRD.v).
The Lottery Ticket Basket: Overview, Tango (TGV.v), Rio Cristal (RCZ.v), Glass Earth
(GEL.v).
Regional Politics: Mexico: Mining industry tries lobbying against the royalty law bill, Peru:
Canadian PM Harper visits Peru and Colombia this week, Bear Creek Mining (BCM.v) community
relations, Ecuador: Mining Law reforms officially deemed ‘urgent’, Colombia: Local municipalities
have no veto over mining activity.
Market Watching: Western Graphite (WSGP): Our other short pays off, B2Gold (BTO.to)
1q13: The interesting bit is the balance sheet.
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
This is not a video game
Thus conscience does make cowards of us all,
And thus the native hue of resolution
Is sicklied o'er with the pale cast of thought,
And enterprises of great pith and moment
With this regard their currents turn awry,
And lose the name of action.
The world knows the first two lines of Hamlet’s soliloquy but I’ve always preferred these, near
the end of the segment, which is why it gets an airing from time to time both here and on blog.
Hamlet’s subject is suicide while ours is the considerably less important world of junior mining
companies (mostly LatAm) but nevertheless, the quote fits the current atmosphere of our trivial
pursuit and comes in response to several mails received this week. Typical of the sentiment is
this short line that arrived yesterday Saturday from reader ‘RK’, regular mailer and from my
experience a decent judge of the market:
I actually think its time to NOT double down on Minera IRL, RIO, BTO. Its time to
TRIPLE the XXXX down, but with semi patience and carefulness. Not all at once, but
do it.
1

Well yes, that may well be true. Or it may not. Of the three he mentions I’d be most interested
in adding to RIO.to, with BTO in second place and IRL, although now at the type of deep
discount price I wanted and talked about couple of weeks ago, in third. But (yup, there’s always
a but) it’s not what I’m prepared to do right now because this publication doesn’t live in the
world of fantasy. In other parts of the market, people with no skin in the game (or worse,
people who are paid by companies to promote their stock) are on a no-loser:
Tout: “Buy XYZ!”(cid:1) New reader buys (cid:1) price drops 20% (cid:1) Tout: “Even
better for us! Average down to win bigger!” (cid:1) Reader buys (cid:1) price drops
another 20% (cid:1) Tout: “The market is crazy! Back up the truck, early
retirement for us all!” (cid:1) Reader buys (cid:1) Price freefalls (cid:1) Tout: “It can’t go
on forever! Buy more!” (cid:1) Price rebounds 30% (cid:1) Tout takes out full page
advert in NYT claiming big win (cid:1) Newbie signs on (cid:1) lather rinse repeat.
Ok, perhaps a little exaggerated but it’s probably enough to jog a memory or two out there.
What happens with The IKN Weekly is what happens to your author’s juniors portfolio which
isn’t a bottomless pit of virtual cash, isn’t a video game where the only consequence to “Game
Over” is a push of a button and a re-start. Yes, it’d be great to shout “triple down” from the
rooftops and catch the very bottom, watch the market reverse and rebound approximately 15
minutes after going all in, spend the rest of days before shuffling off this mortal coil at
beachfront bars sipping fruity rum punches*. This could get repetitive, so cutting to the chase
even at this time of bargains I remain cowardly because prices for our sector’s stocks can still
go lower, this market phase can continue on and as Gary Tanashian correctly wrote in his
NFTRH239 this morning, “This is not a time to be guessing. It is a time to be right by not being
wrong.”. We deal with equities, we deal with “the sliver of hope that sits between assets and
liabilities on a balance sheet”, we deal with the prices that the market gives for future
expectations of companies rather than their present day situation, we deal with a sector that
will eventually rebound but could see a whole lot more pain if the prices of its underlying
products, gold and the metals, drop further due to influences that lie far outside the world of
mining. Therefore:
• I stay net long the juniors, mainly via the larger positions of RIO and BTO, because this
time is not different, we will see the quality end of the market rebound at some point,
we will have better share prices for the stocks that survive. I just don’t know when.
• I stay partially hedged via the shorts in TAHO and GORO (and right now WSGP, but
that’s more of a side-bet on a p&d) for the time being. This may change (see below).
• I stay with cash on the sidelines.
• I remain holding bags in several smaller long positions that haven’t worked out, even
after selling a handful of losers recently (e.g. LPK.to most recently) and raising some of
that aforementioned cash. It’s the nature of the speculative beast, sadly.
• I’m still interested in small and specific near-term trades (e.g. DRV.v most recently) and
averse to new investments. My interest in this market is very much alive but it’s not a
place where I’m adding meaningful exposure.
• I’ll leave the Saint Crispin’s Day calls to newsletters that care no one jot whether
subscribers lose money as long as they keep sending a few dollars every month.
Last week’s drop was no fun (especially if, unlike me, you were at your desk and watching it in
real time) but it’s not going to spur me into enterprises of pith and moment. This market needs
to offer more than simple opportunity to buy in at new low prices before I bite again; it needs
to offer a change in direction and a lower level of risk. Cowards don’t like risk, you see.
*just don’t tell the wife
However, we need to be clear about last week compared to our 2013 roadmap
What we saw does not fit this chart:
2

As semi-mentioned last week, it’s not a subject I planned on revisiting until the end of this
second quarter but as what was written just seven days ago doesn’t fit with what the market
did last week, some sort of acknowledgement is in order, I think. In the same way that one
swallow does not make a summer, one week doesn’t kill a market theory however, if we get
much more of the unrelenting selling in gold that we got last week, I may have to prematurely
throw in the towel on my optimism for the second half of this year. After all, a plan is only a
best guess on future developments and as the future unfolds it will always need correction to
take into account reality. The only question is how far out your plan becomes compared to
reality and how much adjustment is needed. Remaining with the subject, one of the few non-
mail places I visited more than once last week was the My Own Market Narrative blog and in
one of the posts (1) Iwnattos mentioned in passing that old market saying, “It’s not bad to be
wrong, it’s bad to stay wrong”. Even though it came from the long-ago sold out to the dark side
Peter Grandich it’s still a totally correct sentiment (sidebar: the reason I like Iwnattos’s blog is
less his viewpoints and more that he continually gets me to challenge my own viewpoints,
which is a healthy thing) and one that gets me thinking about what to do with this service and
my portfolio. It’s good that we have a couple of shorts out there and active (aside from the
somewhat separate OTC short plays) but they only provide some limited hedging against what
is, loudly and clearly, a net long juniors port that’s lost chunky cash so far this year.
OT: The tourists
Thanks for the wishes mailed in and yes, a good time was had by all last week. Here’s an
example of what’s in our camera’s
memory card now, taken Thursday
midday (approx). The break was
mostly about giving our kids an idea
of what hill walking is about so
Cusco’s Sacred valley, with well-
marked and reasonably short up-down
pathways that take you from ruin to
ruin was a good way to blood them.
The good news is that enjoyed the
treks and turned out to be pretty
legstrong for their ages as well.
As for immersing myself (ourselves)
into the gringo tourist side of Peru via
Cusco and the Sacred Valley, it’s fair
3

to say that after so many years avoiding that part of the country’s scene it was certainly a
different experience. On the one hand it was quite fun, as for example the level of service and
infrastructure available to foreigners on tour is on a par with anything on the world tourist track
and it was good to experience that first-hand. However, you can’t help wonder about the
impression the average foreign tourist might takes away from Peru and how detached that is
from the day-to-day life here. Yes it was a good break and we all feel suitably recharged but
next time, now that we know the girls actively enjoy a few hours of walking up and down
gradients, we’ll probably pick a place where Spanish rather than English is the default language.
Fundamental Analysis of Mining Stocks
Rio Alto Mining (RIO.to) 1q13 results, plus its trading this week
We saw results from both our Top Picks last week, with B2Gold (BTO.to) putting in good
financial numbers (and the ConfCall had a positive tone as well) and Rio Alto (RIO.to) also
reporting (2) Tuesday evening. However, the company numbers were overshadowed by the
new sell-off in gold (and silver and others) and it made no odds that market’s reaction in words
was positive, because in the real terms of money stocks dropped and then some. We have a
quick overview of the BTO numbers in ‘Market Watching’, but here I want to dedicate space to
RIO because from the way things unfolded, its situation is more pressing, I believe. That and
I’m still trying to square the circle of the good things seen during the site visit to La Arena two
weeks ago and the bad things the market seems to see in the stock.
Here today we overview the RIO results starting with revenues and profits items via our usual
suspects charts and once we get there you’ll also note that the charts shows forecasts and
projections for the rest of the 2013 quarters so before moving in, let’s outline the main
assumptions used for those 2q13-4q13 calls. There are three mains changes to the model:
• Gold at $1,400/oz. This is the main assumption of the forecast and takes into
account the new reality of the market. Yes, we could have chosen a lower price deck
and gone even more conservative but after due consideration and all that jazz, this is
my best guess of a conservative average for 2013 right now. The call to go for
$1400/oz in the forecast was partly due to the feeling that if gold drops further (e.g.
$1,200 or lower) there won’t be much interest in holding any gold mining stock, let
alone a new and growing junior, no matter what its perception of company quality
might be. It’s also supported by the in-house assessments that RIO would still be a free
cash flow positive mining company with gold at $1,100/oz which indicates that the
company isn’t going to go away. The bottom line is that I want to show a “stress-
tested” forecast for RIO but also want to be moderately optimistic and pick a price at
which RIO makes at least reasonable profits. With gold flitting around $1,400/oz this
week, the call is made (apologies for rattling on too much).
• Costs in line with those seen in 1q13. Now we have details of the first quarter’s
financials, the first in which RIO has been running consistently at its new throughput
rate of 36,000tpd and now things such as the 2013 salary raises are factored in (most
employees got a 5% pay rise, some got more) it’s a more reliable baseline costs
number for operations than anything before. There are a couple of extra factors, such
as information gleaned on exploration budget plans during the site visit earlier this
month, but overall I’m happy enough about using the 1q13 costs figures as a baseline
assumption for the next three quarters. However, please note that I’m less worried
about cash costs per ounce than I am about costs in absolute terms, because our
assumptions are more about the millions of dollars RIO spends per quarter at its mine,
offices and exploration projects than about the hundreds of dollars per ounce it needs
to mine an ounce of gold. This is mainly because (and again, the site visit helped me
get this concept clear) RIO is moving rock and that costs money, but the change in
ratio between ore material and waste as the year progresses (along with slightly higher
4

expected grades) means that more gold is due to be produced for the same amount of
tonnage shipped around the mine. Cash costs are bound to drop from the numbers
seen in 1q13, but overall costs on the P&L aren’t going to be that much different (or so
our assumptions go), thus providing a better straight line measurement than anything
per ounce.
• Company gold production forecast in the next three quarters are taken as
gospel. This decision comes from 1) RIO’s strong track record of delivery on guidance
2) visiting the site, listening, asking, observing and coming away very happy and 3) the
desire to remain conservative, because although I’m very confident that RIO will beat
its quarterly forecasts (that come to around 202,000 oz on the year) and I’m also
confident that RIO will be able to beat the top end 2013 guidance of 210,000 oz as
well, sticking with the official company numbers suits the preferred course of the
Weekly. I have seen other analysts and houses make production forecasts below the
official RIO guidance but I see no reason to go that low (especially after eyewitnessing
things and being able to speak to the people that actually run the mine, not just them
there high-falutin’ board members and directors). In chart form, here’s what the
guidance looks like for the next three quarters (we’ll come back to this subject).
RIO.to: Gold production and forecast for 2q13-4q13
70000 63820
60000 55973 58081 56511 58808
50000 43605
40000 36355
30548
30000
20000
10000
0
5
21q1 21q2 21q3 21q4 31q1 tse31q2 tse31q3 tse31q4
Oz Au
source: company filings, RIO guidance/IKN ests
Apart from those three I’ve also made minor changes to the spreadsheet here and there, but no
big deals and nothing worth wasting more preamble space on here (I’m rambling on too much
already today). So let’s get to the charts, starting with balance sheet items and the main issues
are assets, liabilities, working capital and shares out. Taking assets and liabilities as a single
subject, we see that the balance sheet position improved in 1q13 because although total assets
dropped by around $6.5m, total liabilities went down by just under $16m. The main changes
were tax related (a drop in sales tax credit since 4q12 offset by a drop in tax owed) and other
moves were inside the type of bands (upmoves and downmoves) you’d expect in a going
concern company.
RIO.to: Assets Breakdown per qtr
440
400
360
320
280
240
200
160
120
80
40
0
11q4 21q1 21q2 21q3 21q4 31q1 tse31q2 tse31q3 tse31q4
source: company filings/IKN ests
srallod
fo
snoillim
RIO.to: Debt Breakdown per qtr
fixed 140
other current
cash 120
100
80
60
40
20
0
11q4 21q1 21q2 21q3 21q4 31q1 tse31q2 tse31q3 tse31q4
source: company filings/IKN ests
srallod
fo
snoillim
LT debt
current debt

I don’t want to dwell too long here, as the operations and revenue generating capacities of RIO
are more importance to the stock price in 2013 than the boring old balance sheets, but I will
note quickly that we expect assets to increase during 2013 thanks to both fixed asset
investment and better cash positions, both of
which are expected to be funded by RIO.to: Working Capital per qtr
110
operational profits. Meanwhile, liabilities will 100
drop come end 2q13’s numbers thanks to 90
the 8k oz gold that RIO has pre-paid this 80
70
quarter to its funding lenders. Of more
60
interest is working capital, which dropped
50
slightly during 1q13. 40
30
20
RIO’s better cash position (treasury up
10
almost $9m) isn’t the real story here
0
however, because accounts receivable
dropped by $10.7m and accounts payable
rose by $12.5m, which is a big $26m move
against the company. On the other hand it is
understandable and it’s not anything we should be unduly worried about because 1) 1q13 was
the ‘heavy lifting’ quarter that saw investment activity up (nearly $21m, with nearly $19m of
that spent on La Arena), costs rise, higher strip rate at the mine and programmed lower gold
production which means in turn lower sales. As production, revenues etc are scheduled to rise
in the quarters to come we’re forecasting strong cash liquidity for the company (yup, even at
$1,400/oz gold...or lower if you like) and the already noted subsequent announcement that RIO
forward paid on 7,882 oz of gold to its lenders by writing a cheque for $10.1m isn’t the move of
a company worried about a liquidity crunch (and
also means RIO has its forward gold obligations
covered until mid-February 2014).
Before moving on to the interesting bits of the
financials over at the P+L (particularly how we
see revenues improvement to come in the
quarters ahead), let’s just check in on the share
count which hasn’t budged much in the last
couple of years and isn’t expected to do so in the
quarters to come, either. Today shares out stand
at a fraction under 175.9m, giving the company
a $514m market cap.
We move to earnings, which in 1q13 was headlined by pre-tax profits of a smidgeon over $15m
and post tax of $8.08m, or 5c/share EPS (the tax provision was a just over $7m) .
6
11q4 21q1 21q2 21q3 21q4 31q1 tse31q2 tse31q3 tse31q4
source company filings/IKN ests
srallod
fo
snoillim
RIO.to: Shares Out
200
180
160
140
120
100
80
60
40
20
0
11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 tse31q2 tse31q3 tse31q4
source: company filings/IKN ests
serahs
fo
snoillim
RIO.to: Quarterly Earnings overview
100
90
80
70
60
50
40
30
20
10
0
21q1 21q2 21q3 21q4 31q1 tse31q2 tse31q3 tse31q4
source: company filings/IKN ests
srallod
fo
snoillim
RIO.to: Op. Earnings vs Net Earnings, per qtr
revenues COGS amorts gross profit 65
60
55
50
45
40
35
30
25
20
15
10
5
0
21q1 21q2 21q3 21q4 31q1 tse31q2 tse31q3 tse31q4
source: company filings/IKN ests
srallod
fo
snoillim
Op earnings
Net earnings

What we saw from the revenues mix (just over 36k oz Au sold at just under $1,600/oz) was the
lowest gross sales number since RIO declared commercial production of $58.16m, but a
number that was generally in-line with expectations. Costs came in fine, with the only spike
seen in amortizations ($11m, presumably due to the imminent closure of the Ethel pit which is
not in its last weeks of production). For the rest of the year, we’re pitching amortizations at a
flat rate $7m/quarter until proven otherwise. The result was a gross profit (which comes before
G&A, exploration and “other” financial influences) of $17.97m.
So that was then but now we move to the immediate future and what to expect from the next
three quarters, which looks that much better for the company. By taking the production
guidance given by RIO, and assuming $30m/qtr in COGS and the gold price assumption of
$1,400/oz, 2q13 is set to improve slightly on 1q13 despite the gold price drop, but it’s in the
second half of the year (assuming of course that gold is still with us) that things get a whole lot
better for the company. The new higher throughput, lower strip, higher average production and
the same operating costs as we saw this last quarter point to a 3q13 with $90m in sales, and
$48m in operating profits, or an EBIT/share of
RIO.to: EPS and forecasts
27c. Next to that 4q12 is strongly forecasted 20 19
too, with $83m in sales from the same 20
17
$1,400/oz gold price of which $38m makes it to 18 16 15
16
operating profits. Those are the kind of 14
numbers that the market will appreciate from a 12
10
beaten up share price. Another way of looking
8 6 6
at it is via EPS, with next quarter scheduled to 6 5
come in a little higher than 1q13 at 6c, but 4
2
there won’t be that much in it (and all depends,
0
of course, on how gold performs between now
and end June). However, RIO goes back to
being a serious cash cow 3q13 onwards (and as
mentioned last week, what we’re seeing here
isn’t a gold operation that will have a good 2013 then relapse in 2014, but a company that’s
going to be churning out 20k/month in gold in the years to come as well).
Discussion and conclusion
I didn’t watch the markets realtime last week, but I can at least review the timing of matters
and at what moments our Top Pick stock RIO took the heaviest batterings. Here’s a ten day
chart with GLD featured for perspective:
The big down days for RIO last week were Wednesday (-9.6%) then late Thursday and Friday.
Wednesday’s drop was clearly influenced by a set of numbers that didn’t inspire the markets,
7
21q1 21q2 21q3 21q4 31q1 tse31q2 tse31q3 tse31q4
cents
source: company financials/IKN ests

but both of the drop sessions were clearly influenced by the worst of the bullions weak
moments as well. Gold was in bad shape Wednesday morning and on Friday, so it’s logical
enough to assume that a set of lacklustre results was all the excuse a market needed to dump
its shares of RIO. Markets are like that, there’s no blaming or sour grapes and fist-shaking
going on here, life goes on. But what we can take away from the chain of events is that nice
Mister Market is likely going on this single quarter of numbers as best reason to dump, rather
than looking at the bigger picture.
That bigger picture is that RIO didn’t have a worse-than-expected quarter and things are going
to get better for the company in 2q, even if it can only sell its gold at $1,400/oz average, some
$200/oz less than in 1q13. That might catch some people’s attention, but the real fun should
start in the second half of this year when production is set to jump hard, average 20k oz gold
per month (instead of 36k in a quarter) and see really strong gains in revenue at roughly
expected extra cost of operations. That’s the kind of combination that will have RIO getting
talked about as some kind of comeback kid by those who only have the inclination and/or time
to read the headlines of NRs and don’t worry so much about studying the filings, financials and
MD&A that tend to come along at the same time.
Which brings us to this chart, a 2013 year-to-date offering of the same ilk, but this time
featuring RIO (grey shaded) alongside Argonaut Gold (red), B2Gold (blue), the junior PM miner
ETF GDXJ (yellow) and First Majestic (orange). In fact any number of other squiggly junior
mining lines could be used, but I’d say those are reasonable comparison lines to play against
RIO and will suffice for our purposes.
What we see is that the whole of the sector has
been beaten up badly, but until last week we
could at least say that RIO was one of the better
of a bad bunch (it was duking it out with Argonaut
Gold (AR.to) until then between 30% and 35%
down on the year). Therefore by observation, it
seems fair to say that RIO hadn’t done any worse
than its peers until Wednesday, but the combo of
results day plus gold’s swoon really did the stock
in and pushed it to peer underperformance levels.
8

Now, it’s up to you and I to consider whether that’s “fair” on RIO and it’s subjective but as it
happens, horridly boring perma-fanboy that I am, the call here is that the bad timing of
headline numbers that didn’t inspire a market that needs little excuse to dump gold stocks has
pushed RIO down too far and that once the rest of its 2013 is known things will get better, both
in absolute and peer comparative terms. Therefore, if it weren’t for the craziness in the bullion
markets RIO would be a clear shot at a near-term trade here, as the approx 10% it seems to
have lost on the knee-jerk is likely to return to its share price. Sadly, this doesn’t take into
account the incognito of gold, which may droop again and wipe out any sort of relative win to
RIO’s peers in absolute terms.
However, we do expect RIO to put in better corporate performances in the second part of this
year, which then begs the question as to whether you (and I) are willing to hold through the
current mess in order to benefit from a longer game plan. Personally I am and that’s why I’m
holding this stock today, without a problem and without expecting to lose sleep over that call. I
firmly believe RIO to be at the top end of the quality spectrum of juniors and when push comes
to shove, if there were no space in my plans for RIO there’d be no space for anything in the
sector and it’d time to pack up and go home.
Before the wrap-up, here’s the table that was featured in the RIO article of IKN207 dated April
21st (just after the gold swoon last month when bullion was trading at $1,405/oz) but with
updated shading to reflect the new, lower share price at RIO.
Avg Au
(U$/oz) Target at 12X PE Target at 10X PE Target at 8X PE Target at 6X PE
1300 3.13 2.61 2.09 1.57
1350 3.57 2.98 2.38 1.79
1400 4.01 3.34 2.67 2.00
1450 4.45 3.71 2.96 2.22
1500 4.88 4.07 3.26 2.44
1550 5.32 4.43 3.55 2.66
1600 5.76 4.80 3.84 2.88
source: IKN calcs
In IKN207 this table was part of the write-up that explained just why I’d decided to add to my
RIO position and back then the $3.62 share price looked cheap...so sub-$3 today is even
cheaper (cue triple exclamation marks used by charlatan end of mining-chatter brigade) !!! The
reasoning at the time was based on risk/reward balance and for a while it worked fine, gold
rallied around $65/oz to ~$1,470/oz, RIO touched $4 again (which was better than our model
at 10X PE predicted, all was happy in the world. However, I didn’t cash that extra trade in for a
profit and now gold’s drop along with the effect (undeserved or not) from its 1q13 numbers has
dragged RIO down below the type of number the low-end 10X PE column expects from a
$1,360/oz gold price. This table, although imperfect with its precise predictive numbers, has
shown its worth as a guide and also shows the clear influence of gold on the current share price
at RIO. Therefore we can assume that if gold rallies to $1,400/oz RIO would regain $3+ easily
and give a ~10% win to anyone with the stomach to use RIO as a leveraged trade on gold
prices, all that without the unwinding of oversold effect from the financials.
The bottom line is that in different circumstances RIO would be a trading buy at current prices
and I’d look to scalp a 10% (or so) win on money traded around an un-moving core position.
However, gold and its uncertainties are too much of an influence on prices in the whole sector
today, so the call here is to hold the stock and reiterate its ‘Top Pick’ status as an investment
without being brave/foolish on a trade. As 2q13 will be better without likely wowing the
audience, our eyes therefore turn to the potential of a rebound win further down the line, in the
timeframe which starts mid-October when we expect RIO to announce a big production quarter
and then follow up with strong financials (gold price caveat, of course). I won’t be surprised if
you tell me that five months for a trade win opportunity is too long for you to wait, but RIO isn’t
9

really my idea of a near-term trading vehicle anyway, I’m not long and staying long because of
that. RIO is where patience is shown and where good practices win out, so if the next strong
price catalyst doesn’t come long until the Northern winter sets in, then so be it. I’ll still be long
by then and if gold improves its position, I’ll be long in a stock with a $4 or a $5 handle. We
hold our Top Pick, confident that it will show well once gold decides to stop falling.
Stocks to Follow
Of the 12 open positions on our ‘Stocks to Follow’ list, four made gains last week (LRA.v, TAHO
short, GORO short, DRV.v) and one was unchanged (AQM.v) while the other seven registered
losses (RIO.to, BTO.to, IRL.to, OGC.to, IPT.v, FCV.v, PLA.v). However, that slightly negative
raw balance hides the fact that last week was a wholesale disaster for the portfolio in absolute
terms because short cushionings aside the bigger positions, led by Rio Alto and B2Gold, took a
no-holds-barred kicking and there’s a big hole in your author’s account where dollars used to
be. Anyway, rounding off our standard paragraph here we note that best winners were Tahoe
Resources (TAHO short up 15.4%), Duran Ventures (DRV.v up 12.5%) and Gold Resource Corp
(GORO short up 9.3%), while worst losers were Minera IRL (IRL.to down 30.0%) IMPACT Silver
(IPT.v down 21.2%) Rio Alto Mining (RIO.to down 17.5%), OceanaGold (OGC.to down 17.1%)
and B2Gold (BTO.to) down 11.1%).
There are currently 12 stocks on the open list, three less than our self-imposed maximum.
Three of the trades are in the green, one is unchanged, 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 hold C$2.30 07-apr-11 C$2.92 27.0% $6.29 tgt, added Apr13
B2Gold BTO.to buy C$3.07 28-nov-12 C$2.17 -29.3% $5.70 tgt added Apr '13
Recommends
Minera IRL IRL.to spec buy C$0.73 22-jul-12 C$0.28 -61.6% $1.56 tg, added, new avg
OceanaGold OGC.to hold C$3.03 16-sep-12 C$1.75 -42.2% $5.34 tgt growth prod
Lara Expl. LRA.v hold C$1.15 08-apr-12 C$1.13 -1.7% solid biz model, LT hold
IMPACT Silver IPT.v buy C$1.14 13-jan-13 C$0.52 -54.4% new position, $1.85 tgt
Tahoe Resources TAHO short U$18.62 08-apr-13 U$14.20 23.7% near-term trade
Gold Res Corp GORO short U$10.00 03-may-13 U$8.94 10.6% tgt $7.50
Duran Ventures DRV.v spec buy C$0.045 10-may-13 C$0.04 0.0% new position, ST trade
Smaller/Riskier
AQM Copper AQM.v hold C$0.31 16-oct-11 C$0.04 -87.1% holding thru for my sins
Focus Ventures FCV.v spec buy C$0.175 01-jul-12 C$0.09 -48.6% revised tgt 25c
Plata Latina PLA.v selling C$0.79 10-apr-12 C$0.14 -82.3% trying to sell
Closed in 2013 closed close price
USA Graphite USGT feb'13 U$0.93 08-jan-13 U$0.17 81.7% short 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
United Silver USC.to mar'13 C$0.21 28-oct-12 C$0.095 -54.8% small Ag sector trade, failed
Aurcana Corp AUN.v apr'13 C$1.07 11-nov-12 C$0.55 -48.6% closed on poor YE results
Gold Res Corp GORO apr'13 U$14.11 25-jan-13 U$9.38 33.5% short tgt made/trade closed
Marlin Gold MLN.v apr'13 C$0.075 10-feb-13 C$0.065 -13.3% closing this week (def)
Bear Creek BCM.v may'13 C$2.58 01-apr-13 C$2.40 -7.0% near-term, time run out
Lupaka Gold LPK.to may'13 C$1.12 23-oct-11 C$0.32 -71.4% towel thrown in
2009, 2010, 2011 and 2012 closed positions in appendices below
Now for some notes on a selection of the above stocks.
10

Minera IRL (IRL.to): The damage to IRL was done on Tuesday 14th and it was done in
London, when 425k shares were traded of MIRL.L and the price jagged down from an intraday
high of 26.5p to an intraday low of 19.75p, closing at 20.5p. That day’s volume was the biggest
since mid-October (when MIRL closed at 60p so help me Lord) and had all the hallmarks of a
larger position throwing in the towel. The Canadian IRL listing arbed down on the London
action but trading was thin yet again and nothing of import.
I doubt you needed confirmation but I’ll still say it out loud: It’s a bad situation here. The
London volumes were up, but it wasn’t exactly multimillion dollar movements either and there
were signs later in the week that any rebound was being sold by the same position (i.e.
Thursday), thus snapping any chance of a rebound. Meanwhile, the temptation is, obviously, to
move in and add at these low low prices but 1) the desire to see the Don Nicolas financing deal
closed and done is still paramount 2) any bidding would see the über-bargain prices disappear,
as illiquid and badly traded as it is in Canada (which is my one serious gripe I have with the
company management...c’mon guys, get a grip on this thing and set up a market maker one
time, yeah?) and 3) it’s not so attractive a proposition to add an illiquid stock than, say, BTO
which can be traded out quickly if necessary.
In the midst of all this, IRL reported its quarter and although I’ve done the datadumping on the
numbers, time has kind of run out on me this weekend and I prefer to defer until next week on
the analysis. After all, the main (only) catalysts is this pending Don Nicolas financing deal so
until that’s in place, we’re not likely to see the stock move on fundamental analysis.
Tahoe Resources (TAHO): THO dropped, our short gained, the hedge-effect works (ditto
GORO). So it’s still good to have this one open but be clear that I’ll be happy to cover this short
and take the profit if occasion arises. We’ve yet to see the type of alpha win that comes from
specific circumstances around TAHO and if one turns up and a sharp downspike results, that’s a
clear moment to take profits. The other would be more macro-related and a decision to get
longer the market on any sort of significant rebound in gold/silver/etc. I’d probably jump first
by taking new or additional long positions in other stocks, but the process of short covering is
another way of doing just that and a valid option in a rebound scenario (hope springs eternal
and all that).
So, watching and monitoring this near-term short position and happy to have it open, but ready
to cover if required.
Lara Exploration (LRA.v): Yes it was the most obvious piece of tape-painting you can
imagine, as 1,500 shares late Friday bumped LRA up in the way you see in this five day chart,
but when the rest of the damage is considered (especially that of BTO and RIO) I’ll take any
light relief going.
11

Gold Resource Corp (GORO): The difference between TAHO above and GORO here is that
I’m keener about the specific target price and will hold this short open longer. TAHO will be the
way of reducing the short-side hedging, as GORO is more of a fundamentally based argument
and from the calcs and guesstimating (see recent editions of the weekly) is still significantly
overvalued at its current $474m market cap.
IMPACT Silver (IPT.v): It was impacted by silver. I could write something punny and
unfunny about OceanaGold (OGC.to) as well, but just for one week I’m going to studiously
ignore the heavily whacked losers and keep my focus on stories that offer something proactive
to consider.
Duran Ventures (DRV.v): Our new spec position registered a decent percentage gain on the
week, but it really wasn’t much of a win because it traded lightly all week and all at 4.5c (bar a
trade or two Friday morning at 4). A bit like LRA above in that it’s symbolically positive when sat
against the big losses, but not much else. We’re here for Minasnioc newsflow, no other reason,
and will wait for said developments.
The Copper Basket
After twenty weeks of 2013 The Copper Basket is showing a 22.62% loss to level stakes.
company ticker price 1/1/13 Shares out Market Cap current pps gain/loss%
1 Augusta Res AZC.to 2.43 144.1 353.05 2.45 0.8%
2 NGEx Resources NGQ.to 3.40 168.63 344.01 2.04 -40.0%
3 Lumina Copper LCC.v 9.43 43.46 301.61 6.94 -26.4%
4 Copper Fox CUU.v 0.83 399.61 259.75 0.65 -21.7%
5 Nevada Copper NCU.to 3.50 80.5 185.15 2.30 -34.3%
6 Hot Chili Ltd HCH.ax 0.72 286.78 146.26 0.51 -29.2%
7 Reservoir Min. RMC.v 2.41 41.46 108.21 2.61 8.3%
8 NovaCopper NCQ.to 1.80 51.89 93.92 1.81 0.6%
9 Western Copper WRN.to 1.39 93.78 58.14 0.62 -55.4%
10 Panoro Minerals PML.v 0.62 176.25 53.76 0.305 -50.8%
11 Candente Copper DNT.to 0.375 121.93 36.58 0.30 -20.0%
12 Curis Resources CUV.to 0.70 56.31 36.04 0.64 -8.6%
13 Yellowhead Min. YMI.to 0.59 60.97 23.78 0.39 -33.9%
14 Oracle Mining OMN.to 0.80 49.03 22.06 0.45 -43.8%
15 Strait Minerals SRD.v 0.08 56.86 3.41 0.06 -25.0%
NB: HCH.ax priced in AUD$, rest CAD$ Portfolio avg -22.62%
The eleven downers since this time last week (NGQ.to, LCC.v, NCU.to, HCH.ax, WRN.to, PML.v,
NCQ.to, RMC.v, DNT.to, OMN.to, CUV.to) far
Copper Basket 2013 average, weekly
outweigh the three uppers (CUU.v, YMI.to,
16%
SRD.v) and one UNCH (AZC.to), though it
12%
should be noted that overall the percentage 8%
drops weren’t as heavy as the stocks we own 4%
and cover in the ‘Stocks to Follow’ list above. 0%
-4%
That’s probably because copper the metal
-8%
didn’t have such a bad time as gold the -12%
metal, but we’ll get to that in a moment. The -16%
best winner was the 9.1% put on by minnow -20%
-24%
Strait Minerals (SRD.v) while the worst losers
were Curis Resources (CUV.to down 15.8%)
and Western Copper (WRN.to down 10.1%).
12
ht6naj ht31 ht02 ht72 r3bef ht01 ht71 ht42 dr3ram ht01 ht71 ht42 ts13 ht7rpa ht41 ts12 ht82 ht5yam ht21 ht91
source: IKN calcs, TSX data
31/1/1
morf
egnahc
%

So with that, a new yearly low is set by our basket as the average dropped by over 3% week
on week.
Next offering (above) is the gold/copper ratio,
courtesy of stockcharts dot com (3) that shows a
downspike that now beats out the one we saw in
April (when the bottom first fell out of the gold
price). It makes sense to see the industrial metal
doing well in a world that thinks the worst is over,
so fair play to copper but it does leave me
scratching my head about the Jekyll/Hyde silver,
that only seems to be a precious metal these days
even though its main uses are industrial too.
Inventory time and overall world stocks of copper
went up a little last week, snapping the
downwards direction of May and perhaps
suggesting a more rounded than spike to any top.
Stocks stood at 897,117mt, up 19,861mt or 2.3%
from this time last week. Splitting that number
down, LME stocks went up by 4.3% to 629,950mt
with the biggest stock growth inside the LME
system reported in Belgium and Malaysia. Comex
stocks dropped by 1.4% to stand at 76,837mt,
while the bulls can take more cheer from the Shanghai Futures Exchange copper warehouse
situation in Shanghai Futures Exchange 300000 inventories, May 2012 to May 2013
warehouses, where stocks dropped yet again, 250000
by 2.4% to 190,330mt. If what’s being bandied
200000
around by copper trade pros is true, then the
150000
way in which Shanghai’s stocks are behaving is
more indicative of the true health of the sector 100000
and as this chart shows, stocks there are now 50000
lower than any point since September 2012
0
which points to a rebound in Chinese demand.
Not a bad thing for the metal of course, it now
13
yam nuj luj gua pes tco von ced 31.naJ bef ram rpa *yam
MT Cu
source: Cochilco *to date

remains to be seen if the wealth generated by that industry sees China buying up gold again
(the supply/demand argumentors will say that it will and that gold prices will rise as a result)
To round off, LME cancelled warrants stayed high with 222,775mt under contracts to deliver
which represents 35.4% of total stocks.
Cancelled Warrants at LME, IKN157 to date
40%
35%
30%
25%
20%
15%
10%
5%
0%
14
751NKI 951NKI 161NKI 361NKI 561NKI 761NKI 961NKI 171NKI 371NKI 571NKI 771NKI 971NKI 181NKI 381NKI 581NKI 781NKI 981NKI 191NKI 391NKI 591NKI 791NKI 991NKI 102NKI 302NKI 502NKI 702NKI 902NKI 112NKI
source: Cochilco, LME
rof
yrotnevni
EML
%
latot
yreviled
resu-dne
Overall, fundies for copper are a darned sight better looking than those of gold right now, so
the copper price action noted above does have its backbone.
Now for updates on some of the basket stocks:
Candente Copper (DNT.to): On Friday DNT published (4) a long-ish NR that was heavy on
the community relations side of things at Cañaris (you’d never believe there was a scrap of
opposition to the project by reading their literature) but the main news was that due to
ostensible costs reduction, drilling would be suspended. This makes a lot of sense due to the
current market conditions, the treasury position at DNT (as at March 31st working cap $4.6m,
with the drilling in April/May likely burning at least another million of that) and the general
antipathy towards DNT in the locality likely to show itself now that the main harvest season is
done and people have more time on their hands. The stock dropped on the news, but in a
world looking for excuses to leave positions that wasn’t a shock.
Curis Resources (CUV.to): Despite announcing on Monday and then closing Tuesday (5) an
equity financing of 6.82m share at 88c Canadian per share to raise gross proceeds of $6m, CUV
dropped away by the end of the week and gave us our worst loser of the basket bunch. The
takers in the placement were two Chinese funds, namely Sino-Canada Natural Resources Fund I
and Sino Canada Zheshang Mining Investment Limited, who were both already holders of CUV
and also made it plain that they’d continue supporting the project in the future. That’s the kind
of financial clout that HDI-backed companies bring to the table. As for the subsequent drop, for
me it’s more like story fatigue from us little retail guys than any failing from the larger backers
because there doesn’t seem to be much new newsflow on the continued political fight between
company and town (though admittedly I didn’t pay close attention to the markets this week).
NGEx Resources (NGQ.to): If you want a verdict on the sector so far this year, look no
further. Top flight team, excellent main project in friendly territory and close to a new mine
development, strong treasury position (IKN estimated $20m cash to play with today), plenty of
resource upside via its satellite targets (admittedly in Argentina, but still not needed for
valuation purposes) and a price performance early year that had me wishing I’d taken prices at
just below $3. All that wraps up into a 40% loss after just 20 weeks and an author that’s glad
he decided to sidestep at least this great looking prospect and wait on the sidelines until a
bottom started forming...because we’ve seen nothing but dive ever since PDAC.

Your author’s call that the junior exploreco scene is on ice will remain that way until proven
otherwise by M&A activity. These plays may perk up on further copper price strength, but the
fat lady doesn’t sing until the big companies start buying these small companies and the tell
from the BHP/Capstone deal is that the precise reverse is true.
Strait Minerals (SRD.v): Although on thin volumes, SRD was up while most went down last
week because its big partner at the Alicia JV, Teck, threw tiny lil SRD a corporate lifeline.
Announced Thursday (6), the $50k/month deal means in not so many words that SRD isn’t
going to run out of money and can stay in business while the interminable delays to the drill
campaign at Alicia are resolved.
This company is still one worth keeping an eye on, because if (big if) those drills start turning (a
year or so late, but hey who’s counting?) and if (big if) the resulting assays show the type of
rock that Teck thinks might be there, then it’s still the minority owner of something very
interesting. Again (and this is starting to sound like a broken record) I have no inclination to
buy into anything else that’s tiny right now (sole exception, the wager on DRV) and fill up space
on the stocks to follow list with junky illiquid thingsbut this one, along with others, are kept on
the radar and get at least half an eye.
The Lottery Ticket Basket
After 20 weeks of 2013 The Lottery Ticket Basket is showing a 30.32% loss to level stakes.
company ticker price 1/1/13 Shares out Market Cap current pps gain/loss%
1 Eagle Star Min. EGE.v 0.125 69.48 17.02 0.245 96.0%
2 Marlin Gold MLN.v 0.10 192.39 13.47 0.070 -30.0%
3 Fancamp Expl. FNC.v 0.125 118.41 8.29 0.070 -44.0%
4 Bellhaven BHV.v 0.14 121.16 7.88 0.065 -53.6%
5 Gryphon Gold GGN.to 0.085 194.64 7.79 0.040 -52.9%
6 Glass Earth GEL.v 0.155 104.79 5.24 0.050 -67.7%
7 Tango Gold TGV.v 0.13 45.59 5.01 0.110 -15.4%
8 AQM Copper AQM.v 0.08 105.57 4.22 0.040 -50.0%
9 Copper North COL.v 0.10 58.62 3.52 0.060 -40.0%
10 Darwin Resources DAR.v 0.20 26.16 3.14 0.120 -40.0%
11 Inca One Res. IO.v 0.12 34.0 3.06 0.090 -25.0%
12 Cream Minerals CMA.v 0.03 155.34 2.33 0.015 -50.0%
13 Rio Cristal RCZ.v 0.025 149.26 2.24 0.015 -40.0%
14 Firestone Ventures FV.v 0.045 36.32 1.27 0.035 -22.2%
15 Netco Silver NEI.v 0.025 47.01 0.94 0.020 -20.0%
Portfolio avg -30.32%
15

If it weren’t plain before it should be by now; our Lottery Ticket Basket was smashed into little
pieces last week, losing nigh on 10% from its average and with its only saviour officially Eagle
Star, with all others at least 15% down on the year. Last week we had but two risers (GGN.to,
DAR.v) and five others that remained
unchanged (MLN.v, BHV.v, AQM.v, CMA.v,
25% Lottery Ticket Basket 2013 average, weekly
NEI.v), which means the other eight all
20%
dropped (GEL.v, FNC.v, EGE.v, TGV.v,
15%
COL.v, IO.v, RCZ.v, FV.v) with the worst 10%
of those being Rio Cristal (RCZ.v down 5%
0%
40.0%), Glass Earth (GEL.v down 28.6%),
-5%
Eagle Star (EGE.v down 18.3% with no -10%
escape even for the best of the bunch) -15%
-20%
and the newly re-named Tango Gold
-25%
(TGV.v down 15.4%). -30%
The other disheartening thing about the
group is the quantity of stocks that are
now basically broken to a state of irrepair,
companies that seem to have no way back from their serious losses. That’s not all of them and
there’s room for debate, but names such as GEL.v, AQM.v (yup I am that bagholder) GGN.to,
CMA.v, NEI.v and now RCZ.v hold little hope of a rebound even in optimistic conditions, which
leads me further on towards the conclusion that The Lottery Ticket Basket experiment for 2013
is a bust. The only thing that I can logically rescue from the wreckage is to continue marking
weekly prices of the basket and note if the nanocap sector as a whole shows any sign of life as
the year goes on, but the prospect of getting back to evens here has all but disappeared.
Tango Gold Mines (TGV.v): The only trade of the whole week was one of 92,000 shares on
Thursday, with $10,000 worth of stock changing hands enough to knock $1.5m off the TGV
market cap. Such is the way of the tinycap.
Rio Cristal Resources (RCZ.v): The news from RCZ Friday morning (7) that it had dropped
its option on the Bongara zinc property in Peru means that it’s now a company without a
property of merit. That situation can be tolerated for a while by Canada’s market authorities,
but with RCZ in negative market cap (it’s something under $1m in hock) and with no
exploration to do, it’s no wonder the stock was sold down on relatively heavy volume Friday
once the news was published. In fact, its new low of one and a half cents still looks
fundamentally overvalued under the circumstances.
Glass Earth Gold (GEL.v): The biggish percentage drop in GEL came with biggish volume,
relatively at least, of 700k shares traded between Wednesday and Friday. That looks like a
biggish (ish ish ish) position calling it a day, which might be a bottom signal but one the other
hand, there have been plenty of things that have looked like definitive bottoms in this market
that turn out to be mere stepping stones lower.
Regional politics
Mexico: Mining industry tries lobbying against the royalty law bill
The mining industry is trying its best to derail the proposed 5% royalty on sector revenues that
the Enrique Peña Nieto government has already pushed through the national congress lower
house and now awaits the key debate and vote in the country’s Senate. There are several
examples of the pushback, with a most recent one being last week from José Martínez Gómez,
president of the Association of Mining Engineers, Metallurgists and Geologists of Mexico
(Asociación de Ingenieros Mineros Metalurgistas y Geólogos de México), who claimed (8) in a
speech that Mexico is the only country that doesn’t offer fiscal incentives to mining and only
16
ht6naj ht31 ht02 ht72 dr3bef ht01 ht71 ht42 dr3ram ht01 ht71 ht42 ts13 ht7rpa ht41 ts12 ht82 t5yam ht21 ht91
source: IKN Weekly data, TSX
2102/1/1
morf
egnahc
%

one of two that has to pay worker profit participation. He sais that the new proposed law
changes, particularly the plan to charge a 5% royalty on mining revenues, would convert
Mexico into the country “...that mining has to pay the most to in the world, which puts us at a
disadvantage for investments from other countries.” Not only is that a clear exaggeration, but it
was the exact same argument used by the mining industry when it tried and failed to block
royalties being introduced into Peru in 2004/2005 during the Toledo government.
Peru: Canadian PM Harper visits Peru and Colombia this week
How much mining gossip will come from the State visit of Canadian PM Stephen Harper to Peru
and Colombia this coming week (9) is unknown, but the mining connection between the three
countries is hardly coincidental. Harper’s first stop is Peru May 21st and 22nd, that includes a
formal meet with Peru President Ollanta Humala on Wednesday morning, after which he will
travel with Humala to Colombia for a State visit that also takes in a guest seat at the Pacific
Alliance meeting, the trade/diplomatic bloc comprising Peru, Colombia, Mexico and Chile.
Bear Creek Mining (BCM.v) community relations
Even though your author sold his position a couple of weeks ago, we’re following this story
because the heavy drop in BCM shares may offer another long trade and the community
relations issue around its main Corani project is a key factor in any set-up. We have positive
news to report too, as last week (10) locals around the Corani project in Quechua-speaking
Northern Puno, Peru (again and to repeat until blue in the face, a very different and far more
positive jurisdiction for mining than the Aymara-speaking South Puno region where the failed
Santa Ana project is located) officially ratifed their decision to approve the project and give it
their social approval. Also and interestingly, the governor of the Carabaya province* who is not
from the area but wants to re-negotiate the deal with BCM to get more money for the region
went to the ratification meeting but was run out of town by locals who told him where to stick
his sudden attack of opportunism.
The ratification decision was then given official approval by the national government ministerial
cabinet and once that was in place, a working round table comprising of locals, government
officials and company representatives has been set up to decide exactly how the eventual
revenues received by the population around Corani will be spent.
The BCM.v share price may have dumped hard, but that is more to do with the market than any
political risk factor at its key project, because the company is now benefitting from its years of
good community relations work. The relationship between company and locals is nothing less
than optimum and one of these days that will be reflected in a higher share price. Be clear that
I consider myself lucky to have sold BCM when I did (luck that came from sticking to a near-
term trading plan I suppose, but there wasn’t any brilliant insight to the exact timing) and that
BCM.v at its new price is a stock that’s a live candidate to buy again if this hellhole of a silver
market turns itself around a little, because at Friday’s close of $1.74 it looks highly oversold.
*The Peru political geography system is broken into Region (e.g. Puno, roughly equivalent to a
U.S. State), then province (e.g. in this case Carabaya, one part of Puno region) and then district
(e.g. Corani, one part of the Carabaya province).
Ecuador: Mining Law reforms officially deemed ‘urgent’
On Thursday, President Rafael Correa announced (11) (12) that the 20 or so reforms to the
current mining law that are being considered have been deemed ‘urgent’, which is an official
category in Ecuador lawmaking and means they will be dealt with and (probably) approved
(because the Correa party has an absolute majority in parliament these days and what he says
goes) within 30 days. Top of the list pof 32 proposed changes to the law are five reforms:
1) A new permitting system that cuts the number of permits needed for operation from 10 to
just two, thereby speeding up the permitting track.
2) Heavy financial penalties to be levied against illegal, informal or “artisan” type mining, the
type that tends to pay no tax or state burdens and is environmentally very damaging.
17

3) Royalties for metals mining in copper or gold that are at least 5% and no more than 8%,
with each mining operation negotiating directly with the State
4) A change in categorization to allow for a new “medium scale mining” size to sit between
small and large scale mining.
5) Adjustments to the windfall tax (WFT) laws that will mean any new mining operation does
now pay WFT until its capex is covered by operational revenues.
And I’m almost scared to say this out loud, but the reforms actually look pretty commonsensical
and a positive step for mining in Ecuador. I’m not saying that Ecuador-exposed mining
companies are a buy, far from it as it’s still a bit of a nutbar place to go mining and it won’t
diminish two of the main problems faced by anyone wanting to go mining there, namely 1) the
heavy State burden of “at least 51% of gross revenues” and 2) the local protests against mining
activity that have already put the brakes on many a project and scared away several companies
(eg IMZ). However, this deeming of “urgent” so that it gets quick passage and the general
direction of the changes in the package do look miner-friendly and will get endorsement from
Correa and his majority party in Congress.
Colombia: Local municipalities have no veto over mining activity
According to a new executive decree (13) dated May 9th, local municipal governments have no
power of veto over mining activity in their regions if the national government decides to allow
concessions, then eventually permit and give operating licences. The national government says
this new decree was necessary because it clears up a legal grey area in previous laws but
“shouldn’t come as any surprise to local mayors”, however there has already been pushback on
the new law from mayors of localities that play host to polemic projects (e.g. Anglo’s La Colosa)
and also environmental activists, who state that the new executive decree is unconstitutional.
Seen from an industry point of view this decree is a positive and another small step in the right
direction for Colombian mining in 2013: It does seem that the delays caused by uncertainties
over rule changes and the postponed revamping of the mining law are on the way out and
Colombia is slowly getting its act together this year.
Market Watching
Western Graphite (WSGP): Our other short pays off
The lesson here is that we on the outside never know how high these pump and dumps are
going to pump, or when the dump part kicks in, but even if you don’t get short at the exact
right time there’s still a profit to be
made by shorting these scam-ridden
dogs. Your author shorted Western
Graphite (WSGP) (WSGP.pk) at-or-
around 84c and between then and
about a week ago the stock more than
doubled in price, but once the plug was
pulled by those running the show it was
exactly the type of freefall expected.
Here’s the last five days, with a chart
that makes even RIO.to’s week look
quiet and boring.
Over the last three weeks I’ve taken a
few mails, even from pro-trading desks,
from people saying that they couldn’t get a borrow on WSGP. I’m fully aware that it’s not easy
to go short these stories (which is said out loud from day one and as it happens, I couldn’t get
any more once WSGP had blown through $1 either, even from best-placed sources) which is
one of the reasons these OTC short ideas don’t get featured on the official ‘Stocks to Follow’ list
any longer: those trades have to be practical and possible for (nearly) all readers, not just a
small minority. However, I did get a few back then and now, as per Friday’s close, they stand at
18

a ~31% profit (pre-commish). That percentage will grow in the next couple of weeks too, as
there’s still plenty of drop left in this thing. I plan to do roughly the same as before in the USGT
short and close the short position once were into the teens prices, as it’s easier to cover before
volume dries up.
A small personal win and trade, which I know got repeated by at least a couple of you out there
(mailbox dixit) which makes it worthwhile script I suppose. We’ll continue with this occasional
series of OTC pump’n’dump short ideas in the future, as and when the opportunities of obvious
pump stories arise.
B2Gold (BTO.to) 1q13: The interesting bit is the balance sheet
Pre-bell last Wednesday B2Gold (BTO.to) reported its first quarter (14) since the merger with
CGA Mining, with acquisition costs and as far as revenues and profits go, things were in line but
due to a non-cash adjustment on inventories of $32.35m, the company only broken even on
the quarter. However, it’s worth considering
new-BTO from a balance sheet perspective BTO: Working cap
because the company now values itself via 140
assets much more than before, with Masbate 120
particularly getting stronger valuations than 100
any NAV-based analysis assumptions seen 80
before. 60
40
In terms of general liquidity, as the working
20
cap chart here (right) indicates nothing much
0
has changed as the CGA/Masbate treasury
position was basically counterweighted by
near-term liabilities (accounts payable and a
loan facility), but when assets and liabilities
are seen, there’s a lot more than just a merger of (near) equals going on here:
BTO has added significantly to both assets and liabilities from this deal. The main chunk of debt
is a $192m deferred tax liability that came with the package and was expected, but the assets
are boosted unexpectedly by a large price assumption on Masbate. Digging down a little
deeper, we can see just how much new-BTO is assuming for asset values for Masbate by
comparing mining interests (which is nearly $1.5Bn of the total $1.73Bn in fixed asset filed by
the company) line item breakdowns for 1q13 with the previous quarter before the merger was
finalized (chart below). There were minor changes to the values attributed to Libertad and
Limon (quite normal stuff due to capital expenditures at the two mines net of
depletion/depreciation), but on top of the near-$600m booked by the previous things, all of a
sudden $912m in asset value is added by two new items. No problems with the half-billion-plus
of the Masbate mine, but assuming nearly $390m for the exploration projects around Masbate
came as a real eye-opener.
19
01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1
U$m
source: company filings
BTO: Assets
2500
2000
1500
1000
500
0
01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1
BTO: Liabilities
U$m 500
fixed 400
other current
cash&ST
300
200
100
0
source: company filings
01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1
U$m
long-term
current
source: company filings

BTO: Mining Interests (fixed assets) breakdown
U$m
1600
1400
Masbate project
1200
Masbate mine
1000
corporate
800
Colombia JVs
600
other projects
400 Otjikoto
200 Limon
0 Libertad
4q12 1q13
source: company filings
That’s because BTO is valuing the turf on just inferred mineral resources and “exploration
potential” as they see it. Now, this might just be the ace in the hole that nobody has seen until
now (barring BTO management, who are whipsmart at due diligence), but I can’t help but think
that there’s a little bit of balance sheet stuffing going on around here in order to justify that
original $3.90 per share, all share price ticket that the two sides agreed upon back in 2012
(when the junior market was a healthier and wealthier thing).
As at 4q12, shares out stood at 393.7m and equity at $566.3m, which gave an equity per share
ratio of $1.44. As we know BTO has (nearly) always had a higher share price than its
equity/share ratio due to its decent performance, growth, profit profile etc. But today, the
646.1m shares and equity of $1.545Bn gives us an equity/share of $2.39, a big jump in asset
value assumptions on the part of the company. What we as long would like to see is BTO
starting to get the most out of the apparent and stated value of the new assets (as they see
them) and get that share price higher than the equity/share ratio again (back to double would
suit us just fine Mr Clive). However, I have to scratch my head about just how much asset
value the Masbate assets are being given and wonder, what with the way the market has
turned sour, whether we have write-downs in the future of BTO.
Overall and the in-line revenues/costs aside, the 1q13 financials from BTO ask more questions
of the company and its recent deal than I expected, which might explain the extra pressure we
saw on the stock price this week (though admittedly, things weren’t quite as bad as they were
for RIO or IRL after their numbers came out).
Conclusion
IKN211 is done, we close with bullet points:
• I feel as though I’ve been playing catch-up all weekend. Being out the office does this
most times, but with the amount of macro events while away having fun, plus the
arrival of several 1q13 reports relevant to the Weekly coverage, it’s been a tougher one
than usual and now, closing in on midnight Sunday night, time has basically run out.
The most pressing matters are the IRL quarter and the now long overdue OGC analysis,
which is basically ready in note form but I decided to concentrate on the RIO numbers
and market reaction instead, what with it being a more important component of the
house portfolio. These things will happen, but it also gets me reflecting on just how
useful (perhaps ‘useless’ is better in context) fundies analysis is in this market where
just about everything now depends on gold and friends (unless you’re flipping CXO.v
around).
• The RIO numbers weren’t bad at all, but they did hit the world on just about the worst
day possible and the results, though in line with sober expectations, had nothing to
keep people who wanted an excuse to sell from selling...so sell they did. RIO the
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company is in much better shape than the share price suggests and given a level
playing field with gold (how likely that is I have no clue) we’d expect a rebound from
the current oversold levels, but I’m not expecting a real kick from RIO until end 3q13
now, assuming $1,400/oz gold all the way. From there the heavy lifting done at La
Arena should bear its fruits, it only remains to guess on what the market do by then.
• Copper fundies were decent for the second week running, our problem now is that total
lack of love that juniors are getting. One that didn’t get any mention this week and
shows the way things are is Oracle (OMN.to), which has a decent enough, small and
high grading project on its hands, but the PPS has been smashed because it needs
either financing to get Oracle Ridge into production or some other guy with cash to
come and buy it out. Neither of those looks very likely right now.
• When considering Tahoe (TAHO) I mused on the potential to close the position if things
improved but the other side of the coin needs consideration too, so the question is
what to do if gold and the sector deteriorates any further. The answer, on looking up
and down the list, would probably be to sell IMPACT (IPT.v) or OceanaGold (OGC.to),
perhaps both, due to their higher cash cost aspects. Both are heavy losers of course
and both are decent enough companies in their own rights, but there comes a time
when portfolio management and the desire to raise cash and lessen exposure overrides
all. As for a pinch point, I’m really not sure on what that might be but I know I’ll have
to ask myself another set of questions if gold goes under U$1,300/oz.
• Despite all the gloom and doom, deep down I still remain bullish on the prospects of
the sector (call me mad), but the gravitational pull continues to be away from the
speculative companies and towards quality juniors. Even though I’ve taken a bit
financial hit on RIO.to and BTO.to this last week, they’re not ones I’m likely to abandon
in a rush.
• As I look over at Kitco tonight I see gold trading down $16/oz in Hong Kong and just
shrug a little at the thought. Yes folks, we’re now at the point when a 1.2% move in
the metal barely gets the heart moving faster. Whether that’s good or bad is another
question entirely.
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://myownmarketnarrative.blogspot.com/2013/05/brent-cook-and-peter-grandich.html
(2) http://finance.yahoo.com/news/rio-alto-announces-q1-2013-203000900.html
(3) http://stockcharts.com
(4) http://finance.yahoo.com/news/candente-copper-corp-canariaco-norte-080000660.html
(5) http://finance.yahoo.com/news/curis-closes-cad-6-million-225700180.html
(6) http://finance.yahoo.com/news/strait-amends-alicia-agreement-updates-130000889.html
(7) http://finance.yahoo.com/news/rio-cristal-announces-termination-option-141700324.html
(8) http://www.ljz.mx/portada/77-portada/45338-mexico-un-pais-de-desventajas-para-las-empresas-mineras-opina-
martinez-gomez.html
21

(9)
http://www.7dias.com.do/index.php/noticias/140899/Harper_se_reunira_con_Humala_para_conversar_sobre_Alianza_d
el_Pacifico_y_TPP#.UZZxZKK_Vcc
(10) http://www.losandes.com.pe/Sociedad/20130517/71451.html
(11) http://www.elnuevoempresario.com/ecuador_217917_reforma-a-la-ley-de-mineria-es-el-primer-gran-tema-en-la-
agenda-legislativa.php
(12) http://www.ecuadorinmediato.com/index.php?module=Noticias&func=wap_news_view&id=197160
(13) http://www.americaeconomia.com/negocios-industrias/colombia-municipios-no-podran-decidir-sobre-actividades-
mineras
(14) http://finance.yahoo.com/news/b2gold-reports-record-first-quarter-071500365.html
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
22

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