IKN #234Premium

The IKN Weekly
Week 234, October 27th 2013
Contents
This Week: New pick, In which your author has a good old rant about things (just for a
change).
Fundamental Analysis: NOBS fundamental report on Dalradian Resources (DNA.to).
Stocks to Follow: Overview, Rio Alto Mining (RIO.to) (RIOM), Starcore International (SAM.to),
Minera IRL (IRL.to) (MIRL.L), Eco-Oro Minerals (EOM.to), Lara Exploration (LRA.v), B2Gold
(BTO.to) (BTG), Darwin Resources (DAR.v), Focus Ventures (FCV.v).
Copper Basket: Overview, Nevada Copper (NCU.to), Candente Copper (DNT.to), Reservoir
Minerals (RMC.v).
The Lottery Ticket Basket: Overview, Marlin (MLN.v), Netco (NEI.v).
Regional Politics: Southern Copper (SCCO) and the Peru government asking for trouble at Tia
Maria, Copper costs of production in Chile and Peru, Chile/Argentina: More problems for Barrick
(ABX) Pascua Lama, Honduras: One month to the Presidential election, Mexico: More on the
7.5% royalty bill.
Market Watching: Gold Resource Corp (GORO) re-redux, Rio Alto Mining (RIO.to) (RIOM)
meeting.
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
New pick
The standard line or two at the top of the shop to make sure you all see that a new long pick is
in town. It’s Dalradian Resources (DNA.to) and the analysis and investment thesis is in the
NOBS report in ‘Fundamentals...’ below. Make of it what you will, I’m buying some next week.
In which your author has a good old rant about things (just for a change)
While your author was swanning around in a capital city, eating at fine restaurants and
pretending to be one of the beautiful people, gold put in a good week and adding a bit of
impetus into the house call of a near-term $1,400/oz, with trade position benefits to match.
There’s nothing set in stone about it yet (and 20/20 hindsight says I would have been better off
adding to the BTO.to pile than the RIO.to pile), but the four-prong plan as at IKN231 dated
October 6th, namely
• Cover MVG short
• Cover GORO short
• Add to RIO.to trading position
• Close AQM.v (and give up the ghost and take the loss)
Has so far worked. Maybe the way you’ve played the move has been better than that, with
stronger performances than the ones I’ve used (and it’d be good if that were true) but as the
The IKN Weekly uses its author’s portfolio as its main guide, those are the stocks that get to be
protagonists, not one of 74 others that I have recommended over the years, never called sell
1

on and then wheel out to show how wonderful my choices are when they make a convenient
move.
I digress. Back to the trades in question and let’s not count those chickens before they’re all in
one basket (eh?) because you and I know
the fragility of the current trading
atmosphere out there all too well. But
momentum is at least on our side this time
and trading in gold (GLD), silver (SLV), PM
miners (GDX) and PM juniors (GDXJ) leaves
little for longs and bulls to complain about,
unless of course you’re Adrian Maguire or
anyone suckered in by his re-enactment of
Walter Mitty, for example the fools at GATA
(1) (and that link is the funniest thing I read
all week; never deny yourself the chance to
laugh, people). This 10 day chart shows 5%
gains for the metals, and 13% and 17%
gains for the ETF basket indices. Not bad, long may it continue.
So with that preamble we get to the bit that tries to dampen our spirits, because “To Da Moon
Alice” has been fully prohibited in 2013 and what this next chart shows is that over the last
month, gold may be up in dollar terms but it’s
still down in Euro terms. Or if we count from the
market bottom on October 14th, Gold in dollars
($1270-$1353) is up 6.54% while gold in Euros
(€939-€980) is up a more modest 4.37%. This is
less about a new-found love of the monetary
asset and a quietening of the bear argument and
more about weakness in the currency that gold is
usually counted against, ladies and gentlemen.
Next up on our list of things to stop us from
going to da moon, beware the dumb money
piling in, because any market that has stocks
such as BGM.to, ITH.to or LYD.to as its
percentage leaders and star sector players, or
proven dyed-in-the-wool dogs like Aurcana
(AUN.v up 39.2% since October 11th), is a market still isn’t making intelligent choices about
where to place its cash and more interested in creaming a few casino bets.
Or here’s another way of looking at it: If you want a big win from a big gold jump in the days
and weeks ahead that you’re sure is coming you shouldn’t be listening to a whussy, now-let’s-
not-be-too-hasty pathetic fundies guy like me, obsessed as he is with finding the better stocks
in the junior universe and looking for longer term value and meanwhile charging a few dollars
every week for an insignificant junior mining publication that keeps him in the luxury he almost
certainly does not deserve* even when the market’s in the crapper. You shouldn’t be long the
less leveraged things such as Rio Alto or B2Gold, you shouldn’t even entertain the new pick in
DNA.to laid out today. No no, kind madam or sir, the place for you is the high leverage stocks
because they’ll give you massive percentage returns as soon as gold goes to where you are
darned sure it’s going to go ($2k/oz by Christmas, you say? Ok! Sounds great! I’m in!). You
want Great Panther Silver, Marlin Gold, Bellhaven or Batero, Peruvian Precious Metals or Tinka
Resources, Argentex or even Dynasty Metals & Mining. It’s Silver Bull Resources or U.S. Silver &
Gold, even Network, Gran Colombia Gold, Stealth Ventures or Catalyst Copper for you. Hey
look, Elgin Mining’s at 11c these days, the very same company that was way over a Loonie
when it took out Gold-Ore (ex-GOZ.to). Or Duran Ventures, anyone? Guerrero Exploration at a
penny?
2

I could continue. Listen, I’m just picking a few names at semi-random from my larger stock
screen and not only that, I have a higher regard for some of those names that have performed
as dogs in the last year or two than I have for others. If you fancy a speculative dice roll (and
can’t get to Las Vegas for those free drinks, comped luxury suites and fabulous stage shows) I
wouldn’t put you off BHV or MLN to name but two and hey, I own a tiny bit of NET.v as one of
my dice rollers. On the other hand I wouldn’t put my worst enemy into several of those names
just listed, but the fact is that they’d all bounce and bounce a whole lot harder than my own
preferred and heaviest weighted stocks if gold whizzed merrily to $1,600 by the end of the year
and just kept on whizzing into 2014.
But that’s not going to happen. What we’ve seen this last two or three weeks isn’t some newly
found optimism for the mining sector but a combination of external macro factors, including the
first step of oversold (sub-$1.3k) gold bullion followed by a combo of macro fear and a point-
or-so drop in the strength of the US Dollar (the two interrelated) that’s seen gold bounce back
and the related market devices that use gold as its cue jumping nicely with the metal. It’s the
old-time fear trade, the one that the gold price loves the most, and what we know about the
fear trade is that isn’t doesn’t ride forever. Me personally, I’m gunning for that $1,400/oz figure
in October/November (until otherwise stated) and if it turns up, the bets I’ve placed on the
~$100/oz move will be cashed in, as will the other near-term traders in EOM.to and SAM.to,
then it’ll be time to watch again from the cash-plumped sidelines. I’d like to be longer in
exposure and longer in preferred timescale than I currently am, but it’s too difficult to place
trust in a market that’s prone to the whims of gold, the metal that turns like a leaf in the wind
when the currency winds change, and being led up by stocks as downright awful as ITH.to and
GPR.to....and freakin’ Barkerville!
We have a relief rally in progress, it’s not a brand new dawn for gold. Be happy that gold is
going up, because up is better than down, but don’t get fooled by the hardcore permabulls
who’ll often tie a love of gold to some pretty extreme politics, as well as other half-baked ideas
about how they think the world should work. Trade accordingly.
Fundamental Analysis of Mining Stocks
This week we look at Dalradian Resources (DNA.to).
NOBS fundamental report dated October 27th 2013
Dalradian Resources Inc. (DNA.to)
Company Overview
Dalradian Resources Inc. (Canada: DNA.to, US pinksheets DRLDF, Frankfurt DLR.f) is an
exploration stage junior mining company operating in Northern Ireland UK and Norway. Its
flagship property is the Curraghinalt gold mine project in Northern Ireland. Current share
structure is as follows:
3

Shares out: 89,542,983
Options: 6,598,334
Warrants: 120,000
Fully diluted shares: 96,261,317
Current share price: $0.76
Market Cap: $68.05m
Approx cash per S/O: $0.06
All prices are in Canadian dollars unless stated. Forex U$1=CAD$1
Today’s report
Why Dalradian (DNA) today? That’s a question I want to address before moving into the main
part of the analysis, so here we go. Road trips that visit either a host of company offices or
mining operations or projects are normally worth my time, but it’s often for some small thing or
semi-oblique moment more than the in-your-face information that you’ve gone to look for. Such
it was last week, when during one specific meet with one specific person, the conversation
turned to DNA for about three minutes before wandering back from whence it came. There
really wasn’t very much said about the company either, but it was enough to spark a small
synaptic transmission in my slow-burn of a brain (that should get to these moments far more
easily, tell the truth) and the viewpoint offered by the person with whom I was talking was both
positive and from a different angle to my previous considerations on DNA, so on return to my
hotel room and laptop, the first thing I did was to revisit the preliminary research done perhaps
six months ago on the company (that was abandoned due to the awful nature of the macro
market at the time). It took another three days of snuffling around to make the buy decision.
Therefore the analysis today, based on a previous body of work but also a spark from a recent
conversation and more detailed numbercrunching in the last few days.
Management and main shareholders
DNA is led up by president/CEO Patrick Anderson, a geologist by training who also founded the
company and is the main driving force in its operations. Anderson was one of the key people in
the success story at Aurelian, the company that discovered, developed and then sold the Fruta
del Norte gold property in Ecuador to Kinross. At the time of the sale I was vociferous in my
opposition to the sale of FDN to Kinross and was of the opinion that the sale was going through
at a much lower price than possible, thereby negatively affecting shareholders (of which I was
one) and even though I made a good profit on my ARU trade,I thought Anderson’s decision (he
was the key negotiation man at that point) was a bad one. Well, history shows that Anderson
was right and I was wrong on that, as the political risk profile of Ecuador went sharply downhill
in the years after that sale and despite FDN being a sparkling gold deposit and Kinross
investing a lot of money to bring the project to advanced exploration, the company decided to
hand back the concession to the Correa government due to the excessive fiscal burdens it was
trying to set on the mining industry. I never mind admitting a bad call and 20/20 shows that
Anderson was right to bail on FDN when he did. I stand corrected.
Since that time, however, Anderson’s record has been a little spotty and although he’s been
connected to several high-profile junior stories at managerial or director level there’s been no
repeat of the ARU success. He’s been involved with companies such as Noront, Colossus and
a smattering of uranium juniors amongst other stories, all of which have come a cropper due to
the market drop, company-specific troubles, political risk miscalculations or a combination
thereof. However, all through this post-Aurelian period time his main focus seems to have been
Dalradian, with the other positions taking minor parts of his daily work life and the other things
have come along through his financial and corporate connections (and now for a word from his
sponsors). Overall, it’s fair to say that Anderson is a successful leader of junior mining
companies, did very well at Aurelian and is a well-connected member of the “Canadian names”,
but the sector is still looking for his next true winner.
As for the main shareholders, they’re led by Rosseau Asset Management, a company that has
worked closely with Patrick Anderson in previous ventures (to the point of pressuring a change
in Noront and getting the old management chucked out and a new team including Anderson put
in). Rousseau owns 13,714,800 shares of DNA, or 15.3% of shares outstanding. Next comes
Front Street Capital Inc with 11,637,059 shares, or 13.0% of shares out. As for the board, in
4

total it owns 5,407,600 shares of its own stock (~6% of shares out), of which 3,121,000 is held
by pres/CEO Anderson. The second biggest holder on the board is Sean Roosen (of Osisko
fame) with 1.05m, next comes Ari Sussman (Continental Gold, Colossus etc) with 773,000
shares and the other 463k or so is held by the other members in minor chunks.
Together, the two main insto holders plus the board own 34.3% of shares outstanding and
plenty of the underlying options. There’s skin in this game.
Financials overview
Time for our normal look at the underlying numbers (a bit that many of you skip, I hear...the
fools! The fools!). Although Dalradian was incorporated and bought Curraghinalt into its
structure in 2009, we’re only going to go back
as far as 2011 in its filings. There are no big
secrets in those first couple of years, just
unnecessary information for our purposes and
for getting a handle on today’s DNA. We’re also
adding forecasts for the next two quarters to
model how we see DNA at the end of this year.
Assets look like this. What we have is a
company that adds to its treasury pile and then
spends it on its exploration assets, true
exploreco style, while capitalizing most of it. We
can also see that current assets have been
dropping at a steady pace since the last cash
injection in 1q12 and things are getting a little
thin.
As for liabilities, it’s one of those nigh-on
optimum situations that we like from our
exploreco juniors, with just run-of-company
short-term stuff in the mix and no debt to speak
of at all. It fluctuates around the $1.5m to $2m
mark, which is smallstuff and make sense. I like
it when I don’t have to use many words about
this chart.
Working capital is the interesting one, as it’s nearly all covered by treasury and shows a pattern
that suggests the current amount of cash held by DNA is close to its lower limit. That in turn,
along with its standard cash burn rate (which we’ll look at in a little more detail below) suggests
that DNA is likely to go to market soon and raise more funds.
50 DNA: Working Capital per qtr
45
40
35
30
25
20
15
10
5
0
5
01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 tse31q3 tse31q4
source company filings, IKN ests
srallod
fo
snoillim
DNA: Assets Breakdown per qtr
100
90
80
70
60
50
40
30
20
10
0
This isn’t a tough one to work out and it’s so easy that even the average mouthbreather in a suit
working in some booth in a full service brokerage has noticed it as well. That’s a long-winded
(and silly) way of broaching a more serious and interesting subject. It’s pretty clear that DNA is
looking to raise soon, which means that its current share price may well be seeing capping as
01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 tse31q3 tse31q4
source: company filings, IKN ests
srallod
fo
snoillim
fixed
other current
cash
DNA: Liabilities position
5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 tse31q3 tse31q4
$m
LT debt
current debt
source: company filings

people who want in cheaply hold down the price (and I’d go as far as to say “almost certainly is”
if pushed after a couple of glasses of decent
Argentine malbec). With end 3q13 working capital
DNA: Net Loss, per qtr
estimated at $7m (we’ll find out the exact number in 2
1.8
the next couple of weeks when DNA files its
1.6
quarter), a burn rate that won’t let it get past 1q14 1.4
and a clear tendency to prefer a cushion of cahs at 1.2
1 bank, your author firmly believes that DNA is not far
0.8
away from going to market in order to raise. 0.6
0.4
0.2
Now a quick nod to the P+L, which isn’t really our
0
focus today (it’s an exploreco, we know it’s going to
make a “L”) that shows like this:
Here below is a little more on the burn rate, which is basically made up of “operating losses”
(which includes, salaries, professional fees, share based compensation, office G&A etc) and
“exploration and evaluation” (to be exact, “Expenditures on exploration and evaluation assets”,
which is the cash it spends doing things in the field such as drilling, running camp etc). Here we
have the breakdown for the last five quarters, which shows a slight drop in corporate-side burn
as well as a peak-then-trough for field-side burn, most probably connected to when DNA is
doing cash intensive drilling and when not.
$m DNA.to: "corporate vs field" expenses
8 exploration and evaluation
operating expenses
7
6
5
4
3
2
1
0
2q12 3q12 4q12 1q13 2q13
source: company filings
If we then consolidate the two expenses and sit the totals (now in orange) against the drop in
treasury cash per quarter for the same five periods, the connection is obvious. The slight
difference seems to be from a tax rebate DNA gets for its work in Northern Ireland, but it’s the
trend that most interests us.
DNA.to: Your dollars at work Net change in cash treasury per quarter
$m Expenditures on exploration/evaluation
8 assets + op. expenses, per qtr
7
6
5
4
3
2
1
0
2q12 3q12 4q12 1q13 2q13
source: company filings, IKN calcs
So with an idea of how much cash it chews through per quarter these days (i.e. something over
6
11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 tse31q3 tse31q4
source: company filings
srallod
fo
snoillim

$4m/qtr when not drilling, something over $6m/qtr when drilling) and its working cap which
stood at $11.9m as at June 30th, plus considering the point at which DNA is on its development
track and then its penchant for having a cash cushion, then considering the horrid state of the
market and guessing that DNA won’t be too keen on raising massive amounts of cash at its
current beaten down share price, your author’s best guess is that it’ll look to raise around $8m
to $10m at its next move to market. You never know, it might turn out to be more or less than
that number, but it’s the kind of cash that
will see DNA through 2014 and potentially 110 DNA: Shares Out
100
allow it to raise more in better market
90
conditions the end of next year (hope 80
springs eternal etc). 70
60
50
Which brings us to the shares out chart
40
and as you can see, the count has stayed
30
very solid at just under 90m S/O since the 20
last raising in early 2012 (to be precise, it 10
raised gross proceeds of $27.8m (net 0
proceeds ~$26.1m) via a bought deal at
$2.00 per share, no warrant attached).
Therefore, your author’s best guess is that around 10m shares are added to the total during
4q13, which would bring us up to ~100m shares out by the end of this year.
The Curraghinalt project (plus the other company assets)
DNA has two main thrusts in its activities, namely the Curraghinalt gold project in Northern
Ireland and a group of early stage exploration properties in Norway (one Southern end Norway,
most hectares in larger concessions in the far North of the country, probably rather chilly in the
winter) that were added to the fold in 2012. The Norway properties are for another day and at
the moment we give them a valuation of zero, because just about the whole ballgame at DNA
and the project that will decide whether buying this stock becomes a success or a failure is
From this point onwards we’ll concentrate our efforts on that. We will also note that the Northern
Ireland area has offered up several other gold deposits in the timespan, including a working
gold mine. For more on that visit the DNA website (2) where there’s plenty of info on the
neighbours.
A word on political risk here, which looks pretty much optimum from looking outside in. The
nominal country (the UK) and the Northern Ireland region (by it’s assembly and elected
representatives are explicitly pro-mining and have made plenty of noises to that end. The local
and community situation is reportedly excellent too, with locals on-side with the company and
keen to see the project become a reality. The permitting track is on-course too. Overall, one of
the better mixes I’ve seen, though I will admit that as usual, when straying away from my
preferred LatAm location there may be nuances that get missed. However, after plenty of
chasing up there’s nary a bad word said about the project in press or commentary and on this
one I’m reasonably confident we can take the company and the country politicos at face value.
The deposit itself doesn’t have a long history. Although small scale mining has been carried out
in Ireland for centuries, it wasn’t until the 1970’s that modern day level exploration was carried
out in the region. The Tyrone and Londonderry counties play host to the Sperrins Mountains
and in the early 1980’s a discovery was made in the locality known as Curraghinalt Burn which
is today our project. The concession moved from company to company during the 80s and 90s,
along the way picking up a 2% NSR which is now held by London listed public company Minco
PLC (MIO.L).
[Sidebar: That 2% NSR is a pretty interesting asset for a ~U$30.7m market
cap company such as MIO.L to hold, as it would spit out around $3.6m/year
over a 15 year mine life at $1,300/oz gold. Those into tinycap London listed
companies may want to take a look at this name]
7
01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 tse31q3 tse31q4
source: company filings, IKN ests
serahs
fo
snoillim

It was then picked up by Tournigan Gold, which later changed its name to Tournigan Energy as
part of a change in corporate direction and eventually
sold Curraghinalt to its present owner, DNA, in 2009. Moz Au DNA: Evolution of resource* ounce count
3
When Tournigan picked it up Curaghinalt had a
2.5
historical only resource of 260,000 oz Au, but under
2
the new owner’s auspices and largely thanks to the
1.5
work done on the deposit by third-party contract
1
Aurum the project moved forward, was drilled and got
0.5
its first 43-101 compliant resource count. When DNA
0
bought Curraghinalt it kept Aurum on board as its
2003 2009 2010 2011
project adviser, because by that time the Aurum team
had worked out the rather complex geology of the source: company data *P+P+M+I+inferred
multiple thinnish-veined system, had the thing by the
throat and could put the drills in the right places in order to rapidly expand the resource.
The resource
Talking of which, here’s the current resource count as ripped from the 43-101 PEA done on the
property by Micon for Dalradian (sidebar, Micon have been the third party report compilers on
the project since the Tournigan days) and filed to SEDAR in September 2012. As a slight aside,
since the cut-off date of the resource there has been more drilling done at the property and we
may be in for an updated resource count before 2013 is done, but for the time being we’ll base
ourselves and our subsequent valuations firmly on the 2012 numbers because they have the
backing of a PEA already.
Notes on the above:
• Put together the Measured and Indicated and the Inferred (people limited 43-101 rules
can’t do it, we can) and it’s 2.7m ounces of gold at an average of 12.8 g/t gold. That’s a
very strong grade.
• The cut-off is at 5 g/t, which looks particularly conservative. For more thoughts on that
and if you care enough, check out page 165 of the PEA filed on SEDAR and you’ll see
that the grade holds together very well at other cut-offs, higher or lower than 5g/t, which
points to a predictable system and relatively uniform mineralization. We can also
consider that at the company’s economic parameters, 4 g/t could easily have been
chosen as a cut off (DNA assumes op costs of $125/t and four grams of gold at
U$1,300/oz and the expected recoveries gives you $160/t in metal value).
• Most of the resource is still inferred, but in the opinion of your author it’s a well
understood and “good inferred”, as opposed to some of the “sketchy inferreds” you can
come across in the dank and dark junior underworld. This is a vein system and as such
would need an awful lot of drilling to get it up to reserve status. In this respect, DNA
seems to be taking the same kind of route that Fortuna (FVI) took at its San José
project. There most of the resource was understood as predictable even though a lot of
it didn’t make it to M+I status and the FVI team just decided, quite correctly, to get on
and build a mine on top.
Overall, those are really good numbers. If the old adage “grade is king” rings true then
8

Dalradian in Curraghinalt has a big advantage over many of its peers in the junior gold space,
because 12 g/t+ gold average is good by anyone’s standards and we haven’t even considered
the extra drilling since the 43-101 was compiled that show the same type of good numbers at
different spots of the property. However, we do need to note that the potential drawback at
Curraghinalt is that the gold mineralization is in thinnish veins, that roughly average 2.5m width
each, and that’s been a potential red flag fluttered at me by a few voices when previously
discussing he pros and cons of the project. We’ll come back to this subject.
The 2012 scoping study and what it tells us
So that’s the resource quickview and now we’re going to move to a PEA (scoping study)
quickview, but as usual I urge you to make what you read below a starting point for your own
DD, don’t take my word (or anyone else’s in this sordid junior world for that matter) at face value
and go look at the 2012 PEA for yourself. It’s filed on SEDAR, easily downloaded for free and
even if you only scan it and read the things that jump out at you, you’ll come away knowing
more than the next few hundred words here. So, I’m going to try and make this as concise as
possible and here’s one of the plates from the easier-on-the-eye company literature, its latest
company presentation dated October 2013:
More notes:
• These are good numbers. As in GOOD numbers, as in number that I plug into a
spreadsheet and go “oooh!” afterwards. Using $1,378/oz gold and an 8% discount we
get an NPV of $467m. Or if you like, today DNA trades at 15% of that NPV. Meanwhile
we have an after-tax IRR of 41.9% which gives a two year capital payback on a 15 year
mine life after spending $192m (which includes a chunky contingency) in capex.
• It gets better when you start reading behind the headlines, because this PEA is both
very detailed (a “good PEA”), thorough and also, almost bizarrely in this day and age of
BS reports, a very conservatively modelled one. The only real way of getting a feel for
that is by reading the document yourself, but we’ve already had one example of DNA’s
conservative approach in that 5 g/t cut-off decision. Another is the big cushion of nearly
25% on its capex via the $38m in contingency, which will be able to absorb a lot of cost
creep between last year’s PEA and the eventual build. I’d now like you to consider just
two more that derive from the above table
• Take a look at that average grade number. At 8.1 g/t Au it’s a long way from the 12.8 g/t
Au that makes up the resource. That’s because DN/Micon has elected to include a big
mine dilution that helps allay uncertainty from those relatively skinny veins it would need
to mine. The assumption is that 1.8m of extra rock gets mined out along with the vein,
9

which allows for access and gets the tonnages moved, but also means mill head grades
are diluted by up to one third. That’s an extremely conservative assumption and light
years away from the type of PEA that tries to pull the wool over the eyes of the market.
Of course, DNA has the opportunity to be open and transparent here because it has the
original strong grade in the rock that allows for a lot of leeway and still lets the mine run
well. As the saying goes, grade is king.
• Next consider the recovery grade at 92%. In its ongoing tests DNA has shown it can get
to 95% recovery, which makes good into very good, but the latest news (3) is that
99.4% recoveries (wow) may be possible, which includes a near 30% portion that could
be recovered by gravity separation alone and processed into doré on site, which would
cut down on middlemen/smelter charges and therefore total costs. However,
DNA/Micon assumed 92%, again pitching itself conservatively.
The bottom line here is that DNA has a strongly economic project, even at today’s depressed
gold prices. Its good grade allows for plenty of assumption leeway and the result is a long
lifetime mine that gets paid back quickly.
Valuing Dalradian
Time to put a value on this company, which well first do by considering its in-situ gold valuation.
That’s in this chart, which shows today’s number (0.76c share price, 89.5m shares out, 2.7m oz
gold M+I+I) and other potentials at different share counts and shares prices, though leaving the
2.7m oz of gold as a constant:
DNA.to Curraghinalt in-situ gold valuation
at 2.7m oz Au shares outstanding
PPS ($) 89.5m 100m 150m 200m
0.60 19.89 22.22 33.33 44.44
0.76 25.19 28.15 42.22 56.30
0.80 26.52 29.63 44.44 59.26
1.00 33.15 37.04 55.56 74.07
1.20 39.78 44.44 66.67 88.89
1.40 46.41 51.85 77.78 103.70
1.60 53.04 59.26 88.89 118.52
2.00 66.30 74.07 111.11 148.15
source: IKN calcs, U$1=CAD$1
The current valuation for these ounces in situ is a touch over $25/oz, which considering its
grade and robust economic showing looks cheap to me. You’ll note that I’ve also highlighted
two other boxes there, the ones that assume a share price of between $1.40 and $1.60 and a
count of 100m shares. That’s because it’s my idea of a gettable share price if things go well for
this stock. We can consider it in the way that an eventual buyer of DNA might look at the
situation: With a operating cash cost as per the PEA of $532/oz, your buyer can add on
between $52 and $59 per ounce in acquisition costs, then the capex layout of the PEA
estimated $192m, which is $71/oz and justify their purchase by saying that they’re getting
ounces that will cost them between $655/oz and $662/oz to buy and produce. This shows that
the acquisition cost of the DNA ounces is a minor part of the overall budget and acquirer would
need in order to mine at Curraghinalt and I therefore humbly submit that the $1.40 to $1.60
share price that buyout price would imply is very gettable, even in today’s depressed market
circumstances. That’s because the PEA is a good, detailed and conservatively pitched one that
still gives great margins and economics. And that’s because grade is king.
Here’s another valuation method, that of earnings potential. Parameters used here include the
following:
• We assume DNA.to takes the project into production.
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• It therefore pays the $192m capex bill in standard 50/50 debt/equity style (we need to
run a simple model at this point, though admit other ways to pay are out there) via the
sale of 110m shares and $90m in debt, to which we assume a $15m servicing charge
on our model year. We’re therefore modelling our company on 200m S/O.
• As per the PEA, Curraghinalt gets 1,700tpd machine. It then runs it 365 days per year
• Gold head grade assumed at 8 g/t (rather than 8.1) and recoveries set at 92% (rather
than 95% or above). For the record, using 8.1g/t at that run rate and a 95% recovery
gives us around 7,000 extra gold ounces per year than our calculations.
• A cash cost of $125/tonne. This is one of those number that we could have pitched
higher and more conservatively and normally do so, but it’s one of the inputs from the
PEA that looks to be set pretty conservatively already (again, I invite you to read the
document yourself and make up your own mind) so on this occasion I’m going with the
2012 company assumption number.
• Depreciation guesstimated at $8m/year and G&A at $12m/year. Educated guesses that
compare to peer group operations, but nevertheless they’re admitted guesses.
• Although there are no worker participation laws in Northern Ireland, we assume the
company treats its workers better than the average and offers them a collective 3%
bonus on operating profit. Again, I’m the conservative one.
• Income tax at the standard national rate of 23%
• The 2% NSR due to Minco
• A 5% smelter/middleman deduction on total production, which I regard as reasonable
• Other smallstuff
Then we use four gold prices for our model year of production, namely a base case of
U$1,000/oz, then $1,200/oz, $1,300/oz (our preferred model price) and U$1,400/oz. After the
2013 we’ve all been through Im not in any mood to start modelling mines at $1,500 or $2,000 or
whatever other bluesky number. If macro things change for the better we can run them all again
and have some numberporn fun later, ok?
First here’s a simple chart that shows how the number work until you get to the mine gate:
DNT: Production and mine revenue forecasts (pre-smelter deductions)
$1000/oz Au $1,200/oz Au $1,300/oz Au $1,400/oz Au
process tonnage 620,500 620,500 620,500 620,500
Au prod (oz) 146,845 146,845 146,845 146,845
Au gross revs ($m) 146.8 176.2 190.9 205.6
COGS+deprec($m) 85.6 85.6 85.6 85.6
Gross profit ($m) 61.3 90.7 105.3 120.0
source: IKN ests
You’ll note that our 146,845 average annual production beats the company PEA assumption of
145,000 by a little bit, but that’s just what our spreadsheet spits out under the circumstances
and again, I’m really sure there are plenty of ways to optimise production at this eventual mine
to over 150k oz/annum.
Now here’s a slightly more complete model, that considers all subsequent deductions including
corporate, fiscal, smelter etc.
11

DNA at Curraghinalt: Income items for model year
At 1,700tpd thruput $1000/oz Au $1,200/oz Au $1,300/oz Au $1,400/oz Au
Sales (U$m) 139.5 167.4 181.4 195.3
Cash COGS 77.6 77.6 77.6 77.6
Depreciation 8.0 8.0 8.0 8.0
SGA 12.0 12.0 12.0 12.0
Op income 39.2 66.5 80.2 93.8
Interest 15.0 15.0 15.0 15.0
Workers Part. 1.2 2.0 2.4 2.8
Tax 5.3 11.4 14.4 17.5
Net income 17.7 38.1 48.3 58.5
Shares out (m) 200 200 200 200
EPS 0.09 0.19 0.24 0.29
Capex -5 -5 -5 -5
FCF/sh 0.10 0.21 0.26 0.31
Source: DNA data, IKN ests
So at our preferred $1,300/oz model price, DNA at Curraghinalt gives us $48.3m net profit per
year and at 200m shares out, an EPS of 24c/share. That stack up well against the current 76c
share price at the company. Which brings on our final table, the earnings target:
DNA: Sales and earnings Target price & valuation data at various gold prices
Gold Price $1000 $1200 $1300 $1400 using four different gold prices
Sales ($m) 140 167 181 195 12-month target $1.45 (on 6x annual EPS using
Upside to target 91% gold at U$1300/oz)
EPS 0.09 0.19 0.24 0.29 Mkt cap ($m) $68 Enterprise value $63
Cash flow 0.13 0.23 0.28 0.33 P/sales ($1000) 0.41 EV/sales ($1000) 0.38
P/E ($1000) 8.6 EV/EBITDA ($1000) 1.3
P/E ($1200) 4.0 EV/EBITDA ($1200) 0.8
P/E ($1300) 3.1 EV/EBITDA ($1300) 0.7
cash flow defined simply as EPS + depreciation
By using a modest 6X P/E and sticking with our $1,300/oz gold price, DNA returns a 12 month
target of $1.45, representing a 91% upside to current share prices. And yes, that ties in nicely
with your author’s previous assumptions of what DNA might sell for on an in-situ basis if it gets
bought by another company. And no, that’s not a coincidence.
Conclusion
We now come back to the short conversation that set this whole thing in motion earlier this
week. The main stumbling block you hear about Curraghinalt inside the industry is that “those
veins look thin to me” and because of that, potential buyers of DNA.to are put off. I too had that
said to me earlier in the year when I was taking a closer look and eventually dropped the idea,
but it came back last week while in Lima. A conversation took place, DNA got mentioned at one
point as an example and the point was made that mining companies in Latin America are really
used to handling the type of thinner vein systems that other, Northern based companies will
often reject, either after due consideration or out of hand as a matter of principle. And my stars,
it’s true. Andean high grade underground mines may not like the idea of 2.5m wide veins, but
they can handle them at a pinch and when it comes to a mine plan that allows for 4m+ wide
mining and the resulting heavy mine dilution doesn’t stop the project from being economically
robust, there are dozens, nay hundreds of mining engineers in this very region that would be
able to mine out a Curraghinalt in style and profit. It simply hadn’t occurred to me. So with that
blockage lifted I returned to my notes and also saw that the $1 approx stock I was looking at
previously was now an 80c stock, even after having seen strong additional drill results (infill,
outstep and new targets) and offered potentially strong improvements to metallurgy and gold
recovery. The final piece of the puzzle is the way in which DNA’s treasury is getting thin and the
12

likelihood that the stock price is being sat upon so that somebody, somewhere can get the next
round of financing at the price that suits them far more than the company.
The most likely exit strategy for an investment in DNA.to is that the company gets bought out.
Although it’s not a mega-sized deposit that will appeal to the majors (they’d need bigger annual
production to move their dials, most probably) there are a whole bunch of midcap or even
smaller PM producers out there that could look to a project capable of producing a very decent
near-150k oz per annum over a long mine life as a potential buy. They’d like the low cash cost
footprint and they’d also likely appreciate the low political risk perception that comes from the
locality, as those in higher risk regions would appreciate a bit of averaging down. If, as many
inside the mining world now suspect, gold prices aren’t going to fall through the floor and will
level out at or around the $1,300/oz point, it won’t be that much of a worry to them that gold isn’t
rising back up fast, either; the stabilizing of the metal price is key and will allow the industry to
plan for the future for the first time in maybe a year. Those plans would surely include trying to
get hold of a quality high grade deposit in a low risk area.
The bottom line is that The IKN Weekly calls Dalradian Resources (DNA.to) a speculative
buy and sets a 12 month price target of $1.45 on its stock, representing a potential upside of
91% to Friday’s close. The target is based on potential earnings but also fits with the type of
price I’d expect a buyer would be willing to pay for the company as a whole. DNA.to will be
added to The IKN Weekly ‘Stocks to Follow’ list as of next weekend. I personally will certainly
take at least an opening position next week but expect that a decent window to buy the stock
will be around until DNA runs and closes a
round of financing, so I’d hope to be able
to pick off and add shares along the way,
paying attention to the ebbs and flows of
the gold price as lead indicator.
In a world replete with marginal and plain
uneconomic gold deposits, some in
exploration stage and others in
production, Curraghinalt stands out thanks
to the grade and recovery parameters
which allows the miner to put together a
very conservative model and still have a
strongly economic project, as even at
$1,300/oz gold there’s nothing marginal
about these ounces. Added to the recent
sell-off in the company that owns the
thing, it looks like a great opportunity to pick up a class project at just the type of knockdown
bargain price I’m looking for these days. We buy DNA.to.
Stocks to Follow
The list performed well last week and reacted positively to the hike in the price of gold. Just
one of our open positions returned a weekly loss, the Tahoe Resources short (TAHO short down
85c, or 4.7%) which is what a short hedger is supposed to do under the circumstances. Then
two others were unchanged (EOM.to, NET.v), which leaves all others as winners. There’s no
reason to list them all, we’ll just make special mention of the biggest movers in Focus Ventures
(FCV.v up 28.0%), Darwin Resources (DAR.v up 23.1%) and B2Gold (BTO.to up 15.6%).
We currently have 11 open ‘Stocks to Follow’, four less than our self-imposed maximum.
They’re still all in the red, but many of the percentage losses are a lot cleaner than mere weeks
ago.
13

Company Ticker this week Avg Price Reco date Current PPS Gain/Loss% Notes
Top Picks
Rio Alto Mining RIO.to str buy C$2.30 07-apr-11 C$1.89 -17.8% best LT value
Minera IRL IRL.to str buy C$0.35 22-jul-12 C$0.25 -28.6% top pick called at 24c
Longs
B2Gold BTO.to hold C$3.07 28-nov-12 C$2.81 -8.5% sold 1/2, rest rides. Quality
Lara Expl. LRA.v hold C$1.15 08-apr-12 C$0.85 -26.1% solid biz model, LT hold
Rio Alto Mining RIO.to str buy C$2.34 07-jun-13 C$1.89 -19.2% added Oct'13 avg down
Starcore Intl SAM.to buy C$0.235 08-sep-13 C$0.23 -2.1% new trade, runs to Nov max
Eco Oro Min. EOM.to buy C$0.55 22-sep-13 C$0.49 -10.9% new trade, st pol risk play
Shorts
Tahoe Resources TAHO short U$13.10 08-apr-13 U$18.91 -44.4% port hedge, easy2b short
Smaller/Riskier
Focus Ventures FCV.v spec buy C$0.175 01-jul-12 C$0.125 -8.6% revised tgt 25c
Darwin Res DAR.v hold C$0.10 14-jul-12 C$0.08 -20.0% drilling again soon
Network Expl. NET.v hold C$0.01 22-jul-12 C$0.005 -50.0% V. small spec, foothold
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% closed
Bellhaven BHV.v jun'13 C$0.065 03-jun-13 C$0.12 84.6% closed ST trade
B2Gold BTO.to aug'13 C$3.07 28-nov-12 C$3.44 12.1% sold 1/2 to raise cash
Colossus Min. CSI.to aug'13 C$0.72 24-jul-13 C$0.79 9.7% closed thru nerves on future
Pretium Res PVG.to aug'13 C$8.20 11-jun-13 C$10.14 23.7% closed to raise cash
Bear Creek BCM.v sep'13 C$2.06 30-may-13 C$2.20 6.8% sold on pol risk decision
MAG Silver MVG oct'13 U$7.00 12-sep-13 U$5.62 19.6% near-term short
Gold Res Corp GORO oct'13 U$9.52 03-may-13 U$4.98 47.7% short tgt made, covered
AQM Copper AQM.v oct'13 C$0.31 16-oct-11 C$0.125 -59.7% closed failed trade
2009, 2010, 2011 and 2012 closed positions in appendices below
Now for some notes on a selection of the above stocks.
Rio Alto Mining (RIO.to) (RIOM): It wasn’t a great week for your author’s biggest position
in any single junior, but it wasn’t bad either. There’s still plenty of evidence that trading is
capping the share price upside, for whatever reason, and we also sat through the now
traditional Friday afternoon walk-down in the stock, but the 5.6% overall weekly win wasn’t a
bad thing either and on above-average volumes too (Tuesday’s surge came on 3X average in
Canada, and 100k+ days are now regular occurences for the US listing).
There’s plenty more on RIO in ‘Market Watching’ below, where I spill the beans on what was
discovered during my Tuesday sit-down with the RIO people. However, I think I’ll now wait
until RIO.to reports its quarter on November 13th for the next full NOBS update report on the
company and that’s when we’ll take a closer look at things like target prices.
14

Starcore International (SAM.to): I semi-expected SAM to release its annual Financials last
week, what with them filing on October 25th last year, but that didn’t happen. Therefore we’ll
get them in the week ahead (they have until the end of the month) and when that happens,
expect analysis and a call from your author (and if the call is to sell the position, that will come
in a Flash update).
By way of reminder, we’re in this position as a play on what we expect to be a strong 4q13 for
the company (the SAM.to year ends on July 31st) thanks to improved production and margins,
as well as the improved internal financial position of the company. Being the cheap stock that it
is, even the type of modest $3.5m in operating margins we’re looking for (from ~$8.55m in
revenues on an average U$1,350/oz gold price) would give us around 2.5c/share in earnings,
which would then annualize to 10c/share in the market’s eyes and sit very prettily against its
current 23c share price. Or at least that’s the theory here, what could possibly go wrong? ☺. If
the gold price treats us favourably on the day of the earnings, the type of interesting pps pop
we’re looking for may come immediately, or if the results are good and the market doesn’t
catch it straight away, we can give the sleeper position the necessary extra days. Or if things go
badly we can cut and run of course, but whatever happens we’re getting near the end of this
near-term trade. Watching the wires.
Minera IRL (IRL.to) (MIRL.L): The only thing of interest to report from the all-too-brief time
I had with IRL management last week is that the main financial/corporate people were in
Argentina while I was in Lima, meeting in order to discuss the potential of further financing for
the company. This is apparently separate from the recent deal now closed to fully fund the Don
Nicolas project, I hasten to add. The buzz here is good, there seems to be more interest in the
company than the all-too-quickly failed LionGold courtship and it came as no surprise to see the
stock finish the week back at the 25c level we saw pre-Singapore shenanigans.
Eco Oro Minerals (EOM.to): Nothing on that anticipated Páramo decision yet, so if the new
Enviro minister is as good as her word (she said she was “committed” to giving a decision on
where the key boundary would lie by the end of October), then next week is the week. In the
meantime, EOM.to has sunk to just the type of level I though it could sink to on that original
straight-line simpleton’s analysis I ran back when the near-term trade trigger was pulled, so
more fool me for buying at 55c when 50c and below did indeed become freely available.
Again, EOM is another one for which I’ll be watching the wires carefully and if the decision hits,
expect and we act upon it, expect a Flash update to arrive in your mailbox.
Lara Exploration (LRA.v): Lunch with LRA president Andre Gauthier was my first stop on
Tuesday and as always it was an interesting meeting, what with Andre and his thousand
different plans and opinions on the market and what to do with it. It’s never a dull moment with
Andre and if you ever get the chance to speak with him, do so. When finally cornered on the
subject of Lara, talk was mainly about the Liberdade copper in Brazil that’s under JV with
Codelco, the Sami copper/gold/other project in Peru that’s under JV with Antofagasta, along
with apparently new interest on another of its properties, the Condoroma copper project and its
“conceptual porphyry”.
On Liberdade, LRA acknowledges that the last set of results showed weaker grades tha the first
ones, but the clear message here is that there’s a lot of exploration work left to do there, the
financing JV partner Codelco is happy and likes what it sees at the site and will continue as
partner for the next stage of the JV. It’s an early stage property and the first target came out
well, the second not so well but it’s by no means dead, not by a long long way. The more drills
go in the better it’s understood and Codelco isn’t after a small rich system, it needs a big
deposit with multibillion tonnes to make a difference to the size of the company it is, and
Liberdade still has the “potential elephant” label until further notice.
On Sami, Andre stated that Antofagasta gets the drill permits soon (they’ve been delayed by
15

the same bureau backlog that’s affected a lot of Peru explorecos this year) and has its target in
one corner of the very big Sami project and will drill it soon with just a handful of holes and if it
hits something there then fine, if not it may well hand it back. ANTO is after a specific copper
target and isn’t so interested in the multiple gold targets that LRA generated by baseline
exploration before doing the JV deal, but even if ANTO hand back LRA is confident that it will
get picked up again by another company and this time explored for gold as well as copper.
However, Condoroma may be the new buzz at the company, as the success seen by somewhat-
related Reservoir Minerals (Miles Thompson et al on both companies) may give LRA something
of a rub-off bonus. We understand that several Cas have been signed with major mining
companies on this property and some of those are now in active rounds of talks, with the
general thrust being towards a reinterpretation of known geology results that point to a deeper
mineralized area of a similar ilk to Timok in Serbia, this year’s biggest win story in the world of
junior copper. Time will tell on this one, but we can expect a deal to be done by the end of this
year at latest.
B2Gold (BTO.to) (BTG): BTO traded like a champ last week, so scratch all those silly
thoughts i had about regret on not selling 100% back at the time I sold 50%, will you? Again,
news expected here as BTO should provide its 3q13 production numbers next week, perhaps as
early as pre-bell tomorrow Monday morning. Maybe just maybe the market has got wind of
good numbers in the pipeline, which would account for its extra good rebound last week.
Darwin Resources (DAR.v): I left the meeting with Darwin Resources on Thursday morning
more impressed with the present state of the company than I expected. It was one of those
meets that you set up because the opportunity presents itself as a good chance to say hi to
friendly faces while in town for more pressing reasons (eg RIO.to) and catch up with things at a
company where I’m a minor shareholder (in my own portfolio terms and their shares
outstanding terms) but the optimism in the room for the near-term for the company was
palpable.
It’s all about Suriloma and the current geophysical surveying at the property that was
announced to the market on October 16th (4). Just about all the management team was
present, headed by president/CEO Graham Carman). Carman said that the survey had just
finished the day before my visit and the results were very interesting from a geological
viewpoint, though he admitted that the market wouldn’t care about such things and he wasn’t
even going to try to wow anybody by showing us all a bunch of red blobs. But to put it into
non-geol terms (he kindly did this for me), the results pointed in the right direction for their
updated theories on Suriloma and the next step will be to put together a drill program and find
out what’s there from the truth machine.
16

So far so good, but what followed is the thing that got my full attention because rather than do
what 90% of tinycap juniors are doing right now and “wait out the storm”, DAR is keen on
getting on with its job of exploring and is looking to put those drills in the ground, including at
least three projected deeper drills that will test what’s under the stuff they drilled in the last
round, before the end of this year. That means permit extension applications going in now,
agreements for pads from the local community in place a.s.a.p. and agreements permitting,
drills turning by December. That’s a refreshing attitude, ladies and gentlemen readers, and it’s
backed up by what pres/CEO Carman calls “full support from the major backers”.
That has a flipside, of course, as it doesn’t take a genius to work out that with a little less than
a million at bank and plans to drill Suriloma aggressively, the company is going to finance in the
near future. I put this to Carman and although he obviously wasn’t going to touch on non-
disclosable information, it was pretty clear that my non-Sherlock deduction was on the mark. As
for how much, my personal best guess would be a company that raises perhaps $1m. So if that
happens at the current 8c share price, we’re looking at adding perhaps 12.5m shares to the
current 26.16m S/O. There will probably be warrants on that financing too, in order to appeal
to the “major backers” who are offering their “full support”, in other words they’re cool about
having the chance to average down on losing positions here (I’d suspect they’re the same
people who bought the 40c financing a couple of years ago). Though I’m not complaining,
especially in this shitty market, that DAR is capable of attracting institutional support while
many other nanocaps around it wither and die. It’s a good signal that this exploreco is run by
the type of people worth our high risk exploreco speculation cash and as they’re obviously still
keen about Suriloma, despite the first round of non-market-moving results (that geols found far
more interesting than moneyguys). Also, the company reports that community relations at
Suriloma remain optimum and they’re not having any of the problems that things such as
Trinity Silver, just a few Kms away, are going through. That’s probably because DAR went in
from day one with the right attitude and are smart about the ways of rural Peru, unlike many
others.
So the bottom line here is that DAR has moved up in my mental ranking from its previous “hold,
because there’s little reason to sell at this price” to the new “hold, but stick it back on the radar
and maybe think about a speculative trade once that new drill program starts”. A good meeting.
Meanwhile in trading, volumes may have been small but the price was in the right direction and
there seems to be at least a couple of smaller buyers picking off chunks. Nothing to worry too
much about until volumes increase, but up is better than down I suppose.
Focus Ventures (FCV.v): FCV last week made official their deal to option into 70% of the
Stonegate Agricom Mantaro phosphate property in Peru (5) with a typical back-end heavy deal
that will give them time to do the type of baseline study and key community relation work that
won’t cost them so very much and will give them a good idea of the chances of success there
before the need to lay down the big bucks comes along.
In trading, the strong percentage pop that came after the Stonegate news was welcome, but
apart from Tuesday’s 158k volume day, it’s still quite thin out there. Still, it’s good to see FCV
trading handily above the unit price of the recent placement, which suggests people nibbling
away at this strong value play at last.
I’m due to meet with company president David Cass next week (the good news is that he’s in
my neck of the woods this time so no need for me to travel, mahommed and mountain etc) so
I’ll get the full rundown when face-to-face and then gently drop off as he gets to page 87 of his
corporate presentation material. Luckily we make a good cup of coffee round these parts, so
you can indeed expect a full report on FCV next weekend.
17

The Copper Basket
After forty-three weeks of 2013 The Copper Basket is showing a 21.34% loss to level stakes.
company ticker price 1/1/13 Shares out Market Cap current pps gain/loss%
1 NGEx Resources NGQ.to 3.40 168.66 344.07 2.04 -40.0%
2 Augusta Res AZC.to 2.43 144.35 310.35 2.15 -11.5%
3 Lumina Copper LCC.v 9.43 43.61 285.65 6.55 -30.5%
4 Copper Fox CUU.v 0.83 402.96 217.60 0.54 -34.9%
5 Reservoir Min. RMC.v 2.41 41.68 200.90 4.82 100.0%
6 Nevada Copper NCU.to 3.50 80.5 154.56 1.92 -45.1%
7 Hot Chili Ltd HCH.ax 0.72 297.46 147.24 0.495 -31.3%
8 NovaCopper NCQ.to 1.80 53.02 104.45 1.97 9.4%
9 Panoro Minerals PML.v 0.62 204.71 83.93 0.41 -33.9%
10 Western Copper WRN.to 1.39 93.68 74.01 0.79 -43.2%
11 Curis Resources CUV.to 0.70 63.13 38.51 0.61 -12.9%
12 Candente Copper DNT.to 0.375 122.05 27.46 0.225 40.0%
13 Oracle Mining OMN.to 0.80 49.03 17.16 0.35 -56.3%
14 Yellowhead Min. YMI.to 0.59 63.45 10.79 0.17 -71.2%
15 Strait Minerals SRD.v 0.08 57.26 3.72 0.065 -18.8%
NB: HCH.ax priced in AUD$, rest CAD$ Portfolio avg -21.34%
The Copper Basket gained 1.33% on the week and we saw eight risers (NGQ.to, LCC.v, AZC.to,
RMC.v, HCH.ax, WRN.to, NCQ.to PML.v), one
unchanged (CUU.v) and six losers (NCU.to, Copper Basket 2013 average, weekly
12%
DNT.to, OMN.to, YMI.to, CUV.to, SRD.v).
8%
Particularly good percentage moves put in by 4%
NGEx Resources (NGQ.to up 12.1%), 0%
-4%
Western Copper & Gold (WRN.to up 11.3%)
-8%
and Lumina Copper (LCC.v up 9.3%). The -12%
worst of the downers were Strait Minerals -16%
-20%
(SRD.v down 13.3%) and Curis Resources
-24%
(CUV.to down 10.3%).
-28%
-32%
Therefore it was a success of a week for the
list, but not as strong overall as the precious
metals space and also the tendency was to
buy the bigger names and sell the dog end
of the sector.
The reason for the comparatively lacklustre
display of this exploration sub-group is surely
that copper the metal didn’t do anywhere nearly
as well as its PM counterparts. As you can see on
this chart, we’re still stuck very much inside that
$3.20/lb-$3.30/lb corridor which has dominated
the metal’s trading price since May.
We move to inventories and we’re again at the
last weekend of the month, so here come our
updated charts. The main takeaways from
October are the 60kt drop in LME stocks and the
21k gains in Shanghai stocks, which means the
overall world total is down again but the
percentages are starting to turn around. LME
accounts for 70.95% of world warehouse copper
18
ht6naj ht02 r3bef ht71 r3ram ht71 ts13 ht41 ht82 ht21 ht62 ht9 dr32 ht7luj ts12 ht4gua ht81 ts1pes ht51 ht92 ht31 ht72
source: IKN calcs, TSX data

stocks as of this weekend, Shanghai at 25.4% and Comex at 3.65%. Just one month ago LME
was over 75% of the total so that’s quite a significant move. A third month of November
numbers pointing in the same direction would be enough for me to say a new trend has
formed.
As for the weekly numbers, the world has 677,763mt (down 2.6% on the week), LME has
480,875mt (down 3.3%), Comex sits at 24,742mt (down 5.5%) and Shanghai Futures moved
up a tinyslice 37metric tonnes to 172,146mt. However, there was a big shift in LME cancelled
warrants, with 55.3% of LME stocks now under warrant and another move that smacks of
protectionism from our manipulating banks and finance houses.
Cancelled Warrants at LME, IKN157 to date
60%
50%
40%
30%
20%
10%
0%
19
751NKI 061NKI 361NKI 661NKI 961NKI 271NKI 571NKI 871NKI 181NKI 481NKI 781NKI 091NKI 391NKI 691NKI 991NKI 202NKI 502NKI 802NKI 112NKI 412NKI 712NKI 022NKI 322NKI 622NKI 922NKI 232NKI
source: Cochilco, LME
rof
yrotnevni
EML
%
latot
yreviled
resu-dne
Copper inventories, per month 2012/2013
1000000
800000
600000
400000
200000
0
My feeling that copper is open to a big short bet hasn’t diminished, but it would take the
pockets of a George Soros to pull it off, not those of my threadbare size 36 Levis.
Nevada Copper (NCU.to): While other larger-scale and more advanced copper projects put
in gains on the more bullish atmosphere, such as AZC, LCC, NGQ, NCU.to had a negative week
and finished with a clear 1-handle. So yeah, I got that one right (it happens occasionally). Now
to see it slowly trend down further.
Candente Copper (DNT.to): The Peru government, via its Ministry of Culture, finally last
Friday made public (6) its list of “indigenous peoples”, the ones that are ostensibly covered and
protected by the international OIT169 laws to which Peru is an adherent and also by the
national 2012 law give the right to prior consultancy to all those peoples affected by projects on
their ancestral or traditional lands. And although there are no details of most of the peoples
(just 5 of the 52 named groups have been studied in depth, sure enough on the list page the
Cañaris people who reside in the location for Candente Copper’s (DNT.to) Cañariaco project are
listed, inside the larger-scale ethnic grouping of Quechua and alongside jungle dwelling peoples
and high Sierra peoples such as Aymara and Uro.
21.naJ bef ram rpa yam nuj luj gua pes tco von ced 31.naJ bef ram rpa yam nuj luj gua pes tco
Mt Cu Copper inventories: percentage held per exchange
80
LME Shanghai Comex
70
60
50
40
30
20
10
0
source: Cochilco
21.naJ bef ram rpa yam nuj luj gua pes tco von ced 31.naJ bef ram rpa yam nuj luj gua pes tco
LME Shanghai Comex
source: Cochilco

I’ve had a careful read of the accompanying literature and there seems to be a few loopholes
that the government is leaving itself if it decides it doesn’t want to give this-or-that indigenous
population its prior consultancy, in our specific case here the Cañaris (for example, at one point
the site says that the right to prior consultancy will be decided on a case by case basis after
more detailed study of each indigenous people). However, the mere act of naming the Cañaris
next to all the other peoples in an official government document is a strong positive for the
people’s cause and likely to play against DNT.to and its ambitions to move ahead with
Cañariaco, with or without local approval, in the months and years to come. Bottom line: seeing
the word “Cañaris” in that document is a net negative for DNT.
Reservoir Minerals (RMC.v): RMC got back to winning ways last week, and perhaps
significantly Weds 23rd and Thurs 24th were the first days the stock has done 100k+ in daily
volumes since September 18th, the day on which RMC broke $5 for the first time.
The Lottery Ticket Basket
After 43 weeks of 2013 The Lottery Ticket Basket is showing a 25.72% loss to level stakes.
company ticker price 1/1/13 Shares out Market Cap current pps gain/loss%
1 Marlin Gold MLN.v 0.10 680 47.60 0.070 -30.0%
2 Eagle Star Min. EGE.v 0.125 79.13 14.64 0.185 48.0%
3 AQM Copper AQM.v 0.08 105.57 12.67 0.120 50.0%
4 Fancamp Expl. FNC.v 0.125 177 11.51 0.065 -48.0%
5 Bellhaven BHV.v 0.14 136.81 6.84 0.050 -64.3%
6 Tango Gold TGV.v 0.13 76.24 4.96 0.065 -50.0%
7 Netco Silver NEI.v 0.125 9.4 4.04 0.430 244.0%
8 Inca One Res. IO.v 0.12 34.0 3.40 0.100 -16.7%
9 Copper North COL.v 0.10 58.7 2.94 0.050 -50.0%
10 Agave Silver AGV.v.v 0.30 21.55 2.37 0.110 -63.3%
11 Darwin Resources DAR.v 0.20 26.16 2.09 0.080 -60.0%
12 Gryphon Gold GGN.to 0.085 194.64 1.95 0.010 -93.5%
13 Glass Earth GEL.v 0.155 105.67 1.59 0.015 -90.3%
14 Rio Cristal RCZ.v 0.025 17.259 0.60 0.035 -86.0%
15 Firestone Ventures FV.v 0.045 36.82 0.37 0.010 -77.8%
Portfolio avg -25.72%
Last week The Lottery Ticket basket saw seven downers (MLN.v, BHV.v, GEL.v, AQM.v, EGE.v,
COL.v, RCZ.v), two unchanged (GGN.to,
FNC.v) and six uppers (TGV.v, DAR.v, 25% Lottery Ticket Basket 2013 average, weekly
20%
AGV.v, IO.v, FV.v, NEI.v) but even with 15%
numerical disadvantage the winners 10%
5%
managed to improve the overall basket 0%
total by around 3.5%, thanks to the -5%
-10%
weighting of the profits being gathered by -15%
the ongoing run of Netco Silver (NEI.v). -20%
-25%
That one moved up another 24.6%, with -30%
-35% bigger moves in percentage terms seen by
-40%
Firestone (FV.v up 100.0%) Agave (AGV.v -45%
up 37.5%), but from lower starting points
that have less effect on the overall basket
average. To the downside we had Glass
Earth (GEL.v down 33.3%) and Bellhaven
20
ht6naj ht31 ht02 ht72 dr3bef ht01 ht71 ht42 r3ram ht01 ht71 ht42 ts13 ht7rpa ht41 ts12 ht82 t5yam ht21 ht91 ht62 dn2nuj ht9 ht61 dr32 ht03 ht7luj ht41 s12 ht82 ht4gua ht11 ht81 ht52 ts1pes ht8 ht51 dn22 ht92 ht6tco ht31 ht02 ht72
source: IKN Weekly data, TSX
2102/1/1
morf
egnahc
%

(BHV.v down 28.6%) leading the pack.
Marlin Gold (MLN.v): At seven cents I may be tempted to get back in here. Let’s re-cap that
this is a junior that’s been fully funded to production at the small but interesting Trinidad
project in Mexico by a large fund looking to be a new name to reckon with in producing circles.
It’s permitted and the build-out is apparently on track for first pour next year. The margins and
IRR of Trinidad stand up to $1,300/oz gold easily and there’s exploration upside too, once the
thing if FCF+. There are a lot worse tinycap punts than that little combo out there. Yes, it’s one
of the very few I’ve cared about and continue to care about on this Lottery Ticket list and that’s
because it’s one of the few stories that aren’t BS. Raising the money and building the mine in a
year like 2013 is no small achievement and for 7c you get a decent and above all active lottery
ticket (and I still think that Wexford might buy out the <20% remnant it doesn’t own if the
price is right, then it gets all the gold itself).
We’d want gold to continue its decent recent run and it’s not a stock I’d risk more than a small
amount (both absolute and relative to other holdings) due to the risks. But consider it
shortlisted at this current price.
Netco Silver (NEI.v): Another big up week on no news and for the record, I did indeed cash
in the tiny amount of shares I owned. This NEI move may be silly (no, in fact it IS silly) but
stranger things have happened and often do. It’s the markets after all, this isn’t the first
baseless pumpydumpy move ever made by a tinycap stock and it won’t be the last.
Regional politics
Southern Copper (SCCO) and the Peru government asking for trouble at Tia Maria
On the blog last week (7) we covered the violent and somewhat disrupted workshop meeting
called by Southern Copper (SCCO) and Peru’s Ministry of Energy and Mining (MEM) in order to
explain the delayed and controversial Tia Maria copper project in the Islay (coastal) region of
Arequipa. Here’s how I translated an extended extract of arguably the best on-scene report of
events, from the national large-circulation Peru daily La Republica:
The workshop started just after 6pm. A few minutes later, a group of protesters started banging
on the door and accusing the people participating in the workshop of not being from the zone
(affected by the eventual mine).
As the violence increased, the members of the presentation committee, Alberto Dáiz representing
the Ministry of Energy and Mining and José Vargas the project manager, continued their
presentation as if nothing was happening (outside). Several masked protesters, who said they
were local farmers, began to get violent and threaten the hired Southern Copper security
personnel and police officers.
José Vargas apparently did not hear the shouts from the protesters and continued to quickly
explain about the project. Those present at the workshop, now becoming more nervous, started
gathering at the front of the hall. Some women started crying. But Vargas asked for a round of
applause for the project. "We're not going to give them the pleasure of interrupting the workshop",
he said, while telling the presentation team to keep showing the presentation slides that were
barely understood (by those present).
At 6:49pm a molotov cocktail was thrown from the street which landed on the fabric canopy
covering the auditorium. The audience panicked, but the representative from the mine shouted
out, "We won't fall into their boycott!".
Inside, fire fighters managed to put out the flames and the workshop continued. A few minutes
later police officers began to come into the auditorium with injuries. "They were going to kill us",
said one of them with a fractured skull. Another nine of his colleagues were also bleeding.
21

The presentation continued while police outside launched tear gas at the protesters. At the same
time, some of the participants in the workshop calmly asked about the benefits of the project. It all
finished at 7:44pm. The mining company representative signed the presentation act along with
members of the Mining and Energy Ministry. According to Alberto Díaz and José Vargas, the
event had been a success.
The new news on this is that, somewhat surprisingly, SCCO and MEM has called for another
meeting (8), next week on October 30th, in exactly the same place and meeting auditorium that
saw the problems last week. The meeting will once again be to explain the environmental
impact of the project and is a necessary part of the company EIS permitting application. Last
week the protesters outside claimed they got angry because the people inside at the workshop
were not from the local area and they now demand that they be allowed into the meeting in
order to hear the arguments. You can’t help but feel that if the’re allowed in or not, next week
is going to end badly. Let’s also recall that Tia Maria is the same project that was cancelled
(strictly speaking put on ice) after protests in April 2011 that caused the deaths of three
protesters.
Copper costs of production in Chile and Peru
In a presentation in Lima last week (9), Juan Carlos Guajardo, executive director of well
respected Chile-based metals beancounters CESCO (Centro de Estudios del Cobre), told his
audience that the direct cost of producing copper in Chile was 58.4% higher in Chile than it was
in Peru. According to CESCO (using house figures, Chilean ministry figures and Wood
Mackenenzie database figures) in 2012 the mine cash cost of a pound of copper in Peru came
to U$0.934 while in Chile it was U$1.598. Reasons for this big difference include the relatively
high cash cost run at Chile’s state-run Codelco, lower average mined grades in Chile (especially
at the mature Codelco mines), higher labour costs and higher energy costs.
He was keen to point out that this difference applied to the direct costs only and that Chilean
miners benefit from tax breaks that are not included in the mix, plus a better political risk
backdrop. He also expected costs to level out in Chile and even drop in the near future, thanks
to lower energy costs. All the same the difference in the costs profile for copper between the
two neighbours, who are also the number one and two world producers of copper, make it clear
why Peru is attracting more exploration dollars for copper than Chile at the moment.
Chile/Argentina: More problems for Barrick (ABX) Pascua Lama
Long story cut short. We know that the Chile side of the Barrick (ABX) Pascua Lama gold
project (i.e. Pascua) has been suspended due to its environmental infractions and we know that
up to this point at least, Barrick has continued development of the Argentina side (i.e. Lama).
However last week (10) workers on the Argentina side of the project came out on strike in a
solidarity protest against the laying off of around 500 workers on the Chilean side of the
project, as well as (it seems) part of a salary negotiation they are working on with ABX for
higher wages in 2014. The general strike started on Thursday and is still on, according to latest
reports. The main problem for ABX with this industrial action is that it may well affect the
company’s legal position as regards its environmental remediation (part of the effort to get its
permits reinstated in Chile) because according to the same reports (translated) the company
“...would fail to comply with a series of obligations, such as ongoing daily environmental
monitoring of water, glaciars and in-house frontier controls of the bi-national project, work that
is carried out by unionized staff, as well as generate extra delays in works to which it is
committed in order to remedy the critical environmental situation.”
My personal opinion: At what point will ABX stop throwing bad money after good on this project
and put it on that euphemistic “care and maintenance” thing?
Honduras: One month to the Presidential election
We covered the electoral scene Chile and Argentina in the last couple of weeks, though due to
this publication’s scope Honduras isn’t a LatAm state that we cover closely However, we’re just
one month from the Presidential elections there so a line or three won’t go amiss today. Latest
22

opinion polls (11) for the November 24th vote show that the race is a neck-and-neck between
Juan Orlando Hernández of the currently ruling National Party (President Porfidio Lobo is not
allowed to run for the job again) and Xiomara Castro, of the centre-left LIBRE party (well, by
normal people’s standards it’s centre-left, to her detractors in Honduras she’s apparently world
leader in the Communist takeover conspiracy). Notably, Ms Castro is also the wife of Mel
Zelaya, the president who was deposed in a soft coup (and deported after being seized from his
bed, (in)famously leaving the country under duress while still in his pyjamas).
Pollster CID Gallup, probably the benchmark opinion company in Honduras, has Ms Castro at
29% of the popular vote and Mr Hernández at 27%, with a margin of error of 2.8%...in other
words, a technical dead heat. Behind the two frontrunners (one of whom will almost certainly
be President come 2014) we have Mauricio Villeda of the right wing (despite the name) Liberal
Party at 15% and TV-Star-With-Political-Ambitions Salvador Nasralla of the centre-right
Anticorruption Party on 11% (who was a frontrunner a few months ago, but has faded).
We’ve seen an upsurge in violence already in this extremely violent country, with last week
headlines captured by the murder of a cameraman/journalist with close ties to Ms Castro and
her party (three shots to the face, body dumped in the capital city). We can also expect a
whole round of corruption and fixed voting screams, whoever wins at the end of November.
Honduras isn’t the place for us junior mining speculators (true for most Central America barring
Nicaragua and perhaps Panama, plus our continued suspicions and watching brief on
Guatemala) though the government has tried to make itself more attractive to the sector under
the Lobo administration (without great success).
Mexico: More on the 7.5% royalty bill
The noise coming from the mining community in Mexico is now full scale screaming about the
unfair nature of the 7.5% (+ 0.5% on precious metals) royalty bill that passed the lower house
last week (see IKN233) and now has only the upper Senate between it and reality. Leading the
lobbying is Sergio Almazán, director general of the Mexico Chamber of Mining (Cámara Minera
de México) Camimex, who states rather dramatically (12) that the total State burden on mining
in Mexico mining companies would move from 40% to 57%, which doesn’t help the cause by
being total bullshit. Still dramatic but more believable, we have mining company management,
such as Grupo Mexico, saying that they’d stop investment in the country and move their
investment dollars elsewhere if the law were passed. More believable still was Sean Boyd,
president/CEO of Agnico Eagle, who told an analysts’ confcall (13) (I was more interested in a
plate of cebiche at the time so wasn’t listening in) that the law if passed as stands would add
$130m/year of burden onto his company by moving fiscal burden (NB: not total state burdens,
but straight taxation) from 30% to 36%, which sounds spot on to me). We should also note
that Mr. Boyd has been a voice of reason all through this 2013 royalties debate and back in May
called the 5% mine-gate royalty proposal “measured” and something they could work with (14).
Hearing him drawing the line and saying 7.5% on (what’s akin to) EBIT was too much is a
strong signal that the mining companies are not joking around any longer and the burden
proposed by Mexico is indeed too much.
However and ominously, the message isn’t getting through to the government, not yet anyway.
Mexicos’ Secretary of the Economy (15) (i.e FinMin) Ildefonso Guajardo said on Friday that
Mexico “...will still be highly attractive (for mining companies), even with (higher) taxes” and
went on to imply that Grupo Mexico specifically was bluffing with its threats to move their
investment dollars elsewhere. On that score, AEM’s pres/CEO Boyd also noted in his ConfCall
that he was becoming negative about the situation and now expected the 7.5% (+0.5% for
PMs) royalty to pass the upper house in almost its current exact form. As for the timing of the
upper house (Senate debate) that will decide whether this royalty law goes through as stands
or is altered, there’s no set timetable for the debate and vote yet, but as the fiscal reforms
voted by the lower house (Deputies) are due to take effect January 1st 2014, it will have to
happen in the next two months.
The bottom line: Up to now I personally have been pretty sure that the eventual outcome of
23

the royalty issue in Mexico would be for a deal and a 5% royalty, but last week showed signs
that I might have got that wrong. I still feel that at some point, in some darkened smoke-filled
room, the two sides will reach a mutually acceptable decision and sanity will prevail, but I must
admit that the chances of my original call being wrong and this 7.5%(+0.5%) regime becoming
reality have risen. If it happens, the optics for Mexico exposed mining companies will be
negative indeed and I’d expect that to show through via selling pressure on stocks. In short,
watch your back on Mexico in the next few weeks, because we already know that this market
will take any excuse to sell miners and add cash.
Therefore to wrap up and fwiw at this point, please note that the only exposure we have to
Mexico in The IKN Weekly ‘Stocks to Follow’ portfolio at this moment is via Starcore
International (SAM.to) and even that isn’t likely to be around the portfolio for much longer,
being as it is a near-term trade with its catalyst financial report just days away. Our very limited
exposure is more about luck than judgement, as the country has always been on our active
location radar for potential investments (and overall and with exceptions, it’s been a happy
hunting ground for us). If the eventual deal goes through at 5% of gate revenues, the overall
impact on Mexico exposed stocks is likely to be neutral (news baked in etc), so that’s what we
on the outside should look for from a deal. But 7.5% of EBIT raises the chances of a Mexico
junior (and senior) sell-off significantly. I certainly hope that won’t be the case, but the mere
fact that I’m resorting to the verb ‘hope’ now gives an idea of the new level of uncertainty. As
for a call, my best guess of “it’ll still be 5%...I think” means that I’d say that if you hold Mexico
exposed stocks you shouldn’t sell them on this issue as yet, but keeping a close eye on
developments is strongly advised. Needless to say, this one is likely to remain a hot topic at The
IKN Weekly for what’s left of 2013, expect further bulletins.
Market Watching
Gold Resource Corp (GORO) re-redux
I don’t want to go on and on about a closed position, but at least one mail from last week
prompts another short note on GORO. Reader
FT asks at what price I might be interested in
going short this stock again, what with the
recent improvement it’s seen. Well, the
answer to that is plenty above this current
price.
GORO has put in a bit of a bounce from its
sub-$5 spike lows and so far at least, my
decision to cover looks like pretty fortunate
timing but I wouldn’t even remotely consider
going short GORO again before the stock was
at $6.50. I honestly don’t know if it has as
chance of getting there either (after all, if I
thought it was a good opportunity I’d go long and pick up a 25% win) and consider the stock in
no-man’s land right now.
My driving consideration is (and always will be, folks) the fundies of any given company and in
GORO’s case, the plain fact is that even after the bounce seen in gold and silver these last two
weeks, it’s still a loss-making company under present metals prices, its costs set-up and its
over-ripe divis policy. Therefore I’m not a buyer of a lossmaker but if it rises too high (on
overenthusiastic predictions from its hardcore followers, or a new set of true believers, or
whoever) then I’ll happy short the thing again. So FT, bottom line is that I remain neutral on
GORO until at least $6.50 is seen, then I’ll take another look. That puts a cap on GORO
coverage for the time being.
Rio Alto Mining (RIO.to) (RIOM) meeting
Tuesday’s meeting with Alex Black at Rio Alto HQ was one of those extensive ones that covered
24

many corners of the company, what it’s doing and wider mining and market issues, too. Here
are the five main takeaways from the meeting but be clear that once we have the 3q13
financials with us this publication will run a full update on the company, with revised forecasts
for production, costs revenues and resulting price targets for the company that take all new
information into account. For today, you get a report on what went on.
1) Production and costs for 2013: The company has indeed turned its corner and from here on,
things will be much better than the sketchy first couple of quarters of 2013. The 3q13 numbers
will point to the future, 4q13 and onwards will show what RIO is as a mining company over the
longer term. Pres/CEO Black emphasized the critical work that’s been doe on strip rates at La
arena and barring one budgeted and expected spike quarter, we’re now away from the 3:1 and
2:1 strip rates. We need to get used to 1:1 and lower on a long-term basis, which means that
mining costs are set to drop substantially. I now fully expect operating cash costs to be in the
low 600s for 4q13 and to continue that way in the years to come. As for 2013 production, all
he’d say is that we’re on course to meet guidance for the year and that 4q13 would be the best
quarter of the year. On what he said and reading between the lines, I’m good about reaffirming
our house estimate for 68k oz in 4q13 and 211k total production for the year, which would just
beat the upper limit of the company’s 190k to 210k guidance for 2013.
Meanwhile, RIO took a break from repaying its forward gold loan this last quarter and will pick
its spot as to when to start repaying. Black noted that the overall obligation is now low and
there’s still a full year left in which to pay it all off.
2) Production and costs for 2014 onwards: At RIO, one fleet of vehicles is comprised of seven
trucks that do the transporting, and one scoop that does the digging. At the moment there are
four fleets at work at any given time at the mine, which means 28 trucks and four diggers. An
interesting snippet from the conversation is that due largely to the work done on stripping the
deposit but also due to better understanding of the deposit as it is mined and the resulting
benefits of grade control, RIO.to will move from running four fleets to running three in FY14.
This means that less rock gets moved (of course, but thanks to the strip work this year and
better expected grades next year, production ounces are still set to go up. The benefits to cash
costs per ounce of running 25% less fleet but producing more gold should be pretty clear to all
reading this. Then in FY15, RIO will be able to cut from three fleets to two and still keep
production at higher levels. Again real costs saving.
What we’ll also see from RIO.to at the turn of the year is an adjusted resource count, which will
take into consideration a new lower baseline gold price. Pres/CEO Black isn’t 100% on how
much the current resource would lose under these circumstances, but maybe 10% of the
current resource is a ballpark figure to play with. However, this will not affect overall mine life
of the stage one oxide operations as stands.
3) Oxide gold mine life: This is one of the stickiest issues with RIO right now, as anytime you
meet a RIO bear or neutral, you know that at some some they’ll make that sucking sound with
their tongue and teeth and say “Yeah well, the gold runs out in 2016, so...” etc etc. On this,
RIO is working on three fronts. Firstly, there’s material that already been mined and is being
stored that could well add a year’s extra life to the present pit operations. It hasn’t been used
until now because it’s a different host rock and the metallurgy is different, but if RIO can sort
out how to effectively process the material (which i gather is likely though not 100% certain at
this point), there’s an extra year’s worth of production to hand. Second front, it’s very active in
exploration of its large concession and with 21,000 hectares under its command, there’s a lot of
ground to cover. It currently has multiple targets under exploration and will expect to generate
more and although it’s too early to tell whether any will make for an economic deposit, the
address is the right one and RIO at least knows what to look for in the area. The third front is
via M&A, which we cover in a separate topic heading.
4) M&A: This was interesting. Alex Black was very clear that Rio Alto will be active in mergers
and acquisitions at some point in the next 12 months, in fact it was a repeated point made.
25

When asked where, he said that all locations were on the table, but he’d avoid high political risk
areas (that include for him Argentina and Colombia, as well as the usual suspects such as
Ecuador, Bolivia, Venezuela etc). From what I gathered, again from asking the question in a
couple of different ways and reading between the lines, is that there would be a preference for
Peru but RIO feels in no way limited to Peru or even Latin America, as if the right project came
along they’d take it on, specific geography would be a secondary issue. When asked on what
metals he’d chase in an M&A deal, he generally said that all metals would be interesting as long
as the project was economically robust, but there’s a clear preference for precious metals or
perhaps copper. Pressed further it became pretty clear to me that gold was the main target,
because he later put forward the idea that some investors are put off by having too much
copper in the production mix and not enough gold, so if RIO could find a project that fit in with
the stage two copper plans, it could get things to a 50% revenues from copper, 50% from gold
situation, which would be good according to him.
5) The stage two sulphide copper project: The final main topic was that of the stage two
sulphide and again, more details were forthcoming. Firstly we talked about the new delay to the
upcoming feasibility study, that was originally expected in 2103, then knocked back to 1q14 and
now is expected in 2q14. The reasons for the delay, in no particular order, are that 1) under
present market conditions there’s really no need to charge forward and get a FS out as soon as
humanly possible, so it makes sense to gather as much data as possible (something that’s very
much ongoing) and make as informed decision as possible. Second, the company is looking at
all sorts of ways to cut the upfront capital cost of the project in order to ease the transition
burden between oxide and sulphide and make it as efficient as possible without putting extra
burden on cash treasury. As we all know, the original RIO plan was to use the oxide gold cash
in order to pay for the sulphide project, thus eliminating share dilution. That was fine and
dandy at $1.5K+ gold, but at present prices there’s a gap in the financing and it’s one of the
things RIO is keenly aware of, as well. One way is to get efficient at the oxide mine and by the
looks of things, that’s going to be throwing off very decent cash in 2014 and 2015, even at
present gold price. Another way is to reduce the ticket price and again when pressed, they’d
probably want to shave $30m to $50m from the current ballpark $300m ticket on that part of
RIO’s future if possible. That might mean starting a little smaller and building out stage two
using cash flow, or it might mean other ways of financing to cover any shortfall There are a lot
of moving parts to this at the moment and nothing is set in stone.
The other interesting part is that Black said if the eventual FS showed that stage two was
capable of returning the type of baseline economics he was looking for (the main parameter
mentioned was “at least a 20% post tax IRR”) then he’d have no problem about putting the
project on ice until economic conditions improved. He stressed that the plan was indeed to
dovetail stage two into stage one, but if the plan didn’t make sense come the time, RIO would
be happy enough to turn into a cash collecting machine on the oxides, not spend it on a project
others might think is marginal and use the cash for different purposes.
Overall it was an interesting and enlightening meeting and I walked out a very happy holder of
my shares
Conclusion
IKN234 is done, we end with bullet points:
• I’m buying Dalradian (DNA.to) next week because it looks cheap for what it is. That’s
the bottom line. And I really enjoyed writing that report up too, must do it more often
on other companies. The strange way some people get their kicks, eh?
• Rio Alto Mining (RIO.to) (RIOM) continues to be a stand-out investment opportunity in
the junior gold mining sector. Own it.
26

• Meanwhile, all eyes on our two near-term trading positions, as Starcore (SAM.to) and
Eco-Oro (EOM.to) are both due to spit out their potentially market moving newsflow.
Flash updates forthcoming on those if necessary.
• Meanwhile, the minnow starting to grab my attention again is Marlin Gold (MLN.v),
because it’s actually building a gold mine that will work at today’s prices and it’s fully
funded to do so. The big share count plus tiny share price also makes for a volatile
equity, so catching few at a low price (7c looks reasonable, 6c more so) and selling
them 20% or 30% later is a distinct possibility.
• Maybe I was a bit too blasé about the chances of the 7.5% + 0.5% Mexico royalties
getting full passage as stands (which is the way in which us bullshit analysts say that
they definitely were a bit too blasé about etc etc). Yes I still think a negotiated deal
that suits the miners will happen, but I’m not as sure as I was a week ago. Either way,
it’s now something that needs to be watched from now until the Senate debate, some
time before the end of the year.
• I was impressed by Darwin Resources (DAR.v) way more than I was last week and will
now happily hold the stock (instead of thinking “what’s that minnow doing down there
blocking a space on the ‘Stocks to Follow’ list anyway?”) because even if the next stage
of exploration at Suriloma doesn’t work out, the company is the right type of brains
trust to bet a few shekels upon. In this sector of shady characters and scammy
mindsets, the right thing to do is to ally yourself with the good guys when you stumble
across them on your path. DAR.v are good guys.
The top long-term picks are Rio Alto Mining (RIO.to) and Minera IRL (IRL.to). I thank
you in advance for any feedback. Flash updates will be sent promptly if required by events.
I wish you good trading fortune, ladies and gentlemen.
Otto
Footnotes, appendices, references, disclaimer
(1) http://www.kitco.com/news/2013-10-24/KitcoNews20131024DA-CPM-Group-Alleges-Whistleblower-Maguire-Has-
No-Metals-History-Silver-Summit.html
(2) http://www.dalradian.com/
(3) http://finance.yahoo.com/news/dalradian-reports-99-4-gold-130610878.html
(4) http://finance.yahoo.com/news/darwin-commences-ground-geophysical-survey-123000432.html
(5) http://finance.yahoo.com/news/focus-stonegate-announce-focus-acquired-100000735.html
(6) http://bdpi.cultura.gob.pe/lista-de-pueblos-indigenas
(7) http://incakolanews.blogspot.com/2013/10/southern-copper-scco-at-tia-maria.html
(8) http://www.larepublica.pe/26-10-2013/southern-confirma-nuevo-taller-a-pesar-del-
riesgo?utm_source=dlvr.it&utm_medium=twitter
(9) http://www.aminera.com/index.php/categorias/item/531-miner%C3%ADa-de-cobre-en-chile-tiene-costos-58-
m%C3%A1s-altos-que-per%C3%BA.html
(10) http://www.iprofesional.com/notas/172884-Trabajadores-tomaron-la-explotacin-minera-que-Barrick-Gold-tiene-en-
27

San-Juan
(11) http://www.elfaro.net/es/201310/internacionales/13718/
(12) http://www.bnamericas.com/news/mineria/mineras-mexicanas-enfrentaran-carga-tributaria-de-57-si-se-aprueban-
cargos
(13) http://www.informador.com.mx/economia/2013/493491/6/grupo-mexico-invertira-fuera-del-pais-de-aprobarse-
reforma-hacendaria.htm
(14) http://www.bnamericas.com/news/mineria/mexico-aun-es-buen-lugar-para-negocios-pese-a-regalia-de-5-segun-
gerente-general-de-agnico
(15) http://www.jornada.unam.mx/ultimas/2013/10/25/173711579-mexico-seguira-siendo-altamente-atractivo-para-la-
inversion-aun-con-impuestos-ildefonso-guajardo
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
28

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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