IKN #242Premium

The IKN Weekly
Week 242, December 22nd 2013
Contents
This Week: Buying next week, Signs of a little sanity, If gold experts have no idea on a weekly
forecast what chance the rest of us?
Fundamental Analysis: Pretium Resources again (PVG) (PVG.to).
Stocks to Follow: Overview, Rio Alto (RIO.to) (RIOM), Eco Oro (EOM.to), Pretium Resources
(PVG.to) (PVG), Darwin Resources (DAR.v), Dalradian Resources (DNA.to), Minera IRL (IRL.to)
(MIRL.L), Focus Ventures (FCV.v), Tahoe Resources (TAHO) (THO.to).
Copper Basket: Overview, NGEx Resources (NGQ.to), Copper Fox (CUU.v), Oracle (OMN.to).
The Lottery Ticket Basket: Overview.
Regional Politics: Regional Review next week, Colombia: Greenpeace sets up shop, Mexico:
The royalty truth will out, Colombia: Sector stagnation, Uruguay: Watching carefully but
cautious optimism for mining, Peru: Time for a bet on Cajamarca?.
Market Watching: Fortuna Silver (FVI.to) (FSM): Buying next week, South American Silver
(SAC.to): The short call timing was good, The Colossus (CSI.to) collapse, Hochschild selling
Gold Resource Corp (GORO) again, Still toying with the Radius Gold (RDU.v) B2Gold (BTO.to)
arb idea, Empirical evidence to show junior mining companies are undervalued.
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
Buying next week
Last week I added some Rio Alto (RIO.to) late Friday, but that was the only trade made
amongst the ones considered. This week I’m going to stick my neck out a little further and buy
some Fortuna Silver (FVI.to) (FSM) for a trade as well as fish for a good entry on Radius Gold
(RDU.v) if possible, though that second one’s less certain of happening. All details below, initial
headsup complete.
Signs of a little sanity
As per “Coming out swinging”, last week I was in the mood for some so spent a lot of the
period watching the market action closely and by the time it was done, I was a little more
optimistic about the future of the juniors. We have to lay the action in gold (and other metals)
aside of course, as it’s still a tidal situation where they all rise and fall depending on the mood
of the main metal. However, what I sniffed are distinct signs that the better quality play in the
junior sphere, be they explorers or producers, be they personally preferred or otherwise, are
beginning to shear away from the crud of the sector. I’d opine that this has to be so and the
type of action needed before any true and lasting sector rebound can occur and here’s a little
list of signposts from last week:
• Take for example Aurcana (AUN.v), dumped due to its own bad newsflow.
• Or take for example Continental Gold (CPN.to), which has some major risk issues to
work through but enough of the market likes the rocks. That rebounded around 20%
last week.
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• Or take for example International Tower Hill (ITH.to) or Copper Fox (CUU.v),
companies that are broken and should not rebound when others make moves, even on
the issuance of news. They didn’t.
• Or take First Majestic (FR.to), a good company and recognized as a market leader,
which was twitchy and one of the first to move up on good market news, only to be hit
with the big gold drop.
• Take Kaminak (KAM.v), owers of the Coffee deposit way up North that others like more
than I do. It has its fans and therefore should show a bit of life, which is what it did last
week on some improved volumes, too.
• Or take Gran Colombia Gold (GCM.to), as it continues to collapse under the weight of
its debt (79% down since its June 18th 2013 rollback, no less). Aurcana (AUN.v) idem.
• Or take a higher profile case, that of Colossus Minerals (CSI.to) and ARC Fund’s first
call to throw more money at the cause, then the late Friday news (1) that it had
decided (or perhaps the fund’s brass had been given a stern talking to by backers and
then made a new ‘voluntary decision’) to keep any new good money away from the bad
already sunk into CSI and let natural selection have its way with the carcass.
I’ve chosen all those, good and bad performance indicators, as examples because they’re all
companies on my radar but not ones currently held, either long or short. We’re still a long way
from having a healed sector and the signals picked up last week are weak. However, I do
venture to say that what we saw was a step in the right direction and as such, welcome.
If gold experts have no idea on a weekly forecast, what chance the rest of us?
For the Snark's a peculiar creature, that won't
Be caught in a commonplace way.
Do all that you know, and try all that you don't:
Not a chance must be wasted to-day!
The Hunting of the Snark, Lewis Carroll, 1876
I was passed this pie chart (right) on Saturday along
with a link to the report (2) for the Weekly Kitco Gold
Survey, dated December 20th, and for once it caught my
interest. For those who don’t know, what Kitco does is
send out a survey question to some 34 or 36 experts,
asking them how they see gold trading in the week
ahead. It then publishes the results on the Friday
evening or Saturday morning, with the key data always
presented in the same way (also the Dec 20 paste-out):
“In the Kitco News Gold Survey, out of 34
participants, 23 responded this week. Of these, eight see prices up, while 11
see prices down and four see prices sideways or are neutral. Market
participants include bullion dealers, investment banks, futures traders and
technical-chart analysts.”
Fair enough. Now, as I’m an admitted knownothing when it comes to forecasting the price of
gold, and the stocks on which I choose to focus will often depend on the action in the main
underlying metal week-to-week, I thought it might be useful to do a little digging and find out
whether this weekly survey might actually be useful to follow and use as a prod and a guide for
trading the overlying metals stocks and volatile juniors.
So what I did was to trawl back over the last three months (one quarter’s worth of data is a
reasonable pool, methinks, plus the weeks show a decent mix of down, up and sideways
instead of a constant down/constant up period in gold’s development) and note down all the
forecast results. Then the prediction were sat against reality, with the benchmark being the
closing price of GLD on the dates of the weekly survey. From there it was possible to gauge
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whether the overall tone of the Kitco Gold Survey was doing a good or bad job of predicting the
week’s upcoming gold action. Here’s the table derived from the datacrunch:
Checking the accuracy of the Kitco Gold Survey during 4q13
date part responses bull bear neutral %bull % bear % neutral GLD $ on date result % survey accurate?
sep.6 36 20 13 6 1 65.0 30.0 5.0 134.15 -4.72 no
sep.13 36 22 10 11 1 45.5 50.0 4.5 127.82 0.11 no
sep.20 36 19 9 8 2 47.4 42.1 10.5 127.96 0.79 yes
sep.27 36 19 11 4 4 57.9 21.1 21.1 128.97 -1.89 no
oct.4 34 21 10 6 5 47.6 28.6 23.8 126.53 -3.11 no
oct.11 34 26 4 18 4 15.4 69.2 15.4 122.60 3.47 no
oct.18 34 25 10 7 8 40.0 28.0 32.0 126.85 2.85 yes
oct.25 34 26 20 5 1 76.9 19.2 3.8 130.46 -2.69 no
nov.1 34 19 3 13 3 15.8 68.4 15.8 126.95 -2.10 yes
nov.8 34 18 4 12 2 22.2 66.7 11.1 124.28 0.03 no
nov.15 34 25 10 8 7 40.0 32.0 28.0 124.32 -3.54 no
nov.22 34 25 6 14 5 24.0 56.0 20.0 119.92 0.65 no
nov.29 34 20 7 7 6 35.0 35.0 30.0 120.70 -1.78 not really
dec.6 34 19 7 7 5 36.8 36.8 26.3 118.55 0.70 not really
dec.13 34 23 8 9 6 34.8 39.1 26.1 119.38 -2.88 yes
dec.20 34 23 8 11 4 34.8 47.8 17.4 115.94 ??? ???
source: Kitco data, NYSE data for GLD, IKN calcs score: 4 weeks out of 15 correct
Notes on the table:
• On the left the date of each survey. Simple.
• The next five lines are the raw data from Kitco, including a) the number of people
asked (part), b) the number of responses garnered c) the number of bullish calls d)
bearish calls e) and neutral calls on the week ahead in gold.
• Next the numbers were crunched into the percentage of bulls bears and neutrals, which
you see in the centre of the above table (all cute with a colour code, too). Also in this
section, I’ve highlighted in peach the most popular call of the week, i.e. the direction in
which the overall survey is pointing for gold.
• Then comes paydirt. First the price of the gold bullion ETF (GLD that weekend and then
the percentage change in the price of gold that week (result %).
• The final column of the table is the answer to a simple question: Was the survey
accurate that week in its prediction for the price of gold. To decide this, I assumed any
plus/minus movement on the week of under 0.5% was neutral, then above was a
bullish result and below a bearish result.
As you can see, out of the 15 weeks resolved in 4q13 so far the Kitco Gold Survey managed via
its aggregate to get the direction of the market right just four times. What’s more, some of the
misses weren’t just off, they were a mile away from reality (e.g. the wildly overbullish October
25th or the wildly overbearish October 11th). On collating the results and sitting back, I was
struck with the monkey-with-a-dartboard feeling about the whole business of predicting the
near-term moves in the price of gold.
The bottom line is that these results aren’t just random, they’re worse than random. The
experts petitioned by Kitco have a thoroughly poor track record of being able to predict the
near-term future of the gold market, so the question is why should that be. We could of course
stick with the easiest answer, put the word experts between inverted commas and point the
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finger (once again) at the general lack of smarts in the financial markets and gold market in
particular. Or maybe Kitco’s just asking the wrong people. If I published this on the blog (not so
likely, as these days I prefer to keep that thing lightweight and keep the real stuff for the
Weekly) I’d be getting out the snark gun and hunting for the names of the “experts” who kindly
give out their wise and sage opinions for us minions to follow (with liberal use of the word
‘dumbass’, for sure). That I might do on the blog, but here let’s be a little more sober in
thought and deed and assume the people responsible for moving large quantities of bullion and
cash around the world are normally from a higher level of education and basic intelligence.
With that assumption, plus the arguable fact that this group of experts are poor at predicting a
week’s worth of future in the metal they most trade and interact with, the inference is that gold
is quite literally unpredictable. At least in the short-term, with a timescale set on one trading
week in bullion, the people who (supposedly) know most about the metal have little or no idea
as to where it’s going. Perhaps it’s easier to call over longer timescales, but even then it may be
a case of having 50% saying up, 50% saying down and one group claiming its victory over a
year (bulls 2010, bears 2013, etc) and making enough noise for everybody.
I digress. It does seem that even if the real reason is basic ignorance of participants or basic
unpredictability of the subject, it’s a waste of time trying to predict day-to-day micromovements
in the price of gold. So when it comes to trading juniors on a near-term basis, we’re very much
in the throes of chance. When I take a position in a stock directly affected by gold in order to
trade it, what I ask for from the market is a level playing field. In the case of the last quarter,
we’ve had seven weeks when the price went up or was level, eight when it dropped, which
again looks like a bit of a coinflip to me. All in all, calling gold’s next micro-move has all the
hallmarks of a fool’s game and on balance, the chances of coming away with a win (or a lesser
loss) from trading undervalued or pops-on-own-story juniors look like better odds to me.
Fundamental Analysis of Mining Stocks
Pretium Resources (PVG) (PVG.to): When a market fails to be impressed by 2.1m
ounces of high-grading gold
After last week’s analysis of PVG I thought we’d be able to leave this short position to a swift
comment or two, but events mean that another long-ish note is in order so strap yourself in
and here we go on another “I’m happy to be short, here’s why” show.
First the news from PVG last week, when on Thursday (just after CEO Quartermain appeared
on BNN to prime the market) the company updated its resource count (3) and gave us new
numbers. The headlines were grabbed by the new higher numbers for contained gold, but yet
again a mere scratch of the surface and questions appear in the data. To begin, up to last week
VOK was classified as:
• 15.1m tonnes grading 13.6 g/t Au for a probable mineral reserve of 6.6m oz gold.
Now, VOK is classified as:
• 15.3m tonnes grading 17.6 g/t Au for an M+I resource of 8.7m oz gold
plus
• 5.9m tonnes grading 25.6 g/t Au for an inferred resource of 4.9m oz gold
There was a lot more in the Thursday NR, but for our purposes today we’ll keep it as
straightforward as possible. We’ll also largely ignore the new inferred number, as that’s a)
going to be shaky until a lot more drilling is done and b) the PVG long/short thesis is all about
the more advanced deposit area that will form the eventual updated feasibility study; PVG will
stand or fall on the top line ounces. To business, and there are a couple of things which stick
out like the proverbial sore thumb about the new headline numbers:
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1) The ounces are no longer classified as “probable mineral reserve”, they’re now
designed as measured and indicated resource (M+I). We seem to have taken a step backwards
in the deposit
classification and if we
check on the famous NI
43-101 chart (right) that
shows the relationship
between the various types
of resource and reserve,
it’s not about the level of
geological understanding
and more about the level
of the practical side of
mining. It may be
connected to engineering,
ir may be because they
plan to re-work the feas
or perhaps even the legal side of the business (there are those class action lawsuits after all),
but when we consider the precise definition of a probable mining reserve once again, which
includes...
“A “Probable Mineral Reserve” is the economically mineable part of an Indicated and,
in some circumstances, a Measured Mineral Resource demonstrated by at least a
Preliminary Feasibility Study.”
...it clearly infers that PVG/Snowden have stepped back from insisting that VOK is shown to be
economically mineable, even though the grade has been upped. And on that subject...
2) The new grade of 17.6 g/t is almost identical to the overall bulk sample grade of
17.7 g/t which produced all those extra and un-modelled ounces, as examined in detail on
these pages last week. This is hardly a coincidence, ladies and gentlemen readers, as behind a
lot of technical geol-speak and talk of the extra metres drilled (fwiw this VOK vein system (for
that is what it is, not a bulk mining deposit) would need hundreds of thousands of extra metres
to adequately understand it, not tens of thousands, and while we here between parentheses
and purely anecdotally, a pro-geol and fellow PVG skeptic called it all “some very good
backward-looking geowizardry”) is a clear statement of intent from PVG/Snowden of “we
believe in the bulk sample results, we believe the rock taken is wholly representative and we
therefore believe that we can extrapolate those results to the whole of the VOK deposit.”
In last week’s edition we took a good look at the process to date, walked through the results
that the company has given us so far and then deduced that at that point, before the new
resource was offered to us, either the bulk sample was wrong or the resource was wrong or
both were wrong. I wasn’t expecting that conclusion to be vindicated as soon as it has been,
but the way that PVG/Snowden has found it fit to bump up the resource grade of its overall
“probable mineral reserve” to 17.6 g/t Au on this round, is no more and no less than a company
saying to the world “our previous probable mineral reserve was wrong”. Again, let’s clearly
state that the CIM definition for such a classification includes that “the nature, quality, quantity
and distribution of data are such as to allow confident interpretation of the geological
framework”.
Put simply, last Thursday PVG admitted its Snowden authored feasibility study was
based on data that does not come up to that standard. Put even more simply, they
were blowing smoke up our rear ends for a year and a half. Direct enough for you?
But now we are supposed to trust the company’s new data (and will eventually be asked to
trust the updated Feas at some point in 2014) because it relies almost wholly on the results of
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the bulk sample study. The old data (that used multiple indicator kriging, which is math not
geology as stated last week) to arrive at a probable reserve is discarded and the new data
(which also relies on multiple indicator kriging, but adds in the bulk sample) is now the bees
knees.
• Even though the whole question of whether the bulk sample is truly representative is a
highly polemic subject.
• Even though Strathcona and resigned from the project due to the bulk sample and the
way in which it was being taken by Snowden/PVG.
• Even though this sample of rock, that contains asymmetric areas of low grade
(probably waste) and small areas of very high grading mineralization, is only 0.066% of
the whole of the VOK deposit and straightforward statistics casts doubt on the numbers
PVG extrapolates.
The bottom line is that on Thursday, nothing new came from PVG. For sure the headline
number (aka “more gold”) was new, but the line of reasoning that got us to those new ounces
was exactly the same “trust the bulk sample” that we’ve had before. So if you trust that bulk
sample, then ignore my short and argument and just buy the stock, because there are 8.7m oz
of high grading M+I there going for U$65/oz. Meanwhile, I’ll stay with the way in which PVG
first claimed to have a confident
interpretation of the VOK deposit, then
use their model to pick out a supposedly
representative bulk sample that missed
their model’s calculation by nearly half,
then adjusts to say that the new model
is accurate “and this time we’re serious”.
Meanwhile, the reception from the
market to the news surprised me. The
initial pop back to U$5.40/$5.50 or so on
Thursday afternoon wasn’t the surprise
though, the surprise came Friday
morning when Mister Market decided to
sell PVG back from whence it came and
very quickly, too.
That’s not the same as we’ve seen before in this stock and I have two theories as to why that
might be:
1) After sleeping on the news, the market decided there wasn’t anything new in the new
numbers (for the reasoning above).
2) This is the last bolt that PVG has to shoot this year and probably for the first part of
2014 as well before the next potential positive catalyst, the updated (or upgraded or
revised, whatever they’re calling it) appears. From here the only thing we can expect
from PVG is another round of financing, so as all expected 2013 good news is now out,
those that would sell PVG down in order to get the financing at a lower cost deck can
be more confident.
Both may be true, but the speed in which the rally reversed on Friday (let’s recall that was
gold’s recovery to over $1.2k day, too) was unexpected, though it was welcomed by this
shorter of the stock.
Conclusion
Don’t underestimate these discrepancies in the PVG story, because things such as the tacit
discarding of previous 43-101 compliant documents upon which management build its bullish
promotional case are no mere details. Once a little basic critical thinking is applied to the logic
being used by this company in order to present its case things start to look far less wonderful
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than the company would have you believe. Brass tacks are that we’re being asked to take on
trust the story of a company that changes its position as regards the hard data as and when it
most suits them. That’s not my idea of a solid story.
There is gold here, but I submit that the plan to extract this gold isn’t one that’s going to fly.
Most importantly, there are too many question marks around this whole project to see any
major mining company step up and pay up to own it. On a more practical level, now that PVG
has no more good promo news to offer and the market now looks towards its next round of
financing, the type of pressure on its share price that I’ve positioned for is more likely. The
target here isn’t to see this company crushed to nothing, I’ll be content enough with a return to
$4 or so and take the short profits off the table then.
Stocks to Follow
Despite the weakness in gold it was another overall positive week for the list, with the tentative
rebound from last week following through and the shorts doing well. Seven of our 12 open
positions made gains (RIO.to, IRL.to, LRA.v, RIO.to trading position, TAHO short, PVG short,
FCV.v), one was unchanged (NEI.v) and four stocks registered losses on the week (BTO.to,
EOM.to, DNA.to, DAR.v).
Of the winners, best percentage moves were seen in Lara exploration (LRA.v up 10.8%) and
Pretium Resources short (PVG short up 10.1%), while the larger percentage losses came from
Darwin Resources (DAR.v down 25.0%), Dalradian Resources (DNA.to down 9.5%) and Eco
Oro Resources (EOM.to down 9.1%), though its difficult to be too worried about any of those
due to the minor and jagged volume action.
We currently have 12 open positions on our ‘Stocks to Follow’ list, three less than our self-
imposed maximum. Ten are in the red, two are in the 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$1.49 -35.2% best LT value
Minera IRL IRL.to hold C$0.35 22-jul-12 C$0.18 -48.6% top pick called at 24c
Longs
B2Gold BTO.to hold C$3.07 28-nov-12 C$2.12 -30.9% sold 1/2, rest rides. Quality
Lara Expl. LRA.v hold C$1.15 08-apr-12 C$0.82 -28.7% solid biz model, LT hold
Rio Alto Mining RIO.to str buy C$2.06 07-jun-13 C$1.47 -28.6% re-add Dec'13 avg downx2
Eco Oro Min. EOM.to hold C$0.50 22-sep-13 C$0.35 -30.0% st pol risk play, added
Dalradian Res EOM.to hold C$0.65 27-oct-13 C$0.57 -12.3% Avg down again
Shorts
Tahoe Resources TAHO short U$13.10 08-apr-13 U$15.72 -20.0% port hedge, easy2b short
Pretium Res PVG short U$5.38 22-nov-13 U$5.09 5.4% new short, news driven
Smaller/Riskier
Focus Ventures FCV.v spec buy C$0.175 01-jul-12 C$0.20 14.3% revised tgt 25c
Darwin Res DAR.v hold C$0.10 14-jul-12 C$0.045 -55.0% drilling again soon
Network Expl. NET.v hold C$0.01 22-jul-12 C$0.005 -50.0% V. small spec, foothold
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Closed in 2013 closed close price
USA Graphite USGT feb'13 U$0.93 08-jan-13 U$0.17 81.7% short tgt made/trade closed
Lachlan Star LSA.to feb'13 C$1.50 30-sep-12 C$0.95 -36.7% sold to reduce port risk
United Silver USC.to mar'13 C$0.21 28-oct-12 C$0.095 -54.8% small Ag sector trade, failed
Aurcana Corp AUN.v apr'13 C$1.07 11-nov-12 C$0.55 -48.6% closed on poor YE results
Gold Res Corp GORO apr'13 U$14.11 25-jan-13 U$9.38 33.5% short tgt made/trade closed
Marlin Gold MLN.v apr'13 C$0.075 10-feb-13 C$0.065 -13.3% closed trade
Bear Creek BCM.v may'13 C$2.58 01-apr-13 C$2.40 -7.0% near-term, time ran out
Lupaka Gold LPK.to may'13 C$1.12 23-oct-11 C$0.32 -71.4% towel thrown in
Tahoe Resources TAHO may'13 U$18.62 08-apr-13 U$14.70 21.1% took profit on ST short
OceanaGold OGC.to jun'13 C$3.03 16-sep-12 C$1.18 -61.1% sold on gold drop
IMPACT Silver IPT.v jun'13 C$1.14 13-jan-13 C$0.62 -45.6% sold on silver drop
Duran Ventures DRV.v jun'13 C$0.045 10-may-13 C$0.025 -44.4% ST trade never worked
Plata Latina PLA.v jun'13 C$0.79 10-apr-12 C$0.13 -83.5% closed
Bellhaven BHV.v jun'13 C$0.065 03-jun-13 C$0.12 84.6% closed ST trade
B2Gold BTO.to aug'13 C$3.07 28-nov-12 C$3.44 12.1% sold 1/2 to raise cash
Colossus Min. CSI.to aug'13 C$0.72 24-jul-13 C$0.79 9.7% closed thru nerves on future
Pretium Res PVG.to aug'13 C$8.20 11-jun-13 C$10.14 23.7% closed to raise cash
Bear Creek BCM.v sep'13 C$2.06 30-may-13 C$2.20 6.8% sold on pol risk decision
MAG Silver MVG oct'13 U$7.00 12-sep-13 U$5.62 19.6% near-term short
Gold Res Corp GORO oct'13 U$9.52 03-may-13 U$4.98 47.7% short tgt made, covered
AQM Copper AQM.v oct'13 C$0.31 16-oct-11 C$0.125 -59.7% closed failed trade
First Majestic AG nov'13 U$11.51 07-nov-13 U$10.50 8.8% v near term short, closed
Fortuna Silver FSM nov'13 U$4.00 07-nov-13 U$3.68 8.0% v near term short, closed
Primero PPP nov'13 U$5.70 07-nov-13 U$5.75 -0.9% v near term short, closed
ST trade didn't work, sm
Starcore Intl SAM.to nov'13 C$0.235 08-sep-13 C$0.17 -27.7% loss
B2Gold BTO.to dec'13 C$2.22 28-nov-12 C$2.16 -2.7% closed ST trade to raise cash
2009, 2010, 2011 and 2012 closed positions in appendices below
Now for some notes on a selection of the above stocks.
Rio Alto Mining (RIO.to) (RIOM): Trading position added. The one stock-and-price
combination that I couldn’t resist any longer, which means that cost average has been dragged
down, yet again, as I took advantage of the expected weakness on Friday afternoon from the
TSX listing removal (that Friday close readjust came to around 9m shares traded through the
TSX listing, while RIOM in the USA was at normal levels) to add a bunch to the trading account
and now hold more than is truly comfortable in one stock. However, there does come a time to
make a stand and as RIO is head and
shoulders the best value stock on the list at
current prices, the opportunity wasn’t passed
over this time.
It has to be said that the stock traded well
last week, too. The high was the pre-
Bernanke Wednesday of $1.65 and only once
did it trade below last weekend’s close, at
the most negative moment during the
Thursday gold-under-1200 sell-off. Friday
indeed brought the kind of volumes expected
from the index adjustment but the shares
were soaked up with little fuss (a few to my
account) and the big blocks going through in
after hours trades.
As usual, one eye has to be kept on the gold price for our cues (see above) but RIO.to is a
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prime candidate for breaking away from its most obvious influences at this point and ranging
higher on value buying. We’ve seen people come from the stock from ~$1.35 onwards, a base
is in and now it’s high time this PPS moves back to something that at least resembles a multiple
you pay for a strong and profitmaking company which delivers on its production targets.
Eco Oro Minerals (EOM.to): Friday December 20th was the date for the next set of round-
table talks between all sides over the fate of the Páramo de Santurbán and according to the
better news reports of events (4) nothing much was decided. The general feeling among locals
was that the meeting was a wash, as well as grumbles about having been promised the
attendance of three national vice-ministers but in the end only one turned up, and arrived late
as well.
The next round of talks should be more productive, as it’s set for January 17th and will discuss
the specifics of mining in the region. Once a third round is done, we’ll then get the final decision
on exactly where the Páramo boundary is set, which the ministry has set for some time in
February or March...so March it is.
Pretium Resources (PVG) (PVG.to): See ‘Market Watching’ below for another outsized
commentary on PVG, due to last week’s news and reaction thereof. Here we note that despite
the new resource upgrade and continued strong promoting of the stock from a brokerage
industry sorely in need of a winning story, PVG managed to lose over 10% from this time last
week and is going in the right direction for our short position.
Darwin Resources (DAR.v): There was no news behind last week’s big drop, and as it was
on thin volumes the most logical guess is small retail scale tax loss selling. If so DAR should
return to the 6c and 7c levels in the next three weeks, but as the volumes remain stubbornly
thin it’s hardly an attractive vehicle for a rebound trade (unless you have a penchant for $500
dollar trades and a lot of patience on the exit).
Dalradian Resources (DNA.to): Friday was a disappointing end to the week for the share
price at least, as DNA had traded over 60c on the four previous days (bar one quick downspike)
and largely ignored the failing gold price. But this one is less of a worry day-to-day as it’s a
longer term position and I’m still not averse to adding a small slice or two at current prices. The
pool of cash isn’t bottomless however, and there will come a moment when “no more til it
starts moving up smartly” becomes the call.
Minera IRL (MIRL.L) (IRL.to): Nothing much to report on our Top Pick position, bar the
light trading registered both at its main London listing and on the Toronto exchange. Price
action is mildly positive and to its credit, the stock put in a winning week during a heavy
pressure moment for gold. That’s the right sort of signal and alludes to the type of separation
process we’re looking for from the better quality juniors of this world. On that subject, both IRL
and Dalradian (DNA.to) get a timely mention in our last piece of this week’s edition, the
‘Empirical evidence...’ note down in ‘Market Watching’.
Focus Ventures (FCV.v): The theory floated last week got one week’s worth of testing and
approval, as FCV did indeed float around the 20c marker on low volumes (and finished smack
on the button). There’s at least another month (maybe more, as sadly it wouldn’t be the first
time FCV misses a project start date if the drilling doesn’t start on time) before the Bayovar drill
program gets underway, which mean more time to test the theory. What would be optimum is
some rise in traded volumes as we get closer to showtime.
Tahoe Resources (THO.to) (TAHO): I’ve had to wait patiently, and I’m the first to admit
that even now, as it drops, the short in TAHO isn’t performing any better than a short in any of
the peers I could have used, but as this chart indicates the novelty and hype premium that was
baked into TAHO now seems to be wearing off.
9

It’s still not given any sort of one-time waterfall bonus on negative judicial or political risk news
form Guatemala, either, but as those would always be punctual events it’s impossible to
program them into a timeline. As things stand, TAHO is now doing its real job as a short
counterweight to the longs held
The Copper Basket
After fifty-one weeks of 2013 The Copper Basket is showing a 35.49% loss to level stakes.
company ticker price 1/1/13 Shares out Market Cap current pps gain/loss%
1 Lumina Copper LCC.v 9.43 43.61 239.42 5.49 -41.8%
2 Reservoir Min. RMC.v 2.41 41.68 222.99 5.35 122.0%
3 Augusta Res AZC.to 2.43 144.35 216.53 1.50 -38.3%
4 NGEx Resources NGQ.to 3.40 168.66 212.51 1.26 -62.9%
5 Copper Fox CUU.v 0.83 402.96 153.12 0.38 -54.2%
6 Hot Chili Ltd HCH.ax 0.72 297.46 118.98 0.40 -44.4%
7 Nevada Copper NCU.to 3.50 80.5 112.70 1.40 -60.0%
8 NovaCopper NCQ.to 1.80 53.02 80.06 1.51 -16.1%
9 Panoro Minerals PML.v 0.62 204.71 73.70 0.36 -41.9%
10 Western Copper WRN.to 1.39 93.68 56.21 0.60 -56.8%
11 Curis Resources CUV.to 0.70 63.13 34.09 0.54 -22.9%
12 Candente Copper DNT.to 0.375 122.05 25.63 0.21 44.4%
13 Oracle Mining OMN.to 0.80 49.03 14.46 0.295 -63.1%
14 Yellowhead Min. YMI.to 0.59 63.45 11.10 0.175 -70.3%
15 Strait Minerals SRD.v 0.08 57.26 2.86 0.05 -37.5%
NB: HCH.ax priced in AUD$, rest CAD$ Portfolio avg -35.49%
Copper Basket 2013 average, weekly
We approach the end of this miserable
12%
year for this sub-sector at year lows
8%
for The Copper Basket. There were six 4%
0%
stocks that dropped (NGQ.to, AZC.to,
-4%
CUU.v, NCQ.to, RMC.v, CUV.to), one -8%
unchanged (SRD.v) and eight that -12%
-16%
made upmoves (LCC.v, NCU.to, -20%
HCH.ax, WRN.to, PML.v, DNT.to, -24%
-28%
OMN.to, YMI.to) with big upside
-32%
rebounds from Oracle Mining (OMN.to -36%
up 68.6%), Panoro (PML.v up 20.0%),
Hot Chili (HCH.ax up 17.6%) and
10
ht6naj ht02 r3bef ht71 r3ram ht71 ts13 ht41 ht82 ht21 ht62 ht9 dr32 ht7luj ts12 ht4gua ht81 ts1pes ht51 ht92 ht31 ht72 ht01 ht42 ht8 dn22
source: IKN calcs, TSX data
31/1/1
morf
egnahc
%

Western Copper & Gold (WRN.to up 11.1%), while downside moves were led by a big drop in
utterly out of favour NGEx Resources (NGQ.to
down 19.2%). The metal had a consolidating
week and the futures contract stayed above
$3.30/lb, but below the next line in the sand of
$3.35/lb.
Next the copper inventories, and we report yet
another drop in world stocks. LME warehouse
inventories dropped small 450mt (0.1%) to finish
the week at 382,550mt, Comex stocks were down
3.7% to 15,008mt, while the big drop was seen in
the Shanghai Future Exchange warehouse
numbers, which fell a big 12,025mt (or 8.4%) to
stand at 131,128mt by Friday. That unwound the
potential change in tone we noted last week, so
it’s more of the same from all corners of the world
as the early year inventory bulge continues to
drop. Overall, total world stocks dropped by
23,059mt (4.2%) to 528,686mt.
Before leaving, thanks to those who provided feedback to the proposed 2014 Copper Basket
changes. A couple of other suggestions came in, but on balance I think that going with what we
propose as the new stocks, which means modest changes and a lower average market cap for
the list next year, is the way forward. So one more week to go and then DNT.to, OMN.to and
YMI.to get swapped out in favour of COP.to, AQM.v
and CDB.v.
Now for updates on a few of our basket stocks.
NGEx Resources (NGQ.to): The Lundin
exploration play with large amounts of copper in the
Andes had a rotten week, down nearly 20% on
accelerating volumes (particularly late Friday) in a
pattern that has “large holder selling at any price”
written all over it.
Copper Fox (CUU.v): We had drill result news from
CUU.v last Thursday midday (5) and although some
of holes demonstrated better than average grades
for Schaft Creek (the 76.5m 0f 0.4% Cu and 0.444
g/t Au was the eyecatcher, though that cut was from
mineralization already covered by the 43-101
resource), there wasn’t much in the way of true
improvement offered and the story is “low grade
deposit get bigger, but it’s still low grade”. By the
look of the market action the news was taken as a
decent excuse to sell by the market, which makes
sense to me.
Oracle Mining (OMN.to): Oracle taught me a lesson last week, as after I’d badmouthed it as
looking totally broken OMN caught a few bids and flew higher on a rebound rally that wiped out
all the bad trading action from November and December in just five days.
The criticism is the volume, which at around 50k per day last week was better than recent
11

action but still low for a true change in direction. I’d agree (hindsight a wonderful thing...BS
analyst neverwrong analysis alert) that OMN had been way oversold and the rebound deserved,
but 1) it wasn’t a given that it’d snap back this way and 2) fundies need to change and improve
before this can move much further. So despite the relief rally, I still intend to drop OMN from
the 2014 list.
Reservoir Minerals (RMC.v): RMC took a breather and dropped 25c, but with just one week
to go it’s now in second spot on our Market Cap league table (above) and it wouldn’t be the
most shocking of results to see it top the list at year’s end. That would be pretty remarkable,
considering it started 2013 in 10th spot on our table.
The Lottery Ticket Basket
After 51 weeks of 2013 The Lottery Ticket Basket is showing a 40.16% loss to level stakes.
company ticker price 1/1/13 Shares out Market Cap current pps gain/loss%
1 Marlin Gold MLN.v 0.10 680 44.20 0.065 -35.0%
2 Eagle Star Min. EGE.v 0.125 79.13 14.24 0.180 44.0%
3 AQM Copper AQM.v 0.08 105.57 10.56 0.100 25.0%
4 Fancamp Expl. FNC.v 0.125 177 8.85 0.050 -60.0%
5 Bellhaven BHV.v 0.14 136.81 4.10 0.030 -78.6%
6 Netco Silver NEI.v 0.125 9.4 3.10 0.330 164.0%
7 Inca One Res. IO.v 0.12 34.0 3.06 0.090 -25.0%
8 Tango Gold TGV.v 0.13 79.45 2.78 0.035 -73.1%
9 Copper North COL.v 0.10 58.7 2.35 0.040 -60.0%
10 Gryphon Gold GGN.to 0.085 194.64 1.95 0.010 -93.5%
11 Agave Silver AGV.v.v 0.30 21.55 1.51 0.070 -76.7%
12 Darwin Resources DAR.v 0.20 26.16 1.18 0.045 -77.5%
13 Glass Earth GEL.v 0.155 105.67 1.06 0.010 -93.5%
14 Rio Cristal RCZ.v 0.025 17.259 0.43 0.025 -90.0%
15 Firestone Ventures FV.v 0.045 36.82 0.37 0.010 -77.8%
Portfolio avg -40.16%
Seven went down last week (MLN.v, GEL.v, FNC.v, AQM.v, EGE.v, DAR.v, IO.v) and just two
went up (COL.v, AGV.v), with the others remaining unchanged. Best winner was the 33.3% (or
1c in real terms) put on by Copper North (COL.v), while the three big percentage losers were
Glass Earth (GEL.v down 33.3%), Darwin Resources (DAR.v down 25.0%) and AQM Copper
(AQM.v down 20.0%).
12

25% Lottery Ticket Basket 2013 average, weekly
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
-25%
-30%
-35%
-40%
-45%
13
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 ht01 ht71 ht42 ts1ced ht8 ht51 dn22
source: IKN Weekly data, TSX
2102/1/1
morf
egnahc
%
As for individual stock commentary, nothing really catches the eye this week. With one week to
go it’s nearly all over and my thoughts have turned to what can be rescued from this list and
the year’s worth of tinycap coverage it’s had. The answer to that is roughly...
• AQM Copper (AQM.v), which has done its deal and should get a better run in 2014, via
its free ride on a minority portion of Zafranal, because the project will get a budget and
see real work next year. For that reason, AQM gets shifted over to The Copper Basket.
• Marlin Gold (MLN.v), which has been one of the very few tinycaps to be aggressive and
proactive. The Trinidad mine is getting built and is scheduled to start production next
year, we also have this intriguing story around Animas (ANI.v) to consider now. This is
a stock I’ll keep firmly on the radar in 2014, as its managerial team has managed to
combat my innate cynicism over its plans, too.
• Darwin Resources (DAR.v), because I continue to own it, it’s drilling Suriloma again and
it’s still on the ‘Stocks to Follow’ list.
• Bellhaven (BHV.v), because although beaten to a pulp it does have a better than
average bulk mine prospect in Colombia, at least gradewise. If the country gets its act
together (no holding breath, but it’s not out of the question either) this may still be a
place to play deep bargain hunt.
As for the rest, some may have a spark and other may be totally broken but on due
consideration they’re for somebody else, not me, and are most likely to drop off my soft
coverage radar until further notice.
Regional politics
Regional Review next week
With next week’s edition the last of 2013, we run our regular quarterly review of countries and
their politics as regard mining in IKN243.
Colombia: Greenpeace sets up shop
You’ll undoubtedly be pleased, nay thrilled to learn that last week Greenpeace announced (6)
its official arrival in Colombia and the setting up of its first permanent base in the country. The
new Colombia office will work closely with the established Greenpeace organization in Argentina
nad has already picked out its first target, the Hunza Coal mine development in the Pisba
Páramo (50% owned by MMEX Mining , MMEX.ob), of Boyacá department (roughly NE of
Bogotá).

Mexico: The royalty truth will out
The hype passes, the reality sets in and as suspected all along, the mining industry is quickly
incorporating the idea of a new royalty on mining in Mexico into its plans. Your author fully
agrees with the published stance taken by Trevor Turnbull of Scotia, for example, which was in
turn picked up by this BN Americas EngLang report (7). Here’s a small extract:
While the 7.5% mining tax on sales minus certain deductions, and the additional 0.5%
gross revenue tax on gold, silver and platinum mines, may be make-or-break for a
small number of "marginal" projects, Turnbull said it was unlikely to make a difference
in terms of investment, with projects affected to a far greater extent by falls in gold and
silver prices.
"If there is a drop in investment it is going to be metal price-related rather than royalty-
related," he said.
A marked difference from the “we’ll all leave” screams before the bill was passed. Turnbull also
says that Mexico is still a decent place to do mining business, another statement with which I
generally agree.
Colombia: Sector stagnation
It’s a telling moment when one of the people with most to gain by putting positive spin on the
mining industry in Colombia says that “The mining sector is totally stagnated”. That’s the title of
this Q&A (8) with Claudia Jiménez, head of Colombia’s “Association of Large Scale Mining”
(Asociación del Sector de la Minería a Gran Escala (SMGE)) who has been featured on these
pages before as a spokesperson for the promotion of formal, large scale mining in the country
(the association is directly sponsored by several big mining companies). The tone set in her
interview via quality media channel El Colombiano is one of frustration and includes the basic
plea to country politicos to stop putting large scale formal mining operations in the same basket
as illegal and polluting mining activities. There are several other gripes that are laid out too,
such as the way everybody wants royalties but nobody wants mining. She also goes on to
predict that for the first time in a long time, 2014 will see mining activity contract rather than
expand, with a forecast drop of between 4.7% and 5.3% in mining economic activity next year.
Uruguay: Watching carefully, but cautious optimism for mining
This is one to watch carefully and we have been doing in the last few weeks, as the debate
starts on whether Uruguay truly wants and will welcome large-scale mining. We have anti-mine
organizations and ecology groups on one
side, the government and its ‘pro-
responsible mining’ attitude on the other
and in the middle the population.
On that score, last week the latest in a
long line of surveys that ask whether
Uruguayans are in favour or against one
of the key mining projects in the country
(and the one with the highest political
profile), the Aratiri (aka Cerro Chato) iron
ore mine project owned by the Brazilian
Zamin Ferrous. Here right is one table
from the results of the survey (9) which
shows that active support for the mine
project has stayed above 50% for the last
2½ years and that the active opposition is
less than one quarter of the total population.
14

Peru: Time for a bet on Cajamarca?
Answer: Not yet.
Last week, an analysis of the 2014 Regional Elections in Cajamarca from Peru bank Credicorp
caused a round of chatter (10), as the bank’s call is that whoever gets elected won’t be an anti-
mining activist and the population is likely to shy away from the influence of current incumbent,
Gregorio Santos, due to the lack of growth and development in the region.
Now, I’m really not so sure about the conclusions drawn by the Credicorp analysis, that was
based on opinion polls taken in Cajamarca and other main region towns, as well as readily
quoting the concerns and complaints of the local Chamber of Commerce about the economic
inertia. The problem is that it’s difficult to take Cajamarca’s pulse from the city, as a large
percentage of the voting population live in rural areas and small towns/villages and form the
Santos stronghold voting block. Also, the most-votes-wins system in these regional elections
means that if multiple candidates run for governor, the votes can be split many ways and a
candidate with a relatively low percentage of votes can win through (on a personal note, I
remember my surprise when a new governor of Puno, where I was living at the time, got the
job after securing 22% of the total votes). The call I have on this election, one that could be
key to several interesting investment opportunities, is that it’s still too early to tell and because
of that, the Credicorp analysis of last week smacks too much of wishful thinking. However, this
is one of the elections we can look forward to next year that may provide us mining speculators
with a trading opportunity (the rallies off a miner-friendly win could be nothing short of
dramatic) so it’s one I’ll keep a very close eye on in the months to come.
Market Watching
Fortuna Silver (FVI.to) (FSM): Buying next week
The late-Friday selling in Fortuna Silver (FVI.to) (FSM) pushed it down to a $2.71 close and
without beating around the bush, that number is far too low to ignore by a currently speculative
trader looking to grab some value at deeply
discounted prices. Assuming tomorrow Monday
FVI.to: Equity, BV, PPS, ratios
offers the right sort of entry point (Friday’s close 3.40
3.20
price would do very nicely, but $2.80 would be 3.00
2.80
more than acceptable) I’m going to buy some
2.60
FVI for a rebound trade. 2.40
2.20
2.00
1.80
Thoughts behind the call: First my preferred
1.60
value tracking ratio (right), Book Value to share, 1.40
1.20
which this weekend stands at 1.27X, not seen 1.00
since the worst of the 2008 crisis period in the
stock. The mooted return to a reasonable 1.7X
ratio
We featured the stock last week as a
potential value entry point of $2.95 and
since then, nothing but the silver price
has changed. FVI sank with the rest of
the silver brigade but it has an ace in the
hole thanks to the seemingly forgotten
production upgrade at San José. Here’s
how that looks in tonnage throughput
terms and below is how we’re currently
modelling the effect on production
(which is, for the record, slightly lower
than the FVI guidance as conservatism
15
90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 won
BV/share
BV/PPS ratio
source: company filings, TSX, IKN calcs
FVI: San José average daily throughput
2000
1800
1600
1400
1200
1000
800
600
400
200
0
21q1 21q2 21q3 21q4 31q1 31q2 31q3 tse31q4 tse41q1 tse41q2
tpd
source: FVI filings, IKN ests based on FVI guidance

tends to be the better policy where production guidance figures are concerned).
Fortuna Silver (FVI.to) (FSM): Ag production by qtr
1600000
1400000
1200000
1000000
700000770000770000800000800000
800000 377377468865486296502835 491181492773580570 536191
100790
600000
400000
200000
559959536426484226509897524906519549499445493438568722580000520000550000550000550000
0
16
11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 tse31q4 tse41q1 tse41q2 tse41q3 tse41q4
Oz Ag/qtr
6
San José Silver prod (oz)
Caylloma Silver prod (oz)
source: company filings
That’s a big jump in sales about to be announced in the first couple of weeks of 2014 and will
most likely come with bullish noises about 2014 guidance (FVI currently says 5.4m oz Ag, we’re
modelling 5.31m oz here) and if past provides a precedent, we’re very likely to get some sort of
cash cost guidance along with the production numbers in early January. Long story short, I’m
expecting a bullish catalyst from FVI next month.
As we use the silver production and average FVI.to: Quarterly Earnings overview
50
sales price as a reliable benchmark for 45
revenues at FVI (there are gold, zinc and lead 40
in the sales mix too, but silver is where the 35
rubber hits the road in this company and 30
25
following the main metal only has proven to
20
be a reasonably reliable shortcut way of 15
gauging sales), here’s how 4q13 is expected 10
to come in, with an average net realized price 5
0
of just over U$18/oz for the silver bringing in
$36.5m in sales and a mine operating income
of $12.5m.
The point here is that leaves a lot of room for maneuver revenues-wise before FVI moves down
to breakeven or (heaven help us) lossmaker. As a rule of thumb, around $1/oz change in the
silver price takes around $2m from topline revenues, which suggests FVI would move to
breakeven if it sold its silver for $15/oz. In market terms, that would set the line at U$17.50/oz
(the net realized is lower than the market price, middlemen need to be paid) and provides FVI
with a ~$2/oz buffer to the current spot.
The final element playing in our favour is the tax-loss issue, as FVI is probably hurting more
than most in these last few days of the season because it’s widely held by retail investors. Our
motley crew will tend to keeping selling up to the limit date (Friday 27th) and the stock is
probably feeling pressure due to this. The theory goes that once tax-loss season is done, stocks
such as FVI pop back in style.
There are risks to this trade (there always are) that include:
• Silver (and gold) goes lower, which would make a short-term win much less likely
(though the concept here is that the downside potential is low and the upside potential
much greater, an even price playing field would be enough).
• Political risk upset, e.g. still watching that arrest story from Mexico of anti-mine
activists, but FVI doesn’t seem to be getting any corporate flak from it.
11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 tse31q4
source: company filings, IKN ests
srallod
fo
snoillim
revenues
COGS
Mine Op. Income

• Fortuna decides to bid for something (we’ve mused over how Santacruz Silver (SCZ.v)
might fit it well in previous weeks), which would pressure the stock in a classic way if,
as is most likely, the deal is all-paper.
The risks need to be considered, but the reward potential here and at the current price deck
looks much greater and a more likely outcome. Therefore, unless the deep value prices dry up
immediately and I don’t get in, I’m going to go long some FVI next week for a near-term trade
and add it to the ‘Stocks to Follow’ list. The trade will be set up as a near-term flipper and
although I’m not going to be hard and fast on the time limit, I fully expect to be out of the
position (for profit or loss) by the end of January 2014.
South American Silver (SAC.to): The short call timing was good
The obvious short mentioned last week turned out to be a better trade than even I expected
and in a much reduced timescale, too:
What’s more, I’m happy to say at least one reader got on the short Monday with a pretty
chunky position (evidence: e-mail), so that was pleasant to read and in my little dream world
I’d hope that a few more of Monday’s trades were taken by short positions prompted by last
week’s note, too. In fact the stock did 2m+ share volume on Monday and still closed at $1.19,
which means there was plenty of selling of all types that day and in the next four trading days,
SAC.to dropped by an eye-popping 58%.
Let’s also note that company insiders managed to dump 500,000 shares on the market in
December at the $1+ share price (11). Seriously, PT Barnum was 100% correct about the
human race.
The Colossus (CSI.to) collapse
I’ve spent a little too much time commenting on Colossus (CSI.to) these last few weeks,
particularly once the decision to ignore it forever as a potential rebound trade had been made
(no need to keep scratching the itch from that point), so we’ll keep this very short and sweet.
The news Friday evening (12) that ARC Fund would not be funding CSI any further is little short
of a death knell for the company and explains why people were dumping the stock so hard into
the Friday close (some sort of word must have got out, but let’s just leave thought that there
and not go any further).
What we can expect in the near future, unless some unlikely white knight arrives on the scene,
is further heavy selling of CSI and eventual bankruptcy protection for the company. That’s not
to mention the big financial holes registered in places such as balance sheets of The
17

Sandstorms and a lot of bruised and battered reputations at many levels.
Hochschild selling Gold Resource Corp (GORO) again
Filed on December 16th, the news (13) is that Hochschild disposed of a second large lump of
Gold Resource Corp (GORO) on December 12th, precisely 1.8m shares at $4.36 per share. That
leaves HOC.L holding 9,451,874 shares of GORO, which it can now sell at any time.
What’s interesting about the trade is that the price on the open market hasn’t been anywhere
near $4.36, nor was the volume enough on December 12th to have seen the HOC sale go
through the open market. This suggests the block was taken off HOC’s hands in a privately
brokered deal. The transaction code on the filing is “S”, which means “Open market or private
sale of securities”, which at least fits the supposition that somebody took these away from HOC
at a discount to do with what they wanted (perhaps sell them into the open market and make
their Christmas bonus).
But we’re more interesting and relevant is that HOC is selling GORO again and will almost
certainly wants to liquidate further. This comes as no surprise to your author, as I wouldn’t
want to hold a multi-million share position in a loss-making silver/gold miner that will continue
to register losses and only has a totally unsustainable dividend policy between it and much
larger share price losses in the near(ish?) future.
Still toying with the Radius Gold (RDU.v) B2Gold (BTO.to) arb idea
I’m reproducing the table from last week because with BTO now at $2.12 and Radius Gold
(RDU.v) closing Friday at 9.5c, the rough 30% arb trading barrier is just a couple of clicks away
and I’m still very interested in this trade.
Radius Gold (RDU.v): Arbitrage to B2Gold share price movements
BTO pps ($) other assets equal ($m) RDU pps "fair value" % arb to 10c % arb to 9.5c % arb to 9c
2.00 2.29 0.116 15.95 22.05 28.83
2.10 2.29 0.120 20.43 26.76 33.81
2.20 2.29 0.125 24.90 31.48 38.78
2.30 2.29 0.129 29.38 36.19 43.75
2.40 2.29 0.134 33.85 40.90 48.73
2.50 2.29 0.138 38.33 45.61 53.70
2.60 2.29 0.143 42.81 50.32 58.68
2.70 2.29 0.147 47.28 55.04 63.65
2.80 2.29 0.152 51.76 59.75 68.62
2.90 2.29 0.156 56.24 64.46 73.60
3.00 2.29 0.161 60.71 69.17 78.57
source: RDU data, IKN calcs
I did try to fish for some 9c shares last week and although a few went to somebody, they didn’t
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go to my account and the general lack of volume in RDU trading is the big thing that’s putting
me off so far.
However and to be crystal clear, I’m still fully interested in this trade. It’s going to be a daily
watch thing and as we’re now in Christmas week (that’s usually accompanied with a yawn from
the market and a lack of volume) it’s going to have to be called possible rather than probable.
On the other hand, odd things happen on the run-up to tax loss/year end closing and it
wouldn’t take more than one medium sized forced seller to offer the type of liquidity and real
bargain price in the next week or two.
The BTO share price needs watching as well, of course, and that’s more prone to switchbacks
from any change in gold.
The bottom line is that some RDU under 10c and then a BTO rally is the type of combo that
could provide a strong near-term trade difference, plus downside to a 9c floor still looks very
limited. I’ll be out fishing again next week.
Empirical evidence to show junior mining companies are undervalued
There’s my opinion for you, which isn’t going to be earth-shattering news of course, but we’re
now seeing plenty of empirical evidence to support it from the market and from real people
who move real money around. Let’s take just a few examples:
• On October 28th (the deal closed last week) B2Gold (BTO.to) (BTG) decided (14) that it
liked Volta Resources (VTR.to) enough to buy it. The deal NR announced that BTO was
paying a 81% premium to acquire VTR.
• Last week Primero Mining (P.to) (PPP) decided (15) that it liked Brigus Gold (BRD)
(BRD.to) enough to buy it. The deal NR announced that PPP was paying a 43%
premium to acquire BRD.
• Also last week, Asanko Gold (AKG.to) decided (16) that it liked PMI Gold (PMV.to)
enough to buy it. The deal NR announced that AKG was paying a 79% premium to
acquire PMV.
• On a smaller scale as as noted last week, Marlin Gold (MLN.v) wants to wrest Animas
Resources (ANI.v) from its cozy deal with GoGold and was happy to disclose an offer of
10c cash for a company trading at 4c.
• We can also consider Lowell Copper’s (JDL.v) move on Minaurum (MGG.v) last week
(17), which was to opinion into its Oaxaca VMS (up to 70%) and also buy a chunk of
MGG stock in order to fund the smaller guy’s treasury. MGG jumped 50% on the news.
There are five recent examples to chew over and I’ve left plenty of others unmentioned. They
have different aspects between exploreco buyout, optioning/funding deal, bigger producer buys
smaller producer, etc, but one thing in common in that the buyer is happy to pay way above
market value (whatever that phrase means, I’m still not sure) for the target of its choice. The
effect on the stock prices and company valuations isn’t just theoretical and left wafting in NRs
talking of VWAPs and share paper deals, either:
• On Monday October 28th, VTR.to closed up 95.2% on the day of the BTO news.
• On Tuesday December 10th, ANI.v closed up 100% on the day of the MLN.v news.
• On Tuesday December 13th, BRD.to closed up 33% on the day of the PPP news.
• On Wednesday December 17th, PMV.to closed up 46.4% on the day of the AKG news.
• On Friday December 20th (two days ago) MGG.v closed up 50% on the day of the JDL.v
news.
Those are big one day moves by anyone’s standards and each one, in essence, is a company
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saying that the true value of its target is way above the current market cap, so even if we add
50% or 100% on top we’re getting a bargain.
When it comes to playing and potentially riding a win on M&A, the very least we can say about
second-guessing a buyout and being long the right stock at the right time is, “it’s tricky”. One
way to go about it is to buy a whole basket of things that are buyout potential (then the promo
artist can always rah-rah the one that gets bought while quietly forgetting all the crud they
hold), another way is to home in on what you think are cheap potential buyout plays, stay with
one, two or three names and hope to get lucky. That’s the way I approach the question and as
things stand today, I’d venture to say that just about every name on the open ‘Stocks to Follow’
list is beaten down and a potential target (well, I would say that thought, wouldn’t I?).
However, there are two on our current open that stand out from the rest and hit all the marks
you’d want from beaten-down companies with quality assets worth far more than their current
market caps
• Minera IRL (IRL.to) (MIRL.L: Owners of half of a paid-for and under construction
mine in Santa Cruz Argentina, owners of the small Corihuarmi, but most of all owners
of Ollachea, a mine with grade, plans and an unbeatable political/community risk profile
that will make somebody some day a lot of money. What’s more, we’ve already seen a
suitor make a move for IRL and at that time, really not so very long ago, IRL shot up
over 30c in a heartbeat. Unfortunately the suitor happened to be a bit of an empty shell
and the market quickly found it out, but IRL wasn’t to know that Lion Gold’s offer would
fall apart and as was correct, took it at face value.
• Dalradian Resources (DNA.to): Grade in abundance, size and exploration potential,
sitting in a location that some find a little unknown politically but both recent history
and all present indications show to be welcoming to the modern mining company. At its
present $50m market cap it’s a throwaway cheap asset valuation that could double
tomorrow.
The round-off to this little thinkpiece is to repeat part of the message from the top of today’s
edition; there are signs of a little sanity coming back to the sector and by that I mean the
quality companies with free cash flow operations or decent, well-regarded exploration assets
are catching bids, be they small via the market or large via takeover offers. M&A is part of the
process as the never-ending process of big fish eating little fish continues. There are different
ways to play the M&A game and my way of going about it may not be yours, but the ones on
which I set out my stall are IRL and DNA. Both have the right combination of quality
underground ounces at cheap in-situ prices with good local and social standing with the people
that matter around the deposit.
Conclusion
IKN242 is done, we end with bullet points:
• Being short on a “hot” market play means tracking the newsflow more closely than is
normal on these pages. Pretium (PVG) again takes up the “Fundamentals...” space this
week because of the latest chapter, but careful tracking is what’s needed at the
moment.
• I’m a buyer of Fortuna (FVI.to) (FSM) as a trade next week, as these prices look
oversold and market conditions set for a rebound. A near term play and not an
investment, however.
• Equally, some cheap Radius (RDU.v) would tempt me into a trade, as would Dalradian
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(DNA.to) if it goes low enough (but that would only be another thin slice to add,
nothing much). The portfolio cash position is good enough right now and as long as I
don’t go crazy, the cash cushion won’t become too thin for comfort.
• Wishing you all a merry Christmas! I hope you have a good time, a drink, something
nice to eat, smiles with loved ones. I also hope to get some new socks.
The top long-term picks are Rio Alto Mining (RIO.to) and Minera IRL (IRL.to). I thank
you in advance for any feedback. Flash updates will be sent promptly if required by events.
I wish you good trading fortune, ladies and gentlemen.
Otto
Footnotes, appendices, references, disclaimer
(1) http://incakolanews.blogspot.com/2013/12/round-eight-friday-night-bury-that-news.html
(2) http://www.kitco.com/news/2013-12-20/Survey-Participants-Tilted-Toward-Weaker-Gold-Prices-Next-Week.html
(3) http://finance.yahoo.com/news/pretium-resources-inc-mineral-estimate-193845486.html
(4)
https://news.google.com/news?ncl=dfdAqmwuH1mCKLMztKo1cpxZrTKQM&q=P%C3%A1ramo+de+Santurban&lr=Spa
nish&hl=es&sa=X&ei=x122Uq6DAYOgkAfy-ICICw&ved=0CDoQqgIwAQ
(5) http://www.newswire.ca/en/story/1282831/copper-fox-reports-successful-diamond-drill-results-from-2013-drilling-
program-at-schaft-creek-joint-venture
(6) http://www.elespectador.com/noticias/medio-ambiente/greenpeace-aterriza-oficialmente-colombia-articulo-464912
(7) http://www.bnamericas.com/news/mining/mexico-mining-taxes-unlikely-to-significantly-impact-investment-analyst
(8)
http://www.elcolombiano.com/BancoConocimiento/E/el_sector_de_la_mineria_esta_completamente_estancado/el_sect
or_de_la_mineria_esta_completamente_estancado.asp
(9) http://hablemosdemineria.com/2013/12/20/55-de-los-uruguayos-aprueba-el-proyecto-aratiri/
(10) http://www.bnamericas.com/news/mineria/candidatos-peruanos-contrarios-a-la-mineria-no-ganarian-elecciones-en-
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cajamarca-el-2014
(11) http://www.canadianinsider.com/node/7?menu_tickersearch=SAC+%7C+South+American+Silver
(12) http://incakolanews.blogspot.com/2013/12/round-eight-friday-night-bury-that-news.html
(13) http://www.sec.gov/Archives/edgar/data/1160791/000120919113057013/xslF345X03/doc4.xml
(14) http://www.voltaresources.com/s/news.asp?ReportID=609211
(15) http://finance.yahoo.com/news/primero-acquire-brigus-gold-create-120000789.html
(16) http://finance.yahoo.com/news/asanko-gold-acquire-pmi-create-113000224.html
(17) http://finance.yahoo.com/news/lowell-copper-minaurum-gold-enter-130000799.html
Stocks To Follow Closed Positions, 2012
Closed in 2012 closed close PPS
Soltoro SOL.v jan'12 C$0.87 07-nov-11 C$0.94 8.0% cash moved to BCM.v
Gold-Ore Res GOZ.to feb'12 C$0.84 13-oct-10 C$0.98 16.7% trade closed on ELG.v offer
Minefinders MFN feb'12 U$11.68 17-nov-11 U$14.80 26.7% target made, trade closed
Iron Creek IRN.v mar'12 C$0.58 26-sep-10 C$0.31 -46.6% time up on small bad trade
U.S. Silver USA.to apr'12 C$2.18 15-mar-12 C$1.86 -14.7% ST trade no good, cut loss
Augusta Res. AZC.to may'12 C$3.10 29-ene-12 C$2.07 -33.2% bad mkt, bad trade cut loss
Bellhaven BHV.v may'12 C$0.50 22-sep-10 C$0.28 -44.0% new mgmt not impressive
Zincore Metals ZNC.to may'12 C$0.325 29-jul-11 C$0.17 -47.7% bad mkt, bad trade cut loss
Soltoro SOL.v may'12 C$0.70 18-mar-11 C$0.41 -41.4% bad mkt, bad trade cut loss
U.S. Silver USA.to aug'12 C$1.78 27-jul-12 C$1.36 -23.6% fail ST trade close pre split
Estrella Gold EST.v aug'12 C$0.91 27-mar-11 C$0.14 -84.6% Closed on port realignment
Fortuna Silver FVI.to sep'12 C$1.07 03-may-09 C$5.32 397.2% sell call $6.17/ Mar25
Strait Minerals SRD.v oct'12 C$0.125 09-dic-11 C$0.12 -4.0% closing coverage til FY13
Sunward Res SWD.to oct'12 C$1.47 13-mar-11 C$1.21 -17.7% sold, took loss
Gold Res Corp GORO oct'12 U$21.47 09-sep-12 U$17.40 19.0% Short trade closed
Yellowhead Min. YMI.to nov'12 C$1.00 01-abr-12 C$0.63 -37.0% sold, took loss
Primero Mining PPP nov'12 U$7.26 07-oct-12 U$6.73 7.3% Short trade closed
Bear Creek Min. BCM.v nov'12 C$3.38 07-nov-11 C$3.72 10.1% Took small profit
Vena Resources VEM.to dec'12 C$0.70 31-may-09 C$0.18 -74.3% Failed trade (caps F)
Galway Res GWY.v dec'12 C$2.19 24-nov-12 C$2.30 5.0% closed good ST arb trade
Stocks To Follow Closed Positions, 2011
Closed in 2011 closed close PPS
Sunward Res SWD.v jan'11 C$1.05 21-nov-10 C$1.63 55.2% target made, trade closed
Serengeti Res SIR.v mar'11 C$0.245 05-dec-10 C$0.285 16.3% sold pre-tgt, ST trade fail
Fronteer Gold FRG apr'11 U$2.37 03-may-09 U$15.24 543.0% buyout, trade closed
Minefinders MFN apr'11 U$9.09 07-nov-10 U$16.89 85.8% target made, trade closed
Metalline Min. MMG may'11 U$1.04 26-jan-11 U$0.89 -14.4% exit, resource disappointed
Peregrine Met PGM.to jul'11 C$0.87 06-mar-11 C$2.60 198.9% buyout offer, closed
Dynasty Metals DMM.to jul'11 C$4.20 03-may-09 C$2.85 -32.1% Sold. Fail. Move on.
Aura Silver AUU.v aug'11 C$0.22 13-oct-10 C$0.16 -36.4% Bad pick. Take loss
U.S. Silver USA.v aug'11 C$0.52 26-jan-11 C$0.71 36.5% closed to make room
B2Gold Corp BTO.to sep'11 C$2.80 12-may-11 C$4.27 52.5% target made, trade closed
Bear Creek Min. BCM.v sep'11 C$3.80 27-may-11 C$4.17 9.7% macro sell call victim
Minefinders MFN sep'11 U$14.70 10-aug-11 U$15.15 3.1% macro sell call victim
Great Panther GPR.to sep'11 C$3.03 22-aug-11 C$2.64 -12.9% macro sell call victim
Fortuna Silver FVI.to sep'11 C$1.07 03-may-09 C$5.36 400.9% sold 20%, macro sell call
Focus Ventures FCV.v nov'11 C$0.40 20-apr-10 C$0.20 -50.0% cut losses, bad trade
Regulus Res. REG.v dec'11 C$1.17 14-aug-11 C$0.52 -55.6% cut on news of poor 43-101
2009 and 2010 closed positions in appendices below
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Stocks To Follow Closed Positions, 2010
Closed in 2010 closed close PPS
B2Gold Corp BTO.to Jan'10 C$0.88 08-nov-09 C$1.49 68.2% target made, trade closed
Radius Gold RDU.v Jan'10 C$0.18 23-aug-09 C$0.40 122.2% target made, trade closed
MAG Silver MVG mar'10 U$5.60 23-nov-09 U$7.28 30.0% closed in pdac week
Riverside Res RRI.v mar'10 C$0.435 20-sep-09 C$0.60 37.9% closed in pdac week
Amarillo Gold AGC.v mar'10 C$0.81 31-may-09 C$0.70 -13.6% closed in pdac week
B2Gold Corp BTO.to apr'10 C$1.24 18-feb-10 C$1.50 21.0% target made, trade closed
Lumina Copper LCC.v apr'10 C$0.84 14-jun-09 C$1.55 51.2% total position now sold
Troy Resources TRY.to may'10 C$1.10 03-may-09 C$2.25 104.5% sold on negative results
AuEx Ventures XAU.to may'10 C$2.51 24-may-09 C$3.38 34.7% trade closed
Nevada Copper NCU.to jun'10 C$3.27 14-mar-10 C$2.03 -37.9% need to lower Cu exposure
Carpathian Gold CPN.to jun'10 C$0.39 14-mar-10 C$0.35 -10.3% too exposed to cap raising
Amerix PM Corp APM.v jun'10 C$0.065 08-nov-09 C$0.05 -23.1% victim of macro bear
Antares Minerals ANM.v jun'10 C$1.42 06-dec-09 C$2.10 47.9% sold half
Vena Resources VEM.to jun'10 C$0.37 31-may-09 C$0.23 -37.8% sold half
Minera Andes MAI.to sep'10 C$0.75 28-jul-10 C$0.95 26.7% ST trade closed
Gold-Ore Res GOZ.to sep'10 C$0.52 01-aug-10 C$0.75 44.2% target made, trade closed
B2Gold Corp BTO.to sep'10 C$1.45 25-may-10 C$2.01 34.5% target made, trade closed
Blue Sky Uran BSK.v oct'10 C$0.41 19-may-10 C$0.22 -46.3% v small v bad trade closed
Dia Bras Expl DIB.v oct'10 C$0.14 30-aug-09 C$0.35 150.0% target made, trade closed
S. Amer. Silver SAC.to nov'10 C$1.38 24-oct-10 C$1.60 -15.9% loss on short, small fail
Ventana Gold VEN.to nov'10 C$7.92 27-jun-10 C$13.51 70.6% trade closed on buyout
Lumina Copper LCC.v nov'10 C$1.42 11-aug-10 C$3.65 157.0% trade closed
Antares Minerals ANM.v dec'10 C$1.42 06-dec-09 C$8.40 491.5% trade closed
Rio Alto Mining RIO.v dec'10 C$0.69 23-mar-10 C$2.16 213.0% trade closed
Coro Mining COP.to dec'10 C$0.585 03-oct-10 C$1.24 112.0% target made, trade closed
Stocks To Follow Closed Positions, 2009
Closed positions closed closing PPS
Cardero Res CDY/CDU.to May'09 U$1.20 03-May-09 U$0.87 -27.5% sold on negative news
Eastmain Res. ER.to May'09 C$1.04 06-May-09 C$1.315 26.4% trade closed
Radius Gold RDU.v May'09 C$0.165 03-May-09 C$0.235 42.4% trade closed
Latin Amer Min. LAT.v May'09 C$0.12 03-May-09 C$0.158 29.2% trade closed
Aquiline Res. AQI.to July'09 C$2.03 16-Jun-09 C$1.68 -17.2% took loss, bad timing
Chariot Resources CHD.to Aug'09 C$0.20 12-Jul-09 C$0.415 107.5% trade closed
Castle Gold CSG.v Sep'09 C$0.64 02-Aug-09 C$0.60 -6.3% ST trade didn't work out
Guyana Goldfields GUY.to Sep'09 C$2.30 12-May-09 C$4.50 95.7% profit taken
Los Andes Copper LA.v Sep'09 C$0.09 21-Jun-09 C$0.09 0% trade closed
Pediment Gold PEZ.to Oct'09 C$0.80 09-Aug-09 C$1.00 25.0% trade closed
Minera Andes MAI.to Oct'09 C$0.68 03-May-09 C$0.71 4.4% too much bad news
Dynasty Metals DMM.to Nov'09 C$4.18 03-May-09 C$6.01 43.8% half sold
Rusoro Mining RML.v Nov'09 C$0.55 03-May-09 C$0.57 3.6% underperformed
Important Disclosure
The information and opinions contained within this report reflect the personal views of the author and therefore all
material within should not be construed as accurate or reliable or be utilized as advice for investment or business
purposes. Independent due diligence and discussions with ones own investment and business advisor is strongly
recommended. Accordingly, nothing in this report should be construed as offering a guarantee of the accuracy or
completeness of the information contained herein, as an offer or solicitation with respect to the purchase or sale of any
security or as an endorsement of any product or service. All opinions and estimates included in this report are subject to
change without notice. It is prohibited to copy or redistribute this report to any type of third party without the express
permission of the author.
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