IKN #235Premium

The IKN Weekly
Week 235, November 3rd 2013
Contents
This Week: A poor week for juniors, Mailbag.
Fundamental Analysis: Panoro Minerals (PML.v), B2Gold (BTO.to) (BTG).
Stocks to Follow: Overview, First Majestic (AG) (FR.to), Fortuna (FVI.to) (FSM), Primero
(P.to) (PPP), Dalradian Resources (DNA.to), Starcore International (SAM.to), Rio Alto Mining
(RIO.to) (RIOM), Minera IRL (IRL.to) (MIRL.L), Eco-Oro Minerals (EOM.to), Darwin Resources
(DAR.v), Focus Ventures (FCV.v).
Copper Basket: Overview, NGEx Resources (NGQ.to), Oracle Mining (OMN.to), Augusta
Resource (AZC) (AZC.to).
The Lottery Ticket Basket: Overview, Marlin (MLN.v), AQM Copper (AQM.v), Tango (TGV.v).
Regional Politics: Peru’s cabinet re-shuffle, Argentina’s Mining Minister at China Mining 2013,
Update on Southern Copper (SCCO) at Tia Maria, Brazil Serra Pelada: Five Coomigasp directors
investigated for embezzlement.
Market Watching: The Mexico Royalty vote and the short trades, Jaguar Mining (JAG.to)
(JAGFF) collapses under the weight of debt, Focus Ventures (FCV.v) 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
A poor week for juniors
But Mousie, thou art no thy lane,
In proving foresight may be vain:
The best-laid schemes o' mice an' men
Gang aft agley,
An' lea'e us nought but grief an' pain,
For promis'd joy!
To A Mouse, Robert Burns, 1785
The week was a trial for the juniors and came on the back of a stronger dollar which knocked
gold’s rally firmly and definitively on the head in the way we alluded to in IKN234 (e.g. the
phrase that pointed out gold’s rally to that point was “...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”). So gold dropped back from whence it came
without ever threatening your author’s pencilled-in $1.4k trade target (which is still in place for
November, by the way) but the really disheartening thing, for me at least, was the apathy
evident in the junior space. The sinkage in prices is one thing, the lack of interest in junior
stocks is quite another and the low volumes seen during the Tuesday to Thursday block were
not pleasant to watch. The market seems to have given up on the juniors to a certain extent
and that’s nothing like a good thing, not a contrarian signal and no good for the wider industry,
either. The tale of the tape is one that says juniors are being ignored, wholesale, by investors
who’ll take positions in majors and tier one stocks happily enough but are fed up with being
burned by the volatile end of the sector.
1

While I’m on the subject, I’d like to repeat another chunk of last week’s rant:
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!
On the one hand that looks good in hindsight, as those supposed sector leaders (term used
very loosely) fell away. GPR peaked Monday, as did BGM, while ITH was still getting pumped
hard on the first day of the week so its peak came a day later than the others but the eventual
drop in all three was precipitous once gold had reversed. So clever old me huh, but we need to
state loudly and clearly that the drops suffered by RIO.to, IRL.to, BTO.to and other longs that I
hold were every bit as bad as the empty vessel explorers and loss-making junior producers out
there...the juniors continue to rise and fall on the tide and that’s the other hand of this, we’re
still in a market that treats all juniors, good/bad/ugly, as one.
So what to do? In the end it comes down to the same type of buy/hold/sell decision we make
at any given moment, but instead of talking about a single stock we’re talking about a whole
sector. Therefore two choices are to walk away from the sector by selling up and moving on, or
to stay holding current positions but don’t commit any new cash to juniors until the macro
atmosphere improves. However if you decide to do either of those, I’d suggest that you
unsubscribe from all junior mining newsletters, including this one, and save yourself some
2

monthly outlay on a sector that isn’t getting better anytime soon. The other one is to remain
active in the sector and looking for trades, be they near-term flip opportunities or longer-term
investments. That’s the one I’m going to go with, my personal decision, though there’s every
reason to assume that’s the call of a certifiably insane person. However these days I’m looking
as much to the short side as the long and I’m committed to keeping portfolio cash levels high,
which means positions will have to be sold along the way in order to fund any new trades (you
might be a bottomless pit of cash with a charitable desire to help out junior management teams
by paying their outsized salaries, I’m not).
Hello, my name is Mark and I'm addicted to junior miners.
Mailbag
Reader AML sent this in (very slightly redacted):
Why am I overweight this sector in the first place?
Hi Mark, the question may sound like a rhetorical one, but in all seriousness,
could you try giving it the ole college try in as few sentences as you chose? I
am at a complete loss as to when all that QE/new fiat/debt will make its way
into higher commodity prices. Has the federal reserve pulled off the most
incredible trick in all economic history? Or do you still think the mighty USD is
mathematically doomed by all that has occurred in the past five years? I'm
never all in nor all cash, but from 5000 miles away what do you think is really
going on here? Your best guess is good enough for me.
This type of subject is not the brief or focus of The IKN Weekly and I normally avoid the
subject, but as AML is good about quick rough answers and general thoughts here’s precisely
that. I note the use of Austrian-type vocabulary and phraseology and what’s been clear over
the last two years at the very least (or the last ten if you prefer) is that the economic model
and predictions of the Austrian School do not match what we’re seeing in the market. So if
you’re at a loss, perhaps it’s because you’re barking up the wrong tree. Maybe, just maybe, the
Austrian economic school of thought has its own fatal flaws.
Expanding on that thought a little, things like printing presses/QE/Helicopter Ben/fiat currency
doom are understood as policies that were created to stop a credit crunch, market illiquidity
and a deflationary disaster (like I said, we’re doing general terms stuff here so don’t start with
the detailed nitpicking in your comments mails, please). But there’s a big jump from “no spigot
on, then deflationary disaster” to “spigot full on, inflationary spiral” because between those two
extremes there must, by definition, be a sweet spot where the right amount of injection is put
in to stop the deflationary menace without overcooking monetary expansion and currency
debasement. So just for a change, instead of believing Bernanke and his team are a bunch of
knownothings, assume (or just pretend for a while to see where the thought takes you) that
the Fed did its homework and got the amount of monetary stimulus just right. Because if it did
do that, it would be able to supply the necessary liquidity without overcooking the recovery and
causing a massive spike in dollar prices for hard assets and commodities. In fact, wouldn’t it
look something like the weak but sustained recovery we’ve seen in the USA over the last two
years? Also, please note that if “getting it right” turned out to be pure luck or pure skill, it
doesn’t really matter because the end result is exactly the same.
Fundamental Analysis of Mining Stocks
Two things in Fundies today. First up some noted on just why Panoro’s (PML.v) Cotabambas
project doesn’t convince, then a second section which looks at the state of play in B2Gold
(BTO.to) (BTG).
3

Panoro Minerals (PML.v) and its Cotabambas project
In the flash update of Wednesday morning (see Appendix 2) I mentioned that I wasn’t
impressed with the newly updated resource announced by Panoro (PML.v) on Tuesday evening
(1). Here come the reasons why. The NR is here (2), but I’m going to concentrate things on the
six resource tables that the company offered up in the NR, which are reproduced here as a
block. Below comes the discussion on the tables, though you’ll note that here and there I’ve
highlighted some of the numbers in red, in order for easier reference during the discussion
below.
4

Now for the discussion on those tables:
If we take tables 1 and 3 together, we see that PML at Cotabambas has a total of 5.25Bn lbs of
copper under 43-101 resource status, with 1.09Bn lbs indicated and 4.16Bn lbs inferred, all
using a cut-off of 0.2% CuEq. Fair enough but once we start breaking down the numbers, we
can re-classify that 5.25Bn lbs into three different rough categories:
• Oxide Hosted Copper of just under 1 Bn lbs Cu
• High grading Hypogene Sulphide Copper of around 1.7 Bn lbs Cu
• Low Grading Hypogene Sulphide Copper of around 2.4 Bn lbs Cu
• Minor remnants that make up the rest
First the oxide copper resource and of the three, this is the best looking on the numbers at
least. In the indicated category (table 2) Cotabambas is reported to have 260m Lbs grading
0.49% Cu, and in inferred (table 4) there are 680m lbs Cu grading 0.41% Cu. So throw those
together you have 940m lbs Cu at a global average of 0.43% Cu, at or close to surface and
probably economic.
Now for the sulphide rock and here’s where the math begins, because by using a combination
of tables 1 and 3 that give the total resources in the indicated and the inferred categories, then
table 5 and 6 that break down the high grading mineralization, we can split the hypogene
sulphide into higher and lower grading mineral resources. Here’s the simple breakdown
• Indicated resource high grade 36.1m tonnes for 0.46Bn lbs Cu
• Indicated resource low grade: 81m tonnes for 0.63Bn lbs Cu
• Inferred resource high grade 174.6m tonnes for 1.73Bn lbs Cu
• Inferred resource low grade 430.7m tonnes for 2.43Bn lbs Cu
As the inferred makes up the lion’s share of tonnage and copper poundage here, it’s clear that
the fate of Cotabambas at this point, as regards eventual mine size, mine life and production
5

capacity, rests squarely on this part of the resource. And that’s the problem here, because
when you do the necessary math on that last bulleted line, it turns out that the low grading
hypogene sulphide resource, as published last week and separated from the higher grading
stuff, has an average grade of just 0.21% copper or 0.26% CuEq (including the gold, ignoring
the minor Ag and Mo credits) at a cut-off of 0.2% CuEq.
And that, ladies and gentlemen, is the economics on 2.43Bn lbs of the total 5.25 Bn lbs copper
under resource at Cotabambas. When you combine that with other very generous looking
assumptions used by PML for the project such as...
• A copper base case price assumption of $3.20lb
• A low 0.2% copper cut-off
• A 97% mineral recovery rate for all metals, including the likely important (for economic
reasons) gold credit production
...it looks to me as if the main strategy used by PML to expand the resource by 40% is to
include what would be considered waste material by any self-respecting project manager as
economic resource. To give you an idea, that 430.7m tonnes of low grading hypogene material
at a 0.25% CuEq, then using the base-case $3.20/lb price and 97% recovery, would give you a
rock worth of U$16.90 per tonne. That looks extremely skinny to me, even if you believe the
assumption of an $8.90/tonne operating cost that’s used in the model later in the NR (I don’t,
not even close in fact), which doesn’t even take into consideration things like capex, tax,
financial obligations and all the etcs that get between a company’s gross and net profit.
It also goes a long way to explain just how PML has managed to cut its overall strip rate on the
property from 3:1 to 1.2:1, according to last week’s NR. In the end, if you paly with the
economic parameters and magically make waste into resource, you don’t have to strip away
that waste any more because you get to process it and make your theoretical profit. That also
jives with the cross sectional maps provided by PML last week (one example here (3)) that
show how the new mine plan’s pit shell (thanks to the cut-off and high copper price) goes
deeper into the hill but manages to reduce the amount of waste rock moved.
The bottom line to Cotabambas is one that expands on something we’ve mentioned on a few
occasions previously. The central part of the project looks economic and given a shot at
building a mine, the higher grading and
accessible oxide resource looks the
most economically robust material on
site and looks robust enough. But the
problem is that as PML has added (or
tried to add) resource poundage, any
move away from the sweet spot centre
portion means that the grade has
dropped off significantly. Overall the
percentages may just about warrant a
mine if you take the whole together,
but Cotabambas is much more like a
small copper deposit trying to pretend
that it’s a medium/large one. At best
there are 3Bn lbs of workable copper to
be dug, but the company’s insistence
that the deposit grow makes the whole plan at best marginal and at worst wholly uneconomic.
What’s for certain is that by cherry-picking its parameters, PML is trying to make iffy material
look good and as that iffy stuff makes up nearly half of the resource it’s all too easy to look
somewhere else.
I’ve avoided PML as a potential investment because of just these type of suspicions in the past.
Last week’s NR confirmed that this is a project that’s best given a wide berth. Avoid PML.
6

B2Gold (BTO.to) (BTG) news and numbers
There was no escape from the market last week, not even for a top line junior that announces
record production at contained cost levels and
well-received M&A deals.
First news from BTO came Monday when it
announced it was buying Volta Resources
(VTR.to) (4) in an all-paper deal that swaps 0.15
shares of BTO for 1 share of VTR, that put a
42c/share ticket price on VTR shares (basically a
double from the weekend) and a ticket price of
U$63m on the whole deal. It transpired in the
resulting Conference Call that VTR preferred the
“quality paper” that BTO brought to the table
and didn’t want a cash component in the buyout,
preferring to remain exposed via the new vehicle
to its assets, particularly the most advanced stage Kiaka property in Burkina Faso.
Regarding the deal to buy VTR, the bit that jumps out and gives the best window of insight is
this bullet point, from the NR:
Significant Option Value
The Kiaka gold project provides B2Gold with significant option value to future gold
prices. B2Gold's technical team will continue the de-risking process at the Kiaka gold
project through the advancement of a feasibility study to establish the project's overall
economics and will consider proceeding to development of the mine once appropriate
returns are evident in a higher gold price environment.
In plain English, BTO wants VTR in order to get its hands on the 81% of the Kiaka (5) project it
owns, but once in the fold we shouldn’t expect this thing to be moved forward aggressively.
BTO gets a large and potentially big annual ounce project (340k/annum Au is mooted in the
2012 43-101 compliant pre-feas) but it’s also all about hanging onto the deposit and waiting for
higher gold prices. Kiaka has a higher grading central portion that would work as a capital
payback starter pit area, but the bulk of the ounces are contained in lower grading lenses and
halos around the lenses, and the pre-feas’s parameters of mined grade average of 0.96 g/t gold
at a near 3:1 strip rate suggests that the deposit is marginal at current gold prices. However, as
both BTO and VTR were keen to stress on any occasion given, the BTO team has done its
homework on the property and likes what it sees enough to do a deal. Emphasis was placed on
the absolute project size and also the low technical risk, with apparently simple (cost effective)
mining techniques enough to dig and process Kiaka. BTO will move it forward and do its own
feas there, de-risking along the way, but at a corporate level this deal is all about buying up a
cheap asset and hopefully seeing its value grow as gold returns to higher prices. BTO is giving
itself upside leverage to the gold price at a relatively low outlay and maintenance cost,
compared to the rest of its structure.
One final thing: during the CC BTO CEO Johnson said that this was the last active M&A deal the
company has at the moment. You can never say never of course and if a compelling deal falls
into its lap BTO may go for it, but the signal was clear enough that BTO isn’t about to go back
to market to do M&A for the time being. That alone, along with considering the small size of
this VTR purchase and the way in which many in the market were bracing for a much bigger
deal by BTO (Navachab or similar) may be the reason we saw BTO shares move up on the
announcement of this relatively small, non-cash deal; the market was quietly relieved.
Then Wednesday saw BTO announce (6) preliminary results for its 3q13 that included gold
production, selling prices and cash costs data for all its mines. We’re not going to run a full
report here, but now that the “new BTO” has Masbate incorporated into the fold and is settled,
7

we’ll have a peek at how the financials are progressing, as well as production parameters
But first the production (and gold sales)
BTO: Gold produced vs gold sold
numbers so here’s the chart, which shows a 120000
record production total of 98,992 oz gold for
100000
the quarter, along with sales of 93,429 oz.
80000
There you also see your author’s rough guess
for our current quarter of 104,500 oz 60000
produced...we’ll see on that one, though.
40000
20000
Moving into the totals a little (below right) we
got the expected rebound from the Masbate 0
mine after a 2q13 that was slightly affected by
a temporary glitch. Masbate returned 47,642 oz
and we’re looking for that mine to give its first
50k oz quarter for BTO in 4q13.
Next up words of praise are needed for Limón
in Nicaragua, which again returned a 14k
quarter. We’ve mentioned this aspect of BTO’s
game before, but it’s worth reiterating that
before BTO took over the operation Limón was
plagued by patchy performance and regular
strike action from an unhappy workforce.
Things are much different now and the 14,038
oz produced there in 3q13 is the fifth quarter in
a row that’s seen Limón produce over 14k.
But the difference in 3q13 was made by Libertad. We’re finally seeing the benefits of the high-
grading material from Jabali in final production figures and the 37,311 oz gold of the quarter is
8,000 more than the averages we saw from 1q13 and 2q13. There’s every reason to expect
Libertad to stay at this sort of run rate in the quarters to come as well, which is the reason BTO
is guiding at 400k for 2014 annual production.
Before leaving the production section, let’s update on our estimates for gold production at BTO
in the years ahead. Here’s the chart and now that we know a little more about the new
production parameters, 2013 is forecast to come in at 377k oz and 2014 at 411k oz. Then as
Otjikoto comes on line in 2015 BTO
moves above the 500k oz annual
production figure for the first time, which
will be enough to change its official
category from junior to intermediate
level gold producer. By that time we’d
also expect first production to start
flowing from other Nicaragua projects,
most likely the wholly owned Pavon
project bought form Radius in 2012
because that’s already seeing
environmental and social community
work happening (7). So even though
we’re now expecting little from the
Gramalote JV in the medium-term future and the Volta/Kiaka project looks longer term as well,
BTO is still forecast to reach 600,000 oz annual gold production by 2015 and stay there
afterwards. This company has plenty of pipeline.
8
01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 tse31q4
OzAu
gold produced (oz)
gold sold (oz)
source: company data
BTO: gold production by mine
120000
100000
80000
60000
40000
20000
0
01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 tse31q4
oz Au
Masbate prod
Limon prod
Libertad prod
source: company filings
OzAu BTO: annual production and estimates
700
Other Nica
600
Otjikoto
500 Masbate
400 Limón
Libertad 300
200
100
0
2010 2011 2012 2013est 2014est 2015est 2016est
source: BTO filings, IKN ests

Financial snapshot
Enough on production, as I want to cover a couple of aspects of BTO’s corporate finances that
point to a change in the company’s overall strategy. We’re not going into the whole bunch of
charts, but the selection here should be enough to make the point.
I want to start by looking at the development BTO: Shares outstanding
800
of the shares out total, from the company’s
700
inception in 2007 until today, and for two
600
reasons. The first is to see just how rapidly 500
the share total has expanded, as even before 400
the deal with CGA Mining to take over 300
Masbate was made, S/O were had already 200
moved from under 100m to over 400m. Since 100
the Masbate deal we’re looking at a company 0
with 650m shares out.
The second thing is to say that although the
final close for the Volta Resources deal isn’t
expected until January 10th 2014, for the purposes of today’s look at the company (and in a
couple of the charts below, too) we’re going to assume that the deal is closed on Dec 31st 2013
and its effects are registered end 4q13. It’s
slightly artificial (by about 10 days) but it
gives us a better comparative and helps
identify corporate strategy and how this stock
is now being valued.
Revenues have taken a big jump and that
3q13 figure is the one given to us by BTO in
its NR of last week, so although officially
preliminary it’s going to be fairly safe. The
2013 jump is all about Masbate of course,
which has virtually doubled the company’s
gold production.
However, costs are up too. Here’s the same set of green revenue bars, now set against COGS
and the resulting operating revenues (pre-
G&A, financial expenses, stock comp, tax etc
etc). We’re expecting COGS for 3q13 to come
in at $88m (a little over $1m higher than 2q)
and that 4q13 should be roughly equal,
though with a lower average gold sales price
than in 3q13 affecting revenues. The
interesting part of this is that BTO has
managed to tack on increased production size
at a time of lowering gold prices and the
effect is to keep operating revenues at (or
slightly higher than) the pre-Masbate era,
when margins were stronger.
It’s not all great though: The combo of more shares out and and reduced margins means that
we don’t get the same kind of bang-per-buck as we used to get from BTO, as this next chart
shows. The incorporation of Masbate coincides with a significant drop in earnings per share at
BTO, something that’s set to continue in the two reports left for 2013.
9
70q3 70q4 80q1 80q2 80q3 80q4 90q1 90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 tse31q3 tse31q4
m S/O
source: company filings/IKN ests, plus IKN assumption of Volta deal
closing by Dec 31st 2013
BTO: Quarterly revenues
180
160
140
120
100
80
60
40
20
0
01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 tse31q3
U$m
source: company data
BTO: operating revenues and costs
180
160
140
120
100
80
60
40
20
0
11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 tse31q3 tse31q4
$m
revenues COGS Op. Rev
source: company filings, IKN ests for 3q13

BTO: Operating Revenue per share, per qtr
0.10
0.09
0.08
0.07
0.06
0.05
0.04
0.03
0.02
0.01
0.00
10
11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 tse31q3 tse31q4
$/share
source: company filings, IKN ests
However, we can also run an equity per share calculation and things are a lot different in this
chart. Taking into account the Volta deal and assuming it is all done by the last day of 2013,
come the end of this year BTO will have an
IKN forecast $2.48 eq/share value. That’s a BTO: Equity per share, per qtr
3.00
big difference to the $1.44 with which it
finished 2012. The chart to your right is, in 2.50
your author’s opinion, the basis for 2.00
understanding today’s BTO. The company
1.50
operations. The change in rhythm of earnings
per share is a natural result of the drop in the 1.00
gold price, but this company’s management 0.50
team, through either lucky timing or smart
0.00
judgement (best guess is a combo of both,
but smart people are often lucky too) has
managed to leverage its early stage success
and grow the company through deal-making
in order to take advantage of the drop in asset prices in the sector.
The result is a company which now boasts over $2Bn in asset value. It’s a company that has
also expanded its liabilities to nearly $440m (a lot of that jump being pension obligations
inherited from Masbate) and although there’s plenty of liquidity on its balance sheet (cash
treasury $95.6m, working cap $121m as at 2q13) and the mines it runs are profitable, there’s a
shift in the balance towards longer-term asset value at the company. The latest Volta deal is
typical of that change as well and it points to a BTO that’s keen on collecting assets in
exchange for shares so that further down the line, when the company expects the market for
its gold to be healthier, the expansion of the share price comes mainly from the revaluation of
its asset book, rather than its immediate earning power.
In short, BTO of 2013 is a company in transition. It rode the expansive phase well and how it’s
using its “good paper” reputation in order to consolidate. We’re not going to get large earnings
per share results in what’s left of 2013 and then 2014 (unless gold pops back on us strongly, in
which case all boats rise), rather we have a BTO that’s going to be judged on what it owns,
rather than what those possessions are doing on a quarterly basis.
This in turn suggests that BTO will become a less volatile stock, as the maturity phase now
upon us means it’s going to act less like a junior and more like a senior. I’d imagine that a little
further down the line, questions might be asked about its comparative lack of cash compared to
the totality of its asset holdings (eg approx 5% of its assets are in treasury right now) and that
will prompt analysts to wonder just how BTO plans to move its potential production into reality.
A lot will depend on how the market for gold develops in the next year or two, but even in a
worse case where gold goes nowhere, BTO is in the position where it can hunker down, make a
slim profit on its operating assets and put all other plans on hold. On the other hand, a newly
bullish gold sector would enable BTO to raise cash and expand fairly rapidly.
11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 tse31q3 tse31q4
$
source: IKN calcs from BTO data

Today’s BTO looks as safe as a junior can get, given the market outlook. Now that its valuation
will be more about balance sheet and less about quarterly comparatives to profit and loss, a
million extra/less earnings here or there, we can expect a more stable stock performance. On
that subject and to wrap up, here’s the updated version of the asset-based valuation table that
we’ve used on several occasions in our BTO coverage. It’s been tweaked a little to reflect
current circumstances and a new price guide of $1,300/oz to $1,350/oz gold is preferred under
today’s market scenario (we called things at $1,400/oz last time).
B2Gold (BTO.to): Current asset-based valuation
operations adv. project other+cash Target
Au/oz Libertad Limon Masbate subtotal Otjikoto other total
1300 0.87 0.42 0.77 2.06 0.49 0.40 2.95
1350 0.93 0.45 0.86 2.24 0.53 0.40 3.17
1400 0.98 0.47 0.93 2.38 0.56 0.40 3.34
1450 1.04 0.49 1.00 2.53 0.60 0.40 3.53
1500 1.10 0.51 1.08 2.69 0.64 0.40 3.73
1550 1.15 0.54 1.15 2.84 0.67 0.40 3.91
1600 1.21 0.56 1.24 3.01 0.70 0.40 4.11
source: BTO data, IKN ests/calcs U$1 = CAD$1
As you can see, our fair value target for BTO today is somewhere between $2.95 and $3.17,
which represents an upside of between 19.0% and 27.8% from Friday’s close. Last week was a
negative sentiment one and pulled down the whole of the sector, but our contention is that
BTO is clearly oversold and there’s space for reasonable upside. It’s not the type of massive
50% or 100% that you might be looking for from the worst of the beaten down junior world
today, it’s a steadier potential upside that reflects the probably lack of downside as long as gold
doesn’t disappear on us completely. That long-winded claptrap can be boiled down to “BTO is a
good one to hold right now”, which is exactly what I’ll be doing. All portfolios benefit from
anchor-type stocks in them, even a port that’s wholly focussed on the wild and wonderful world
of junior mining companies. BTO is my idea of a solid central pillar.
Stocks to Follow
The shorts made gains and most of the longs made losses, which means it was a bad week for
the list. Details include seven losing positions (RIO.to, IRL.to, BTO.to, LRA,v, RIO.to trading
position, SAM.to, EOM.to) two unchanged (DAR.v, NET.v) and six winning positions (DNA.v
TAHO short, AG short, FSM short, PPP short, FCV.v), so the count looks ok at first sight but
when the reality of the big losses felt in the biggest weighted parts of the list is taken into
11

consideration and the severity of the market drop for the whole sector, it was one of the worst
weeks of the year for your author’s portfolio (and definitely the worst for his market optimism).
The best percentage win came from Focus Ventures (FCV.v up 20.0%) while the worst losses
were booked in Starcore (SAM.to down 15.0%), Rio Alto (RIO.to down 12.7%), Minera IRL
(IRL.to down 12.0%) and B2Gold (BTO.to down 11.7%).
With the additions of the Dalradian (DNA.to) long and the three shorts we now have 15 open
positions on our ‘Stocks to Follow’ list, which is our self-imposed maximum but that’s unlikely
to stay that way for long, what with the very-near-term set up of the new shorts and the plan
to sell Starcore once the price moves back up a tad. Eleven are in the red, four are green.
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$1.64 -28.7% best LT value
Minera IRL IRL.to str buy C$0.35 22-jul-12 C$0.22 -37.1% top pick called at 24c
Longs
B2Gold BTO.to hold C$3.07 28-nov-12 C$2.48 -19.2% sold 1/2, rest rides. Quality
Lara Expl. LRA.v hold C$1.15 08-apr-12 C$0.80 -30.4% solid biz model, LT hold
Rio Alto Mining RIO.to str buy C$2.34 07-jun-13 C$1.64 -29.9% added Oct'13 avg down
Starcore Intl SAM.to selling C$0.235 08-sep-13 C$0.20 -17.5% new trade, runs to Nov max
Eco Oro Min. EOM.to hold C$0.55 22-sep-13 C$0.48 -12.7% new trade, st pol risk play
Dalradian Res EOM.to buy C$0.74 27-oct-13 C$0.77 4.1% new trade, st pol risk play
Shorts
Tahoe Resources TAHO short U$13.10 08-apr-13 U$18.09 -44.4% port hedge, easy2b short
First Majestic AG short U$11.51 31-oct-13 U$10.92 5.1% v near term trade
Fortuna Silver FSM short U$4.00 31-oct-13 U$3.84 4.0% v near term trade
Primero PPP short U$5.70 31-oct-13 U$5.51 3.3% v near term trade
Smaller/Riskier
Focus Ventures FCV.v spec buy C$0.175 01-jul-12 C$0.15 -14.3% 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-abr-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
12

Now for some notes on a selection of the above stocks.
First Majestic (AG), Fortuna (FSM), Primero (PPP): Short positions opened. As per the
Flash update of Wednesday evening (see Appendix 3 below) I opened these three shorts as per
first thing Thursday morning. Please see ‘Market Watching’ below and the note entitled “The
Mexico Royalty vote and the short trades” for more, here let’s note that I expect to close these
positions soon, perhaps as early as next week
Dalradian Resources (DNA.to): Position opened. The first thing I did last week was buy
500 shares of DNA at 77c on Monday, the smallest of
footholds in the stock, and for a moment on Tuesday
regretted having been so small with the opening
position. But the plan here is to buy when gold
shows weak and unfortunately, the weakness
happened sooner than desired. The rest of the
portfolio took a nasty hammering of course but it did
give me the chance to add at 74 and then 72c and
come the end of the week the DNA long is already
looking reasonably large. And then to round off the
fun DNA popped up into the Friday close and has
managed to add a splash of green to the above list.
Tape painting but hey, as a morale booster I’ll take
it, superficial or not.
In related news, thanks for your feedback on last week’s note and I’d like to share one part of
one of the exchanges. Reader DT had a couple of follow-up questions which I’ll share here,
along with my thoughts and answers:
1) Timeline - you go for a 12month target, but if there is no buyout, and as a mine is not
likely until 2016/17 (I believe), what is the rationale for the valuation to apply in 12
months time, rather than nearer to production and/or after some milestone?
Me: I use a standard 12 month timeline for my investment purposes, not because any given
company has a project that will or will not be in production or even at a critical development
decision moment in 12 months’ time. In the case of DNA, which won’t have Curraghinalt close
to production a year from now, the 12 month timescale is weighed against the use of a lower
PE ratio in order to generate a more modest target price.
2) Cash requirements - As they're about to extend an adit tunnel and do a bulk sample,
will they need more than the expected amount?
Me: You have a point. For the moment I’ll stick with a near future $10m raise but DNA may
need to raise more than that, or go back to market earlier in 2014 than I’d budgeted. Still, the
idea that DNA wouldn’t want to raise more than necessary in these low ebb market times holds
true.
3) When we're approaching the 12 months they will also be looking for more exploration
cash, so won't that also be a downer on the price?
Me: Depends how the exploration goes! This is one of the basic risks we as junior speculators
take, in DNA or in any other company. If a company suddenly becomes hot (eg CXO.v this
year) I’d be good about seeing it raise cash at a higher, non-dilutive price. If it and/or the
market remains cold it’d be no surprise to see it being hit down before the next round of
financing. These are the chances we take in this sector, for good or evil.
Thanks for the questions DT. To wrap up and for the record, I’ve now got a decent enough
opening position so I’m not in a hurry to add, but I will nibbling and adding DNA if gold and the
13

sector shows weakly. From here I’ll be looking for the real bargain numbers and trying to
average down if possible and the timeline for additions can be counted in months, rather than
days or weeks. This is not one of the near-term trader-jock ideas that’s been too much of the
norm recently, this is an investment on which I’ll be happy to use liberal amounts of patience.
Starcore International (SAM.to): Still selling. As per the Flash update of Monday evening,
(see appendix 1 for the full PDF analysis sent that evening, charts and all) SAM.to is now on the
block to be sold. As Tuesday saw the price sink quickly from an early 22c to 20c and even lower
during the week, I didn’t get out myself
but the way in which 21c came on Friday
in the teeth of very bearish sentiment
indicates that on a better market day,
SAM has enough to make it back to 22c,
at which point I’ll sell mine.
The bottom line here is that SAM’s a near-
term trade that didn’t work out, which is a
pity. I’d even class my call as unlucky here
(at a pinch) because the anomalous costs
booked for the quarter make sense if you
look at the longer-term health of the
company, but went a long way in
scuppering the near-term trade set-up
that I was running on the stock. However, it needs to be stressed that even if this one had
nailed a win, it would have been a small win because it was always a small, trading-round-the-
edges type of position anyway so the loss in percentage terms, once booked, will be worse than
the absolute cash involved. A small trade that didn’t work, it won’t be the last of my life either.
Rio Alto Mining (RIO.to) (RIOM): This hurt, and a lot. RIO is trading abysmally and after
failing to rally from the lows of last weekend, was hit again by the lack of interest in the sector
and persistent sellers who seem to be willing to bite on any bid. A lot of the talk around RIO is
that its drop is due to the imminent delisting of the stock from the GDXJ, which makes sense up
to a point but this selling it’s still way overcooked as far as I can see, both from fundamental
and market sentiment viewpoints. The place I’m now looking to as a potential catalyst to turn
this selling spree around is November 13th and the release of the company’s 3q13 numbers,
which I’m fully confident will show that RIO and its La Arena mine are performing far better
than the market’s current assumptions.
I’m long RIO, with the longest single position of any held junior, because I believe in the long-
term future of the company. It’s a very rough present time for the company however and not
something than I ever expected at this gold price, still above $1.3k and at a level that makes
RIO.to a profitable mining company (my recent purchases for the “near-term trade” idea bear
witness to my surprise in seeing RIO being hit lower and lower. It’s being sold as if it’s going
out of business, let alone being sold as if it were a lossmaker, neither of which is remotely true.
Minera IRL (IRL.to) (MIRL.L): Rather than wait until this weekend and keep it to the
Weekly, I decided to stick the filing that shows BlackRock Inc has been selling its big position of
IRL on the blog Friday (8) (with thanks due to reader RC for the quick headsup). The upshot is
that BlackRock deciding to bail makes sense when considering the way in whcih IRL hasn’t
managed to catch anything like a price break in recent months and has that look of being held
down. Big exits tend to do that to stocks but fundamentally it changes nothing at the company.
Holding happily and looking forward to the day IRL shows BlackRock the error of its ways.
Eco Oro Minerals (EOM.to): October came and went without the anticipated publication of
the decision on Páramo boundaries, but we understand that the decision is close at hand and
there shouldn’t be too much of a delay. Either way, it’s easy enough to hold EOM through to
the eventual decision because that’s the whole point of holding this thing. Remember however
14

that the governmental verdict on where the boundary is to be set is also our catalyst for closing
this trade, so when it happens this near-term small position will be gone.
In other news, Wednesday saw the publication of EOM’s 3q13 numbers and as at September
30th the company has $13.17m in cash and $8m in working capital, which is more than enough
to see it through this year and most of next.
Darwin Resources (DAR.v): Two NRs from DAR last week. The first came Monday (9) when
DAR announced roughly the news that we’d reported in IKN234 last week (though with more
details), with the recently finished geophysical survey highlighting new targets to be drilled at
Suriloma. For me, the most interesting bit was this bullet point...
• At the La Puerta area, an IP anomaly has been defined over 1300 metres by 200 metres,
extending from a depth of 200 metres to the limit of the survey depth at 300 metres depth. The
anomaly is interpreted to be the disseminated sulphidic core to the gold mineralization observed
in shallow drilling.
...because if that turns out to be true, DAR is about to stick a drill hole right into rocks with a lot
of gold in them. Then right on time and the price imagined, as well. DAR.v announced on
Wednesday (10) its non-brokered private placement last week, the price is 8c per unit (1 unit 1
share share + ½ warrant at 12c) and the company is raising $1m, which means it’s a 12.5m
unit placement. As explained last weekend, DAR is not hanging around and is keen to get on
and drill these newly developed targets at Suriloma. We can expect the round of financing to
close fully taken and in the near future
Focus Ventures (FCV.v): A whole thing on FCV in ‘Market Watching’ below today. Here let’s
simply note that although FCV returned the best percentage share price performance of the
week for our list, it was made up of just one single meagre 12,500 share trade on Wednesday
so in fact it’s a pretty false gain.
The Copper Basket
After forty-four weeks of 2013 The Copper Basket is showing a 25.53% loss to level stakes.
company ticker price 1/1/13 Shares out Market Cap current pps gain/loss%
1 NGEx Resources NGQ.to 3.40 168.66 291.78 1.73 -49.1%
2 Augusta Res AZC.to 2.43 144.35 282.93 1.96 -19.3%
3 Lumina Copper LCC.v 9.43 43.61 232.01 5.32 -43.6%
4 Copper Fox CUU.v 0.83 402.96 201.48 0.50 -39.8%
5 Reservoir Min. RMC.v 2.41 41.68 187.56 4.50 86.7%
6 Nevada Copper NCU.to 3.50 80.5 149.73 1.86 -46.9%
7 Hot Chili Ltd HCH.ax 0.72 297.46 147.24 0.495 -31.3%
8 NovaCopper NCQ.to 1.80 53.02 102.33 1.93 7.2%
9 Panoro Minerals PML.v 0.62 204.71 83.93 0.41 -33.9%
10 Western Copper WRN.to 1.39 93.68 69.32 0.74 -46.8%
11 Curis Resources CUV.to 0.70 63.13 38.51 0.61 -12.9%
12 Candente Copper DNT.to 0.375 122.05 26.85 0.22 41.3%
13 Oracle Mining OMN.to 0.80 49.03 14.71 0.30 -62.5%
14 Yellowhead Min. YMI.to 0.59 63.45 9.83 0.155 -73.7%
15 Strait Minerals SRD.v 0.08 57.26 3.44 0.06 -25.0%
NB: HCH.ax priced in AUD$, rest CAD$ Portfolio avg -25.53%
The Copper Basket lost over 4% on the week and there’s no better commentary on how things
15

were than noting we had zero zip nada no weekly winners at all from our 15 names. There
were three that stayed unchanged
(HCH.ax, CUV.to, PML.v) but all others Copper Basket 2013 average, weekly
12%
dropped (not listing them all) with the
8%
worst losses taken by Lumina Copper 4%
(LCC.v down 18.8%), NGEx Resources 0%
-4%
(NGQ.to down 15.2%) and Oracle Mining
-8%
(OMN.to down 14.3%). Reversals? We -12%
have them. -16%
-20%
-24%
It wasn’t about the copper price either, as
-28%
the 60 minute chart here shows. The -32%
metal remains stubborn and resolute in its
$3.20/lb to $3.30/lb range, ignoring the
ups and down of the precious metals
these last few weeks. The difference seen
in the wild movements of gold, the semi-
hopeful pop showing in zinc and the rigorous
sticking to the relatively narrow price channel of
copper is attention-catching and is another
piece of evidence towards the call that copper’s
market price is being controlled, i.e. held up
artificially by the people who’ve taken de facto
control of the LME warehousing system. You
won’t hear many bleats or complaints about this
from copper producers of course.
Last week we ran the month-end inventory
charts, which was a mistake on my part
because it would have been better to wait for
this weekend, Friday being October 31st and all
that. So here are the adjusted numbers, which
are very similar to last week’s but all the same,
nerds do as nerds are.
On the weekly, score, world stocks dropped a minor 0.8% to stand at 672,386mt, with the LME
warehouses down 1.0% to 476,025mt, Comex down 2.1% to 24,214mt and Shanghai
unchanged at 172,146mt. The most interesting statistical move was in LME cancelled warrants,
which moved to a new high of 61.9% of total stocks and shout even louder of a system being
gamed by the big player who are stopping the metal from flowing and keeping copper prices
artificially high. On the subject, let’s note that of the world stocks total of 672,386mt, more
than half (precisely 348,675mt) is being held in just two of the 16 LME warehouses, those of
16
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
Copper inventories: percentage held per exchange
80
70
60
50
40
30
20
10
0
21.naJ bef ram rpa yam nuj luj gua pes tco von ced 31.naJ bef ram rpa yam nuj luj gua pes tco
Copper inventories, per month 2012/2013
1000000
LME Shanghai Comex
800000
600000
400000
200000
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
Mt Cu
LME Shanghai Comex
source: Cochilco

New Orleans and Malaysia.
Cancelled Warrants at LME, IKN157 to date
70%
60%
50%
40%
30%
20%
10%
0%
17
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 532NKI
source: Cochilco, LME
rof
yrotnevni
EML
%
latot
yreviled
resu-dne
Now for updates on three of our basket stocks, with PML.v done already in Fundies above.
NGEx Resources (NGQ.to): A nasty case of the late week droops for NGQ, as seen in this
price chart.
The selling came after NGQ’s morning NR on Friday (11) which announced met results for its
flagship 60% owned Los Helados property in Chile. Here’s the table ripped from the NR
What we see is strong numbers for the main deep zone (both Cu and Au recoveries look good
and the 30.8% concentrate grade is excellent, the type that attracts bonus payments from
smelters), though there has to be concern about the upper zone numbers, as in theory at least
that’s the first mineral that would eventually be mined at the deposit so the grades, concentrate
and recoveries aren’t indicative of a quick payback operation.
The NR also announced the filing of the new 43-101 technical report for Los Helados. That
report includes the resource at Los Helados in the indicated and inferred categories as first
announced on September 19th (12) and it’s worth our time tracking back a few weeks to

compare how things were to how things are. Here’s how Los Helados was counted back in
January this year:
The Los Helados resource, January 2013
Contained
Grades Metal
tonnes (m) cutoff CuEq Cu % Au (g/t) CuEq % Cu Bn lbs Au Moz
indicated 1114 0.3% 0.42% 0.19 0.55% 10.34 6.65
inferred 1015 0.3% 0.38% 0.14 0.47% 8.41 4.7
totals* 2129 18.75 11.35
*IKN can do this & NGQ can't, it's against 43-101 rules (CuEq:1 oz Au = 466lbs Cu)
And here’s how it looks today, under the October 31st SEDAR filing:
The updated Los Helados 43-101 compliant resource Sept 2013
Contained
Grades Metal
tonnes (m) cutoff CuEq Cu % Au (g/t) CuEq % Cu Bn lbs Au Moz
indicated 1730 0.3% 0.40% 0.16 0.52% 15.26 8.9
inferred 681 0.3% 0.32% 0.11 0.41% 4.8 2.41
totals* 2411 20.06 11.31
*IKN can do this & NGQ can't, it's against 43-101 rules (CuEq:1 oz Au = 466lbs Cu)
Notes on these resource numbers
• At 1,730 million tonnes, NGQ has added 282m tonnes to its resource count. Indicated is
up and inferred is down. Just as you’d expect for an ongoing development that’s
looking to improve its resource reliability.
• However, all grades are down, for both copper and gold in both categories. Compared
to the cut-off at 0.3% CuEq. The indicated grade of 0.52% CuEq looks a little flimsy
and puts extra pressure on the resource economics. Inferred looks weak now.
• Total contained copper is now over 20Bn lbs, contained gold is virtually unchanged. The
combo of more tonnes and lower grade giving up these numbers.
Added to the numbers as shown Friday, we also had the news of Barrick suspending Pascua
Lama which may have caused a knock-on effect for the prospects of NGQ at Los Helados and
the whole of the wider, cross-border Vicuña project, what with the similarities of location and
double nationality. But what we do know for sure is that one relatively large holder was keen to
get out of NGQ at any price available on Friday afternoon, with the stock quick sinking on the
selling from the 90s to the 70s.
Oracle Mining (OMN.to): Changes are afoot at OMN. In the long company NR dated Monday
October 28th (13) OMN announced that
RichStone Mining Investment, a Hong Kong
holding company that already owns 15.9% of
OMN shares, was effectively taking over the
company. The first stage is RichStone
providing OMN with a $10m loan, effectively a
bridging loan that will see them through to the
completion of the feasibility study due early
next year. Along with this loan announcement,
Paul Eagland has resigned as chair and
general head honcho of the company and is
set to be replaced by a new CEO of
RichStone’s choosing (this after three other
directors resigned as at October 20th). We
hear that the person in mind has a decent
track record in the mining industry and his name will be announced as soon as the $10m loan
deal is closed.
18

This five day chart shows an undistinguished amount of trading last week and price weakness
that saw the stock under 30c and close to all-time lows. It’s not really tradeable because of
that, but as the latest financing is sure to close and the new CEO coming along should provide
the right kind of industry credentials, a small amount of cheap stock might be flippable (and I
know of at least three readers who follow this one closely).
Augusta Resource Corp (AZC.to) (AZC): Monday evening saw Ross Beaty announce (14)
that via one of his holding companies, he’d bought AZC debt, via convertible notes bearing 7%
interest. The reason for the disclosure comes later in the NR (bold underlined ink to help you
zoom in):
As a result of this transaction, Mr. Beaty now owns, directly or indirectly, or exercises
control or direction over, 13,335,500 common shares of Augusta, representing
approximately 9.2% of the total number of issued and outstanding common shares of
Augusta on a non-diluted basis. In addition, Mr. Beaty holds, directly and indirectly, an
aggregate of $5,000,000 principal amount of Notes, which may be converted to acquire
an additional 1,849,757 common shares of Augusta. If all such Notes were
converted, Mr. Beaty would exercise ownership and control, directly or
indirectly, over a total of 15,185,257 common shares of Augusta, which would
represent approximately 10.4% of the then issued and outstanding common shares
of Augusta on a partially-diluted basis.
In other words Beaty now owns 10% of this thing, give or take. The market reacted to this
news by yawning and selling the shares
off, just like any other junior copper last
week, as this five day chart shows.
A guy gotta have a hobby, I suppose. At
moments like this the investment world
quickly remembers the money made by
Beaty in the Lumina companies, in
Ventana and of course the original growth
and ultimate success of Pan American
Silver (though even that one has a patchy
track record in the last few years). I do
too, but I also remember the money he’s
sunk into geotherm, the losing straight
investments in things such as Blue Sky
Uranium and CB Gold, the LCC.v situation or today. For sure he’s a very successful player, but
the “broken slot machine” moniker should be long gone by now.
The Lottery Ticket Basket
After 44 weeks of 2013 The Lottery Ticket Basket is showing a 25.43% loss to level stakes.
19

company ticker price 1/1/13 Shares out Market Cap current pps gain/loss%
1 Marlin Gold MLN.v 0.10 680 61.20 0.090 -10.0%
2 Eagle Star Min. EGE.v 0.125 79.13 14.64 0.185 48.0%
3 Fancamp Expl. FNC.v 0.125 177 12.39 0.070 -44.0%
4 AQM Copper AQM.v 0.08 105.57 11.61 0.110 37.5%
5 Bellhaven BHV.v 0.14 136.81 8.21 0.060 -57.1%
6 Tango Gold TGV.v 0.13 76.24 4.57 0.060 -53.8%
7 Copper North COL.v 0.10 58.7 3.82 0.065 -35.0%
8 Netco Silver NEI.v 0.125 9.4 3.76 0.400 220.0%
9 Inca One Res. IO.v 0.12 34.0 3.40 0.100 -16.7%
10 Darwin Resources DAR.v 0.20 26.16 2.09 0.080 -60.0%
11 Gryphon Gold GGN.to 0.085 194.64 1.95 0.010 -93.5%
12 Agave Silver AGV.v.v 0.30 21.55 1.94 0.090 -70.0%
13 Glass Earth GEL.v 0.155 105.67 1.59 0.015 -90.3%
14 Rio Cristal RCZ.v 0.025 17.259 0.69 0.040 -84.0%
15 Firestone Ventures FV.v 0.045 36.82 0.37 0.010 -77.8%
Portfolio avg -25.43%
Last week The Lottery Ticket basket saw six winners (MLN.v, BHV.v, GEL.v, FNC.v, COL.v,
RCZ.v), five unchanged stocks (GGN.to,
EGE.v, DAR.v, IO.v, FV.v) and four losers 25% Lottery Ticket Basket 2013 average, weekly
(AQM.v, TGV.v, AGV.v, NEI.v) and the net 20%
15%
result of all that huffing and puffing was a 10%
very slight improvement to the overall 5%
0%
basket average. Big percentage wins were -5%
-10%
registered in Glass Earth (GEL.v up
-15%
50.0%), Copper North (COL.v up 30.0%), -20%
-25%
Marlin (MLN.v up 28.6%) and Bellhaven
-30%
(BHV.v up 20.0%), but most of those -35%
-40%
were knee-jerk from recent lows and on -45%
small volume trading too, so don’t read
too much into that little list of jumpers.
Marlin Gold (MLN.v): We mulled over a trade in this one last week and it duly gave us a
theoretical win, but volumes all week were tinysmall and there’s really not that much doing.
Tough to trade when your share price is small and there’s not enough volume to be able to
place any reasonable amount of cash, both in and out.
AQM Copper (AQM.v): Another week of tiny moves on miserable volume. I look at AQM and
its $11m market cap and then I look at Panoro (PML.v) worth $84m and I scratch my head.
Zafranal isn’t that great shakes grade-wise, but there’s a lot more to like about its chances of
becoming a mine than Cotabambas and I’d rather have 30% of something than 100% of
nothing.
Tango Gold Mines (TGV.v): The Canadian junior that’s run by Swiss and working in
Nicaragua though bizarrely named after a musical style from Argentina announced last week
(15) that it had successfully raised gross proceeds of $950,000 by financing at 5c (19m shares,
no warrants), with insiders taking 3m of those shares. The stock continues to be ignored by the
market, probably because the world knows that it’s going to need at least another $5m in order
to get its small scale mining plan (120tpd to start off) for the Topacio deposit off the ground.
However, we should have a PEA on that soon enough and if the numbers show well, there may
be a very high risk trade for those who like them cheap.
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 r3von
source: IKN Weekly data, TSX
2102/1/1
morf
egnahc
%

Regional politics
Peru’s cabinet re-shuffle
In the end, the ministerial re-shuffle in Peru did not include a change at the top of the Ministry
of Economy and Finance (MEF), which means FinMin Luis Miguel Castilla keeps his job and the
most important economically orthodox (even right wing) component of the Ollanta Humala
remains in place. This was greeted with cheer by the market in general.
Also in the end, the re-shuffle was not a big one. The Prime Minister and cabinet chief is the big
change but it’s not one that’s likely to affect active policy in Peru much and even less so when it
comes to mining related issues. Overall and for our purposes and focus here, the changes are
of little consequence and we can expect Peru to remain the same generally good mining
jurisdiction, with difficult and risky patches here and there. As you were.
Argentina’s Mining Minister at China Mining 2013
The Chinese province of Tianjin this weekend (16) has played host to China Mining 2013 and
Jorge Mayoral, Argentina’s Minister of Energy and Mining, was there in order to promote his
country’s industry. During his speech, Mayoral told the audience
“My expectations for this year are that we’re going to end it very well in terms of production.
The sector will show great production performance and the export figures will certainly be over
U$4.8Bn (for metals).” He went on to note that these record figures come at a time of
international crisis and speak well of Argentina’s economic robustness. He also said that
Argentina needs foreign investment which is why he’s on tour in the Asia region. His next stop
is Tokyo Japan, for meetings and events planned there on November 6th and 7th.
Update on Southern Copper (SCCO) at Tia Maria
The good news (17) (18) is that there was very little blood spilled (one thrown stone hit one
head) or any serious violent incidents (tear gas dispersed the crowd at the rowdiest moment)
last week when the workshop on Southern Copper’s (SCCO) plans for the Tia Maria copper
project in the Islay region of coastal Arequipa went ahead on October 30th. That’s because
instead of 20 police officers of the previous meeting, 300 were laid on, roads were effectively
blocked of all traffic for the duration of the meeting, those protesters and local who live close to
the project were barred from attending and SCCO, along with Peru’s Mining and Energy Ministry
representatives, bussed in around 300 people from localities less affected or unaffected by Tia
Maria in order to fill the hall and give the meeting official sanction. In other words it was
another farcical occasion, much like the time in which Sulliden gained its “social licence” for the
Shahuindo project with the same kind of tactics.
The next step for Tia Maria is on December 20th when the project gets its full public audience in
order to gain its official social licence, a key part of the official EIA permitting track.
Brazil Serra Pelada: Five Coomigasp directors investigated for embezzlement
The story of misdeed in Coomigasp, the workers association at Serra Pelada in 25%/75% JV
with Colossus Minerals (CSI.to) reached the pages of the nationally respected high circulation
daily O Globo last week (19). Globo reported that five of the heads of Coomigasp are now
under investigation for the disappearance of R$50m (~U$22.15m at today’s forex) which was
paid to Coomigasp by Colossus as part of their dela on Serra Pelada but has never reached the
pockets of its rank and file members. The allegations are that the cash was diverted to the
accounts of the previous directors of Coomigasp or to accounts owned by front men for the
directors. Along with the report, Globo published a CSI communique in Portuguese that set out
the company’s position and stated that CSI had no knowledge of the alleged fraud committed
by Coomigasp directors after they paid the expected money to the JV partner and that the deal
it had struck with Coomigasp under its now suspected ex-directorate back in 2009, the one in
which CSI took on all capex obligations in return for a 75% share of the mine, was and still is
legal and binding.
21

CSI stock was hammered down again last week, ending Friday at a new 52 week low of 48.5c.
Along with the operational difficulties, this criminal investigation into the activities at Coomigasp
is now expected to delay the project timeline and that may put the CSI treasury under strain,
forcing it to run another round of financing. We continue to avoid this name, as there’s a lot
that still might go wrong before the mine ever gets going.
Market Watching
The Mexico Royalty vote and the short trades
It’s a bit of market watching and a bit of regional politics, so we’ll stick this note here where the
two categories meet.
Two things to do: First we’ll clear up last week and the timeline on how the Mexican Senate
voted on its new royalty law, then we’ll add a few more words on the three shorts that I
opened on Thursday morning in order to take advantage of the news. Along with this section,
please take into account the two Flash updates sent on Wednesday (see Appendix 2 and
Appendix 3, below).
1) The Senate vote timeline. What happened last week was roughly as follows:
1) The Senate debate on the governing PRI party’s Fiscal Reform package, which included
a whole bunch of tax-raising proposals as well as the object of our attention, the 7.5%
royalty on EBIT (equivalent) plus an extra 0.5% levied on precious metals production,
began on Tuesday.
2) The first set of proposals that did not include the mining bill (but did have things such
as the planned tax on fast food and sodas) was passed in the early hours of
Wednesday morning. It’s at this point that the pact or voting bloc agreement between
the PRI party and the PRD (of AMLO fame and the main left-wing party of Mexico, in
simplified terms) became apparent.
3) At this point I wrote the first of the two Flash updates that went out on Wednesday,
this one early morning. At this point we were expecting the Senate vote on the mining
royalty to happen Friday.
4) Then during Wednesday the main opposition (centre-right to right wing) PAN party
made their protests about the PRI/PRD pact strong, how there was no way to stop
things and how they’d boycott the rest of the Senate debate in protest of this deal that,
according to PAN, would push Mexico into recession.
5) On reading reports of this and how the Senate debate would now likely be wrapped up
quickly, I wrote the second of the two Flash updates for that day and sent it
Wednesday evening, along with the decision to short a basket of three stocks exposed
to the rule change (AG, FSM, PPP).
6) Then what happened was that the debate happened Wednesday night and into
Thursday morning (it seems the senators were keen on finishing early in order to enjoy
the November 1st Day of the Dead festivities and long weekend in Mexico and with
PAN sitting out the debate, it all went through smoothly and quickly) and the vote
happened in the wee small hours of Thursday morning that passed the mining royalty
bill as stands.
7) I didn’t notice this event before the bell Thursday and still made my three short trades
at the open. Later on I came across the reports of the even-earlier-than-expected vote
but on consideration (eg looking at the horrid way in which gold was trading by then) it
was easy enough to keep the shorts in place.
So the bottom line to last week’s timeline is that the mining royalty bill was passed more quickly
than anticipated but the details remain the same. As from January 1st 2014 mining companies
have an extra 7.5% to 8.0% to pay on their pre-tax profits, with certain concessions given on
capex spending and budgets as offsets to the royalty.
22

2) The three new short positions: As explained in the Wednesday evening Flash update, I
opened shorts on three producing junior mining companies last week to take advantage of
Mexico’s decision (which is, for the record, a extremely stupid one in my opinion) to add the full
7.5% +0.5% royalty to the State burdens carried by Mexican mining companies. I chose to
short First Majestic (AG) (FR.to), Fortuna Silver (FSM) (FVI.to) and Primero Mining (PPP) (P.to)
because they offer a US listing which makes shorting a whole lot easier to us retail grunts, as
well as being profitable, liquid volume in trading and fully exposed to Mexico’s whims by being
PM producers. I’d agree that I could have chosen other targets (for example Endeavour Silver
(EDR.to) (EXK)) or even the smaller producers or explorers that would now be less attractive to
potential buyers, but those were the three I went for.
It may turn out to be one of those “right for the wrong reasons” trade decisions, because after
the shorts were set, gold and the juniors went into full scale reversal and the hedge benefit of
having extra shorts in place quickly became apparent. However, I also think that the Mexico
royalty law news is a bit of a sleeper event and the chances are we’ll get more negative
sentiment from the politicos’ decision next week. It’s been amusing (in a dry humour way at
least) to watch how the largely Canadian-led lobbying was very vociferous in the weeks leading
up to the debate, telling all and sundry about the big mistake that Mexico might make, but
when the law project was voted through everything went quiet on the media and sound-bite
front. It’s almost as if the mining industry in Mexico doesn’t want to attract attention to the
royalty law issue any longer...surely not! Anyway, in my opinion the dearth of information
available and the market’s abhorrence of a vacuum increases of a delayed negative reaction to
last week’s events and there’s every reason to expect Mexico-exposed mining companies to
underperform peers in the days ahead.
Back to practical matters. As for the future of these trades, the original idea was to run them
until some time next week and cover, take a quick win and walk away. That’s still the basic
gameplan but with gold suddenly looking asthenic and the juniors unloved, if general market
weakness continues I’d have no problem about holding these shorts a while longer in order to
hedge the overall portfolio. It’s going to be a near-term trade decision at some point and the
scenario on those changes from day to day, so it’s going to be a case of me monitoring the
intraday shenanigans more closely than I usually care to do in the days ahead. Whatever
happens, I won’t cover the shorts without sending out a Flash update first, if only for the record
and transparency.
Jaguar Mining (JAG.to) (JAGFF) collapses under the weight of debt
We had a late-Friday evening NR from Jaguar Mining (JAG) (JAGFF) last week, which is not a
good sign in itself but the contents were even worse for any shareholders left out there. The
paydirt is that JAG is looking to convert its very large debt obligations into equity, those debt
holders are in agreement with the proposal and the upshot for current shareholders is spelled
out in this part of the NR (20):
“As a result of this new equity financing and debt-for-equity exchange,
current shareholders would have minimal or no continuing equity interest in
the Company following the completion of the transaction”.
In other words, JAG is about to hand over ownership of the company to the debt holders by
diluting the merry hell out of its share count. Details are not yet available (nothing on SEDAR or
Edgar to date) but I’d then expect a rollback, a change of top management and a “new JAG” to
come out the other end, less burdened by the welter debt and looking to start afresh.
The last time we took a serious look at JAG was way back in IKN157, dated May 2012. Here’s
how that piece ended (and at the time JAG was trading at $2.32, with plenty of speculation
about its potential sale to Chinese cash and other such rumours and gossip).
23

Those of you that like them distressed and very high risk may feel like running
a trade on JAG, but if you do, be clear that the company might have come
down from $6 but it’s not going back up there again in the near future, and
unless things change drastically at the company (e.g. debt removed, gold
goes to $2,500/oz, production jumps to 60,000 oz) it will never see those
levels again. The chances of further depreciation in this share price are high,
so the risk of buying at today’s levels should now be understood as “well, it
could drop to $2 i suppose”, because the low end potential is zero. If current
management is thrown out and people that actually know how to mine at a
profit move in, it might be worth revisiting JAG but under status quo conditions
there’s too much risk and not enough reward potential here. No trust = no
trade, I pass.
That was the right call, all the way down to the “could go to zero”, because that’s what it’s
likely to do, starting next week and finishing when the planned mega-dilution is enacted. The
moral to this story is one I’ll shamelessly repeat as long as just one set of ears listens and gets
the message: BALANCE SHEETS MATTER. Beware the large scale debt held by mining
companies at your own peril, because JAG is just one example of what can happen when your
company is weighed down by debt. Large companies and small have gone for money raised
easily in the good times to feed marginal mine ideas that work well when metals prices are high
but have fallen down when the repayment potential is crimped by a market downturn and rising
costs. JAG is one, Carpathian (CPN.to) is another, Huldra Silver (HDU.v) is a smaller version of
the same sad story, Gran Colombia Gold (GCM.to) is a long way down this same track and I
surely hasn’t escaped your notice that even the great and glorious Barrick (ABX) is looking to
raise a Canadian mining sector record $3Bn (with a B) by selling a whole swathe of new shares
in order to, yes you got it, pay down debt and improve its balance sheet.
Focus Ventures (FCV.v) meeting
On Friday, president of FCV David Cass came through Arequipa and I had the chance to sit
down with him,get to hear what the company is doing as regards its phosphate deals and other
things besides. Here are the main points of the meeting.
• We based our meet around the presentation that you too can read by clicking through
(21) and downloading the latest FCV corporate show. FCV is now very much a
phosphate-centric operation and among its projects, the latest Bayovar 12 deposit, in
which FCV can earn up to 70% by optioning in, its its clear flagship.
• Pres Cass also informed me that the JV partner at its Aurora copper project in Cusco, a
privately held company, had not been able to raise the funds to hold up its end of the
optioning in deal and had therefore handed back the property, just a few days ago (this
will be announced in the upcoming 3q13 MD&A). The weak market for raising did for
the company’s partner, but Cass says that there’s already new interest from other
companies about picking up the option and they’ll be looking to do a new deal with
people who have the cash on hand to be able to explore as soon as possible.
• Back to phosphate We talked about the other phosphate properties held by FCV as
well, with Machay/Mantaro (both its own Machay concessions and the 70% deal on
Mantaro that has let it into the Stonegate properties nearby and just down the valley),
as well as Quebranta in South coastal Peru and Maria Luisa in Colombia. However and
with a nod to acknowledge that Mantaro is probably the current second string that’s
going to take some community work before knowing how far it can go, the company’s
clear strategy is to push ahead aggressively with Bayovar 12.
As for specific news on its flagship, the company is clearly raring to go.
• We talked a little about potential valuations at Bayovar 12, the nebulous “prize” at the
end of the proverbial rainbow. When it comes to operations of this type of phosphate
deposit, just down the road is the best example possible as the Bayovar Mine (jointly
24

owned by Vale, Mosaic and Mitsui) currently running and making money. It’s expected
to produce 3.2million tonnes of world standard saleable concentrate (known as
Phosrock, which typically grades at between 28% and 32% and is then processed to
make fertilizers by the big agrochem companies) which currently sells at around $140/t.
Do the math folks, then consider that the mine is running at around a 50% margin on
operations (hint: $224m/annum MOI).
• The problem with that is the high capex hurdle that a mine such as this needs, the type
of half billion dollar ticket that the FCV’s of this world can’t even dream about playing
with. Therefore, the real prize here for FCV will be to develop the resource and with
luck, sell it to the type of company that can indeed develop it into a mine, the Mosaics
of this world. The good news here is that we also have a very decent benchmark in
place, because another deposit nearby is the Fosfatos de Pacifico project, owned by
Hochschild, Mitsubishi and Zuari. With the same type of grade, size and geology as FCV
expects at Bayovar 12, it’s a good like-for-like as to what Bayovar 12 may be worth if
all goes well on the exploration front because two years ago, Mitsubishi and Zuari
bought 30% of the project for $45m in cash. As the “exploration target” that FCV has in
mind for its upcoming drilling programs and 43-101 counting is between 350mt and
500mt of phosphate rock, that would ballpark a price ticket of between $70 and
$100m. Now for sure, the state of the market in 2011 is not the state of the market
today, so we may reasonably apply a discount to that previous ticket price, but overall
the prize here is something that can reasonably revolve around $50m for the sale of
Bayovar to a third party, as long as the grade and size are there (as expected). That’s
around one buck per share of FCV (once the latest financing closes, FCV should have
around 52.5m shares outstanding) and that, ladies and gentlemen, is how I see this
prize potential.
• As for the drilling and development, that’s now moving into gear. The $1.5m placement
(interesting sidebar; they turned people away) is set to close within the next two
weeks, fully subscribed. Right now the company is applying for the necessary drill
permits, which should be a straightforward piece of Peru bureaucracy (for a darned
change) because the area is unpopulated desert, there’s no water pollution problems
and there’s also plenty of precedent alreayd set by drilling programs done at the nearby
Bayovar Mine and Fosfatos de Pacifico project. Two rigs have been reserved and
assuming a smooth paperwork run, they’ll be turning by January.
• The program will concentrate on one area of the concession and if results are as
expected (it’s one of the more predictable geologies in the world, being large flat near
horizontal deposit layers) the second round of drilling along with an option payment will
happen mid-2014 (and yes, they’ll need to raise more cash for that one, either via a
new placement or quite possibly via a sugardaddy large company sponsoring in).
Though is all goes well up to then, we’d expect FCV to be able to raise at a higher
share price.
Overall, the plan is a simple one and looks right on the money to me. There’s plenty of previous
success in this type of deposit right next door to where FCV will be operating and if the size and
grade holds up, it won’t take a mathematical genius to work out that FCV’s shares will be worth
substantially more than they are right now, even taking into account the poor state of the
market for juniors. My main worry is that it really does seem too simple, a real lay-up, and
that’s where I’ve been caught before by exploration stories. For that reason alone I’m happy to
keep with the amount of shares I own until drilling results start flowing from Bayovar early next
year (sidebar: I’ve been invited up to watch the drills turning and vacations allowing, that’s one
I’d like to go and see). At the present time FCV is still being largely ignored by the retail
community, but the same was true for EGE.v this time last year, just before it set off like the
scalded cat on trenching results from its phosphate project in Brazil. Time will tell whether FCV
can emulate that type of success
25

Conclusion
IKN235 is done, we end with bullet points:
• Last week was seriously crappy for juniors, so I’m glad that I managed to tack on a few
short positions before the worst of the damage was done. Quite possibly right for the
wrong reasons on this one, but it did managed to soften the blow.
• But a blow it still was, with the unending weakness of Rio Alto Mining (RIO.to) (RIOM)
my greatest concern at this point. I’m looking to the 3q13 results, due on November
13th, as a place where this tide of bad can be reversed but I don’t mind telling you that
I find its performance plain depressing.
• Focus Ventures (FCV.v) really might have hit on something via this Bayovar 12 deal. I
want to see the drills turning on time and in good order come early next year (Peru
officialdom has done for me before) but there’s good reason to be cautiously optimistic
about this long-held stock for once.
• I’m still selling Starcore (SAM.to) given the chance and a 22c price. As for Eco Oro
(EOM.to), that one is also on the block as long as we get the now overdue news about
the Páramo from Colombia’s government.
• Next week will decide whether the Mexico royalty law passage is now completely baked
in or whether it’s a sleeper story with more downside to come. I’m betting on the
second of those.
• And B2Gold (BTO.to) (BTG)? Hold it, strong looking company, no worries.
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
26

Footnotes, appendices, references, disclaimer
(1) http://finance.yahoo.com/news/panoro-increases-copper-gold-resources-210600947.html
(2) http://www.panoro.com/s/NewsReleases.asp?ReportID=609435&_Type=News-Releases&_Title=Panoro-Increases-
Copper-and-Gold-Resources-by-40-at-the-Cotabambas-Project
(3) http://www.panoro.com/i/pdf/Cross_Section_1.pdf
(4) http://www.b2gold.com/press-releases/10/2013/b2gold-corp-agrees-to-acquire-volta-resources.html?id=1774532
(5) http://www.voltaresources.com/s/kiaka.asp
(6) http://finance.yahoo.com/news/b2gold-corp-reports-third-quarter-141328615.html
(7) http://hablemosdemineria.com/2013/10/10/b2gold-logra-ok-para-mina/
(8) http://incakolanews.blogspot.com/2013/11/blackrock-bails-on-minera-irl-mirll.html
(9) http://finance.yahoo.com/news/darwin-resources-corp-geophysical-survey-124500440.html
(10) http://finance.yahoo.com/news/darwin-resources-corp-geophysical-survey-124500440.html
(11) http://finance.yahoo.com/news/ngex-announces-updated-metallurgical-test-210000972.html
(12) http://ngexresources.mwnewsroom.com/press-releases/ngex-announces-updated-mineral-resource-estimate-f-tsx-
ngq-201309190899306001
(13) http://news.oracleminingcorp.com/press-releases/oracle-mining-signs-indicative-term-sheet-for-10--tsx-omn-
201310290907424001
(14) http://www.marketwired.com/press-release/news-release-1845619.htm
(15) http://finance.yahoo.com/news/tango-gold-announces-950k-management-222435530.html
(16) http://www.telam.com.ar/notas/201311/39136-mayoral-la-produccion-minera-argentina-sigue-creciendo-y-requiere-
de-mas-inversores.html
(17) https://news.google.com/news?ncl=dk4rJ0hAfuSrz7M60u1YW7d12XnEM&q=tia+maria&lr=Spanish&hl=es
(18) http://www.larepublica.pe/31-10-2013/contra-viento-y-marea-sigue-proyecto-tia-maria
(19) http://g1.globo.com/pa/para/noticia/2013/10/mp-investiga-desvio-de-r-50-milhoes-em-cooperativa-de-garimpeiros-
no-pa.html
(20) http://finance.yahoo.com/news/jaguar-approves-term-sheet-significant-231100380.html
(21) http://www.focusventuresltd.com/i/pdf/FCV_Presentation.pdf
Appendix 1: Flash update of Monday, October 28th
Good Monday evening, just gone 10pm local time.
Earlier this evening Starcore Intl (SAM.to) filed its annual numbers and as this was the main reason for your author's
decision to take a near-term trade, I've been poring over them since.
Please find attached a quick analysis of SAM and its quarter, via a selection of charts and some brief commentary. The
trade call is also in the PDF at the bottom, but to avoid the tease I will be selling my stock in the next few days, but
importantly only at the right price.
Best, O
A quick, chart-led analysis of Starcore
International’s (SAM.to) quarter ended July’13
October 28, 2013
There was good and bad in the SAM 4q13 (the company year end is July 31st) period. The
company looks in fair shape to see out this rough patch in the markets over a longer-term, but
overall it was a disappointment to our near-term trade plans.
27

Here’s how gold production and ounce sales look and the quarter was a good one for
production, but it’s notable that SAM sold some inventoried gold as well. In total it produced
5,816 oz Au and sold 6,556 oz, which brought in an IKN calc $8.8m. Silver sales came to
around $0.85. Total revenues were booked at $9.66m, which sounds correct
Oz Au SAM.to: Gold produced vs sold
7000
6000 gold prod
gold sold
5000
4000
3000
2000
1000
0
july.12 oct.12 jan.13 apr.13 july.13
source: company filings
That revenues number was around $1m more than we’d forecast, thanks to the extra sales over
production. That’s good, but as this chart shows the bad news was a much higher than
expected costs column for the July quarter, with COGS coming in at $7.304m. We’d budgeted
for around $5.
SAM.to: Quarterly Earnings overview
$m
10
9 revenues COGS mine op earnings
8
7
6
5
4
3
2
1
0
oct.12 jan.13 apr.13 july.13
source: company filings
On closer inspection, costs looks really high. The next chart below shows the difference
between filed COGS per quarter and a calculation done via tonnes milled X cash cost per tonne
declared. Even though cash costs per tonne came in higher than expected at $59/t (we’d looked
for $53/t), that sort of number would still normally point to a $5m COGS.
The company makes mention of capital goods purchases in the MD&A and that’s the likely
reason behind this cost hike. It’s a pity, because it wiped out maybe 1.6c from the EPS number
and scuppered your author’s theory for a great looking bottom line this quarter. However, it’s the
type of thing that can hit a small cap company very easily and part of the risk we take. In the
end, purchasing capital goods makes for a smart longer-term policy and bodes well for the
company’s future, but as ours (well, mine) is a near-term trade, the plans are hit by this
unexpected cost bump.
SAM: calculated cash cost versus COGS figure as filed
$m (calc = tonnes mined X cash cost per tonne)
8
7 tonnes X cost/tonne
COGS
6
5
4
3
2
1
0
oct.12 jan.13 apr.13 july.13
source: company filings, IKN calcs
28

So here’s how pre-tax and net profits show for the last four quarters, with SAM posting a net of
$1.212m for the quarter ended, or 0.85 cents per share. That’s not a big score and unlikely to
grab anyone’s attention in this market.
SAM.to: Pre-tax Earnings and Net Earnings
3
2.5
2
1.5
1
0.5
0
-0.5
oct.12 jan.13 apr.13 july.13
source: company filings
29
srallod
fo
snoillim
pre-tax earnings
net earnings
Finally, one chart from the balance sheet, as working capital came in slightly lower than the
April quarter but is still healthy enough at $7.03m.
SAM.to: Working Capital per qtr
9
6
3
0
-3
-6
-9
-12
11.yluj 11.tco 21.naj 21.rpa 21.yluj 21.tco 31.naj 31.rpa 31.yluj
source: company filings
srallod
fo
snoillim
The bottom line to SAM today is that it’s worth the current range of 22c to 24c prices at which
it’s been trading, but not much more (unless gold suddenly zooms on us, of course). I’m going
to sell my shares, bought at 23.5c and if lucky might get out evens but the chances are a small
scale loss will be booked. However, it’s important to note that there’s no point at all in dumping
at the first price offered, because even if SAM drops to perhaps 20c tomorrow, there’s more
than enough asset and fundamental backbone in this stock to see it return to its current price
range. Therefore I sell my near-term trading position, but not any any old price.
Appendix 2: Flash update of Wednesday, October 30th morning
Good morning: 07:35am local time, less than an hour before the opening bell this Wednesday.
Mexico royalty
The Mexico royalty issue is one that I said I'd keep a close eye on. Latest is that the Mexico upper house (Senate) is
now scheduling to debate and vote the law bill as early as this Friday (November 1st) and the PRI party members seem
determined to push through on the current make-up of 7.5% of EBIT (or equivalent) +0.5% for precious metals, as
passed by the lower house a few weeks ago.
There are 52 PRI senators of the 128 seat senate, so PRI does not have a majority. This means alliances will be
needed to get the vote through and that's what makes the story uncertain, but although there's no way at this point of
knowing how the vote will go, reports are that the PRI party seems confident it can get its bill passed with little or no
adjustment.
At this point the best call is that the rather onerous looking 7.5% +0.5% royalty is a 50/50 chance of happening. That's a
higher chance than I expected previously and it's not an easy one to call as regards people's portfolios. If the law is
watered down to previous ~5% expectations the news is probably baked in already, but if it goes through we can expect
Mexico exposed mining stocks to be negatively affected. It's a tough call.
Again, although still up in the air the eventual law is likely to contain offsets on royalty for capital expenditure programs,
so the worst affected by the new law would be established producers, rather than growth stocks. For those potentially
looking to trade the news, potential trades in the junior space would be shorts and names that come to mind include
First Majestic (AG) (FR.to) Primero (P.to) (PPP) and perhaps Fortuna (FSM) (FVI.to), though that one has less total
exposure to Mexico. Among seniors, Fresnillo (FRES.L) would be the most obvious.
The bottom line: I wish I could be more pro-active about a call on this issue, but it's just not possible to say how the
Senate will go on this mining royalty issue right now. What we can say is that 1) the vote is now expected to happen

sooner rather than later, with this Friday being pencilled in right now and 2) risk of an adverse decision for Mexico
exposed miners is rising.
other
Peru cabinet re-shuffle
Peru is in the midst of a cabinet re-shuffle, with a new Prime Minister (César Villanueva, the president of San Martín
region) replacing the outgoing Juan Jiménez and an as yet unknown number of ministers to be changed or replaced.
We'll know more by this evening when the new team is set to be sworn in by the President. This whole event is being
driven by internal political affairs rather than foreign/external policy, it's not going to be a big influence on the country's
mining sector policy and unless you live here it's not one to worry about much.
Panoro (PML.v)
I wasn't impressed with PML's new resource as announced yesterday afternoon...
http://finance.yahoo.com/news/panoro-increases-copper-gold-resources-210600947.html
...as resource size improvement have come at the cost of grade dilution. We'll look more closely at this in IKN235 on
Sunday
OceanaGold (OGC.to) (OGC.ax)
OGC just annnounced a decent quarterly profit...
http://www.oceanagold.com/assets/documents/Financial-Results/Q3-2013/OGC-Q3-2013-Financial-Statements-
FINAL.pdf
...of $45.8m, better than my model forecast. Copper sales made the difference and were strong, while gold sales were
almost spot on the house forecast. However, I continue to be concerned about fuddy-duddy things on the balance
sheet. Working cpaital has improved for negative $60m as at June 30 2013 to negative $30m as at September 30 2013
so it's going in the right direction, but it's still negative.
Overall and on the quick-analysis OGC may be interesting for those of you looking for a leveraged play on gold price. I
prefer to watch from the sidelines for the moment, with a watching brief.
Appendix 3: Flash update of Wednesday, October 30th evening
Good Wednesday evening, 7pm local time
7.5% royalty vote now likely to pass as early as tomorrow, I'm shorting some stocks as a result
Further to the Flash update this morning, we now have more solid news on the Mexico mining royalty issue. In the
Senate session today, the main opposition to the ruling government PRI party, the PAN party, said that it would no
longer attend the debate on the fiscal reform package because it was clear that the PRI party and the PRD party had
come to an agreement or pact and was going to push all reforms through, which would also include the matter that most
concerns us.
PAN is also saying that it won't take part in the Senate debate tomorrow out of protest
http://www.vanguardia.com.mx/paninsisteenquenoregresaraasesionenelsenado-1863539.html
, because it believes the fiscal reforms being implemented by PRI (with the help of PRD) will push Mexico into
recession.
So, the Senate voting math works like this:
PRI has 52 seats (or votes)
PAN has 38 seats
PRD has 22 seats
Other minor parties total 16 seats
Total: 128 seats
Therefore, the apparent agreement, allaince or pact between PRI and PRD gives the proposals as stand 74 votes and is
enough to see the measures voted and passed successfully, as simple majority in the Senate (enough to pass all
measures) is 65 votes.
All that is a long-winded way of saying that it's now very likely that the new mining royalty, set at 7.5% of EBIT
(equivalent) plus 0.5% extra for precious metals on the mining sector will indeed pass. The extra news on this is that
due to the lack of debate, and new time limits set, it's almost certain to be passed tomorrow, i.e. Thursday, October
31st.
A halloween to remember for Mexico exposed mining companies. The problem will likely be twofold in the near term for
Mexico exposed companies, as they will have more to pay and they'll suffer from a new and negative dose of political
risk news that's going to make Mexico sound bad to the ears of the mining world. That second one will eventually blow
over, but until it does we can expect Mexico exposed companies to take a price hit at market.
So this time and in this update I think there's now a decent trade opportunity here. As this vote and passage of a
negative optic law such as this now looks very likely and as i'm pretty sure that the negatives from the passage of the
full 7.5% royalty on EBIT haven't been baked into share prices yet, I'm going to take some short positions in one or
several Mexico-exposed mining companies tomorrow. The best targets for shorting cover the following criteria:
•
Producing and profit making mining companies, and better off not too small
•
As much of total production exposed to Mexico as possible
•
A US listing (which makes shorting stock for retail much easier than Canada listing only)
•
Good daily volume and liquidity
As mentioned this morning, my eye is caught by First Majestic (FR.to) (AG) and Primero (P.to) (PPP) as short
candidates that fit the bill nicely. Another that fits most is Fortuna (FVI.to) (FSM) due to its main San José mine, though
its Peru exposure via Caylloma may soften any hit compared to others.
30

My most likely decision will be to take a small-ish short position in all three of those and see how things develop Friday
and then next week. These trades will be included in the Stocks to Follow list as of this Sunday, either on one line or
three (depending how i feel about underscoring the basket approach to these shorts).
As for timescales on these proposed trades, they're probably very near term flips but they could stay open longer if the
wider macro market turns negative on us (eg gold drops). I'm probably shorting tomorrow in order to cover them next
week, but letting the stay open for a while longer wouldn't be out of the question. My trades won't be very big
moneywise (this is more of a punctual opportunity that can make some coin, rather than a chance to retire on winnings),
but they will be enough to hedge and offset a portion of the larger long side of the portfolio.
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
31

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.
32