IKN #218Premium

The IKN Weekly
Week 218, July 7th 2013
Contents
This Week: Possible additions next week, Fed watching, A potential gold bottom signal.
Fundamental Analysis: none
Stocks to Follow: Overview, AQM Copper (AQM.v), Minera IRL (MIRL.L) (IRL.to), Tahoe
Resources (THO.to) (TAHO), Gold Resource Corp (GORO), B2Gold (BTO.to) (BTG), Rio Alto
Mining (RIO.to) (RIOM), Bear Creek Mining (BCM.v), Focus Ventures (FCV.v).
Copper Basket: Overview, Oracle (OMN.to), Curis (CUV.to), Augusta (AZC) (AZC.to), Lumina
(LCC.v).
The Lottery Ticket Basket: Overview, Marlin (MLN.v), Darwin (DAR.v), Bellhaven (BHV.v),
Firestone (FV.v)
Regional Politics: Regional risk update, revised edition.
Market Watching: Peru’s IGBVL “general” index points down, A word on Dynacor Gold Mines
(DNG.to), Rio Alto Mining (RIO.to) (RIOM): 2q13 showtime.
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
Possible additions next week
An early warning, top-of-the-edition headsup on two potential trades for next week, namely
additions to Minera IRL (IRL.to) and AQM Copper (AQM.v). The details are in “Stocks to Follow”
below but please be clear that price and/or news are important factors in both trades and they
won’t happen unless conditions are fulfilled accordingly.
Fed watching
Wednesday marks the day to care about what the U.S. Federal Reserve says and does (it’s
been rather heads-I-win-tails-you-lose when it comes to the Fed’s effect on gold recently, so be
warned) as at 2pm EDT July 10th the Fed releases the minutes from the last meeting (June 18-
19, the one that tanked GLD 5.4% the next day) and then later that same day Ben Bernanke
gives a prepared speech that will also be examined in detail by those who do these things.
A potential gold bottom signal
In a nutshell, larger money seems to be playing the gold market via near-term bets, which
signals confidence that the floor isn’t going to drop out of gold again
To expand on that, this time last week in the section “Last Friday’s rebound” I cast doubt on
the move made in gold, noted the action in GDX the previous day and suggested that it was
(potentially at least) a set-up designed to turn a near-term profit.
1

Then Friday afternoon, the same type of GDX buying was again spotted by your author (and
you too may have noticed a rally in your preferred gold vehicle of the same type I spotted in
BTO, for example), which may flag a GLD move on Monday (we’ll see about that).
I’ve been paying less attention to company fundies and more attention to market psychology
plus intraday/everyday ebbs and flows than I normally do, because that’s where the market
edge seems to lie in these most nervous of times. It’s still in theory-only stage and young of
thought but if enough confirmation comes along it would indicate that the market players,
those that flip and trade about 500 times better than I could ever dream of doing and have the
type of financial weight to move markets just by placing their money, are happy to move in and
out of gold-related issues and make a few percentage points of difference now. That’s well and
good for them, but for dullards such as this author it’d be a fairly positive signal as it means
that the bigger money is less afraid of another sudden jag down in the price of gold that would
make all their bets losing ones.
For now I’m leery of my own thoughts here and I’ll be very quick to kill them if the right sort of
evidence doesn’t show itself next week, but at the same time I reckoned there was enough to
mention it in passing here as part of the intro of the Weekly. I will say that if this theory holds
water we’d need to see a pop in the price of gold on Monday morning, around or perhaps a
little after the morning open (with an optional fade later in the week). Be clear that I won’t be
trading that Monday forecast but I will be watching. However, all the above, be it right or
wrong, doesn’t mean that gold can’t go down again, because it can. What our rose-tinted specs
are searching for here is a gold price that doesn’t jag down again to $1,100/oz, $1k or even
lower. As long as the larger market-moving traders are willing to risk jumping in the pool for
short periods, the current range (let’s call that something under $1,200 to something over
$1,250/oz) should remain intact...or at least, that’s the theory.
Fundamental Analysis of Mining Stocks
Nothing here today
Stocks to Follow
Five of our eleven positions made gains last week (BTO.to, GORO short, TAHO short, AQM.v,
FCV.v), one was unchanged (IRL.to) and five lost some ground (RIO.to, LRA.v, BCM.v, RIO.to
near-term trade, PVG.to), but it was somewhat heartening to see only one of the positions
move by more than 10% in either direction. That stock was of course AQM Copper (AQM.v)
which moved 114.3% on the week after the news flagged in IKN217 last weekend and
2

documented in the Flash update of Tuesday morning (see appendix 1).
The are currently just eleven open positions on our ‘Stocks to Follow’ list, four less than our
self-imposed maximum. Just one is in the green which is pathetic, really. Why are you still
paying for this guff?
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$1.86 -19.1% $6.29 tgt, added Apr13
B2Gold BTO.to buy C$3.07 28-nov-12 C$2.35 -23.5% $5.70 tgt added Apr '13
Recommends
Minera IRL IRL.to spec buy C$0.73 22-jul-12 C$0.23 -68.5% $1.56 tg, added, new avg
Lara Expl. LRA.v hold C$1.15 08-apr-12 C$0.84 -27.0% solid biz model, LT hold
Gold Res Corp GORO short U$9.70 03-may-13 U$8.36 13.8% tgt $7.50 added to short
Bear Creek BCM.v hold C$2.06 30-may-13 C$1.65 -19.9% Cheap at $20 Ag, will wait
Rio Alto Mining RIO.to buy C$2.68 07-jun-13 C$1.86 -30.6% ST trade position, separate
Pretium Res PVG.to buy C$8.20 11-jun-13 C$6.74 -17.8% New position, M&A play
Tahoe Resources TAHO short U$12.42 08-apr-13 U$13.69 -10.2% newly re-short, port hedge
Smaller/Riskier
AQM Copper AQM.v hold C$0.31 16-oct-11 C$0.075 -75.8% holding thru for my sins
Focus Ventures FCV.v spec buy C$0.175 01-jul-12 C$0.12 -31.4% revised tgt 25c
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% closed trade
Bear Creek BCM.v may'13 C$2.58 01-apr-13 C$2.40 -7.0% near-term, time ran out
Lupaka Gold LPK.to may'13 C$1.12 23-oct-11 C$0.32 -71.4% towel thrown in
Tahoe Resources TAHO may'13 U$18.62 08-apr-13 U$14.70 21.1% took profit on ST short
OceanaGold OGC.to jun'13 C$3.03 16-sep-12 C$1.18 -61.1% sold on gold drop
IMPACT Silver IPT.v jun'13 C$1.14 13-jan-13 C$0.62 -45.6% sold on silver drop
Duran Ventures DRV.v jun'13 C$0.045 10-may-13 C$0.025 -44.4% ST trade never worked
Plata Latina PLA.v jun'13 C$0.79 10-apr-12 C$0.13 -83.5% still trying to sell
Bellhaven BHV.v jun'13 C$0.065 03-jun-13 C$0.12 84.6% closed ST trade
2009, 2010, 2011 and 2012 closed positions in appendices below
Now for some notes on a selection of the above stocks.
AQM Copper (AQM.v): Possible addition next week. It did this:
There was plenty of good news, including a
deal that resurrects Zafranal and at favourable
terms for AQM, too. We covered the nuts and
bolts in the Flash update of Tuesday morning
(see Appendix 1) and the range in which it
traded, taking into consideration the argument
made, didn’t come as much of a surprise to this
desk.
However, it didn’t give a real opportunity for
the type of addition price I was looking for,
either. We did see 6.5c on a couple of
3

occasions which is (technically at least) a price that came inside the “I’d be leery about...” 5c to
7c range but wasn’t totally dismissed, but in truth it didn’t get anywhere close to the 5c price
I’d really look for as an addition point last week.
However, that was then and this is now and on further reflection, here’s how I’m looking to play
AQM in the days (or weeks, patience will be applied if necessary) to come:
• I’m a buyer of AQM.v at 6c or under and I think I’ll be able to get that entry point
as well, as long as the company doesn’t get popular sooner than I expected. It enjoyed
a very good and strong first blush on the news last week, but a natural type of
retraction to 5c or 6c wouldn’t surprise and that’s where I’ll set the bar now (rather
than the stricter 5c max of last week). The good news is that it won’t take a lot in
absolute cash terms to make a meaningful difference to my personal cost average at
such a price. The bad news is that it’s at a such a price.
• I’m a seller at 15c or over. On this score, stranger things have happened and if AQM
suddenly gets traction from some corner or other (perhaps some list of people who
swallow whole a “Mitsubishi paid the equivalent of 32c/share for its portion, that’s
where AQM is going” line) we may see a volume-pump rally. If so, I’d sell my whole
position (whether averaged down or now) and wave farewell.
Minera IRL (IRL.to): Possible addition next week. I was in two minds about sending out
a Flash update on IRL Friday afternoon. First the reasons why I didn’t, as context is important:
• First and foremost, it would have been delivering information gleaned from a
unsubstantiated rumour. There are times when intel without solid back-up can be
distributed, but my judgement call this time was that the intel wasn’t strong enough.
• I tried and failed to get some sort of confirmation of what I’d heard from the company.
IRL was tight-lipped and would only confirm that company President Diego Benavides,
the point man in the Don Nicolas negotiations, was currently in Argentina (something I
already knew).
• It was around 1:20pm local time, with less than two hours before the week’s close. I
doubt a Flash update would have given a level playing field at such a time.
With those in place, time to spill beans and what I heard from Argentina on Friday was that the
deal between the proposed financial backers and IRL that would secure the full funding for the
Don Nicolas project had been agreed upon. If this turns out to be true (and if it is, we’re bound
to hear about it next week) we can expect IRL to rally from its extremely depressed share price
as the closure of a deal that would remove most (if not all) IRL exposure to Argentina political
risk should do great things for the stock.
Be clear that if IRL produces the right NR,
even 50% higher than here would be
considered a real bargain spot to enter
this stock. An IRL that delivers market-
moving news on Don Nicolas is not the
same situation as the one we saw in
AQM.v this week, as even after the strong
positive AQM gave us, we’re still left with
a project that has its difficulties and has to
compete against plenty other low/low-ish
grading copper projects for its eventual
development. No, IRL with Don Nicolas
basically paid and separate will be able to move ahead with Ollachea all guns blazing, which is a
far better and more robust project for this market (even with gold under its $1,300/oz base
case economics price today).
4

As for last week’s action, the trading we saw on Friday went some way to underscoring the
rumbles your author picked up, with over 300k shares traded in both Toronto and London on
the last day of the week. That’s decent volumes for London and eyebrow-raising high for the
normally quiet Toronto listing.
Bottom line: the vibes were positive but things should be left at “unconfirmed” for the time
being. However, good news from IRL next week and I’m a buyer at anything under 30c and
would probably consider a price higher than that without much sweating.
Tahoe Resources (TAHO): This short, now being used as a straight hedge against long parts
of the port, did its job last week and lessened the blows. There does still remain the potential of
company-specific news from Guatemala that could send this stock lower (as we are clear about
the much higher political risk at Escobal than the market assumes) but that would only be
considered a bonus to this position’s new purpose.
In other news, the company once again showed off its high-handed and arrogant manner
towards community relations last week when company spokesperson Andrés Davila, while on a
visit to Colombia last week to exchange ideas and promote TAHO’s activities to a wider
audience said (1):
“The economy and commerce are flowering in the municipality (of San Rafael,
around the Escobal mine) as the responsible mining industry brings the
example of how mining, when done well, can be a model of economic
development in communities where it operates and for countries that allow
responsible mining.”
Strangely, no mention from Davila about the constant complaints of San Rafael agriculture
about the lack of water ruining crops and buyers that don’t want their produce any longer
because it comes from “the place where the mine is polluting everything”, nor a word about
how the mine security detail shoots protesters and then its head of security tries to bolt for the
border, only to be stopped and arrested at the main airport for his actions and then sent for
trail. It must have slipped his mind (like Clapper of the NSA when he speaks before Congress).
Gold Resource Corp (GORO): It’s more or less ditto the TAHO comments above. We are due
the production numbers from GORO’s 2q13 in maybe the second but more probably the third
week of this month, and we did get some peanut-gallery news out about the new ball mill that
has been delivered (2) on Tuesday, but overall GORO as a market hedge was the story of the
week, which as per the TAHO line of thinking will continue.
B2Gold (BTO.to): No news from BTO last week and a bit of a tape-painting uptick at the end
of play Friday (about 5c) that made things look a little stronger than they were. The main event
in BTO last week was some very cheesy looking action in the US listed stock, BTG, on Monday
while Canada was closed for its day. It just so happens that Forbes magazine, a publication
which has a nasty habit of slipping pumps in amongst its more serious and weighty articles,
decided that Monday would be a great day to promo BTO to its readership as a Top Pick
amongst the metals field. Now I have nothing against that call per se, but it did make a whole
new bunch of headless chickens pile into the stock, shooting it higher on the open and clearly
allowing somebody or other to make a minor killing. This is exactly the kind of bullshit that
market authorities should care about, but the whole episode just faded and died, leaving
potential longer-term holders of this top quality junior with a bag to hold and a bitter taste in
their mouths.
Anyway, onwards and upwards and all eyes now on the 2q13 production numbers, due out in
the next few days.
Rio Alto Mining (RIO.to) (RIOM): See ‘Market Watching’ below for an update and
refinement of our 2q13 production model numbers, plus what to expect from RIO in July.
5

Meanwhile, here we note that RIO.to didn’t trade very well compared to others, with the stock
failing to join in on the late Friday rally.
Bear Creek Mining (BCM.v): Overall, BCM had a good week even though the week-to-week
price dropped a nickel. Trading was brisker, interest more obvious in the name.
Focus Ventures (FCV.v): Like your tinycaps volatile?
Somebody was persuaded to part with 70k of stock at 6c on Friday morning, a price which
quickly disappeared when the next 100k was traded at 12c. As a result FCV finish up a penny
on the week and the inference is that it will be protected at-or-around this price on the ask side
at least, but anyone wanting to sell out chunks will only find willing buyers much lower. Not a
bad thing, all told. I checked with FCV and they don’t know who was selling or buying on
Friday, but we can note that although this time it wasn’t insiders, main Gold Group honcho
Simon Ridgway has been picking at FCV stock in the last few weeks, never particularly big buys
and always in the $1k to 43k range, but that kind of pattern does look like price protection and
the act of a man drawing a line in the sand.
FCV is one of the tinycaps that will survive this rotten sector downturn. Its advantages include a
low burn rate can be turned down even further in a quick and simple manner if necessary, the
insto-type backing of mothership Gold Group, strong contacts with larger scale mining
companies such as BVN or Fresnillo and above all management that’s highly respected for their
a nose for exploration assets, particularly in its main hunting ground of Peru. FCV may be going
through the same rough patch as all the other tinycaps, but it’s one that will continue to attract
sponsorship and will still be batting even if peers start dropping by the wayside in wholesale
style.
6

The Copper Basket
After twenty-seven weeks of 2013 The Copper Basket is showing a 30.88% loss to level stakes.
company ticker price 1/1/13 Shares out Market Cap current pps gain/loss%
1 NGEx Resources NGQ.to 3.40 168.63 345.69 2.05 -39.7%
2 Augusta Res AZC.to 2.43 144.1 334.31 2.32 -4.5%
3 Copper Fox CUU.v 0.83 399.61 243.76 0.61 -26.5%
4 Lumina Copper LCC.v 9.43 43.46 209.04 4.81 -49.0%
5 Nevada Copper NCU.to 3.50 80.5 166.64 2.07 -40.9%
6 Hot Chili Ltd HCH.ax 0.72 286.78 137.65 0.48 -33.3%
7 Reservoir Min. RMC.v 2.41 41.46 122.31 2.95 22.4%
8 NovaCopper NCQ.to 1.80 51.89 96.52 1.86 3.3%
9 Western Copper WRN.to 1.39 93.78 50.64 0.54 -61.2%
10 Panoro Minerals PML.v 0.62 176.25 45.83 0.26 -58.1%
11 Curis Resources CUV.to 0.70 56.31 36.04 0.64 -8.6%
12 Candente Copper DNT.to 0.375 121.93 21.34 0.175 -53.3%
13 Oracle Mining OMN.to 0.80 49.03 19.61 0.40 -50.0%
14 Yellowhead Min. YMI.to 0.59 60.97 12.19 0.20 -66.1%
15 Strait Minerals SRD.v 0.08 56.86 2.84 0.05 -37.5%
NB: HCH.ax priced in AUD$, rest CAD$ Portfolio avg -30.88%
Seven went up (NGQ.to, AZC.to, CUU.v, NCU.to, PML.v, RMC.v, CUV.to), seven went down
(LCC.v, HCH.ax, NCQ.to, DNT.to,
Copper Basket 2013 average, weekly
OMN.to, YMI.to, SRD.v) and one was
12%
unchanged (WRN.to) so on the 8%
headcount at least, honours were even. 4%
0%
The overall basket lost 1.47% however,
-4%
due to bigger weighted losers such as -8%
Oracle (OMN.to down 33.3%), Candente -12%
-16%
(DNT.to down 16.7%, Strait (SRD.v
-20%
down 16.7%), and Yellowhead (YMI.to -24%
down 15.0%) at the tinycap end of the -28%
-32%
range. Meanwhile, the best numbers
were put in by Curis (CUV.to up 16.4%)
and Reservoir (RMC.v up 8.1%).
Prices rose Monday, traded around $3.15/lb most of
the week and then dropped back from whence they
came during the Friday slump (that was more U.S.
Dollar strength related than anything sickly in the
copper market itself).
Inventories time, and (as I’ve been asked a couple of
times recently) the data as always supplied by the
excellent Cochilco (3) site. There is an English mirror
site over there, though as I never use that page I
don’t know whether it’s kept as up to date as the
Spanish one. Either way, it’s a great place to keep
right up to date with copper stats happenings, in Chile
and on the macro side further afield. World stocks
dropped under the 900k barrier again, registering
897,677 metric tonnes (-1.8%) at close of play last
week. LME stocks dropped by 0.9% to 660,000mt,
7
ht6naj ht31 ht02 ht72 r3bef ht01 ht71 ht42 dr3ram ht01 ht71 ht42 ts13 ht7rpa ht41 ts12 ht82 t5yam ht21 ht91 ht62 dn2nuj ht9 ht61 dr32 ht03 ht7luj
source: IKN calcs, TSX data
31/1/1
morf
egnahc
%

Comex dropped 2.4% to 64,656mt and Shanghai had another hefty drop of 5.2% to stand at
173,021mt. As for those suspiciously high LME cancelled warrants, they dropped a little to
54.5% of outstanding inventory but that’s still sky high.
Cancelled Warrants at LME, IKN157 to date
60%
50%
40%
30%
20%
10%
0%
8
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 312NKI 512NKI 712NKI
source: Cochilco, LME
rof
yrotnevni
EML
%
latot
yreviled
resu-dne
I stuck last week’s slightly extended rant on the blog last week and it got a lot of traffic (4) for
what that’s worth. In fact, the whole subject of LME warehousing and the strange numbers
therein has suddenly started getting a bit of traction (and for the record, the blatant rip-off of
the IKN post as mentioned Friday was done by Scotia, with this...
….and Why Cancelled Warrants (Which Indicate Removal of Metal) Could Be a Big
“Storage Game” To Keep Things Tight and Premiums High?? Ever wonder why we have
seen massive increases in copper, aluminum, zinc premiums but with no corresponding inventory
move lower? Could cancelling a warrant and then re-warranting it later be a means to keep those
queues long thereby driving up premiums? Certainly looks that way along with the strategy
discussed in the article above to attract metal by paying an incentive and limiting the outflows by
hiding behind LME load-out rules.
...little gem that same morning in their “scoop” mailer...stay classy guys). Perhaps the best note
on the subject came from the FT (5) which reported that the LME itself is getting more than a
little annoyed with its warehousing partners and the larger firms that are gaming the system
(note that we’re not saying “potentially gaming” any longer, we’re past reasonable doubt now).
It went on to outline a rule change that would come into effect in 2014 to change the game
completely is now in the pipeline and the effects of this mooted rule change are likely to come
much earlier than that. As that FT link is behind a paywall I’ve taken the liberty of pasting out
and you can see it in Appendix 2 below. Anyone interested in this sector should read the report
thoroughly.
The FT note applies to all industrial metals, not just copper. In other news, Reuters reported
last week (6) that, “...China's copper importers are being forced by bottlenecks at London Metal
Exchange's warehousing system to queue up for deliveries of metal they have already bought,
resulting in spot copper import premiums rising by a third since mid June.”, which is precisely
the point were were making last week about our target metal. Look out folks, things are
changing in copper and if my suspicions are correct, this unwinding of the warehouse
bottleneck will create a downspike in metals prices.
Now for updates on some of the basket stocks this week:
Oracle Mining (OMN.to): OMN continues to be extremely volatile on low volumes and is still
trying to find a market level after being sold off by some larger holder. 20/20 hindsight says
that there’s little to read into that run to 60c as reported in IKN217 so until we get something
more fundamentally substantial from this stock, we’ll let regular coverage drop on OMN.

Curis Resources (CUV.to): News Friday of a minor change in a temporary water permit for
CUV at Florence on July 3rd, which was reported (7) as a tightening of rules by local press but
on examining the source document (8) seems to be an adjustment that’s minor in nature and
not one of the big permit rulings CUV needs to move forwards. The stock was volatile and
jumped hard on low volume July 4th (less people looking?), but retracted slightly Friday.
Augusta Resources (AZC) (AZC.to): This one had solid news last week, when on Monday
post-bell the company announced (9) that “...the Preliminary Administrative ("PA") Final
Environmental Impact Statement ("FEIS") for Rosemont Copper has been delivered by the U.S.
Forest Service to the Federal, State and Local
cooperating agencies for their final comments
today.” The news continued by saying that report
states that the Rosemont Mine will not jeopardize
continued existence of 10 key endangered
species in the area and that the mine will not
adversely modify any designated critical habitat,
both strong positive results for AZC. The report
does state that ongoing monitoring and
mitigation will be necessary, but AZC said that it
had already anticipated doing just that. All in all
a very positive NR from the company and on
Tuesday morning the stock popped 8.7% in brisk
trading on the NYSE ticker (where most of the
AZC volume runs) to $2.38, but as the day wore on the rally wore out, as you can see below.
The reason is most probably because things aren’t so perfectly rosy and “just a few rubber
stamps and we’re there folks” as AZC would like the world to make out. Here for example is a
quote (10) from one Tom Purdon, board member of one of the main anti-Rosemont groups in
the locality:
"Augusta Resource has a long history of issuing misleading information, and we
caution the public to not draw any conclusions solely from the company's press release
about this lengthy and complex document.....The Forest Service makes it clear that the
processes under the Endangered Species Act, Clean Water Act and the National
Historic Preservation Act have not been concluded and the relevant sections of the
draft document released today are blank... We believe that after this review is
complete, the Forest Service will do the right thing and issue a revised or supplemental
draft Environmental Impact Statement, subject to public comment."
In other words, this one could drag on for a lot longer than the the company’s hoped-for
“transformational” year of 2013. This wouldn’t come as a surprise to many, not least your
author who bought AZC back in January 2012 for the exact same “about to happen” reasons,
only to sell at a loss in May of that year.
9

The bottom line here is that AZC is very much like CUV; until there’s a signed, sealed, delivered
permit (pref unappealable) there are better places to put your money.
Lumina Copper (LCC.v): Joseph “Joe” Grosso, head of The Grosso Group Management
mining holding company with fingers in several exploration company pies (e.g. Golden Arrow
GRG.v), made plenty of local media headlines last week (11) after meeting with Argentina
Mining Minister Jorge Mayoral and governor of Jujuy (North) province Eduardo Fellner by saying
things like “Argentina is a country that always offers opportunities” and “Jujuy has a spectacular
future” in the mining sector. Which reminded me of two things:
1) Joe Grosso is a bullshit merchant of a highest order and merits a high rank amongst the
liars and thieves populate this sordid sector. His track record of market pumping,
deceptions and self-interested dealings are second to none and anyone who believes a
single word that this charlatan says obviously hasn’t bothered to check on his history.
2) I couldn’t help thinking about what Ross Beaty must think of Jujuy/Salta and its
“spectacular future” when reading the stupidities coming from Grosso’s mouth last
week, considering how the “broken slot machine” track record has been dashed into
little pieces by LCC.v. Or the guys over at Regulus Resources (REG.v) as well. Or how
about Goldrock Mines (GRM.v) (ex-Mansfield Minerals)? Or Troy Resources (TRY.to)
which has just agreed to another 30% salary rise for its staff (12). Or McEwen Mining
(MUX) that has taken its Los Azules copper project off the market for lack of interested
parties. Or Stillwater (SWC) and what Altar did to its previous board of directors and
CEO. The list continues.
The Lottery Ticket Basket
After 27 weeks of 2013 The Lottery Ticket Basket is showing a 41.25% loss to level stakes.
company ticker price 1/1/13 Shares out Market Cap current pps gain/loss%
1 Marlin Gold MLN.v 0.10 379.9 17.10 0.045 -55.0%
2 Bellhaven BHV.v 0.14 137 13.70 0.100 -28.6%
3 Eagle Star Min. EGE.v 0.125 69.48 12.16 0.175 40.0%
4 AQM Copper AQM.v 0.08 105.57 7.92 0.075 -6.3%
5 Fancamp Expl. FNC.v 0.125 118.41 6.51 0.055 -56.0%
6 Tango Gold TGV.v 0.13 45.59 5.93 0.130 0.0%
7 Glass Earth GEL.v 0.155 104.79 3.67 0.035 -77.4%
8 Inca One Res. IO.v 0.12 34.0 3.40 0.100 -16.7%
9 Copper North COL.v 0.10 58.62 2.64 0.045 -55.0%
10 Darwin Resources DAR.v 0.20 26.16 2.62 0.100 -50.0%
11 Gryphon Gold GGN.to 0.085 194.64 1.95 0.010 -88.2%
12 Rio Cristal RCZ.v 0.025 149.26 1.49 0.010 -60.0%
13 Firestone Ventures FV.v 0.045 36.32 1.27 0.035 -22.2%
14 Cream Minerals CMA.v 0.03 155.34 0.78 0.005 -83.3%
15 Netco Silver NEI.v 0.025 47.01 0.47 0.010 -60.0%
Portfolio avg -41.25%
Four Lottery Ticket Basket stocks went up (AQM.v, DAR.v, IO.v, FV.v), five were unchanged
(BHV.v, GGN.to, COL.v, CMA.v, NEI.v) and six went down (MLN.v, GEL.v, FNC.v, EGE.v, TGV.v,
RCZ.v) during last week. The best performance came in AQM Copper (AQM.v up 114.2%) which
is no surprise, but even that very healthy percentage change couldn’t stop the overall basket
from registering a new year low, which was due to big percentage losses in Rio Cristal (RCZ.v
down 33.3%), Glass Earth (GEL.v down 22.2%), Fancamp (FNC.v down 21.4%), Tango (TGV.v
down 18.8%) and Eagle Star (EGE.v down 16.7%).
10

25% Lottery Ticket Basket 2013 average, weekly
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
-25%
-30%
-35%
-40%
-45%
11
ht6naj ht31 ht02 ht72 dr3bef ht01 ht71 ht42 dr3ram ht01 ht71 ht42 ts13 ht7rpa ht41 ts12 ht82 t5yam ht21 ht91 ht62 dn2nuj ht9 ht61 dr32 ht03 ht7luj
source: IKN Weekly data, TSX
2102/1/1
morf
egnahc
%
We again remind readers that due to the virtual destruction of some of these companies, there
are only a specific remnant that we truly care about and follow from the list now. They are...
• Marlin Gold (MLN.v)
• Bellhaven Copper and Gold (BHV.v)
• AQM Copper (AQM.v)
• Eagle Star (EGE.v)
• Darwin Resources (DAR.v)
...and for me at least, they’re the only ones that hold any real interest as trade potentials these
days. Meanwhile, cases can be made for ...
• Tango Gold (TGV.v)
• Fancamp (FNC.v)
• Inca One (IO.v)
• Firestone Ventures (FV.v)
...even though circumstances now mean that they’re not very high on the list. As for the other
six; Forget them all, they’re broken companies now. And let’s be clear, that list of broken and
utterly ignorables may grow.
Marlin Gold (MLN.v): On Wednesday (13) MLN priced its rights offering, with every 1.266
shares held giving the right to buy a new share at 5c each. Recall that this is being run and
backstopped by majority holder Wexford Capital and once the dust has settled, there may be a
trade left in MLN when (as we suspect), Wexford moves to buy out what it doesn’t own and
take Trinidad private.
Darwin Resources (DAR.v): We’re now into the July time period in which we expect the first
drill assay results from Suriloma. I’m not a buyer this week but may buy as from the week
after, depending on price, vibe and whether I’m feeling lucky (punk) and up for a pure drill spec
play fliptrade.
Bellhaven Copper and Gold (BHV.v): The positive for BHv is that its share price held well
enough at-or-around 10c all week, but the negative is that volumes again went thin and there
was less general action in the stock. BHV is still one that’s likeable at these prices, but now that
we’re out and looking in we should care more about a sharp downspike for an entry more than
its day-to-day trading, preferably on better volume than we saw last week.
Firestone Ventures (FV.v): On Friday, FV and resource investment junior Melior Resources
(MLR.v) announced (14) a friendly merger letter of intent (LOI) which would see Firestone
swallowed by the (slightly) larger company in an all share deal which would convert 2.895

shares of FV into one share of MLR. It’s the kind of deal that happens at the bottom of markets
and although it didn’t move FV’s share price much, is another example this week that shows
there are monied entities out there looking to snap up reasonable mining assets (Guat political
risk aside) at the current beaten down prices (AQM being another obvious one, of course).
There’s a whole DD process to go through and clearly FV is as interested in the $500k bridge
loan Melior has provided as much as the eventual fusion. It’s also in more general terms
another consolidation of two tiny companies into one less-small one, which is another (perhaps
cleaner) way in which the dregs of the TSX(V) will be wiped away and the boards made
healthier for the next cycle.
Regional politics
Regional risk update, revised edition
I’ve finally got my head together about this section and the new style of presentation makes its
debut today. The last of the old-style shows was in IKN204, if you care enough.
So, out with the old and in with the new and without further ado, here’s the new style table
that covers LatAm regional countries and their risk profile, specifically for the mining industry.
Below come the notes and explanations.
July'13 New edition Latin American Country Risk For Foreign Mining Companies
Nat. Govt Community/Social Geopolitical Internal Nat.
Country FDI Friendly Mining Culture Total
Miner Friendly Miner Friendly Optics Political Stability
LatAm countries under active consideration for junior mining project location
Chile 9 8 8 10 10 9 54
Mexico 9 7 7 9 8 7 47
Brazil 7 6 7 8 9 8 45
Peru 9 6 8 9 7 6 45
Nicaragua 8 7 7 6 5 6 39
Colombia 6 4 9 6 8 5 38
Dom Rep 5 5 6 5 6 7 34
Argentina 8 5 3 6 3 5 30
Guatemala 7 2 5 3 4 4 25
Potentially relevant LatAm countries for junior mining
Uruguay 7 5 7 3 8 9 39
Panama 7 4 9 3 9 7 39
Guyana 8 5 6 5 4 3 31
Countries of little or no interest for junior mining exposure
Bolivia 5 5 2 9 2 7 30
Honduras 7 4 4 5 3 3 26
Paraguay 5 5 6 2 3 4 25
Costa Rica 1 1 5 1 6 7 21
Ecuador 3 1 3 4 3 7 21
Haiti 6 3 4 1 3 3 20
El Salvador 1 1 4 1 6 7 20
Venezuela 1 5 1 3 1 5 16
source: The IKN Weekly house estimates
Now time to explain all that and there have been two basic changes made:
12

1) New scoring categories added, making six in all (therefore top potential score now 60)
2) Only nine of the nineteen regional states covered are now being actively considered as
investment locations
The reason for the desire to change and the changes laid out is that this section has to be as
useful as possible on a practical level (that’s underlined for a reason). The political/social risk
component of any mining operation, especially those in Latin America, has moved from
important, to very important to the current absolutely vital over the years we’ve been covering
the sector and this subject in The IKN Weekly. Once upon a time regional or community risk
matters could be ignored or considered minor details, in 2013 they make or break projects on a
regular basis.
Scoring categories: Instead of four, there are now six scoring categories for each country,
each with a maximum score of ten. This has been the bit that’s been (mentally?) blocking your
author for the last two weeks, all rather frustrating, because the principle driving the change
has been to try and make coverage more relevant to the current situation, both in the region
and in the mining sector, without bogging the whole system down with dozens of categories
that make it difficult to read succinctly. Anyway, enough of my mental janglings, here’s a little
line on each of the six criteria now included:
a) National Government Miner Friendly: This is one of the two categories that now
comprise the old “miner friendly”. The tendency amongst those who watch from
outside is to confuse what a government says about mining and what happens at
grassroots level. In this new category, we only score a country on its national stance
towards mining activity, including its general level of institutional acceptance, strength
and make-up of laws, its taxation policies etc.
b) Community/Social Miner Friendly: Meanwhile, this is the other side of the “miner
friendly” coin. Mining can be welcomed by a nation’s President or sitting government
but at the same time be rejected at a local level where protests seek to (and sometimes
achieve) paralyze projects, either in specific zones or in country regions.
c) Foreign Direct Investment (FDI) Friendly: This category is the same as in
previous editions and considers the openness towards FDI and the safeguards it gives
to foreign capital looking for a home. FDI-friendly usually relates to the attitudes of
states towards all businesses, not just mining, but is a vital aspect of modern mining as
projects large and small tend to be front-end capital intensive and greatly benefit from
a level and unchanging playing field
d) Mining Culture: This category also remains unchanged but it’s still an important
factor in the mix. Those countries or regions with generational traditions in mining are
easier places in which to operate than those which have little previous exposure to
formal mining operations. Advantages come at a local level via understanding of “what
mining is about”, including the pros and cons it brings to an area, as well as typically
better and a more solid rulebook for mining at a national level.
e) Geopolitical Optics: The new category can be summed up as “the way in which the
outside world sees this country. One of the things I’ve learned while covering political
risk for LatAm miners is that the perception of risk in any given place can be as
important as the reality. It can be very different too (take for example the way in which
Peru was sold off when Ollanta Humala won his election and how he’s turned out to be
as right wing and neoliberal pro-business as the preceding presidents) and it’s an
important factor, whether the perception be right or wrong.
f) Internal/National Political Stability: The final category is a gauge of how stable
13

the country in question is politically. This can be measured from the effects of any
upcoming (or recently passed) elections, the governmental institutional strength, the
general obedience level of a population towards its elected leaders, the effects of
scandals or political events on that nebulous thing known as ‘governability’. In short,
we try to get a feel for how stable the country might be with the assumption that the
more stable, the better.
To sum up, I did have under consideration other categories and ways of framing the scoring
system, but I’ve eventually settled on these six because they’re a catch-all (or just about all) for
the subjects that may affect a country’s risk profile towards miners. Now to explain the other
main change in focus.
We’re only actively covering nine countries. The problem that slowly emerged over the
quarterly coverage in the old list (and there were eleven editions over three years) was that
plenty of the countries covered had little real relevance to what was going on in the world of
mining in LatAm.
Eg 1: It’s fine to keep tabs on what’s going on inside Costa Rica politically, but if the
country is obviously now a blanket no-go area for new mining money, then why
mention it in a mining publication?
Eg 2: Paraguay might be interested in fostering a mining industry, but with so few
explorecos or juniors and little progress being made through the swamp of bureaucracy
or the simple logistical difficulties of working there, there’s little point in mentioning
developments until something of active interest in the junior world take up the
challenge or discovers something interesting.
However, things have come to a head recently due to the wholesale downturn in the mining
sector (that you need no reminding about whatsoever). We’re now at the point when juniors
are so cheap that it’s not necessary to go to a marginal or little understood country in order to
find deep value. Or if you like, there’s no need to bother with frontier regions because there are
more than enough cheap shares in good places to go round. This is not a minor point, ladies
and gentlemen. Political risk is now equally as important a factor in choosing a vehicle for your
junior mining spec cash as the quality of the team or the quality of the project. Like it or not,
the wishes or desires of people in the host country directly affected by a mining operation, be
that at a local level or national level, are not something that can be treated in the same
afterthought manner of just 10 years ago. Therefore, it makes a lot of sense for serious mining
companies (the ones run by serious mining people with serious reputations worth keeping) to
go hunting in the places that are most welcoming to the activity. Or put it another way, if a
geologist asked you for money to go exploring in Venezuela today, would you give her/him your
cash?
This sector is difficult enough as it is without adding complications and if we can put in a simple
yet effective filter of “You don’t go exploring in a sensible place, I’m not interested” then so
much the better. Therefore somebody else can chase pipe dreams in Honduras or Ecuador in
the next 12 months, we’re going to stick with places that offer an open door.
As you see, the countries are grouped together in three categories:
1) LatAm countries under active consideration for junior mining project location:
These are the ones we’ll be following from now on. They’re countries that are either good for
junior mining (the top four in green, namely Chile, Mexico, Peru, Brazil), a reasonable option at
this time (the next three in orange, namely Colombia and The Dominican Republic) or not ones
we’d consider at this time (in red, namely Argentina and Guatemala). However (and unlike the
other groups) they’re all potential places for exploration cash at this time or in the future,
depending on what that might hold
14

2) Potentially relevant LatAm countries for junior mining: These are a small group that
have potential to be interesting in theory, but don’t have the type of tradition or depth of formal
mining history, or the right level of institutional strength, to be candidates. These differ from
the “red group” above in that they need to see fundamental changes in their mining make-up in
order to become attractive as destinations, whereas the “red group” above would need changes
in specific circumstances that can happen more quickly, as well as offering enough investment
options via companies already in-country. The three countries listed, Uruguay, Panama and
Guyana, can also boast nominal totals that are higher than Argentina or Guatemala, but they
still don’t make the cut when we need to consider active alternatives. Notwithstanding, with
enough changes they could become options so they are classed in a different group than the
ones that follow
3) Countries of little or no interest for junior mining exposure: And this is where the
weeding out of countries really happens. The eight names listed (Bolivia, Honduras, Paraguay,
Costa Rica, Ecuador, Haiti, El Salvador, Venezuela) have different reasons to be on our blacklist,
but the bottom line is always the same: It’s too risky a place for junior mining. Here’s a line on
each one to sum up their problems:
• Bolivia: Government nationalizes or expropriates concessions (rightly or wrongly),
militant political atmosphere, rising costs, obligatory JVs on mining projects with state,
corruption.
• Honduras: Weak institutions, highly corrupt, highest murder rate in region, “hot”
election on horizon.
• Paraguay: Little or no infrastructure, laws unsuited to modern mining, corruption, basic
lack of mining know-how.
• Costa Rica: Mining unwelcome at a government policy level, concessions already
reversed by Supreme Court rulings, population very anti-mining.
• Ecuador: Very strong anti-mining feeling among rural dwelling locals (where most
interesting projects lie), state burdens very high, evidence of company pull-outs show
problems.
• Haiti: Unstable, little or no mining history, corruption rife.
• El Salvador: Antipathy towards mining at a national government and population/local
level.
• Venezuela: Politically against FDI from “capitalist” countries, high inflation rate and
fixed currency combo makes cost pressure, violence.
We could go further into each one, but the main point is that from now on we much prefer to
spend our time watching places that are potentially welcoming to junior mining investment in
LatAm, rather than throwing good money after bad by sponsoring companies exposed to these
tougher jurisdictions.
And so to our focus countries
Here (at last) is a little update on the countries about which we care the most and in future
updates, this (along with the table) will be the main event:
Chile (Green, 54/60): Chile has taken a few hits to its reputation as the region’s premier
mining destination in the last few months, but overall those hits are minor compared to the
advantages it brings and it still leads the pack by quite some distance. Rather than wax lyrical
about its strengths that have been picked over on more than one occasion (pro-mine and stable
government, very FDI friendly, good mining laws, pro-mining public perception, prospective
rocks etc etc) today we’ll take a look at the three issues most concerning the country’s mining
industry at the moment (aside from the turndown in copper and other metals prices), which are
1) the cost and availability of energy 2) court cases that are going against mining and other
large infrastructure projects and to the benefit of local communities against large civil works in
their localities and 3) the prospect of rising corporate taxes in the near future. Let’s take those
in reverse order and regarding 3), that’s the easiest one to handle as it’s a near certainty to
happen, because Presidential candidate Michelle Bachelet, going for her second term, has made
15

it a pillar of her election campaign to raise corporate tax to 25%. As she’s way out ahead in the
polls and looking like a shoo-in at this point, that’s a proposal that will likely become law in
2014, but it should be noted that 25% is still a competitive level compared to the typical 30%
regional rate and Chile still offers plenty of tax breaks to mining companies in the construction
and early years of operations that make it an attractive option. Regarding 2), what we have
seen is a new will by locals to take their cases through the formal court system in Chile and, as
Chile’s courts are (fiercely and proudly) independent of political influence in a country with one
of the lowest levels of corruption on the continent, the rulings tend to be even handed. That
means that at least some recent cases have seen the Davids winning out over the apparent
Goliaths and those are the ones that tend to catch headlines. However, Chile’s courts have yet
to slam the door on any infrastructure project; rather, they have put holding orders or frozen
development until such time as alternations that improve the projects are put in place. Yes, it’s
a new reality for the Chile mining sector and one (yet again) that has to get used to taking into
account the opinions of local stakeholders (for perhaps the first time ever, after having rose
roughshod over them for decades). But the cases that have gone against the projects aren’t
insurmountable situations a basically pro-business country like Chile will find workable solutions
to most. Meanwhile, plenty of other projects are moving forward as planned (but those don’t
tend to get as much coverage as the controversial ones). Finally, regarding 1) energy costs are
higher and there’s a lot of rightful worry about a supply bottleneck for energy in the near
future, with 2017 set as a crunch year by industry watchers. Chile needs more supply and as its
plans up to now have seen delays aplenty, it will need to improve on this soon else the fears
may become reality, particularly in the key mining zones of the North of the country.
Mexico (Green, 47/60): Mexico has its problems as a mining zone, but they tend to be
specific area glitches rather than countrywide issues. We know that Baja California Sur in the
North and Chiapas in the South are not the places to have your project due to unfriendly
regional governments. We know that narco activity in certain zones (stick Chuhuahua and
Guerrero high on the lists) make political risk a real physical reality, guns and kidnappings etc.
We know that specific projects and mines are opposed by local communities for different
reasons (NGD at San Luis Potosi, MAG at Cinco de Mayo, GGN at Veracruz, EPZ at Morelos, FVI
with at least part of the San Jose community in Oaxaca). But overall Mexico is still a top quality
place to go mining as long as you have the right attitude and pick the right general area. Mining
tradition is strong, the national and most regional governments are fully supportive, operating
and labour costs are substantially lower than average for the sector, rocks and potential rocks
are all there. One recent development is that of Mexico’s new Enrique Pela Nieto government
trying to push through its mining royalty laws (covered on these pages regularly) that will see a
5% royalty levied on pre-tax profits. This is being opposed by the mining lobby (the bill has
passed the lower house and is now in upper house Senate stage) but even if passed wouldn’t
make Mexico a newly expensive place to go mining (despite anything the local industry claims
to the contrary). Chile aside, there’s no better place to go fishing for rocks than this country as
long as you’re in the majority zones that’s welcoming to miners.
Peru (Green, 45/60): Again, the actual and potential weak spots of the Peru story are more
important to understand than its obvious strengths. Of its six categories, the equal weakest
scores (both 6/10) come in “community/social miner friendly” and “Internal/National political
stability” which both relate to the patchwork of acceptance that plagues real understanding of
the Peru political condition. Being a Republic with plenty of provincial authority (officially they’re
called regiones in Peru), local politics matter just as much as the national, centralized policies
that emanate from Lima. This can sometimes result in disagreements between national and
local governments (Cajamarca being a classic example at the moment) and as mining is the
country’s single most lucrative export and activity, it can quickly get caught up in regional
affairs. To this we have to add the long tradition of mining activity in the country, which is on
the whole an advantage to any company that wants to set up but can be the cause of pain,
too: Peru’s history also includes plenty of subjugation of the lower ranking classes and
innumerable examples of people getting rich off the backs of others, with all the bad treatment
stories and socio-environmental malpractices you care to mention. In areas where exploitation
was rife, modern miners will still find it difficult to make their case to locals and get the
16

necessary acceptance and can be as micro-regional as one village in the mountains being pro-
mining and another just a few kilometres down the road ready to run you out of town just for
carrying a rockhammer. The basic story here is that you have, have and have to know the local
story of where your company is working in order to avoid any potential political trouble down
the line. You also need to place your faith and cash with those companies that are empathetic
towards the local communities and their desires, rather than go with those you play lip-service
to the idea of good community relations but when push comes to shove will try to play big
master (and screw the roost forever). That’s where knowing your management team comes in
and making sure the people working for you (as a shareholder) have enough experience of
Peru, rather than just exploration mining.
Brazil (Green, 45/60): Brazil’s recent mining law project, that has as one of its projected
laws the plan to raise royalties on mining operations from 2% of pre-tax profits to 4% of mine
revenues, would be a negative development for the country’s industry if passed undiluted.
However, the new law bill’s contents aren’t all bad and also include tax break proposals for new
capex and as we’re in the world of Brasilia politics and one of the world’s shadiest lobbying
systems, what comes out at the end of this law may be very different from the government
proposals (especially now that President Dilma Rousseff has hit a roadbump in popularity,
thereby weakening her political capital). Meanwhile, Brazil mining is still the legal minefield that
it’s always been and again, the need to have experts who know their way through the system
on your side is vital. Miles Thompson (of LRA.v, RMC.v etc etc fame) once summed it up
beautifully by saying “In Peru 90% of your cash goes on community relations and 10% on
lawyers, in Brazil it’s 90% for the lawyers and 10% on community relations”. Once more the
weak spot in the Brazil story is its internal politics and how communities react to the prospect of
a mining operation near their shores and again, it’s regionally defined. The country’s absolute
size, terrain often between difficult and impenetrable and relatively sparse population outside of
the dense conurbations puts large areas off the national political map and into the hands of
local leaders, all with their own agendas. Knowing who you are dealing with is as important as
being in one of the Brazilian zones that’s used to mining activity (Minas Gerais, etc) unless you
happen to be the size of a Vale with the budget to match.
Playing to Brazil’s advantage recently has been the rapid slackening of the exchange rate
against the dollar, which is something we’ve documented in many LatAm countries recently (a
typical +9% move cross-region) but in Brazil it’s been going on for more than just the last
quarter and has seen the Real retrace from USD1=BRL1.50 to USD1=BRL2.20, a near 50%
move (or 33% if you prefer to think in dollars only). Operating costs have as a result dropped
from inordinately expensive to reasonable, both in labour and supply terms.
Nicaragua (Amber, 39/60): Nica has been the great new mining success story of recent
times. Despite being run by the hard-left government of Daniel Ortega, the industry has made
itself welcome and the country is now a hotspot of exploration activity. A lot of credit should go
to the B2Gold team for bringing best practices to the country at the right time and winning the
government over to its side (there are many persisting rumours of how Ortega was offered and
accepted a shareholding in the BTO Nicaragua activities in return for his staunch backing, but
that’s probably better done another day) as it’s done a great job of showing how the country
and people can benefit from a formal and formalized mining industry. For just one example, the
Limon mine was famed for its bad labour relations before BTO arrived; since then there have
been but two minor stoppages, with both issues solved quickly and amicably. Since our political
risk coverage started at The IKN Weekly Nicaragua has climbed up the league table and I’d
expect it to keep doing that in the future, as long as the other companies now operating there
do so in the right way and keep the win-win situations flowing.
Colombia (Amber, 38/60): Colombia has been a difficult region but is now showing signs of
getting its act together, at long last. It was billed as the great new frontier for years and as a
result of the lessening level of terrorist violence (FARC to the left, paramilitaries to the right)
areas of the country that had been hot zones but were also highly prospective mining areas
suddenly opened up for relatively safe exploration. The result was a mini-boom at the right time
17

in the mining cycle, but since then Colombia has stagnated due to the country not getting its
statutory act together and failing to provide the type of legal framework that allows the big
money to move in. Also, the freeze on new concessions and permit (that has only partly been
lifted in the last few days) meant that a lot of projects found themselves unable to cross from
the exploration to construction and eventual operation stages. Now, with metals prices hitting a
significant downturn, there’s a sense that Colombia has missed the window.
Along with its legal doubts have come a lot of criticism about the country’s environmental
policies towards mining. The nub of the problem comes from having weak rules when the
staking boom took off, but when people began protesting that certain mining projects would
make a environmental mess of sensitive ecological areas, the government found it had to
choose between locals’ desires or appeasement of FDI...and so far at least has gone with the
locals. That’s a valid call of course, but it also means that FDI will be put off from entering if it
feels that the rules are changed at any given moment. Support for mining is again a patchy
affair (assuming you’re not in a hot zone for terrorist activity, which means you shouldn’t be
there in the first place as Braeval (BVL.to) has found out to its cost) and it pays to be in areas
that mining tradition. Another potential issue is that there’s a decent pool of mining workers,
but they have always worked for private or informal mining companies and are often unused to
the ways in which formal, larger scale hard rock mining works. We’ve already seen examples of
wildcat strikes at Canadian listed juniors (e.g. ATC.v) that seek to disrupt in order to get better
pay and conditions, and this type of labour instability may quickly leave a sour taste in the
mouth of investors.
Colombia’s main problem is that of making its mining sector more serious and formal. It needs
the new proposed laws, which are set for debate in the current year, to pass and offer the type
of framework the country said it would have three or four years ago. The potential of Colombia
is massive and on a national level, mining companies have the support, the FDI-welcoming
attitude and the goodwill of a government based on neoliberal growth ideals are all in favour.
Dominican Republic (Amber, 34/60): The sage of Barrick Pueblo Viejo (60% ABX, 40%
GG) captured headlines for quite a while and in the end, the company gave way and offered a
deal that sends more cash to the government coffers. But while spat was on, Dom Rep also
pushed though new rules to make exploration permitting easier and quicker in the country in
order to attract more grassroots operations. The Pueblo Viejo affair didn’t make for good optics,
but it came about for some pretty specific reasons (ABX being dicks, plus capex soaring since
the deal was struck) and it’s not a situation that’s likely to repeat itself now. Also, the Danilo
Medina government has agreed on an altogether equitable win-win deal with ABX which,
although clearly better for the country, isn’t the type of usury demands that will put other
companies off from considering Dom Rep as a place to go looking for rocks.
Dom Rep has the right sort of attitude towards mining in the 21st century and the rules now
look clear and fair (though not the type of knockdown bargain that Guatemala seems to be
offering). The country’s politics are reasonably stable (or very stable compared to other
Caribbeans), GDP growth is a main policy objective and FDI is welcomed. It mining industry is
still in its very early stages (Pueblo Viejo is the only formal mine there) and Glencore’s nickel
project expansion is now attracting some vociferous community opposition, so let’s see how
that plays out.
Argentina (Red, 30/60): The rules for Argentina haven’t changed much since the last time
this country’s mining politics were featured here (which is often), so rather than go over the
subject piece by piece, here’s the need-to-know on the region’s (and perhaps the world’s) most
frustrating mining jurisdiction:
• Geopolitical optics are frankly awful. It’s probably not as bad as people on the outside
looking in (especially those monied people who tend to finance capital projects) think it
is, but there’s enough noise about Argentina, from controversial Presidential
declarations, to laughter over an inflation rate from people who don’t have the first idea
18

of what inflation is, to threatened bond defaults, to the mooted collapse of the whole
government a la 2002, to make people stay away in droves.
• Politically is never has been, is or will be a particularly stable country and where we
stand today on the political cycle, mid-term on the presidentials and about to have
some reasonably important provincial/municipal elections, the noise is so much greater
(witness the transport strike set for this week and run by unions that used to be pro-
Cristina but are now sworn enemies).
• FDI is scared of entry, and rightly so. The government’s seemingly constant rule
changes (many designed to trap dollars inside the country and not let them out easily)
deter companies looking for projects that will eventually remit profits to HQ. Once
inside, the high local inflation rate (that’s denied by the government using fakey official
figures) and two tier exchange rate system means that costs in dollar terms rise rapidly
and eat into mining margins.
• There is significant community and social opposition to mining projects which depends
greatly from province to province. If you’re in Santa Cruz, San Juan or another one of
the “miner friendlies” things are normally fine, but Mendoza, Chubut and others are
tough places to get approval, at community or government level.
But despite the problems, Argentina is a place that we need to watch closely, not least because
its policies can turn on a sixpence and suddenly provide a benign atmosphere for FDI and
mining activity (much of that will depend on the future of national economic policy). Its mineral
potential is perhaps the best of all the (largely) untapped regions on the continent and as long
as you’re in the right place, governments at a national and regional level are supportive. At the
moment it’s not the place to be or to have money exposed, but that can change on a macro
level and it’s always possible that a specific project comes along that’s good enough to
overcome all barriers.
Guatemala (Red, 25/60): I’ve spent more time worrying about what to do with Guatemala
in this new revised coverage than any other country, because it has emerged (in my painful
little mind at least) as a key country to categorize in order to be able to offer a decent new way
of presenting things. The issue was always that Guatemala is a potentially interesting place for
mining and mineral exploration, but its scores on most of the parameters put it behind
countries that don’t hold the same amount of basic potential. In our raw totals, Guatemala at
25/60 scores less than all three “potentials” (Uruguay, Panama and Guyana) and less than the
totally discarded Bolivia and Honduras (and equal with Paraguay, to boot).
Some of the problems associated with Guatemala are sadly typical of the ‘TPLAC’ countries, as
my old geography teacher used to call them (Tin Pot Lil African/American Country). The country
is institutionally weak and seemingly incapable of putting in place laws that benefit both
business and citizenry and even if the laws are there it’s not easy to get people to comply
without sending in the army on any given occasion. Many provincial areas run high levels of
violence and corruption, often directly connected with the cocaine trafficking trade and the
national government’s attempts to impose the rule of law are weak outside of its immediate
area of influence in major cities. Added to this, Guatemala has become an apparent
battleground between the pro and anti mining groups of our world, with the miners there
promoting its economic benefits while human rights groups and NGOs spread scare stories
(sometimes deserved, othertimes not) about the disasters that can befall a community that lets
the foreign ravagers in the door. When added to the limited formal mining culture, it’s an
appeal that resonates on an emotional level with a lot of the population and recent polls
indicate that the country is split down the middle on the issue (even when the pro-mine city
majorities are taken into account).
Despite all that, your author has decided to put Guatemala in with the other countries to which
we offer active coverage and considers it a place where a trade in juniors may be possible. The
19

lack of formal exploration over the years means that much of the country’s most prospective
looking areas are still untouched. Indeed, your author may have his issues with the company
sitting on top of the Escobal mine (TAHO) but there’s no doubting the world class quality of the
deposit itself and there may be many more of those out there still. The country is poor and in
need of investment and current President Otto Pérez Molina is both acutely aware of that fact
and welcoming to mining. The government continues with its push to reform the country’s
mining laws and if the bill ever gets through its parliament (this current campaign puts official
efforts at five years, according to my notes) the contents as stand are friendly enough towards
the mining industry. What miners need to do in Guatemala is a much better job of relations, at
a national and local level. It’s by no means impossible to turn around a negative community risk
and get people on your side (things like mutual respect or understanding of and dealing with
locals’ fears would be a novel way of moving things forward there, for example) and if a good
job can be done, we’d soon have a situation similar to the positive direction taken by Nicaragua
on our hands.
Conclusion
That wraps up our overdue revision of the Regional Risk for mining companies. We’ll return at
the end of this quarter to see how things have changed for our main focus countries.
Market Watching
Peru’s IGBVL “general” index points down
I’m not averse to a little charting after all ☺, and still keep at least one eye on the Lima Stock
Exchange and its IGBVL “general” index. That’s because the Peru exchange gives us a way of
tracking mining companies in a LatAm (EM) environment, though I will admit that since the last
re-weighting of the index (see here (14)
http://www.bvl.com.pe/estadist/IndGral.htm
) the total direct exposure to mining companies is down to around 42% of the total index
(however, construction companies dependent on mining projects also figure prominently, as do
a few O&G plays, cement companies, power gens etc).
The last time we tuned into this chart it was bouncing at or around the 16k point, which looks
for all the world like long term technical support (I think that’s how you say it). Well folks, today
sees the IGBVL at 15,181.7 points, which means it’s broken 16k to the downside and has
another 7.8% left to drop before getting to the next what-looks-like important psychological
barrier at 14,000.
20

A word on Dynacor Gold Mines (DNG.to)
On several occasions over perhaps two years I’ve been asked about Dynacor Gold Mines
(DNG.to), a junior operating in Peru. Its business model, aside from its own exploration projects
that have been moving forward slowly, is to buy mined gold mineral (I think we can safely say
“ore” here, because it’s invariably profitable) from third party miners, usually small ‘artisan’ type
operations, and then process it at its Acari mill in the Nazca region, not too far from where your
author is writing these words (and yes, the same Nazca famous for the lines in the desert).
I’ve been prompted to look at the stock on more than one occasion by mailers and over the last
48 hours another handful of mails asking about DNG have come in, presumably because it has
been reco’d by Louis James in this month’s edition of the Casey International Speculator (slight
sidebar: James wrote that his buy reco decision was a “no brainer”, which I couldn’t help but
find slightly ironic turn of phrase from a Casey publication...hey, at least I got a smile out of it,
that’s not a bad return). As you can see from
this 12 month price chart, the stock is off of
its highs but has held together better than
most in the sector, so nothing really to sniff
about on that score. It’s also a profitable
operator, having returned an 8c EPS for
1q13 and as it works on a margin-type basis,
buying ore, processing it, selling the gold
and pocketing the difference, it’s likely to
continue that way as long as suppliers keep
supplying as they’ve been doing.
The problem I have with DNG is more ethical
than financial, because it’s widely understood
that the company received at least part of its
ore supply from the Madre de Dios (MDD) region of Peru, the Amazon basin jungle area that is
being devastated (no other word will do, sadly) by poorly controlled mining practices that cause
enormous amounts of environmental pollution to the regions lands and rivers (as well as
creating a social situation that leads to no-rule towns, highly corrupt politicians, extreme levels
of criminality and violence, forced underage prostitution and dozens of other problems typical in
stateless societies).
If you go to the DNG website no mention is made of this (unsurprising, that kind of information
is exactly the type of thing that two-faced junior mining directors prefer to keep out of the
limelight) and instead, well-written but ultimately vague pledges to environmental values are
offered by the company (15). It’s also true that at least some of the ore supply comes from
21

informal-type miners in and a round the Nazca region (there are a lot, which tend to mine out
high grading thin vein systems the old pick/shovel/dynamite stick way), but there’s also little
doubt that at least some of the DNG gold is sourced in the type of location you see above (that
used to be rain forest and to get an idea of scale, check out the dwellings in the bottom left
part of the photo).
Of course, you don’t have to take my word for it: Feel free to phone DNG’s IR department and
ask them straight whether they source any gold from MDD. After you get their first reply (it
tends to be long and sounds pretty convincing, I’ve done it twice and now assume it must be
written on a card somewhere, as it came out word-for-word) just ask them for a simple yes/no
response on whether any of their gold comes from MDD, at which point the phrase “We cannot
say that it doesn’t” should make its first appearance. It’s then up to you how much further
you’d like to take the conversation
Now, I’m not about to impose my ethical or moral limits on readers of The IKN Weekly, please
don’t get that part wrong. I agree that DNG has a smart business model (for as long as the
suspiciously cheap gold mineralized material keeps flowing its way as it does today) and that it’s
a money-spinning operation, so if its environmental grey-areas don’t worry you too much as an
investor looking for a trade I will not stop you as the free cash flow is strong, the balance sheet
is in good shape and its planned near-future expansion is the next obvious logical business step
for it to take. But there is no way at all that DNG will ever get anything close to a
recommendation as a buy on these pages, because I like where I live too much to see it fucked
over with no thought to any long term consequences by a bunch of moneygrabbing assholes
who obviously don’t give a shit. I hope that’s clear enough.
Rio Alto Mining (RIO.to) (RIOM): 2q13 showtime
Production numbers may turn up as early as next week, or we may have to wait until the week
after, but sources indicate that RIO had a record month in June and placed 24,900 oz Au on
pad. If that’s confirmed it would beat the old best of 23,229 oz of March 2012, when RIO was
mining the high-grading starter mineralization.
Rio Alto (RIO.to): Ounces placed on pad monthly, Jan 2012 to date
26000
24000
22000
20000
18000
16000
14000
12000
10000
8000
6000
4000
2000
0
22
21naj bef ram rpa yam nuj luj gua pes tco von ced 31naj bef ram *rpa *yam *enuj
oz Au
source: MEM data/IKN ests
Of course ounces placed does not equal ounces produced or sold and we’re going to have to
wait for that number, but the IKN best guess now is that RIO comes in with between 48,000 oz
and 49,000 oz gold sold in 2q13 (we’d previously estimated 48k). That would be good, but the
guidance is what we care most about here and with the mine now running well at its new
throughput averages and June 2013 signalling the shape of things to come, there’s more
confidence behind out target of 127k oz Au production for the second half of this year.

RIO.to: 2013 quarterly sales, guidance vs result
70000 65000
guidance 62000
60000 result
48000
50000
40000 36355
30000
20000
10000
0
1q13 2q13 3q13 4q13
source: RIO data, IKN ests for results 2q13+
We’re nearing showtime for RIO and its very promising vibes for the 2q13 numbers. Your
author’s big mistake was to dive in too early in the $2.40 to $2.80 range, not thinking for a
moment that RIO would drop as low as it has, even with gold at $1.2k. At the the time the
decision to buy the new and nearer-term trading position (separate from the larger, longer-term
hold) with a month or six weeks left was described as a risk I was aware of running and was
relaxed about taking. Well, relaxed or not it’s turned out to be the wrong call and instead of
sitting on a potential winning near-term trade, the most I can reasonably assume to achieve
(unless gold pops hard to the upside and saves us all) is to get back (most of?) the lost ground
and reduce losses as close to zero as possible.
In other words and in three words, my timing sucked.
However, that doesn’t mean there isn’t a trade here in RIO today because at its current price
(and assuming a steady state gold price) RIO should be able to give us a bounce and a win
when it delivers 1) the results above market expectations and 2) guides strongly for the rest of
the year. A final thing to watch out for is whether the company has decided to pay back its
forward gold loan at a quicker pace in the last quarter, thus taking advantage of the low price
to benefit the overall balance sheet position more rapidly. That one will probably come out
when the financials hit in August, but for the time being, we can look forward to better
production and guidance for the rest of the year.
As for a trade, it’s one of those slightly awkward moments when I’m forced to join the market
commentating charlatan camp and say that although I’m not buying I do think RIO.to is a buy
right now, especially for anyone looking for a nearer-term trade that is looking to scalp a quick
10% or 20% gain. That’s because I have enough (more than enough) cash deployed in RIO
today and even though the temptation is there, I must exercise a bit of portfolio discipline.
There’s also the potential of adding to IRL.to and AQM.v this week coming (if the news/price is
right on both stocks) and the background of having just raised a bit of cash and not wanting to
redeploy it at the first available opportunity. So yes, those with the ammo and inclination should
seriously consider RIO for a trade (or for sterner blood, a longer-term investment position)
thanks to the set-up and likely catalyst that the 2q13 numbers will provide.
Conclusion
IKN218 is done, here are some bullet points:
• Trade potentials are in the cards for AQM Copper (AQM.v) and Minera IRL (IRL.to) for
your author, as long as circumstances prevail. In the case of AQM the entry price is all-
important and 6c is the most I’ll pay, period. In the case of IRL we’re after material
confirmation concerning the rumours picked up late last week about the finalized
23

financing deal for Don Nicolas, as well as details of the deal which look shareholder
friendly. In IRL’s case, the entry price would be less important because even a 50% rise
would leave the stock looking cheap.
• Meanwhile, Rio Alto (RIO.to) (RIOM) should be considered a trade by those looking for
a near-term flip (even though I’m personally full position) as we’re closing in on the
2q13 production announcement that will beat the quarterly guidance and (hopefully)
confirm that the company is looking at a strong future for its oxide gold operations.
• I’ve taken too long over the new and revised Regional Risk coverage, but it’s now out
there. Be clear that I consider this subject of vital importance to anyone considering
mining investment (LatAm or otherwise) these days and the changes have all been
made with that in mind. The idea is to have a scoring system that’s of as much practical
use to the junior mining sector as possible, no more no less.
• I have purposely made no mention at all about Reservoir Minerals (RMC.v) this week,
even after having spent a sizeable portion of my week chasing up on the story and
getting myself as comfortable as possible with the stock (barring one aspect; I
deliberately kept away from connecting with management). After due deliberation it’s
still one of the most exciting junior stories out there and I am still keen to own, but I
can’t help but think that the macro story in the mining and the copper sector in
particular is going to offer up a better entry point than the one we’re offered today.
Perhaps more on this next week, but I would like to put out a public thank you to
reader ‘J’ for his help.
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
24

Footnotes, appendices, references, disclaimer
(1) http://hablemosdemineria.com/2013/07/04/colombia-un-referente-para-la-mineria-centroamericana/
(2) http://finance.yahoo.com/news/gold-corporation-mill-expansion-ball-120000507.html
(3) http://www.cochilco.cl/Archivos/destacados/20130705121909_MERC2013%2007%2001.pdf
(4) http://incakolanews.blogspot.com/2013/07/at-what-point-does-lme-system-lose-its.html
(5) http://www.ft.com/intl/cms/s/0/7c6034ce-e4c5-11e2-a74d-00144feabdc0.html#axzz2Y4fpPqLh
(6)
http://www.steelguru.com/metals_news/China_importers_line_up_to_take_out_LME_copper_stocks_Traders/317579.ht
ml
(7) http://www.azcentral.com/news/arizona/articles/20130705florence-mine-water-protection-rules-
tightened.html?nclick_check=1
(8) http://azdeq.gov/environ/water/permits/index.html
(9) http://finance.yahoo.com/news/augusta-announces-rosemont-copper-eis-202400200.html
(10) http://azstarnet.com/news/blogs/desertblog/new-eis-draft-rosemont-v-opponents/article_fecf2b8e-e2dd-11e2-b4db-
001a4bcf887a.html
(11)
https://www.google.com/search?hl=es&gl=ar&tbm=nws&authuser=0&q=grosso+argentina&oq=grosso+argentina&gs_l=
news-cc.1.0.43j43i53.3090.5230.0.6937.16.2.0.14.14.0.189.235.1j1.2.0...0.0...1ac.1.TTkxQwqMMgM
(12) http://www.massmining.com.ar/san-juan-los-trabajadores-de-la-mina-casposo-con-un-incremento-salarial-del-30/
(13) http://finance.yahoo.com/news/marlin-gold-announces-filing-final-001004187.html
(14) http://finance.yahoo.com/news/melior-resources-firestone-ventures-announce-120000248.html
(15) http://dynacorgold.com/en/our-pledge.php
Appendix 1: Flash update dated Tuesday July 2nd
Good morning, just after 7am on a chilly winter's Tuesday, with an hour and bits before the opening bell.
AQM Copper (AQM.v)
We now have the news from AQM Copper (AQM.v) and it's very much as expected and good, too. Read it all here...
http://finance.yahoo.com/news/aqm-copper-announces-mitsubishi-materials-113000633.html
...but the bottom line is that AQM is selling 40% owned subsidiary, the one that owns in turn 50% of the Zafranal project,
to Japan's Mitsubishi, for $22.6m in cash. In effect, AQM has sold 20% of its holding in Zafranal for that cash.
Therefore the new JV at Zafranal comprises of 50% Teck, 30% AQM.v, 20% Mitsubishi.
It's expected that the $22.6m held by AQM will be enough to fund its part of the development through to feasibility stage.
This is an interesting deal, because:
•
It is totally non-dilutive to the share count, which stays at ~105.6m S/O.
•
It shows that Zafranal is considered far more valuable by mining companies (e.g. Mitsubishi) than the market.
If Mitsu is willing to pay $22.6m for 30% of the project, it suggests the 30% still held by AQM has a ticket value of
$33.9m, or 32c/share.
•
In the in-situ terms we mused upon in IKN217 on Sunday, the 1.05Bn lbs Cu (credit metals ignored) that
comprises the 30% of Zafranal owned by AQM.v now has a price of 0.35c/Lb, which is exactly the same as Candente
(DNT.to) at Cañariaco, a far more troubled project.
25

The question is whether AQM is a buy/add on this news and I think it is, but all depends on the entry point. I would NOT
be shooting for a 32c target price, because Mitsu has paid a premium to enter here, but I do think that 10c is a
reasonable target under today's market circumstances (that would put things at roughly 1c/Lb in situ, which is still cheap
in historical terms for copper projects) and considering that AQM is now being carried on over a billion pounds of copper
(that may turn out to be more once the exploration is done) by two of the biggest mining companies in the world at a
project that is in position to move forward efficiently (it has funds, decent address, a PEA that indicates it's economic at
current prices, local backing and JV desire to be developed) and that's a lot more than many other copper projects out
there.
The bottom line is that I'm a buyer of AQM at 5c or less, which was the general plan floated on Sunday and still
looks close enough now we have more details. We have to recognize the high risk involved with buying/adding a tiny
pennycrapper junior in this current market, therefore risk must be outweighed by a decent potential reward, so if 5c is
available today and 10c is out price target, a potential double makes it worth our time. But I'd be leery about paying
more than 5c and anything 7c and above would be a flat "no thanks".
The news is very positive out of AQM today, the company has indeed come back to life and if the chance to bring down
the cost average comes up, your author will add with a view to making a quick trading profit. However, this still remains
a bad loser of a trade at The IKN Weekly, it's still a high risk option and won't be for everyone's taste.
Appendix 2: FT article on metals warehousing
The Big Base Metals Storage Game
http://www.ft.com/intl/cms/s/0/7c6034ce-e4c5-11e2-a74d-00144feabdc0.html#axzz2Y4fpPqLh
Warehousing sounds dull. But investors should pay attention: it may be about to reshape the global metals markets.
The buzz among metals traders this week was not about Chinese growth or US monetary policy, but a proposed change
in warehousing rules by the London Metal Exchange. The move, coming just six months after the LME was acquired by
Hong Kong Exchanges & Clearing for £1.4bn, aims to reduce long queues to remove metal from some warehouses in
the LME’s global network. Should the LME push ahead with its proposal, traders and analysts say, the impact on the
global metals markets could be dramatic, reducing the dominance of warehousing companies in physical metals
markets and possibly leading to significant price drops for some metals. “We are in no doubt this is one of the most
significant developments in LME-traded metals markets in a long time,” says Duncan Hobbs, metals analyst at
Macquarie’s closely followed commodities team. To understand why, it is necessary to dive into the arcane world of
metal warehousing….
In 2008, when the global economy went into a tailspin, demand for industrial metals from global manufacturers dried up,
leading to a large pile-up of inventories. Stocks at LME warehouses rose from just 1.5m tonnes at the start of 2008 to
6.2m tonnes by the end of 2009. Currently they stand at a record 7.7m tonnes. That made warehousing an attractive
and lucrative business. Banks and traders including Goldman Sachs, JPMorgan, Glencore and Trafigura all piled in,
buying warehousing companies to profit from storing LME metals But though the metal flooded in, the quantity of metal
that warehouses must deliver out each day is limited by LME rules. That created enormous bottlenecks at some
warehouses, where queues have stretched up to well over a year. Since owners of the metal must continue to pay rent
on it, even while it is in a queue to be delivered out, the limit on the loading out rate gives warehouses a guaranteed
income. As a result, it has become economical for warehouse companies to buy metal in and then sell that metal on the
exchange, in the knowledge that whoever buys it will be forced to pay rent while they wait for physical delivery out of the
warehouse. In the past two years, warehouses have sucked up stocks of aluminium, copper and zinc. These so-called
“warehouse wars” have helped to drive up physical premiums – the cost of metal over and above the LME benchmark –
to record levels, creating a disconnect between the LME price and the physical market and leading metal users from
Coca-Cola to General Motors to voice their dissatisfaction.
On Monday, Charles Li, chief executive of HKEx, made clear that he wished to put an end to the issue, describing it as
“highly irritating” and with “the potential to cause long term harm”. He proposed a new rule, open to consultation, that
would force long queues to be reduced from April next year. The impact on the behaviour of warehouse companies has
been immediate, traders say, with the two most active buyers of metal – Glencore’s Pacorini unit and Goldman’s Metro
unit – both suspending the incentive payments they make to attract metal to their warehouses. The forced reduction of
queues should reduce premiums, particularly in the aluminium market, where the “warehouse wars” have caused
premiums to more than double since 2010. “Premiums have to come down,” says one senior trader. “We’ve essentially
taken out a bid from the market.” The immediate effect would be to put pressure on aluminium producers such as
Rusal, Chalco, Rio Tinto and Alcoa, already struggling with low aluminium prices, which last week hit a fresh four-year
low of $1,758 a tonne. “Mainly it’s terrible for the producers in the short term,” said one trading house executive. “At
these levels the reason why many of these guys don’t shut down is because they have a high premium. If that
disappears, you have smelters going out of business.”
The second order effects of the change in rules are less easy to predict. The prospect of falling premiums may make
banks and traders less willing to buy aluminium for so-called “financing deals” – potentially putting additional downward
pressure on prices. Indeed, Mr Hobbs of Macquarie notes that as large queues for aluminium are reduced in Detroit
and the Netherlands, “the changes to load-out rates as proposed would have the effect of opening two medium-size
aluminium smelters”. Nonetheless, the market is unlikely to move in a straight line. In particular, traders say, the nature
of the proposed rule change means it will not always be economical for warehouses to take delivery of metal. That
26

could make the market more vulnerable to squeezes, since traders who have sold LME futures may find themselves in
some cases unable to deliver metal to the exchange to settle their contract. “The warehouse will definitely have no
interest to take on big tonnages if they already have an existing queue,” says one senior trader. “I think it’s a serious
problem.”
What is clear, though, is that if the rule – which Mr Li once jokingly referred to as his “bazooka” – is implemented, it will
cause a fundamental shift in the trade of aluminium and to a lesser extent other metals. As one aluminium trader puts it:
“It completely changes the landscape.”
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
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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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