IKN #249Premium

The IKN Weekly
Week 249, February 16th 2014
Contents
This Week: A reminder of the The IKN Weekly brief and scope, Meta reasons to be cheerful,
Things right and things wrong.
Fundamental Analysis: NOBS report on Santacruz Silver (SCZ.v).
Stocks to Follow: Overview, Minera IRL (IRL.to) (MIRL.L), Tahoe Resources (TAHO)
(THO.to), True Gold (TGM.v), Eco Oro (EOM.to), Santacruz Silver (SCZ.v), Rio Alto (RIO.to)
(RIOM), Coro Mining (COP.to), Gold Resource Corp (GORO), Pretium Resources (PVG.to) (PVG),
Focus Ventures (FCV.v), Darwin Resources (DAR.v), Dalradian Resources (DNA.to), B2Gold
(BTO.to) (BTG).
Copper Basket: Overview, Augusta Resources (AZC) (AZC.to), Oracle Mining (OMN.to),
Lumina Copper (LCC.v), Cordoba Minerals (CDB.v).
Low Cost Producer Basket: Overview, thoughts on big caps playing catch-up.
Regional Politics: Argentina: macro check-up and mining scene, Chile’s government boosts
Pascua Lama, Peru: Protests to re-start at Candente Copper’s (DNT.to) Cañariaco, Mexico less
attractive to mining says Canadian in Mexico, Nicaragua: The election rule change goes
through.
Market Watching: Minera IRL (IRL.to) (MIRL.L).
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 reminder of the The IKN Weekly brief and scope
Make no mistake people, we’ve moved into a new phase of bullish activity in the market. I’ve
been leery about the sector since getting fingers burned in the first part of last year, played
this-n-that since then as trades rather than preferred investments, shorted a few along the way
and watched, sometimes in disbelief, while those investments I most firmly supported and held
onto longest got their equity values crushed.
This time it’s different. Real money is moving back into the sector and gold is putting in a true
recovery rather than a spike (which, by the way, fits closely enough for my taste into the IKN
2014 prediction for gold (1) that gave leeway for a possible low but $1,100/oz (not happening)
but mainly called for a sustained recovery and a high of U$1.5k/oz by the end of the year).
What we’ll now see, assuming the flow of new money into the sector continues, is the stocks
that have the easiest access to the spigot get the first benefits. That means “look to the ETFs”,
people, starting with the components of GDX and GDXJ, as they’re the companies in prime
position to benefit first. Which brings me to the title chosen for this opening thought because
although we talk about a lot of things, The IKN Weekly is and has always been a publication
that ocvers (mostly) junior mining stocks in (normally) Latin America. By way of illustration, at
the moment just three of our covered stocks fall outside that brief and only one of those
(Dalradian DAN.to) is likely to stay around for any great length of time.
1

We did start with the low cost producer section this year, designed to gauge how the juniors
are doing against the big boys. That gives a level of opportunity to expand and cover the
deeper and wider aspects of the market, but at the same time I’m keen not to lose focus and
suffer from mission creep. Today Feb 16th , I think that it’s smart to concentrate and put at least
some your money to work parts the mining sector that aren’t part of this letter’s normal scope
(push me a bit further and I’ll reiterate that like NEM from here, for example).
Meta reasons to be cheerful
The view from this desk gets a portion of “inside the tracks” feel at all times, so I’d like to share
a few more signals of the clear change of sentiment:
1) I’m getting more feedback from you. Last week’s reaction mailbag was a full one and
not only was the quantity up, but the contents were noteworthy too. I’m getting “what
do you think of company XYZ?” or “Why haven’t you mentioned ABC, it’s great little
company?” and all sorts of ACTIVE thoughts opinions on stocks and companies, rather
than passive comments. I see people waking up from a long slumber and quite frankly
that’s exactly the feeling I have too.
2) A bunch of new subscribers to the service, which is the most direct and capitalist signal
possible (i.e. people willing to pay for information on mining stocks). A warm welcome
is given to the handful of new subbers reading these words and I hope you get value
from the service and stick around but please don’t expect a promo pump toutsheet, the
liberal use of exclamation marks, assertive predictions of gold at X+1 in Y+1 space of
time, diatrabes against the government and all similar baggage.
3) I’m getting more feedback from blog readers too, which tends to be more of the
“Hahaha dumbass you failed at [their preferred stick to beat me with] you’re stupid you
suck” variety, but hey when you’re a mouthy guy in a public sphere it comes with the
territory. More interesting is the sudden upspike in blog visitors, including people
signing onto the RSS and e-mail services which means they still read it all without
returning. In a few short weeks mining has become fashionable to follow and to talk
about, which is a big shift in attitude amongst those with money to deploy.
4) Company executives of explorecos and small juniors (who will not be mentioned by
name, nor will their companies be hinted upon) are complaining that the very same
broker/shareholders who were telling them to stop all spending and lie low are
bellowing at them to get out there and market/promo themselves.
5) I’m happy to report (and this time genuinely happy) that geologist friends who had
found themselves laid off have been offered work in the last few weeks (two this
week). Of the four, three have been taken on as part-time consultants so there’s still
slack to be taken up, but I still take that as anecdotal evidence that purse-strings are
being loosened in the right places.
6) Instos are looking at every opportunity for alpha in the gold market. On being passed a
Goldman note on Banro on Wednesday, my contact who (let’s say) watches activity
carefully at the Vampire Squid said, “The shocking thing is that it is on the "most read"
part of the research interface...very rare in the last two years to see a gold note in that
section.” Just one anecdote of several.
Those and more. This time it’s not a false alarm people, this is the start of the recovery for the
mining sector. It won’t be a straight line to some sort of financial Nirvana (it never is) but the
change is clear and the signals are flashing in my face. That’s different from any time in the
past two years.
Things right and things wrong
I want to do something a little different this week, even though I may be accused of navel-
gazing, and go through the stages of last week’s trading action. The reason isn’t for some
exercise in public preening, but because I’m always keen to illustrate my mind’s view to the
market to you IKN readers The thoery goes that the more you understand about my approach
to investment, the easier it is for you out there to take the information, process it and use it for
2

your own investment needs. The “I am not you and you are not me” idea still holds true, we all
have different requirements from the (junior miner) market, different aspirations, different
parameters for trades. I’m not your investment adviser and never will be, which means I’m not
in charge of your cash or the way it’s exposed to the market via equities in these volatile things
we call juniors.
So to the process and the way in which I saw last week unfold:
Pre) Last week’s IKN248 letter opened up with a section entitled “U$1,280/oz gold still looks
like a key level”, which said its thing and stated as clearly as possible your author’s nervy-
though-somewhat optimistic view of the progress in gold and therefore the miners.
1) The first Flash update went out Monday morning to announce I was topping up my Gold
Resource Corp (GORO) short to the level I’d originally planned a few weeks ago. Here’s part of
the comment paragraph of that update (see Appendix 1 below for the whole thing)
There's fresh money moving back into the market, which is a good thing. However, I
also see people baking in assumptions of higher gold prices in the future and that's
something I'm yet to be convinced of.
2) The second Flash update went out that same Monday evening and the tone has already
changed. That’s because gold went above and stayed above the key U$1,280/oz level. Here’s a
part of that update (see Appendix 2 below for the whole thing):
tonight sees gold at U$1,284/oz and if this holds I consider it a true bullish signal. I am
happy to hold my GORO short due to its specific fundamental company weaknesses,
but obviously holding too much short position isn't so smart if I believe the miners are
going to go higher. We're in a fast-changing market at the moment which needs to be
watched closely (unlike most times in the last few months) and therefore no decision is
getting made yet.
3) The third Flash update went out pre-bell Wednesday (see Appendix 3 below), which was the
day I went pro-active on the bullish market and 1) covered TAHO 2) added to TGM.v and 3)
added to SCZ.v. Along with those trades came this excepted comment:
General comment
I believe it's time to take a more outright bullish stance to this market. Gold continues
to trade higher and the comments from Fed Chair Yellen yesterday were mostly gold
(and commodity) friendly. The market has taken the hint and although the medium
term isn't so easy to guess, the near-term set up is one that will continue to attract
money into mining equities. Therefore the TAHO short is close and extra money is put
towards speculative end juniors today. The next likely step is to close the losing
Pretium (PVG) short, but that can wait for the market (any unexpected downdraft) and
the financing that PVG needs to run soon.
4) Thursday and Friday saw gold move up, first through U$1,300/oz and then straight to
Friday’s U$1,320/oz level. You might see things differently but what I saw was a fast, classic
and healthy breakout. And before moving on let’s note that those are the type that will often
(not always) get a back-test in the days that follow, so any re-tracing to $1.3k isn’t going to be
of concern.
All the above looks something like this when scribbled and presented visually
3

As for the rights and wrongs...
• Things wrong: I should have waited to add to the GORO short, I should have covered
PVG as well as TAHO on Wednesday, I’ve chosen TGM.v as my near-term “bought deal
trend” trade vehicle and it’s underperformed others in the same boat (so far)
• Things right: U$1,280/oz does look to have been, in hindsight, a trigger price so I’ll give
myself a little credit for that one. As a result I changed tone Monday evening and then
took action on Wednesday morning (instead of dithering, which I have been prone to
do previously).
Overall, I think I called the move reasonably well. Not well, not perfectly, but reasonably well.
More importantly (hell, far more importantly) for once I got off my tush and acted on the calls
and the breakthrough of what I’d considered a key level since 2014 began, which turned out to
be the right decision.
It’s never perfect. You’ll never get the timing exact or put all your cash on the right company at
the right time that makes the biggest move in the short period. If you hedge your calls as I do
(e.g. leaving the PVG short open on Wednesday), you’re bound to make a wrong decision on
one side or the other, I can’t possibly hope for the GDX and GDXJ to react the way they did and
Pretium to be left in the stalls. On some things I beat myself up (e.g. selling FVI day before it
moved from $3.20 to $4+ in January), on other things I do not and last week is one of those
situations where as long as you make yours, it’s foolish to regret not having fine-tuned the
whole things here-or-there to squeeze that extra dollar or percentage win from one corner or
another of the port. Or put as bluntly and “capitalistically” as possible: Yep I’m good about FCV
jumping well Friday, getting extra SCZ.v before it sprang back, watching DNA.to zoom, etc. No
4

I’m not so good about holding PVG for a loss this weekend, for the way in which TGM.v hasn’t
reacted as yet, the disappointing drill numbers from DAR.v that sank that one after many
market signs were positive, etc. But when it comes down to it I don’t care much, because Rio
Alto Mining moved up 11%. And even then I don’t care much, because if I lost all my net worth
tomorrow my wife wouldn’t leave me, she’d still love me and I’d still have two fabulous children
to adore. So in fact scratch that first sentence in this paragraph, because it’s always perfect.
But I’m not here to swap wedded bliss stories, I’m here to make you some money and analyse
a few stocks for you so let’s get on with it. Here’s Santacruz Silver (SCZ.v):
Fundamental Analysis of Mining Stocks
This week we run an analysis on Santacruz Silver (SCZ.v):
NOBS fundamental report dated February 16th 2014
Santacruz Silver Mining Ltd (SCZ.v)
Company Overview
Santacruz Silver Mining Ltd. (Canada: COP.to, USA: SZSMF, Frankfurt 1SZ.f) is junior mining
company operating in Mexico. As its name suggests, its primary target metal is silver. Its three
main projects are the Rosario mine in San Luis Potosí state, the Gavilanes mine in Durango
state and the San Felipe mine in Sonora state. Current share structure is as follows:
Shares out: 103.394m
Options: 6.407m (mostly at 90c)
Warrants: 2.403m (all at 15c)
Fully diluted shares: 112.204m
Current share price: $1.17
Market Cap: $120.97m
Approx cash per S/O: $0.14
All prices are in Canadian dollars unless stated. Forex U$0.90=CAD$1
NB: Once completed, the current SCZ.v bought deal will add (when overallotment facility is
filled, which it will) 12.0625m shares to the pile. We assume these on the current shares out
total in the table above.
Today’s report
Once again, it’s one of those “Lots of info, what do I want to say?” situations with SCZ,
especially as I’ve already flagged the company as a buy and last week added to the position. In
the end, the trick jas been to try and explain why I think this to be a particularly cheap stock right
now, and that’s all about numbers so after drafting a couple of times, the chosen way forward is
to dive straight into the financial to show the bones of the company, then we take a look at its
three projects in more detail. Near the end we tie them all together, then comes a bit of op-ed
and a conclusion.
5

Financials overview
This is one of the more straightforward companies to review financially, because it’s a fairly new
entity having only been activated as an operating junior in mid-2012. However there are a
couple of interesting datapoints to harvest
from the usual suspect charts, so here we go.
Assets are simple enough; this is a company
that set up, is developing on its three fronts,
pushing to put its first Rosario mine into
commercial production (though it’s been
mightily delayed so far, the effort and the cash
have been there) and exploring/developing the
other two sites. All cash ploughed in is
capitalized and when new rounds of financing
come along, the red columns at the bottom
show the benefit. We’ve added the next two
quarters’ worth of forecasts (aka wild guesses) that include the current financing rounds and
what we expect to be used in the purchasing
already.
Liabilities have never been a big issue at this
company, which is the way we like them. Just
run-of company accounts to point towards,
plus a small decommissioning provision built
into the long-term liabilities. However, off
books there are $21m in options payments
that SCZ has to make to HOC in order to own
its San Felipe project outright ($6m due this
year, then the final $15m payment due
October 2015) which we assume SCZ wants
to pay out of cash flow.
Working capital therefore looks like this
25 SCZ: Working Capital per qtr
20
15
10
5
0
6
11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 tse31q4 tse41q1
source company filings, IKN ests
srallod
fo
snoillim
SCZ: Assets Breakdown per qtr
80
70
60
50
40
30
20
10
0
Again the next two quarters are featured and what with the current round of financing, we
expect SCZ to close this quarter with just under $15m worth of cushion. That’s not a bad
number, as long as it can get Rosario to neutral free cash flow by that time and then start to
profit from FCF+ later. However and clearly, this latest round of financing is more than a simple
‘luxury top-up”, the company was getting short on cash and a little too tight for comfort. The
upturn in the market has come just in time for SCZ.
Shares outstanding look like this. From the kick-off quarter of 2q12, SCZ has added 35.66m
shares to its count and that’s quite a lot of OPM, but it has (just about) built one mine and
11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 tse31q4 tse41q1
source: company filings, IKN ests
srallod
fo
snoillim
fixed
other current
cash
SCZ: Liabilities position
5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 tse31q4 tse41q1
$m
LT debt
current debt
source: company filings

moved forward on two others even though the development timeline hasn’t kept up to plans.
From 2q14 onwards we assume 105m share out in SCZ.
110 SCZ: Shares Out
100
90
80
70
60
50
40
30
20
10
0
7
11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 tse31q4 tse41q1 tse41q2
source: company filings, IKN ests
serahs
fo
snoillim
The net losses posted by SCZ are minor stuff, being basically the corporate expenses (that run
between $200k and $300k per month on average),
minus some forex gains they’ve enjoyed and some SCZ: Net Loss, per qtr
2
tax credits. 1.8
1.6
1.4
The money raised and spent at SCZ has mainly gone
1.2
into the assets (you can see the capitalization on the 1
asset chart above), except for the 2q12 quarter when 0.8
the company took a ~$12m charge for the legal and 0.6
0.4
corporate set-up as well as awarding the officers 0.2
$2.78m worth of shares (since then share-based 0
payments have been relatively modest, which isn’t a
bad sign). This chart shows where the approximately
$57m raised to 3q13 (it’s now $69m, thanks to
the latest bought deal) in 2012 and 2013. That
lot adds up to ~$45m, so if you add in those
original legal fees you’re count is good. Which
also means of course that the latest round of
financing, going on now, isn’t some sort of
luxury measure by SCZ; apart from the minor
revenues Rosario, that’s all the cash there is
and a clearer indication that SCZ is lagging
behind on its original plans would be difficult to
find.
The bottom line to the financials is that the
company’s in fair shape, though the company
is clearly going to benefit from the injection of
capital going on at the moment. Assuming its first Rosario project goes FCF+ soon (and it
should, see below) the San Felipe payment this year is now easily covered and development
work (though unlikely to be too aggressive) can continue at the exploration stage projects.
Company assets
In this report we miss out the blahblah about management (generally ok, bit disappointing they
have stuck to Rosario timeline, enough decent brains on board) and the share structure (no
holder above 10%, Pres/CEO Arturo Prestamo owns 8.9m shares) and get to the nitty gritty,
their three main projects which are all in Mexico and are:
• Rosario in San Luis Potosí: This is SCZ’s most advanced project, which began
preliminary production early last year and for a while, erroneously said it was in
commercial production. As things stand, we expect commercial production to be
announced soon, probably by the end of this quarter.
21q3 21q4 31q1 31q2 31q3
source: company filings
srallod
fo
snoillim
SCZ.v: Where the money has gone
$m
35 plant and equipment
30 Mine construction/development
25 Exploration & evualuation properties
20
15
10
5
0
2012 2013 to date
Source: company filings

• Gavilanes (for what it’s worth, the translation is ‘seagulls’) in Durango: This used
to be considered the SCZ third strong project, but it seems to have been bumped up the
order because although smaller than San Felipe, it’s a near-pure silver project with low
revenues from by.product credits and is also looking cheaper and easier to put into
production.
• San Felipe mine in Sonora: This for me is the most interesting project on SCZ’s
books, though it’s less of a silver mine with by-product credits and more a
zinc/silver/lead mine on a co-product basis, due to the high grading base metals in the
mineralization mix. It’s also a bigger project and will be able to suppose a larger mining
and milling operation.
What we do now is take a closer look at each one and look at the prospective economics in
each. Clearly it’s easier to model Rosario, being the advanced stage that it is (and nearly official
producer), but by applying roughly the same criteria to the other projects we get a feel for their
size, value and appeal:
Rosario analysis and target
We start this by looking at the resource size, done by ripping the relevant table from the
December 2012 43-101:
What that tells you is that Rosario has a 43-101 count of 6.65m oz silver (as long as you add
the M+I and the inferred together) and comes with decent by-product kickers. SCZ has built a
500tpd machine on top of this resource, so do the math and you’ll see that implies a maximum
7.5 year mine life on the above chart tonnages. All this means that Rosario is quite a small
mine, though SCZ has made enough noises about its expansion potential
It’s also started producing, so even though it isn’t declared at commercial production yet we can
get a reasonable idea of the mine’s capabilities So let’s take a closer look at the last set of
published numbers for Rosario production, that come from the 3q13 MD&A. We don’t know
enough to be very specific on these because
the mine is not yet declared under commercial SCZ Rosario: Thoughput tonnages
tpd
production and therefore doesn’t need to file
140 130
and declare operations in the normal way. 125
120
However, there are plenty of clues and we can
get a decent idea of what’s going on. First 100
let’s take throughput figures so far for this 80
supposed 500tpd throughput machine, and 60 52
here’s a little chart which shows that in 2013
40 33
the company didn’t get close to that
20
nameplate.
0
The current stated objective at SCZ is that 3q13 Oct'13 Nov'13 avg End Nov'13
source: company filings, IKN calcs
Rosario reached 500tpd throughput “by the
end of the first quarter of 2014” (that’s end
next month, folks), which would mean that if the mine is increasing gradually we’d be at least
300tpd by now. It seems likely that commercial production will get called at or around then,
assuming they’re on time with the development.
With throughputs examined, we now turn our thoughts to costs. The 3q13 MD&A also gives a
table on production, head grades and recoveries for the four main metals produced at Rosario
and from those we can work out just how much was produced in the quarter. This is quite a
minor item, but by doing a bit of math from the info provided in the MD&A then factoring in the
8

average market prices for those metals during the quarter, (Ag 2,137 oz at $21.37= $45,668, Au
production: 8.6 oz at $1327 = $11,412, Pb production: 29,394 lbs at $0.95 = $27,924, Zn
production: 86,645 lbs at $0.84 = $72,781) take away 10% as a rough guess for the middleman
costs then stick your finger in the air, you
get a gross revenues total of $142k for the Rosario mine net development costs
$m
quarter. Therefore, as the company filings (capex minus revs), per quarter
5
indicate that it cost SCZ $2.414m to run its
3.835
non-commercial mining operations (i.e. 4
Rosario) in 3q13, we can make a best-
3
guess of underlying costs at the mine of 2.443
2.14
$2.3m. As lot of that is fixed costs/salaries, 2
what we have is a mine that looks like it 1.1
can run well enough and there’s no 1
reason it can’t ramp up from those lower
0
throughput numbers and keep costs under
4q12 1q13 2q13 3q13
control.
source: company filings
Valuing Rosario
Another inference from the test production stage results is that it may be behind schedule but
when eventually running at full speed, Rosario will be a decent and profitable little even at
current metals prices. On that subject, here’s how we expect income items to work out at
different silver prices (NB: please note that credit metals are kept at 90c/lb Zn and Pb, plus
$1,300/oz Au for the first two silver prices, then move up in relation with the higher silver prices,
as per the table) in a model year with Rosario running at 500tpd, with grades as per 43-101 and
recoveries as seen in recent reports. For this calc we assume the following:
• Silver at 43-101 reported grade of 190 g/t, with 81.5% recoveries
• Gold at at 43-101 reported grade of 1.1 g/t, with 65% recoveries
• Zinc at at 43-101 reported grade of 3.0%, with 75% recoveries
• Lead at at 43-101 reported grade of 1.38%, with 82% recoveries
• A flat 10% assumption for mine dilution
• 10% pre-deducted from sales for middleman charges (buyer’s cut, smelter etc)
Put all that together and this is what you get:
SCZ.v at Rosario: Projected revenues by metal type (U$m)
Ag $20 Ag $22 Ag $25 Ag $30
zinc (Mlbs) 8.147 8.147 8.147 8.147
$/lb. 0.90 0.90 0.95 1.00
zinc revenues 7.33 7.33 7.74 8.15
lead (Mlbs) 4 4 4 4
$/lb. 0.90 0.90 0.95 1.00
lead revenues $4 $4 $4 $4
silver (Oz) 817817 817817 817817 817817
$/oz. 20 22 25 30
silver revenues 16.36 17.99 20.45 24.53
gold (Oz) 3776 3776 3776 3776
$/oz. 1300 1300 1400 1500
gold revenues 4.91 4.91 5.29 5.66
Gross sales U$m 32.29 33.92 37.36 42.44
less middlemen -3.23 -3.39 -3.74 -4.24
Net sales U$m 29.06 30.53 33.63 38.20
Sources: SCZ data, IKN ests
9

And that means at $20/oz silver, Rosario gives $157/tonne rock, which isn’t bad at all and gives
the operation plenty of margin. Then for the financials, we make these assumptions for our
model year at Rosario:
• Cash costs at U$55/tonne. This may be high ($50 or below tonne wouldn’t surprise in
the least once the machine was working smoothly) but we err on the side of caution.
• Depreciation at a flat $3m per year
• G&A at $2m per year that assumes pro-rata from overall corporate costs, plus local
offices
• No interest, then deductions as per Mexico laws, including the new 8% royalty on EBIT
Here’s a table on that:
SCZ.v at Rosario Income items for model year at differing silver prices
At 500tpd thruput $20/oz Ag $22/oz Ag $25/oz Au $30/oz Au
Sales 29.1 30.5 33.6 38.2
Cash COGS 10.0 10.0 10.0 10.0
Depreciation 3 3 3 3
SGA 2 2 2 2
Op income 14.0 15.5 18.6 23.2
Interest 0 0 0 0
Workers Part. 1.1 1.2 1.5 1.9
Tax at 30% 3.9 4.3 5.1 6.4
Royalty on EBIT at 8% 1.0 1.1 1.4 1.7
Net income 8.0 8.8 10.6 13.2
Shares out 105 105 105 105
EPS 0.08 0.08 0.10 0.13
Sust Capex -2 -2 -2 -2
FCF/sh 0.09 0.09 0.11 0.14
Sources: SCZ/IKN data, IKN ests
As you can see by the hightighted column on the table, we’re not aiming high here and for our
valuation, we go for the $20/z silver level. That way, the rest is gravy.
Finally and less importantly for our purposes (production and profitability mean more than
current per-share valuations for all three of the assets, not just Rosario) here’s our valuation for
Rosario:
SCZ: Model sales and earnings Rosario mine valuation data in typical model
Ag U$/oz $20 $22 $25 $30 year using four different silver prices
Sales (C$m) 29 31 34 38 share value $0.67 (on 8x EPS, Ag $20
% of current pps 57% and CAD$1 = U$0.90)
EPS 0.08 0.08 0.10 0.13 Mkt cap (C$m) $123 Enterprise value $113
Cash flow 0.10 0.11 0.13 0.15 P/sales ($20) 4.02 EV/sales ($20) 3.70
P/E ($20) 15.4 EV/EBITDA ($20) 6.6
P/E ($22) 13.9 EV/EBITDA ($22) 6.1
P/E ($25) 11.6 EV/EBITDA ($25) 5.2
Using an 8X P/E to recognize its close proximity to full production status, plus the 0.9/1 forex
between the USD and the CAD (all previous revenues calcs were in US Dollars), we calculate
Rosario once operation to be worth 67c/share to SCZ at today’s levels. Note we’re being
conservative about those price and costs parameters too, but what all this adds up to is a small
but potentially very profitable mine. If SCZ delivers on its new schedule and can start showing
the world operating profits from Rosario as from 2q14 (which isn’t so far away now), this asset is
10

set to provide real backbone to the current share price, whether silver flies higher or not.
Gavilanes
Gavilanes is now shaping to be the second mine that SCZ moves forward and we’d expect it to
gain more momentum and radar once Rosario moves into operation. Located in Durango and in
a corner where, “There are no obvious environmental, permitting, legal, title, taxation, socio-
economic, marketing, political or other relevant factors which would materially affect this
resource” (to quote the 43-101 report), here’s the main table on the resource
This is a bigger tonnage deposit and although it’s not immediately clear from that chart, if we
take our cue from the company and use the 75 g/t AuEq cut off...
• Indicated: 5.04m oz of the total “AgEq Oz” resource of 6.143m oz is straight silver
• Inferred: 21.6m oz of the total “AgEq Oz” resource of 28.294m oz is straight silver
...which makes Gavilanes comparatively very pure silver mining.
One aspect of Gavilanes that’s important to point out is its exploration potential with all the veins
that made up the 43-101 still open along strike and at depth, as well as another four as-yet
unexplored veins on site. Indeed, SCZ has already returned positive exploration results and
extended known mineralization on parts of Gavilanes that didn’t make it into the above 43-101
and plans to keep drilling in 2014, so more results should flow as the year moves on. A final
point here, way back in 2012 in a corporate presentation the company was required to remove,
it talked of “potential for +100m Oz Ag” and although we need to take that with a pinch of salt
(and recall it was part of the promotion push that SCZ along with Canaccord used to shoot the
stock higher) a cursory glance at any of the geological maps available (start with the December
2012 43-101) will tell you they’re not joking about that target, either.
Valuing Gavilanes
But for today we’re going to go with what we’ve got and generate a model to show the potential
economics of Gavilanes. We’re going to stick with the same type of model and assumptions as
we used for the easier-to-understand Rosario (makes for a reasonable benchmark and
comparative) though the inputs are slightly different
For this calc we assume the following:
• Same prices for metals as per Rosario model
• Silver at grade of 190 g/t, with 81.5% recoveries
• Gold at grade of 0.1%, with 65% recoveries
• Zinc at grade of 0.4%, with 75% recoveries
• Lead at grade of 0.4%, with 85% recoveries
• No revenues from the minor copper grades (we assume it’s non-payable)
• A flat 10% assumption for mine dilution
11

• 10% pre-deducted from sales for middleman charges (buyer’s cut, smelter etc)
Also, due to the larger tonnage (never mind the exploration potential) we assume a 1,000tpd
mill is built and operates at Gavilanes. Here’s the production and revenues tables this time:
SCZ.v at Gavilanes: Projected revenues by metal type (U$m)
Ag $20 Ag $22 Ag $25 Ag $30
zinc (Mlbs) 2.173 2.173 2.173 2.173
$/lb. 0.90 0.90 0.95 1.00
zinc revenues 1.96 1.96 2.06 2.17
lead (Mlbs) 2 2 2 2
$/lb. 0.90 0.90 0.95 1.00
lead revenues $2 $2 $2 $2
silver (Oz) 1346744 1346744 1346744 1346744
$/oz. 20 22 25 30
silver revenues 26.93 29.63 33.67 40.40
gold (Oz) 687 687 687 687
$/oz. 1300 1300 1400 1500
gold revenues 0.89 0.89 0.96 1.03
Gross sales U$m 32.00 34.69 39.03 46.07
less middlemen -3.20 -3.47 -3.90 -4.61
Net sales U$m 28.80 31.22 35.13 41.46
Sources: SCZ data, IKN ests
Then for the financials, these assumptions for Gavilanes
• Cash costs at U$35/tonne. This is slated as a cheaper mine to run per tonne opex than
Rosario, with higher throughput and less polymetallics to worry about.
• Depreciation at a flat $3m per year
• G&A at $2m per year that assumes pro-rata from overall corporate costs, plus local
offices
• No interest, then deductions as per Mexico laws, including the new 8% royalty on EBIT
Here’s a table on that:
SCZ.v at Gavilanes Income items for model year at differing silver prices
At 1000tpd thruput $20/oz Ag $22/oz Ag $25/oz Au $30/oz Au
Sales 28.8 31.2 35.1 41.5
Cash COGS 12.8 12.8 12.8 12.8
Depreciation 5 5 5 5
SGA 2 2 2 2
Op income 9.0 11.4 15.4 21.7
Interest 0 0 0 0
Workers Part. 0.7 0.9 1.2 1.7
Tax at 30% 2.5 3.2 4.2 6.0
Royalty on EBIT at 8% 0.7 0.8 1.1 1.6
Net income 5.1 6.5 8.8 12.4
Shares out 105 105 105 105
EPS 0.05 0.06 0.08 0.12
Sust Capex -2 -2 -2 -2
FCF/sh 0.08 0.09 0.11 0.15
Sources: SCZ/IKN data, IKN ests
12

Again, the $20/oz column is the one that most interests us, we want to see a mine that runs
profitably on today’s prices.
This final chart is again less important, but it serves as a general guide to the importance of the
component to the whole that is SCZ:
SCZ: Model sales and earnings Gavilanes mine Valuation data in typical model
Ag U$/oz $20 $22 $25 $30 year using four different silver prices
Sales (C$m) 29 31 35 41 share value $0.22 (on 4x EPS, Ag $20
% of current pps 18% and CAD$1 = U$0.90)
EPS 0.05 0.06 0.08 0.12 Mkt cap (C$m) $123 Enterprise value $113
Cash flow 0.10 0.11 0.13 0.17 P/sales ($20) 3.93 EV/sales ($20) 3.61
P/E ($20) 23.9 EV/EBITDA ($20) 8.0
P/E ($22) 18.8 EV/EBITDA ($22) 6.9
P/E ($25) 14.0 EV/EBITDA ($25) 5.5
This time a lower 4x PE is used, as this project is still a ways off being realized. But it still
generates a 22c/share valuation for SCZ today.
San Felipe
This is the one in the North, close to the border area with the USA and that means the political
risk may be a bit higher than the other projects due to narco activity, though to be fair the
company has not reported any problems in accessing or developing the site so far, and that
includes some fairly extensive drilling by both SCZ and previous owners Hochschild before it.
Also it has signed agreements on water, enviro and access from locals, so things do seem
normal enough from the outside in.
If we move to look at the current resource count at San Felipe...
...you can get an idea as to why Hochschild decided that this project wasn’t for them and they
sold it on. Just by comparing the “Ag gpt” column and the “Equivalent Ag gpt” column next to it,
you can see there’s a big difference between the two numbers and that’s because San Felipe is
a true polymetallic deposit and its metals mix is more of the style of Pan American’s Navidad in
Argentina than anything held or operated by First Majestic (though on a smaller scale. San
Felipe is a Zinc/Silver/Lead mine in the making and not a silver mine, of that we must be clear.
This isn’t HOC’s sort of mine (remember, they sold Caylloma to Fortuna Silver for the same
reason that they didn’t want all that Zn mucking up their beautiful clean metals mix)
13

The deposit as stands comes from seven vein systems on site and again, SCZ reports there’s
plenty of opportunity to enlarge the resource through additional exploration (expected this year,
too). Some of the underground infrastructure is already in place (eg ramps) at some of the main
veins, so although larger and likely more expensive to set up (possibly why SCZ likes Gavilanes
as mine number 2 now) it’s an advanced project all the same and the mineralization is already
well understood.
Valuing San Felipe
The last of the trio and attacked in much the same way as the others. Here come the
assumptions for an eventual mine at San Felipe:
For this calc we assume the following:
• Same prices for metals as per Rosario and Gavilanes models
• Silver at grade of 70 g/t, with 85% recoveries
• Copper at grade of 0.28%, with 70% recoveries
• Zinc at grade of 5.0%, with 80% recoveries
• Lead at grade of 2.77%, with 85% recoveries
• A flat 10% assumption for mine dilution
• 10% pre-deducted from sales for middleman charges (buyer’s cut, smelter etc)
This time we assume a 1,500tpd machine gets put on top of the rock (a nominal 10 year mine
life), as we’d expect SCZ to been keen on expanding its overall corporate production. Here’s the
production and revenues tables this time:
SCZ.v at San Felipe: Projected revenues by metal type (U$m)
Ag $20 Ag $22 Ag $25 Ag $30
zinc (Mlbs) 43.453 43.453 43.453 43.453
$/lb. 0.90 0.90 0.95 1.00
zinc revenues 39.11 39.11 41.28 43.45
lead (Mlbs) 26 26 26 26
$/lb. 0.90 0.90 0.95 1.00
lead revenues $23 $23 $24 $26
silver (Oz) 942721 942721 942721 942721
$/oz. 20 22 25 30
silver revenues 18.85 20.74 23.57 28.28
copper pounds 2.1 2.1 2.1 2.1
$/lb. 3.0 3.0 3.0 3.0
copper revenues 6.4 6.4 6.4 6.4
Gross sales U$m 87.37 89.26 95.53 103.70
less middlemen -8.74 -8.93 -9.55 -10.37
Net sales U$m 78.63 80.33 85.98 93.33
Then for the financials, these assumptions for San Felipe:
• Cash costs at U$50/tonne, though that may be very conservative of me, I’m thinking
more about prices in the intermediate future than now.
• Depreciation at a flat $5m per year
• G&A at $3m per year that assumes pro-rata from overall corporate costs, plus local
offices
• No interest, then deductions as per Mexico laws, including the new 8% royalty on EBIT
Here’s the resulting table:
14

SCZ.v at San Felipe: Condensed income statement for model year
At 1500tpd thruput $20/oz Ag $22/oz Ag $25/oz Au $30/oz Au
Sales 78.6 80.3 86.0 93.3
Cash COGS 27.4 27.4 27.4 27.4
Depreciation 5 5 5 5
SGA 3 3 3 3
Op income 43.3 45.0 50.6 58.0
Interest 0 0 0 0
Workers Part. 3.5 3.6 4.0 4.6
Tax at 30% 11.9 12.4 14.0 16.0
Royalty on EBIT at 8% 3.2 3.3 3.7 4.3
Net income 24.7 25.6 28.9 33.1
Shares out 105 105 105 105
EPS 0.23 0.24 0.27 0.31
Sust Capex -2 -2 -2 -2
FCF/sh 0.26 0.27 0.30 0.34
Sources: SCZ/IKN data, IKN ests
Again, the $20/oz column is the one that most interests us. So finally the guideline target for the
SCZ share price based on this mine standing alone:
SCZ: Model sales and earnings San Felipe mine valuation data in typical model
Ag U$/oz $20 $22 $25 $30 year using four different silver prices
Sales (C$m) 79 80 86 93 share value $1.03 (on 4x EPS, Ag $20
% of current pps 88% and CAD$1 = U$0.90)
EPS 0.23 0.24 0.27 0.31 Mkt cap (C$m) $123 Enterprise value $113
Cash flow 0.28 0.29 0.32 0.36 P/sales ($20) 1.53 EV/sales ($20) 1.40
P/E ($20) 5.0 EV/EBITDA ($20) 2.3
P/E ($22) 4.8 EV/EBITDA ($22) 2.3
P/E ($25) 4.3 EV/EBITDA ($25) 2.0
Again we use a 4x PE to tip our hat to the time that needs to pass before this thing gets off the
ground. Even so, San Felipe alone nearly justifies today’s share price of CAD$1.17.
Discussion
You may well have done the quickmath already and although I’m not putting any weight onto it,
if you add up the three stand alone target prices for the three parts of SCZ, it comes to $1.92.
That’s % higher than Friday’s closing price and it gives an idea of the type of value I see waiting
to be unlocked in this company. All using $20 silver, more than comfortable costs numbers and
lowish metals credits prices, too.
However, I’m not interested in holding SCZ for a few years and watching its management team,
who haven’t really impressed with their execution (without being particularly bad), build their
dream company and grow their empire, and that’s because SCZ is an obvious takeover target
and I expect it to be bought out. As mentioned previously on these pages, my idea of a best-fit
buyer for SCZ is Fortuna Silver (FVI.to) (FSM), which works happily in Mexico, has previously
expressed its intentions to grow via M&A and wouldn’t be put off by the larger than average
percentage of revenues that come from non-silver metals, either. After all, Caylloma’s revenues
aren’t much more than 50% from silver and the rest is Zn and Pb, plus the gold byproduct at
San José is a big chunk (perhaps 30% over time and averages). FVI isn’t like First Majestic
(FR.to) (AG) with its proud and insular “we’re silver only” promotion, it will take the rock, crush it
and sell the products, no matter what they might be.
FVI also has plenty of cash at bank and still has a $30m line of untapped credit it could use, but
15

as mentioned previously the way forward for a merger here would be via an all share deal, and
here’s another reason why FVI must be looking to acquire something:
Share price ratio of Fortuna Silver (FVI.to) to
Santacruz Silver (SCZ.v), 2013-2014
5.00
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
16
2
naJ
61
naJ
03
naJ
31-bef 82-bef 41-ram 82-ram 21
rpA
62
rpA
90-yam 42-yam 70-nuj 12-nuj 80-luj 22-luj 6
guA
02
guA
40-pes 81-pes 20-tco 71-tco 13-tco 41-von 82-von 21-ced 03-ced 41-naj 82-naj 11-bef
FVI/SCZ
source: TSX, IKN calcs
Its stock has rallied harder and better than just about any other serious silver ticker out there
this year and tonight, the ratio between FVI and SCZ share prices stands at nearly 4.5 to 1.
Even at 4 to 1 that’s double the ratio of this time last year and means FVI could, theoretically at
least, make an all-share friendly bid to buy SCZ at $1.80 per share (i.e. a 50% premium on a
paper deal) and wouldn’t have to print more than 38m shares. The new entity would be less
than 165m shares out, would have SCZ’s bought deal raised cash to add to its own treasury
and would soon benefit from the free cash flow coming from the newly commercial Rosario.
Conclusion
I’m going on way too much today (there’s a lot on my mind thanks to this newly bullish market),
so I’m going to cut the analysis short and wrap it up here. What I see in Santacruz Mining
(SCZ.v) is a company in the right place and with the right assets at a time when assets are
about to be revalued by a newly optimistic market. It’s an obvious takeover target and even if
FVI isn’t the one who makes the move, its management team would surely be open for the type
of friendly deal that brings the cash necessary to move forward on its two other projects now
that Rosario is about to formally hatch.
The IKN Weekly recommends Santacruz Silver (SCZ.v) as a buy and sets a $1.80 per share
price target on the stock, representing a 53.8% upside to Friday’s close. It’ll get there, too.
End of Report

Stocks to Follow
Of the 13 open positions currently listed, eight made gains last week (RIO.to, IRL.to, BTO.to,
EOM.to, DNA.to, COP.to. TGM.v, FCV.v) and five showed losses (LRA.v, SCZ.v, PVG short,
GORO short, DAR.v). There were a lot of big moves in that lot too, with the best percentage
wins registered by Coro Mining (COP.to up 25.9%), Dalradian Resources (DNA.to), Focus
Ventures (FCV.v up 23.4%) and Rio Alto Mining (RIO.to up 11.0%). The worst losses came
from Darwin Resources (DAR.v down 50.0%) on its disappointing drill numbers, Gold Resource
Corp short (GORO short down 18.4%) and Pretium Resources short (PVG short down 11.9%),
to which we must add the Tahoe Resources short now closed (TAHO short down 14.0% on the
week to Friday’s close).
In other words and setting the fun and games in the relatively small DAR.v position aside, we
saw the portfolio react in the way you’d expect from a sudden influx of strongly bullish
sentiment. The shorts all dropped heavily, but as you’d expect from a (still) heavily long biased
portfolio with some hedging, the net result was very pleasing.
With covering of the TAHO short we now have 13 open positions on our ‘Stocks to Follow’ list,
two less than our self-imposed maximum. Six are in the green and seven in the red since their
conception.
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$2.72 18.3% best LT value
Minera IRL IRL.to ADD C$0.35 22-jul-12 C$0.195 -44.3% top pick called at 24c
Longs
B2Gold BTO.to buy C$3.07 28-nov-12 C$3.05 -0.7% sold 1/2, rest rides. Quality
Lara Expl. LRA.v hold C$1.15 08-apr-12 C$0.99 -13.9% solid biz model, LT hold
Eco Oro Min. EOM.to add C$0.49 22-sep-13 C$0.41 -16.3% added more, spec pol risk
Dalradian Res DNA.to hold C$0.65 27-oct-13 C$0.88 35.4% Holding on good run
Coro Mining COP.to buy C$0.125 26-jan-14 C$0.17 36.0% Cu spec play started well
True Gold TGM.v buy C$0.395 02-feb-14 C$0.40 1.3% added, near-term flip
Santacruz Silver SCZ.v hold C$1.04 26-jan-12 C$1.17 12.5% added, now full position
Shorts
Pretium Res PVG short U$5.38 22-nov-13 U$6.86 -27.5% $4 downside target
Gold Res Corp GORO short U$5.07 26-jan-14 U$5.47 -7.9% New re-short now full pos.
Smaller/Riskier
Focus Ventures FCV.v hold C$0.175 01-jul-12 C$0.235 34.3% revised tgt 25c
Darwin Res DAR.v hold C$0.10 14-jul-12 C$0.05 -50.0% drills mediocre, hold for now
Closed in 2014 closed close price
Fortuna Silver FVI.to jan'14 C$2.80 23-dec-13 C$3.19 13.9% small ST trade closed
Rio Alto Mining RIO.to jan'14 C$2.06 07-jun-13 C$2.30 11.7% trading position finally closed
Network Expl. NET.v feb'14 C$0.01 22-jul-12 C$0.005 -50.0% position closed, did nothing
Tahoe Resources TAHO short U$13.10 08-apr-13 U$21.72 -65.8% short closed due to reality
2009, 2010, 2011, 2012 and 2013 closed positions in appendices below
Now for some notes on a selection of the above stocks.
Minera IRL (IRL.to) (MIRL.L): Adding: I will add and average down on my Top Pick
position next week. The time is right, the tide has turned and this stock won’t stay at these
deeply discounted levels forever. That’s because its financial distress is about to disappear and
make a whole bunch of people in Toronto who had the chance to do a deal look very naive and
stupid. Don’t say you weren’t warned, people.
17

Tahoe Resources (TAHO): Short position closed: Short position closed.
As posited in the flash updates of Monday evening and Wednesday (see Appendices 2 and 3
below), the loss was taken on this short position. I’m still sure that the market hasn’t priced in
the very significant country risk (both national political and local community) that TAHO has at
Escobal, but as stated last week I’m not going to shake my fist and scream “You’re All Wrong!”
forever when there’s money, bullishness and irrationality in play. And for sure I’ll spit feathers if
that appeals court decision comes along to stop Escobal in its tracks in the next few weeks, but
I have to maintain some sort of traders’ discipline and also recognize that it could be a long
wait (months or years) before a decision gets handed down.
Taking a loss is a disappointing way to end any trade and it means I was wrong, but it’s also
part of the game. I’ll take my chops and console myself with the fact that it’s now freed up
liquidity (rather than direct capital) that can be deployed into a newly bullish market. I may
have been shorting juniors these last few months but I’m the same as nearly all trading humans
and I like seeing markets rise and being long, rather than hoping it all goes to pot.
True Gold (TGM.v): Position added. As per the Wednesday Flash update (see Appendix 3) I
added what I wanted to add on this position and the average price (table above) clicked up by
half a penny as a result...no biggie. However, TGM didn’t join in the party much on Thursday
and Friday, staying at the bought deal level of thereabouts-40c all week. My opinion all week
was that a little patience needs to be exercised and cash will rotate into this eventually.
Then Friday evening post bell this NR (2) arrived in the inbox and despite the timing (Friday PM
NRs are not usually for positives, recall) it contained good news. The runners of the bought
deal have indicated they’re taking up the full overallotment on the financing, which means
they’re selling 105.11m shares at 40c a pop instead of 91.4m, pointing to final gross proceeds
of around $42m on the deal.
I’m unsurprised, but it might provide the necessary kick to the share price next week to start
sending TGM higher. Please remember that my own attitude is still near-term trade for this one,
I’ll sell them at a reasonable profit and move on if given the opportunity and if that leaves
money on the table for somebody else, so be it.
Santacruz Silver (SCZ.v): Position added. The main stuff on SCZ is above, here a few
thoughts on trading action only. The main one is that the stock might have closed down 3c but
for me it was one of the biggest winners of the week, as thanks to 1) the bought deal
announcement (3) early Wednesday morning 2) the current “buy the bot deal dip” trade theory
we’ve identified (and is working nicely) 3) getting the price drop estimate right and buying at
the lows of Wednesday morning 4) the follow-up NR from SCZ that same evening (4) which
showed that the deal was popular and then 5) the strong moves put in by gold and silver on
Thursday and Friday. The result of that little lot is a bigger position and a better monetary gain,
three cents lost since last weekend or not. You’ll also note that SCZ has been moved out of the
“Smaller/Riskier” category and into the main section, a function of its new larger size and the
newly bullish atmosphere in the general market.
Eco Oro Minerals (EOM.to): Added: As noted in IKN248 last week (though admittedly I
didn’t make mention of it in the Flash updates) I picked at just a few shares, enough to pull the
cost average down to 49c, but to be honest my attention was elsewhere than Colombian
political risk plays and all but forgot about the stock Thursday and Friday while all others were
doing their thing. So I could have added more, didn’t and may throw a few more on the pile
next week too. Certainly cheap and on the news we’re now expecting (instead of just hoping)
to see, it has explosive upside potential.
Rio Alto Mining (RIO.to) (RIOM): Another good week and RIO.to finds itself 11% higher
than last weekend.
18

Reader MZ mailed me on Feb 3rd with this...
Have you run any sensitivities on RIO with respect to copper price? I see the
bargain, but I'm hesitant to buy more here given the macro market. Thanks.
...and kindly nudged me last week for an answer, because I didn’t get back to him (sorry, it
happens, I’m not being nasty just being forgetful so I always appreciate the gentle nudge
follow-ups). The answer is yes I have but until we have the company’s feas plans I’m going to
go with the general market flow and consider RIO on its oxide gold only operations. We’re due
the feas on stage two in 2q14 and after conversation with Alex Black, know that the company is
going to be hard on itself and demand as low a capex number as possible and wants an IRR
that’s attractive at the bottom of the document (I floated +20% post-everything IRR on
reasonable, non-BS parameters and he basically agree).
That’s certainly possible, but until we have the kind of detailed information on the project that
RIO must be playing with internally (what kind of gold recovery % can they get, kinetics and
met, is there a quick payback zone of sulphide they can take advantage of, a million other
moving parts) Im’ going to spin the wheels on this part of the story. The next likely price drivers
we’ll have from RIO.to are the updated reserve/resource numbers for its oxide gold operations
(I’m expecting an improvement in mine life) and also the 4q13 financial results.
Meanwhile, reader SB mailed in Saturday morning with this (extracted):
Hey i was just noticing that 3 months ago you gave RIO.to a 6-month target of
$2.47. Looks like it's at 2.72. Your thought at the time was that gold prices
matter less than "a company re-rating and a higher given multiple to
earnings". I didn't much like that part of the analysis. It's a circular argument
Fact is, I agree with SB and it was a weak argument. However it was from a different moment
in the RIO cycle and came at a time (over 3 months ago) when the stock wa going through its
low point. That analysis was one that put together a whole bunch of worst cases and was an
attempt to show that even if you plugged in horrors, the target price for RIO should be much
higher. We’re out of that period now (phew) and although it doesn’t invalidate the lowball end
we now seem to be past the point where RIO gets the worst of the multiple assumptions.
But yes, it was a poor argument. If gold goes up, the market assumptions would be more
bullish and allow a more normal PE ratio but if gold goes down, those PEs would be squashed
even further. I might have been using mental shorthand at the time but it wasn’t my finest
analytical moment, for sure.
Today the market looks healthier and we’ve blown away that low target, but that’s not a sell
signal here because RIO.to for my reckoning (and better, more logical reckoning at that) has a
lot more room left to run.
Coro Mining (COP.to): A good week for the stock price, but apart from Thursday’s 148k
volumes remained low. The other personal thing is that the best of the prices have seemingly
slipped away from me, so it’s doing better as a pick than a position up to now...oh woe is me
(see today’s intro section for more).
Gold Resource Corp (GORO): GORO went higher with the crowd and kept going higher after
my short top-up was added (which changed the average price on the table above very slightly),
so maybe I should have waited but it’s ok, I’ll live. It’ll be interesting to see whether GORO can
flow with its peers if this rally continues (it showed more than a few signs of flagging on
Friday), though it is the type of stock that will attract new money from retailers.
My position here is simplicity itself; hold the short and wait for the 4q13 financials to appear,
which is scheduled for the first week of March. They’re going to be crappy numbers.
19

Pretium Resources (PVG) (PVG.to): The high market radar status of PVG helped it shoot
off like a rocket last week and dig a hole into my overall gains, which I’ll just have to deal with.
The plan nowadays is to wait for the inevitable round of financing PVG must run in order to
continue developing VOK/Brucejack in 2014 (reader HA asked me about this, the answer is that
I fully expect PVG to go to market in 1q14 as it (and SSRI before it) has a history of not waiting
until the last $5m is burned before topping up, but in theory it could possibly get through to
2q14...but it’d be a full scale shock to see it go any further than that without financing)
Focus Ventures (FCV.v): They came for FCV on
Friday, that was good, I want to believe that this time
it can stick above 25c for 10 days and give the
company the chance to force exercise its warrants*,
but the volume still isn’t eye-popping so let’s see
where we are this time next week.
In other news, received a mail from regular reader
and mailpal RK, who’s a long-time fellow shareholder
(sufferer?) of FCV. Here extracted is the main thrust of
his mail:
I am trying to ascertain, in a very very rough manner, what are (may be) the value of
the FCV phosphate assets? Have you taken a stab at this at all (?)
Then RK continues:
But what is the potential upside here, given the need for massive financing, contractual
payouts, etc. With a share structure that sports almost 77MM shares fully diluted, and
a current MC of approx. 21MM (FD), if they deliver good initial drill intercepts, where
does this SP potentially go? Thanks.
As there are no secrets among us, here’s how I replied to RK (the main points)
I've played with this question more times than is healthy for a human being.
Fiddled with models, discussed, refined, generalized, traded off this against
that. You've probably worked out already that there are a whole bunch of
variables and moving parts on this, any one of which changes a target
outcome greatly. Coming at it from a different angle, it's so variable because
what we have in effect is little company with big thing.
But that aside, I can throw my best guess at you. We have to assume a lot of
factors, including drills that find what's most likely there, the market behaves,
then FCV eventually attracts its JV player at the right time, meanwhile it runs
the type of financings it will need along the way to keep things straight. So on
assuming reasonable case (not best case, not worst case, somewhere in the
middle) factors all the way down the line, I think $1 is a reachable target.
However, I've been leery about saying this too loudly because there are so
many moving parts.
So now you know. If things go well, I think FCV has a Loonie as a reasonable target down the
line (though I hasten to add, unlikely this year). However, there’s plenty that needs to go right
between now and then for that to become reality and I’m still very keen on seeing those drills
turning in March on the visit, as every piece of added information on this story counts for a lot.
* In previous editions of the Weekly I went on memory and said it was 20 consecutive days, which proves again that
going on memory in this game is foolish. I was put right by RK, for which I thank him.
Darwin Resources (DAR.v): A wild ride of a week and in the end, a bad one. DAR got
20

mentioned on the blog last Monday (5) the day it popped as high as 20c and at that time, there
was a plenty of market signal about strong numbers from the imminent release. Sadly however
it all turned out to be over-enthusiastic and unfounded gossip, because come the day of the
numbers (6) the next morning, reality didn’t get anywhere near expectations.
The headline number was 15.6m of 1.0 g/t gold including 3.7m of 3.2 g/t gold (which means
the remnant of that intersect was 11.9m at 0.33 g/t gold, which is no great shakes). Add that
the hit was 213m downhole and you’re not going
to impress anybody or getting them to finance a
mine from that result. You add that to the
speculative pop we saw the day before and it
wasn’t going to be pretty, so sure enough 1.5m
shares on Tuesday, then 4.2m on Wednesday did
the damage seen on this chart (pictures and a
thousand words). Or if you like, last week’s 10c
stock traded at 20c and finished at 5c...that’s
volatility in my book.
I didn’t sell any of mine, before during or after
the fun. I thought the big drop and the 8c close
on Tuesday evening fair, all things considered, so
today’s 5c price looks oversold to me because the thing is (and I didn’t want to say this out
loud during the trading week else be accused of trying to prop up a failing price for my own
ends), the results weren’t all that bad. CEO Carman summed it up in his NR comments which
included
“...La Puerta is an extensive and continuous gold epithermal vein system with
mineralization drilled only over 700 metres and open in all directions”, and
then, “La Puerta is one of multiple target areas over 6 km of strike at the
Suriloma project.”
Now I’ve been there, seen the thing and know there’s a whole bunch of good places to explore
which could yield far better results than the two programs seen so far. Also, the numbers
returned both last week and in the first program in 2013 show that they’re not wrong about
Suriloma’s potential for gold rocks because they’ve found good ones already, just not in the
widths (or grades, or both) you’d need for a mine. This is not a dead project, not by any
means.
However, we also need to take into account DAR’s corporate position, which is one that’s
basically spent its cash on a program that hasn’t given them a break and left a company with a
thin treasury. Yes, there’s enough to limp through for a while but another line from the NR,
“Overall, management is conducting a detailed review of the Suriloma property to consider and
plan next phase work programs”, says it clearly enough.
To sum up, we have the following at DAR.v today:
• Disappointing drill results
• A project that’s still prospective in other locations of the site
• A company that doesn’t have the funds to push forward aggressively
• But still a company with a strong brains trust, now at a deep discount price
The bottom line is that I’m tempted to dump the position but see little point at the moment, it’s
gone too low, it’s worth more and its corporate side and contacts and/or other property news
could easily add the penny or three back to this oversold level and put it at a price that’s easier
to exit (8c? 10c?). With the world suddenly discovering the juniors again and asset-rich/cash-
poor companies getting a boost, DAR and its large book of Peruvian properties could re-rate all
by itself, without a penny of credit from Suriloma. As I’m not in a hurry for the “rather small
21

amount of) cash tied up in this equity, I’ve leave it a while and see what happens.
Dalradian Resources (DNA.to): Whoosh! DNA got momentum, love and the financing is now
yesterday’s news.
This is one that’s not going to get much of a write-up today because aside the impressive price
move, nothing fundamental is going on. Happy that the bought deal theory is working out,
though, good indicator for the near-term future of TGM.v.
B2Gold (BTO.to) (BTG): Another one that’s not going to get big script this edition, but just a
quick note to say that we nearly broke back into the green on our long suffering position (well,
half position, but you know what I mean). The other thing is to say that this position is going
nowhere and will stay solidly as a central pillar of the portfolio. Back quality, period.
The Copper Basket
After seven weeks of 2014 The Copper Basket is showing a 21.16% gain to level stakes.
company ticker price 1/1/14 Shares out Market Cap current pps gain/loss%
1 Augusta Res AZC.to 1.51 144.41 512.66 3.55 135.1%
2 NGEx Resources NGQ.to 1.43 168.71 280.06 1.66 16.1%
3 Reservoir Min. RMC.v 4.97 41.76 260.58 6.24 25.6%
4 Lumina Copper LCC.v 6.29 44.07 233.57 5.30 -15.7%
5 Hot Chili Ltd HCH.ax 0.425 333.11 146.57 0.44 3.5%
6 Nevada Copper NCU.to 1.35 80.5 136.85 1.70 25.9%
7 Copper Fox CUU.v 0.375 402.96 130.96 0.325 -13.3%
8 Western Copper WRN.to 0.76 93.68 84.31 0.90 18.4%
9 NovaCopper NCQ.to 1.60 53.4 83.84 1.57 -1.9%
10 Panoro Minerals PML.v 0.35 204.71 61.41 0.30 -14.3%
11 Curis Resources CUV.to 0.57 74.79 55.34 0.74 29.8%
12 Coro Mining COP.to 0.10 159.37 27.09 0.17 70.0%
13 AQM Copper AQM.v 0.11 139.05 20.86 0.15 36.4%
14 Cordoba Min. CDB.v 0.45 31.88 19.13 0.60 33.3%
15 Oracle Mining OMN.to 0.27 49.03 9.07 0.185 -31.5%
NB: HCH.ax priced in AUD$, rest CAD$ Portfolio avg 21.16%
A big jump for the basket, helped of course by the jump in Augusta Resources (AZC.to) from
the Hudbay takeover bid we mentioned last week in IKN248, but pushed further by plenty of
22

strong showings in other components. In total there were eleven winners on the week (not
listing them all), one unchanged stock
(CUU.v) and three weekly losers (LCC.v, The Copper basket 2014, weekly evolution
PML.v, OMN.to) which couldn’t take 25%
advantage of the good-time feeling. Best
20%
of the winners was Augusta Resources
(AZC.to up 41.4%), which was followed 15%
by the strong moves in Western Copper &
10%
Gold (WRN.to up 28.6%), Coro Mining
(COP.to up 25.9%) and Nevada Copper 5%
(NCU.to up 23.2%). Worst loser was
Oracle Mining (OMN.to down 27.5%). 0%
jan5th 12th 19th 26th feb2nd 9th 16th
source: IKN calcs
I noted with amusement that the red
blotches on the above table now exactly
matches this part of my forecast table for the 2014 year, back in IKN244 (though admittedly I
did say AZC would be neutral for the year and it’s now up by 135%)
Negative in '14
LCC.v
CUU.v
NCQ.to
PML.v
OMN.to
While all this was going on, copper prices didn’t do so very much (it was miners getting the
sector boost, not metals getting more expensive). Yes copper ose some, but the bottom-top
trading range was 6c and both ends were well inside our now established trading range.
The most interesting copper market news was from earlier in the week (7). What happens is
that first on Monday Trafigura delisted eight of its metals warehouses in Antwerp in Belgium
from the London Metal Exchange books, then on Tuesday Glencore Xstrata announced it was
de-listing 14 of its metals warehouses at Vlissingen in Holland. All 22 warehouses are said to be
empty at the moment so immediate metals numbers at the LME won’t be affected, but the
message here is clear enough; the big players aren’t happy with the new regulations being
imposed upon them by the LME and are doing something about it. There are many ways in
which this story may play out, but one of the most obvious is that LME loses its popularity and
therefore its power over price discovery for the base metals complex,
23

Added to the above, there’s already an interesting story beginning to unfold in copper
inventories which may have long-lasting effect on the metal’s market, so watch out folks! And
hey, this is why I bore you with this section every week; all that continued drudge and now it’s
payoff time ☺. Total world stocks rose by 20,745mt (4.4%) to finish the week at 474,882mt.
Inside that number, LME stocks dropped by 8,900mt (2.9%) to 299,125mt and another
psychological barrier broken that would normally be a bullish signal for prices, but this time it
ain’t necessarily so. The minor player Comex saw stocks drop by 922mt (5.4%) to finish at
16,161mt. And so to the real news, once agian coming from the Shanghai Futures Exchange
warehouses in China. They saw stocks rise by a whopping 30,567mt (20.4%) to finish the week
at 180,341mt. That’s the biggest total share of world stocks held by Shanghai since December
2012, it’s also less of a trend forming a more of a full-blown rush.
That’s a big shift in world stocking dynamics and along with the news we mentioned above last
week, that 22 Dutch warehouses owned by Trafi and Glencore companies have been de-listed
from the LME, the indications are of an LME which is in for a real fight to remain the price driver
and centre of price discovery for copper in the year ahead.
Now for some updates on component stocks on just two of our component stocks:
Augusta Resources (AZC) (AZC.to): Hands down the stock of the week and one that I
didn’t manage to read at all well, personally. The
five day chart shows the story of how it started
much higher on Monday and then just kept on
accelerating (while I was expecting it to come
down and it didn’t). Drivers of this big move start
with the way in which the whole market rallied,
helping Hudbay (HBM) and therefore translating
the arbitrage of the all-share offer directly to
AZC. But it also went with the unsolicited aspect
of this offer and the market quickly started
baking in the likelihood of a sweetener of even
perhaps a competing bid for AZC. On those tow
I’m not so very sure, but then again I’m the one
that’s called this stock badly so WTFDIK?
In the end, my interest is now academic in this deal, it’s for somebody else and I’m not getting
involved (and I stick with my doubts over the permitting future of Rosemont, to which I add
doubts as to whether HBM is biting off more than it can chew right now). I like the added
impetus for other M&A deals this event has brought, but that’s all folks.
Oracle Mining (OMN.to): Here’s an interesting set-up and one that might attract the spec
buyer in you that’s looking for a cheap trade. OMN
got hammered into the end of the week through a
few small trades on Thursday then one 100k block
Friday and the only reason seems to be somebody
wanting out in order to deploy the cash somewhere
else, there’s nothing going wrong (or any further
wrong) with the stock.
As this second three month chart shows, OMN has
been through this type of distressed selling before,
only to bounce back through the 20s and into the
low 30c range. Yes the stock is illiquid, but it now
has a corporate sponsor to move its development
cycle forward at Oracle Ridge and its the type of
team that doesn’t going around doing big arm-waving moves until they have something solid to
24

show to the market. Somebody’s patience snapped last week and they were good about getting
out at any price, which means OMN is now too low and given a level playing field, will rebound.
Lumina Copper (LCC.v): The flipside to AZC’s news was felt by LCC, (and note that Ross
Beaty is deeply invested in both companies),
as one junior’s success in attracting a bid is
another’s spotlight on geographical risk. LCC
can’t catch a break and as this 12 month
chart shows, traded volume is fading too.
If some sort of promo on Argentina is
forthcoming over the next few weeks (and
PDAC is not so very far away now), LCC.v is
in the frontline of stocks that might benefit.
But it’s not for me.
By the way, regular Copper Basket watchers
have noted and commented to me that every
time I mention LCC as a failure or a laggard,
it pops hard the next week ☺
Cordoba Minerals (CDB.v): Positive news from CDB Wednesday when it announced that a
drill rig has been mobilized to its project in Colombia (8). The results from this program will be
more indicative of the prospects that Montiel hosts a large copper deposit, as this time around
some real exploration gets done rather than hole-twinning. We can expect CDB to churn out
news all year.
The Low Cost Producer Basket
After 7 weeks of 2013, the Low Cost Producer Basket is showing a 20.00% gain to level stakes.
25

company ticker price 1/1/14 Shares out Mkt Cap (Bn) current pps gain/loss%
1 Freeport FCX 37.74 1040 35.10 33.75 -10.6%
2 Goldcorp GG 21.67 812 22.37 27.55 27.1%
3 Barrick ABX 17.63 1000 20.34 20.34 15.4%
4 Newmont NEM 23.03 497.87 11.86 23.83 3.5%
5 Silver Wheaton SLW 20.19 357.39 9.07 25.38 25.7%
6 Franco Nevada FNV 40.74 147.01 7.63 51.89 27.4%
7 Agnico Eagle AEM 26.38 173.43 5.85 33.72 27.8%
8 Pan American PAAS 11.70 151.41 2.16 14.24 21.7%
9 B2Gold BTG 2.02 651.4 1.81 2.78 37.6%
10 First Majestic AG 9.80 117.02 1.43 12.19 24.4%
all prices in U$, using NYSE ticker prices Portfolio avg 20.00%
The basket average popped hard, added over 11% and bizarrely finished the week exactly
20.00% up year-to-date (if you like round numbers). All components made gains, with the best
from First Majestic (AG up 13.7%), Silver Wheaton (SLW up 12.2%) and Newmont (NEM up
10.7%), which pleased me after calling
it undervalued to peers the last two The Low Cost Producer Basket: Weekly performance and
comparative to GDX control
weekends. Next to our GDX control the
30%
basket dropped more ground, mainly
because of the continued lagging on 25% basket
Freeport (FCX), best guess. gdx control
20%
15%
This exercise is beginning to show its
fruits and what we can see is how, in 10%
general with exceptions (GG) the
5%
larger cap end of the low cost
producers haven’t performed as well 0%
as the lower end. Draw a line at Dec31st jan5th 12th 19th 26th feb2nd 9th 16th
U$10Bn market cap and those below source: Yahoo! Finance, IKN calcs
are all performing very strongly with
the worst of our little lot the very respectable 21.7% YTD in PAAS.
Which for me suggests that the bigger caps are about to play catch-up. The first bloom may
now be behind us and if the indications play out, new cash is about to get dumped into the
mining sector, the type of cash fund cash that needs big caps and strongly liquid vehicles to
support it. After all, much as I like B2Gold it can’t offer the U$300m in average daily volume of
ABX or the U$230m in NEM. Up at the top of today’s letter I made passing reference to how the
bigger cap were in a neat position today, even though they’re largely outside the scope of The
IKN Weekly. If we’re about to see a new bull market form for the miners, the big money needs
to be positioned. If that happens, the 25% wins you see in the bottom of that table will be
replicated by those at the top.
Regional politics
Argentina: macro check-up and mining scene
Venezuela’s latest snafu will get no coverage here because it’s simply the worst place on the
continent to go speculating with miners (and that’s saying something) but my views on the
Venezuela macro political scene were made on the blog (9) last week. Perhaps foreign media
attention was drawn away from Argentina by the Venezuelan flare-up, but the disinterest must
also be related to the way in which the country of the gaucho is now getting its house in order.
Main macro indicators are going the way of stability, with the official exchange rate closing
Friday at ArgP$7.79 to the dollar (7.87 this time last week, 8.03 the week before that) and the
unofficial ‘Dolar Blue’ also gaining well to finish at ArgP$11.70. Most interestingly, the Argentina
26

Central Bank International Currency reserves saw additions in the last three days of the week
(so much for the predictions of direct and non-stop capital drainage) and stand at U$27.823Bn
(10) this weekend, still lower than the U$28Bn point on the devaluation day but moving back
up. For what it’s worth the Argentina Central Bank (BCRA) forecasts a return to U$28Bn by the
end of the month, then a period of stability, then extra inflows of dollars in the April-June
period when the soybean grain revenues flow into the country (and this year is a record
harvest).
Argentina: "Dolar Blue" (unofficial street dollar rate) in Pesos
13.5
13.25
13
12.75
12.5
12.25
12
11.75
11.5
11.25
11
10.75
10.5
10.25
10
27
22
naj
42
naj
62
naj
82
naj
03
naj
1
.bef
3
.bef
5
.bef
7
.bef
9
.bef
11
.bef
31
.bef
source: @dolarblue/La Nacion
$U
rep
$PgrA
The other big Argybiz news last week (11) was the January 2014 inflation numbers announced
by new FinMin Kicillof. At 3.7% it’s the highest number for over a decade, but it was received
warmly by the financial community as it’s interpreted that the country is finally coming clean
about the real rate of inflation, instead of trying to BS the world. More importantly, it reinforced
the idea that there’s real fundamental change going on at macro policy level. Or if you like, the
world is catching on to the sentiment your author voiced four weeks ago in IKN246:
“This is clearly a new strategic decision by Kicillof and his team that looks to clean up
the country’s macro-financial situation; it may not be the last one and it also invites a
near-term of rough going for the country (markets not liking uncertainties and all
that), but we should wholly welcome this positive move. It’s a clear sign that CFK & Co
recognize that its current model is unsustainable.”
Yeah, toot toot aren’t I wonderful?
Moving to Argentina mining matters and some positive noises from Goldcorp (GG) in its 4q13
results conference call about the atmosphere at its Cerro Negro gold project last week (12).
The company now expects first pour in the middle of this year and there’s been good
development at the project over the last quarter according to company moneyguy, Russell Ball.
Equally, he viewed the recent devaluation as a positive, but only in terms of cutting the price of
direct costs once Cerro Negro is in operation and even then, he didn’t want to venture a guess
to the size of that positive effect (smart guy, because inflation may eat away a lot of the gains
between now and then). It was also notable that he had his diplo-speak on when saying that “it
could be a little easier in the future” to work and operate in Argentina. Overall the tone was
positive and Cerro Negro looks set to be a fanfare story for both country and company later on
this year, though what you heard was also clearly company happyspin
Maybe due in part to the GG noises, I heard from both IKN Weekly subscribers and people out
there in the junior world who are getting hotter on the idea of moving in on the country and
picking up some cheap junior stocks. For those seeking my opinion, I once again offer your
author’s “Life Cycle of Juniors in Argentina” chart, first published on the blog in June 2012 (13)

.
Yes, there are a lot of cheap exploreco stocks out there (for what it’s worth, Argentex looks
really cheap to me if you absolutely insist on getting a high risk/high reward name out of me,
DQ ☺) but they’re not for me right now. This time may be different and I like what’s
happening, so far at least, up at the executive level. However, there’s a lot of space between
“good start on the macro” and “buy the juniors, they’re safe in Argentina now” and anyone
telling you otherwise and trying to ram you into the juniors there is rolling the dice and using
your money to do so. Listen up folks, I speak fluent Spanish, lived in the Argentina for five
years, follow their political and economic scenes closely, have a good idea about the culture
and what makes the people tick and I don’t have any agenda about what’s ideologically right or
wrong for the country...and I don’t have a freakin’ clue about the juniors there, not yet anyway.
So if you feel like going in because a monolingual analyst sitting 5,000 miles from Buenos Aires
who went there once for tango lessons tells you it’s a sure thing right now, then be my guest.
Chile’s government boosts Pascua Lama
Chile’s congress reported on its investigation into the Pascua Lama debacle last week and
surprised many industry watchers with its leniency towards the company (14). The investigating
committee was expected to demand the annulment of current environmental permits and also
ask that the company go through the protocols required by the OIT169 agreement for locals’
approval before the project can go forward. Instead, by a 10 to 2 vote it applauded Barrick’s
(ABX) attitude since the Pascua Lama problems came to light, said it was rectifying its mistakes
well and would recommend to the full congressional chamber that ABX needs no new permits
or formal local approval to develop the project.
This is an unexpected boost to the project and assuming the the full congress votes to uphold
the committee recommendations (normally very likely, though I’m sure President Piñera would
want that vote to happen before he hands over to Michelle Bachelet on March 11th) we’d expect
the positive vibes to be felt in the share prices of both ABX and SLW.
28

Peru: Protests to re-start at Candente Copper’s (DNT.to) Cañariaco: Next weekend will
see a 48 hour protest march by the locals around the Cañariaco copper project (15), according
to local community leaders who spoke to Peru media on Friday after the meeting to decide on
action. The locals said that there would be around 4,000 people in the march and they’d
represent all sectors of the communities in and around the area, as opposed to the 300 from
one specific area that DNT gathered a few weeks ago.
Further down the line, another protest is slated for March 15th and 16th, then on April 12th and
13th representatives from the Interamerican Court of Human Rights (CIDH), the judicial body
where Cañaris locals have lodged their international court case against DNT and the
government of Peru, are scheduled to visit the locality on a fact-finding mission.
Mexico less attractive to mining says Canadian in Mexico
In an interview with Mexican national daily newspaper El Universal (16) president of the
Canadian Chamber of Commerce in Mexco, David Robillard said that the combination of the
lower prices of metals and higher taxation and state burdens (including last year’s new royalty
payment law, covered in detail in editions past) were putting Canadian mining investors off
from coming to Mexico. Also, some smaller companies had already packed their bags and left
and another 200 mines or mine projects over the length and breadth of the country were now
at risk from becoming unprofitable due to (he says) the changes in the playing field. He went
on to say that around 12 more companies were thinking of leaving, though stressed that the
majors would stay and continue to operate. 70% of juniors in Mexico are of Canadian origin.
Nicaragua: The election rule change goes through
It didn’t attract much attention in the English language press, but on Tuesday 11th Nicaragua
enacted the Constitutional change that allows current President Daniel Ortega to run for re-
election once again (17). We could go into the local political ramifications of this (supporters
happy, opponents aghast, world suspicious about a man in power since 2007 and muttering
something about bananas and republics under its collective breath, etc etc) but for us the
mining investors it means that one of the most supportive presidents towards mining in the
region will almost certainly get re-elected in 2016 and stay at the top until 2021. Nica looks set
to stay the happy hunting ground for explorecos that it’s become under Ortega and that’s not
something to be taken lightly.
As mentioned previously, I just wish there were an exploreco I could get excited about there.
Time will tell.
Market Watching
One general market comment
There’s not going to be much in ‘Market Watching’ this week because there’s a lot of coverage
on stocks we watch and own above (the word counter just told me there are 17,000 words in
this edition) but I do want to underscore a couple of things and here, away from all the noise,
will do just fine. Those two things are:
This is the most bullish I’ve been about the juniors market in years. They say a week is a long
time in politics and that goes for market too, because although optimistic and seeing new
attitudes emerge I was still leery in IKN248. That has changed, this is not a test, it’s not based
on hope, there is new money flowing and flowing quickly into the sector and this move will
consolidate and last. Gold may re-test $1,300/oz or it may climb further before taking a rest,
but make no mistake that the miners will improve from here; they’re not made or metal, they
make metal and they’re going to go higher. Be long this market.
Whatever other ideas are floated in The IKN Weekly, if you just take one thing only away from
what I write let it be this: Buy Rio Alto Mining (RIO.to) (RIOM). It’s the nature of the analyst
beats to be constantly on the lookout for new opportunities, ideas and trades and although I
29

like a all my long positions and will happily hold GORO short through the next phase as it self
destructs, there’s a difference between fair, good and great trading ideas and an absolute no-
brainer idea: RIO is going higher this year, much higher.
Marlin Gold (MLN.v) redux
After last week’s short comment on MLN, I was kindly contacted by one of the people at the
centre of the story who noted the following:
We have to update our npv slide, or make it clear that
the pea npv INCLUDES -28m of CapEx and -3.5m of working
capital. So without quibbling about whether our PEA is
out of date (it is, and we'll hopefully have
reserves/reportable mine plan this half), shouldn't the
pea npv (@1250) number be 41m + 31.5?
And that’s fair comment. It also makes MLN that much more interesting as a longer-term
investment proposition.
Conclusion
IKN249 is done, we end with bullet points:
• I’m going to buy some more Minera IRL next week.
• Be bullish about this market. You really don’t need to take my advice on the specific
stocks and playing bigger cap miners right now (ABX, GG, NEM, etc) makes a whole lot
of sense from where I’m sitting. But don’t sit on the fence, that’s all.
• Santacruz Silver (SCZ.v) is such a clear takeover target that it hurts. Nice assets, cheap
price and would happily merge in order to raise the cash to transform their ideas into
mining reality.
• For what it’s worth, I think that piece I wrote on Argentina today is the best article I’ve
written in months.
• Watch the copper inventory numbers, especially that one in Shanghai. There may be a
story developing and it’d be one that explains why copper isn’t rallying with the rest of
them, too.
• I haven’t forgotten about the vacation show, but I’m having real problems with the
memory card.
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/ten-ikn-random-predictions-for-2014.html
30

(2) http://finance.yahoo.com/news/true-gold-mining-inc-announces-215400869.html
(3) http://finance.yahoo.com/news/santacruz-silver-announces-c-8-125900715.html
(4) http://finance.yahoo.com/news/santacruz-silver-announces-increase-previous-220500001.html
(5) http://incakolanews.blogspot.com/2014/02/darwin-resources-darv.html
(6) http://finance.yahoo.com/news/darwin-drills-15-6-metres-134500800.html
(7) http://in.reuters.com/article/2014/02/11/warehousing-lme-idINL5N0LG3Y620140211
(8) http://finance.yahoo.com/news/cordoba-minerals-announces-mobilization-rab-133000971.html
(9) http://incakolanews.blogspot.com/2014/02/the-reason-why-venezuela-2014-is-not.html
(10) http://www.lacapital.com.ar/economia/El-Banco-Central-estima-retornar-a-los-US-28.000-millones-de-reservas-
20140215-0052.html
(11) http://www.bloomberg.com/news/2014-02-13/argentina-says-prices-rose-3-7-in-debut-of-inflation-index.html
(12) http://seekingalpha.com/article/2019981-goldcorps-ceo-discusses-q4-2013-results-earnings-call-
transcript?source=yahoo
(13) http://incakolanews.blogspot.com/2012/06/junior-mining-investing-in-argentina.html
(14) http://www.mch.cl/2014/02/11/sorpresivo-respaldo-del-congreso-pascua-lama/
(15) http://www.larepublica.pe/13-02-2014/canaris-protesta-este-22-y-23-de-febrero-contra-actividades-mineras
(16) http://www.eluniversal.com.mx/finanzas-cartera/2014/impreso/-8220mexico-pierde-atractivo-en-exploracion-
minera-8221-108040.html
(17) http://www.globalpost.com/dispatch/news/afp/140211/nicaragua-rules-changes-allows-ortega-run-again
Appendix 1: Flash update dated Monday February 10th (morning)
Good Monday morning, less than an hour after the open.
On watching the very bullish open for juniors, it's understandable why the sector is getting interest.
1) Gold up
2) Market participants feel the tide is changing for the sector.
3) The latest M&A activity.
etc.
There's fresh money moving back into the market, which is a good thing. However, I also see people baking in
assumptions of higher gold prices in the future and that's something I'm yet to be convinced of. It would only take a
reversal in gold for the latest burst of optimism to fall away and that's something largely out of the control of the miners.
The decision therefore is to take this opportunity and top up my Gold Resource Corp (GORO) short to the level i'd
planned on re-opening the position a few weeks ago, now that it's over U$5. However, for the time being I'm not going to
go for the other mused short potential play, Fortuna Silver (FSM) (FVI.to), because although looking expensive it's a
good and well run company which could hold its current momentum for a longer period. GORO is a different kettle of
fish and even the current pop in silver and gold is nowhere near enough to stop its run of net losses. Best, O
Appendix 2: Flash update dated Monday February 10th (evening)Good Monday evening, a
flash update to kill two birds with one stone.
First up, market action. I did indeed add to and complete what I consider to be my full short position in Gold Resource
Corp (GORO) this morning, as per the earlier Flash update. Since then the market has pushed on and tonight sees gold
at U$1,284/oz and if this holds I consider it a true bullish signal. I am happy to hold my GORO short due to its specific
fundamental company weaknesses, but obviously holding too much short position isn't so smart if I believe the miners
are going to go higher. We're in a fast-changing market at the moment which needs to be watched closely (unlike most
times in the last few months) and therefore no decision is getting made yet. However, if i decide to go longer on the
overall port in the next day or so, the most likely method will be to cover my short position in Tahoe Resources (TAHO).
Even though i still strongly believe the market is greatly underestimating the country risk faced by TAHO, the plain fact is
that the share price is going against me and at some point, it's going to go too far. I may shake my fist all i like, stamp
my feet and insist i'm wrong for the right reasons, but the bottom line is that the position is not working. Therefore,
freeing up some liquidity in the port by covering and closing the short is the best level-headed decision. Also, I want to
stress that I'm far more comfortable and confident about the GORO short, because that's based on clear numbers
working against the company, rather than a TAHO political risk that may trigger any time between tomorrow morning
and three years down the line.
I'm interested in seeing how Janet Yellen does in front of the Congressional committee tomorrow (fun starts 10am EST),
so any decision on this will surely wait until afterwards. But the final driver of any decision to cover or keep TAHO will
depend on the action in gold and silver during the rest of this week, period.Before moving on, I underscore that taking a
loss on TAHO won't bother me too much under the circumstances, as the port as stands tonight is still clearly net long
and today was another good, morale-boosting day. May they continue.Secondly, Don Coxe has started writing full scale
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reports again. Instead of calling it "Basic Points", it's now called the "Coxe Strategy Journal" but it's basically the same
format and formula. The first edition has just been published and some kind soul gave me the headsup. As I know that
Coxe's 'Basic Points' musings used to be popular among IKN Weekly readership, please find the report at this link (once
you hit download, give it a few seconds to start working).
https://www.dropbox.com/s/cfllwahbqbkhewg/Issue%20No%201.pdf
NB: i have downloaded the PDF onto my computer from that link, but apparently it's not uploadable into an e-mail, which
is why i haven't included it as an attachment (I was told it couldn't be mailed and i also tried three times). So basically,
that's your link Best, O
Appendix 3: Flash update dated Wednesday February 12th
Good Wednesday morning, a little less than an hour before the opening bell,
I intend to run the following trades this morning:
1) Cover Tahoe Resources (TAHO) (THO.to) short, for the reasons explained in Monday's Flash update and below.
2) Addition to True Gold (TGM.v). The "trade the bought deal dip" thesis got more confirmation yesterday from the sharp
rise in Dalradian Resources (DNA.to) and as TGM os slightly behind in the bot deal timeline and hasn't popped back to
its pre-deal level yet, it's time to add to the position. Readers are reminded that this is a near-term trading position and
in the event of a decent short term percentage win, they'll be sold back.
3) Addition to Santacruz Silver (SCZ.v) on this news today...
http://finance.yahoo.com/news/santacruz-silver-announces-c-8-125900715.html
...and $8.75m bought deal priced at $1.00 (no warrant, but 15% over-allotment that will almost certainly fill) being run by
Canaccord, the same brokerage behind the aggressive pumping of the stock in 2012. This bought deal fits right in with
our thesis on this new rush of buyer's market financings and I will happily add more on the open market today. Note that
I do not expect to get in at $1.00, as perhaps $1.05-$1.08 will be the best offer. We'll see, but i'm adding all the same.
General comment
I believe it's time to take a more outright bullish stance to this market. Gold continues to trade higher and the comments
from Fed Chair Yellen yesterday were mostly gold (and commodity) friendly. The market has taken the hint and
although the medium term isn't so easy to guess, the near-term set up is one that will continue to attract money into
mining equities. Therefore the TAHO short is close and extra money is put towards sepculative end juniors today. The
next likely step is to close the losing Pretium (PVG) short, but that can wait for the market (any unexpected downdraft)
and the financing that PVG needs to run soon.
After that we'll see how the land lies and whether this decent run from gold has longer-term legs. However, I stress that
Gold Resource Corp (GORO) will remain a firm short.
Best, O
Stocks To Follow Closed Positions, 2013
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
Starcore Intl SAM.to nov'13 C$0.235 08-sep-13 C$0.17 -27.7% ST trade didn't work sm loss
B2Gold BTO.to dec'13 C$2.22 28-nov-12 C$2.16 -2.7% closed ST trade to raise cash
32

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-jan-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-dec-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-apr-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
33

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.
34