IKN #261Premium

The IKN Weekly
Week 261, May 11th 2014
Contents
This Week: HOOP charity report next week.
Fundamental Analysis: NOBS update on Rio Alto (RIO.to) (RIOM).
Stocks to Follow: Overview, Timmins Gold (TGD) (TMM.to), Gold Resource Corp (GORO),
Dalradian (DNA.to), Rio Alto (RIO.to) (RIOM), Eco Oro (EOM.to), Santacruz Silver (SCZ.v).
Copper Basket: Overview, Reservoir Minerals (RMC.v), Augusta Resource (AZC.to) (AZC).
Low Cost Producer Basket: Overview, B2Gold (BTG) (BTO.to).
Regional Politics: Argentina: More early polling for the 2015 presidential election, Colombia’s
Environment Ministry “is bicycling” the páramo border decision, Mexico: Baja California Sur
latest, Uruguay: Update on the Aratiri iron ore project test case.
Market Watching: Almaden (AMM.to) (AAU) states the obvious, Goldquest (GQC.v): A
legitimate drill play speculation, Minera IRL (IRL.to) (MIRL.L): Meeting with CEO Chamberlain.
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
HOOP charity report next week
For technical and logistical reasons (some valid, others pathetic) I’m going to defer the report
on the local HOOP charity until next week. In this way I leave you all on tenterhooks as you
wonder just how many heartstrings I’m going to twang in order to get you to throw a bit of
cash towards a very good cause.
Fundamental Analysis of Mining Stocks
This week we update on our Top Pick, Rio Alto (RIO.to) (RIOM):
NOBS update report dated May 11th 2014
1

Rio Alto Mining Ltd. (RIO.to) (RIOM)
Company Overview
Rio Alto Mining Ltd. (Canada: RIO.to, USA: RIOM, Frankfurt MS2.f) is a producing junior gold
mining company operating in Peru. Its main asset is the La Arena open pit dump leach mine in
the La Libertad region of Northern Peru. Current share structure is as follows:
Shares out: 176.988m
Options: 7.732m
Warrants: none
Fully diluted shares: 184.72m
Current share price: CAD$2.15
Market Cap: CAD$380.52m
Approx cash per S/O: CAD$0.31
As RIO reports in USD, all prices are in US dollars unless stated. Forex U$0.90=CAD$1
Today’s update
We watch Rio Alto (RIO.to) (RIOM) more carefully than just about any other stock and cover it
closely, but that’s because it’s the single biggest position around these parts and carries most
portfolio weight in both monetary and reputation terms. Today’s update is based on its 1q14
financial results posted to SEDAR Thursday evening and announced pre-bell Friday (1) morning
(a tip; keep an eye on the new financial statements page (2) on SEDAR in the evenings, a quick
look never hurts and can help). I threw out a quick post Thursday evening saying ‘another
strong quarter’ so what follows will be a confirmation of that overall assessment, but as details
matter with a Top Pick stock and as this company is currently undervalued compared to what it
looks set to do in 2014, closer examination is warranted. In short, I want to get you junior mining
investment people longer in RIO.to than you currently are because as long as gold doesn’t fall
away from its current level it’ll make me look good in your eyes once the stock is back above $3
(or at least make up a little for pain caused in the past year or so).
Today’s isn’t a big examination of management, holdings or the producing asset. Today it’s
about the numbers, so let’s keep it concise and get straight down to business. We have results,
we have adjustments, we have a new target price, so on with the charts
Profit and loss details
Rio Alto put in a good operations quarter in 1q14, but to show you in a shorthand way how
things went on and also shine a light on the vagaries of company revenues release forecasts,
here’s a little table I’ve stuck together which compares the IKN forecasts (made after RIO.to
announced its production numbers for 1q14, see IKN257 for more) to the reality of the numbers
as posted last week. Under the table come a few bullet point notes
Rio Alto (RIO.to) (RIOM) 1q14: IKN forecast versus company reality
revenues COGS Amorts gross profit G&A Exploration Op earnings
IKN estimates 67.9 34.5 8 25.4 2 2 21.4
1q14 reality 65.088 34.938 7.768 22.382 1.279 0.579 20.524
difference 2.812 -0.438 0.232 3.018 0.721 1.421 0.876
source: IKN estimates pre-earnings, RIO.to earnings report
Firstly, I’d say that my guesstimates here were reasonable. Not good and certainly not great,
but close enough under the circumstances of following a small company that can always throw
in a small unexpected item and significantly alter a model’s estimates.
• On revenues, The IKN estimate of $67.9m was high by $2.8m (and bits). This mainly
because RIO.to paid back more of the forward gold loan facility than modelled (which is
fine by me, good to see the company paying it back while gold is at low prices). This
was countered by a better than expected average gold sales price of U$1283/oz (I’d
pitched at $1,270/oz)
2

• On Cost of Good Sold (COGS), our guess of $34.5m was pleasingly close and I’m
happy with that one.
• On Amortization/Depreciation, the same as above. We’d assumed a lower
amorts/deprec number due to the company adding resource ounces to the oxide gold
count and extending mine life and sure enough, that’s how it happened (down a big
$3.1m from the 4q13 item).
• On gross profit, the $3m miss was due to the lower revenues which was due to the
extra gold pre-payment done this quarter (5531 oz, when RIO was obliged to return less
than 2k oz). So Ok here.
• On G&A, I thought I was being a little conservative in pitching at $2m but was still very
pleasantly surprised to see G&A coming in as low as it did at $1.279m. The company is
running an efficient office.
• On exploration, RIO.to has cut right back and $579k isn’t much more than basic
tickover. Probably wise under the present market circumstances and definitely better
than the way the company has thrown a few too many millions at La Colorada, Santa
Barbara and Duran Ventures recently.
• Which brings us to operating earnings and my best guess turned out to be $0.876m too
high. As you can see from the previous items, estimates (really they’re guesses, but
analysts will never admit that) higher and lower than reality helped even out this paydirt
line a little so that in the end we weren’t so far away.
Overall, the model held together reasonably well and at the end, kicks out this chart of operating
and net earnings per share (12c and 7c respectively, within a couple of tenths of the IKN
forecast):
RIO.to: operating and net earnings per share
0.24
0.20
0.16
0.12
0.08
0.04
0.00
-0.04
3
21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 tse41q2 tse41q3 tse41q4
cents
op eps
net eps
source: company financials/IKN ests
And as you see from the above chart, your author’s expectations are for better things to come
so it’s time to think about that part of the
deal. Let’s start with production expectations RIO.to: Gold sales and forecasts
and this chart shows gold sold at market 80000
70551
prices (i.e. production minus minus forward 70000
gold prepayment ounces). 60000 55973 58081 56511 59157 52500 5250054200
48467 47932
50000
As for 1q14, 5,531 oz were delivered to Red 40000 30548 36355
Kite during the period which is approximately 30000
20000
$7.1m that would otherwise have been sales.
10000
We also note that RIO in its MD&A notes
0
says that the gold pre-payment agreement is
now paid up to end July. This means there
are now just over 5,800 ounces to deliver in
order to fully pay off the agreement. We
expect RIO to produce 55,000 per quarter on average in the rest of 2014, the top end of
21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 tse41q2 tse41q3 tse41q4
Oz Au
source: company filings, IKN ests

company guidance but eminently reachable, then 2,500 oz are subtracted from the next two
quarters then a little from 4q14 to cover the end of the gold payback.
As, on average over its running period, the pre-payment agreement has taken 1,941z from each
quarter of RIO, we can estimate a global average 2k oz Au/qtr boost for its top line revenues
once the whole thing is paid off. For sure that
depends greatly upon production in any given RIO.to: COGS per ounce sold
quarter, but the weight is now being lifted from 1000
869
the agreement and once totally free, we can 900 803
800 757 729
expect better numbers for things such as
700 640
COGS/oz sold. By way of example of the 600 532 571 574 600 564 564
influence the prepayment-free RIO will enjoy, if 500 452
RIO had sold all its production in 1q14 400
COGS/oz sold would have been at U$655/oz* 300
200
but as it is, COGS/oz sold is U$729/oz.
100
0
*RIO’s adjusted operating costs per ounce was $651, a
figure that’s similar-but-not-exactly-the-same as our
benchmark of COGS/ounce
But as that chart shows, we’re expecting the costs per ounce to drop significantly in the quarters
to come. Among influences that will make the company a cheaper cash cost entity are:
The expected reduction in strip rate as the year moves forward. We should recall that 1q14
included a period of programmed higher strip rate at La Arena and things are expected to move
to a much more favourable ore/waste ratio in the quarters, indeed the years, to come. This is
due to be the most positive cost effect for the company in the next quarters of 2014 and its
influence shouldn’t be underestimated. As RIO delivered good overall costs numbers for 1q14
even under this higher strip rate, things are looking particularly good on this score.
The connection to Peru national grid electricity, due in 3q14, which will give an estimated
$2m/qtr cost saving to the company (mainly from the production facility, which won’t need to use
diesel fuel generators for power any longer).
The end of the pre-pay facility (see above).
Therefore to sum up (and I realize today’s numbercrunch is cutting as few corners and not
going through things at RIO.to step by step, but as we’ve covered this stock so many times I
think I can get away with speaking in semi-shorthand for once) the assumption of better things
to come from RIO as 2014 rolls out assumes
• Unchanging gold price
• Production at top end of guidance (220k oz Au in 2014)
• Lowering costs due to largely baked in factors (as long as RIO the mining company
delivers on its guidances, something it’s been good at doing so far).
But before putting all that into an updated target price, let’s visit the balance sheet and see how
1q14 affected our model and how we expect things to develop there.
Balance sheet items
The main difference between our forecasts for RIO.to 1q14 balance sheet items and the reality
is that the company has paid down debt. That’s something I like to see from my junior producer
(the Timmins Gold (TGD) last week noted the same good practice at that company) because it’s
the move of a company that wants to make itself stronger in the long-term, rather than show a
flashy quarter.
Debt has jagged down hard, with $26.5 taken off the current liabilities items. With total liabilites
down to $70.8m it’s close to $20m less than our model and shows RIO is moving to strengthen
its balance sheet. Some of that was thew paying down of the forward gold loan ($3.446m gone
from that bill, which is now paid off until July 2014 and has a quarter’s worth to pay) but mostly it
4
21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 tse41q2 tse41q3 tse41q4
U$/oz
source: RIO data, IKN ests for 2014

was the reconciliation of accounts payable on both the current assets and current liabilities ends
of the company (both down around $21m). The overall impression is that 4q13’s balance gave a
false signal and now, 1q14, accounts have been cleaned and the real RIO situation is clearer.
RIO.to: Assets
400
350
300
250
200
150
100
50
0
However, adding to cash assets or subtracting from current liabilities makes no difference when
it comes to the baseline valuation metrics, because it turns out the same. Here above right is
the book value per share development and we’re up to $1.55 as at 1q14, a number that’s fully
expected to rise as the next quarters bring operational profits.
Working capital looks like this (above red chart) with 1q14 at $54.577m (the previous model
estimate for this was $63m and my main error
was caused by RIO investing in capital goods).
However, with less being spent in 2014 on non-
essential capital costs and the mine now proven
as profitable under the current gold price, we
expect working capital to com on in leaps and
bound in the next couple of quarters. Of that
working capital count, some $33.7m is cash
treasury which is still not as high as in 2013 but
is the highest in four quarters and now that
other expenses have been pared, we expect
cash flow to run to the bottom line in net profits
and thence to treasury in a regular manner.
The share count (below) has remained steady
for a while, with only minor options exercises adding to the pile. We’re just under 177m shares
out now (the number used for valuation purposes later) and that’s only going to change if a)
RIO.to decides to buy something and uses paper or b) it raises via equity for the stage 2
sulphide operation.
5
11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 tse41q2 tse41q3 tse41q4
$m fixed RIO.to: Debt Breakdown per qtr
other current cash 140
120
100
80
60
40
20
0
source: RIO filings, IKN ests
11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 tse41q2 tse41q3 tse41q4
source: company filings/IKN ests
srallod
fo
snoillim
LT debt
current debt
RIO.to: Book value per share
2.00
1.90
1.80
1.70
1.60
1.50
1.40
1.30
1.20
1.10
1.00
21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 tse41q2 tse41q3 tse41q4
100 RIO.to: Working Capital per qtr $
90
80
70
60
50
40
30
20
10
0
source: company filings, IKN calcs
11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 tse41q2 tse41q3 tse41q4
source company filings/IKN ests
srallod
fo
snoillim
RIO.to: Cash treasury per qtr
80
70
60
50
40
30
20
10
0
11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 tse41q2 tse41q3 tse41q4
source: company filings/IKN ests
srallod
fo
snoillim

RIO.to: Shares Out
200
180
160
140
120
100
80
60
40
20
0
6
11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 tse41q2 tse41q3 tse41q4
source: company filings/IKN ests
serahs
fo
snoillim
The bottom line to the balance sheet is that a) things look just fine and b) things will get better
as RIO sticks more and more cash into treasury from the profitable quarters to come. Liabilities
are coming down and will continue to do so steadily as the last 4$4.5m of the gold prepayment
facility is paid off, the cash position is fine and now building towards a sizeable chunk of that
eventual stage 2 capex bill (any shortfall is likely to come from a financial debt facility, but give it
a couple of years and RIO can probably pay nearly the whole thing from cash flow). All that
assuming it doesn’t do M&A with something else.
Valuing Rio Alto Mining (RIO.to)
Along with the assumptions outlined above as regards costs and production, the only other
variables to mention before laying out the adjusted model tables are
• As with other analyses this year, I assume that gold stays at U$1,300/oz for the first half
of this year and then improves modestly (I’ll leave the to-da-moon speculation to other
people) to U$1,350/oz average for the second half of 2014.
• U$0.90 = CAD$1, the standard forex for our current period of analysis
• Sustaining capex is kept low, at $0.6m for each quarter. This is a guess and affects free
cash flow calculations more than anywhere else, so as we’re using EPS as our baseline
it doesn’t matter so very much.
So here’s our abridged income items table for the 2014 quarters:
Rio Alto: March 2014 qtr and next three quarter ests
Mar.14 Jun.14est Sep.14est Dec.14est
Total sales ($m) 65.1 69.0 70.9 73.2
Cash COGS 34.9 33.6 33.0 31.9
Depreciation 7.8 8.0 8.2 8.4
SGA 1.9 3.0 3.5 3.5
Op income 20.5 24.4 26.2 29.4
Interest 0.0 0.0 0.0 0.0
Workers Part. 0.5 1.0 1.0 1.0
Tax 8.1 7.0 7.6 8.5
Net income 11.9 16.4 17.6 19.9
Shares out 177 177 177 177
EPS $ 0.07 0.09 0.10 0.11
FCF/share 0.11 0.13 0.14 0.16
Sources: IKN estimates

Thanks to better gold sales and lower costs, we’re expecting improved operating income and
then thanks to relative tax burdens, even better things from the bottom lines of the quarters to
come. I really haven’t seen many people picking up on the fact that 1q14 was RIO’s worst for
strip rate in the foreseeable future (not just 2014) and that’s going to make a significant
difference to costs. Then then grid power comes on and things get even better, so we’re in the
envious position of only needing $1.3k gold to get better numbers from an already discounted
gold mining company here. OK, I’ll stop ranting and get to the target price:
Sales and earnings RIO.v Target price & valuation data
Mar.14 Jun.14 Sep.14 Dec.14 At U$1300/oz then $1350/oz gold
Sales (C$m) 65 69 71 73 6 month target $3.27 (based on 8x EPS
Sales growth 6% 3% 3% Upside to target 52% for 2014)
EPS 0.07 0.09 0.10 0.11 Mkt cap (C$m) $381 Enterprise value $407
Cash flow 0.11 0.14 0.15 0.16 P/sales (Mar.14) 5.52 EV/sales (Mar.14) 5.89
P/E (Mar.14) 32.0 EV/EBITDA (Mar.14) 14.4
P/E (Jun.14) 23.2 EV/EBITDA (Jun.14) 12.5
P/E (Sep.14) 21.6 EV/EBITDA (Sep.14) 11.8
You may have noticed that I move the target price on RIO from report to report. That’s because
I try to take into account the current atmosphere in the mining sector along with the future
potential of the stock. In this case I could value RIO.to at its current approximate 7X PE ratio
and that would generate a CAD$2.60 target, but that doesn’t seem enough because as 2014
moves along, I find it hard to imagine a market not offering this success story a better, more
peer average PE ratio. The current ~6X on net profits is stupid cheap for a profit making mining
company and is largely blamed on (excused by) anal yst fears of a short mine life (which is silly,
there are many extra years to come from here even before the sulphide ops are factored in,
they just need drilling out). Once those fears are allayed and RIO keeps on churning out the
profitable quarters, I expect the PE ratio to move up. This time I’ve chosen a still modest 8X
(could have gone for 9X or 10X, but those might assume too much sector optimism) which gives
us a target price of CAD$3.27 and a 52% upside to Friday’s close. If that’s not enough for you in
one year, find another Top Pick and forget The IKN Weekly forever.
Conclusion
Rio Alto Mining (RIO.to) (RIOM) has delivered another strong quarter’s worth of results in 1q14
and is on course to do even better as the year
continues. It trades at a big discount and you
should own tons of this stock because it only
needs a level playing field in order to rise sharply
this year. There are many stocks considered,
crunched and debated on these pages but none
has the same compelling combo of rock solid
fundamentals and deeply discounted share price
as this one. Own it. New 12 month target
CAD$3.27 and as long as gold doesn’t collapse it
will get there by Christmas, too. That blunt enough
for you?
.
Top pick. You bet
End of Report
7

Stocks to Follow
Of our 13 open positions last week, six went up (TGD, IRL.to, BCM.v, LRA.v, GORO short,
SRL.v) and seven went down (RIO.to, FCV.v, TGM.v, SCZ.v, EOM.to, COP.to) with a global
result of “not great, could have been much worse” from where I’m sitting, considering the gold
price and the generally weak market in many spots. Of the moves, biggest to the downside
came from the small and out of corporate favour Coro Mining (COP.to down 15.8%), the small
and out of political favour Eco Oro (EOM.to) and the small and out of main metal favour
Santacruz Silver (SCZ.v down 9.4%), while to the upside we saw the strongest percentage
moves from the short in Gold Resource Corp (GORO short up 17.6%) and Minera IRL (IRL.to up
10.3%).
We currently have 13 open positions on our ‘Stocks to Follow’ list, two less than our self-
imposed maximum. Four are green, nine are red, same as last week.
this Reco Current
Company Ticker week Avg Price date PPS Gain/Loss% Notes
Top Picks
Rio Alto Mining RIO.to str buy C$2.30 07-apr-11 C$2.15 -6.5% best LT value, $3.27 tgt
Recommended long positions (in current order of preference)
Focus Ventures FCV.v str buy C$0.23 01-jul-12 C$0.30 30.4% tgt 50c, added, avged up
Dalradian Res DNA.to hold/buy C$0.65 27-oct-13 C$0.92 41.5% Going well, tgt up to $1.70
Timmins Gold TGD buy U$1.39 09-apr-14 U$1.42 2.2% added, $2 tgt
Minera IRL IRL.to hold C$0.30 22-jul-12 C$0.16 -46.7% top pick called 24c, demoted
True Gold TGM.v hold C$0.395 02-feb-14 C$0.36 -8.9% LT hold, takeover play
Santacruz Silver SCZ.v hold C$1.04 26-jan-14 C$0.77 -26.0% added, now full position
Bear Creek Min BCM.v add/hold C$1.63 23-mar-14 C$1.50 -8.0% Ag/pol risk trade, avged down
Lara Expl. LRA.v hold C$1.15 08-apr-12 C$0.81 -29.6% solid biz model, LT hold
Eco Oro Min. EOM.to hold C$0.48 22-sep-13 C$0.285 -40.6% waiting on paramo res.
Recommended short positions
Gold Res Corp GORO cover? U$5.07 26-jan-14 U$3.57 29.6% Re-short now full position
Smaller/Riskier
Coro Mining COP.to spec buy C$0.125 26-jan-14 C$0.08 -36.0% Cu spec play, can add
Salazar Res SRL.v hold C$0.28 02-mar-14 C$0.18 -35.7% small risky spec, vg rocks
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 feb'14 U$13.10 08-apr-13 U$21.72 -65.8% short closed due to reality
Darwin Res DAR.v mar'14 C$0.10 14-jul-12 C$0.045 -55.0% tiny risk play dropped
B2Gold BTO.to mar'14 C$3.07 28-nov-12 C$3.35 9.1% closed to free up capital
Pretium Res PVG mar'14 U$5.38 22-nov-13 U$6.50 -20.8% short closed as port longer
2009, 2010, 2011, 2012 and 2013 closed positions in appendices below
Now for some notes on a selection of the above stocks.
Timmins Gold (TMM.to) (TGD): Added. As planned last week, and after waiting out the
early week action when TMM/TGD jumped higher, I added a few TGD to my position and
managed to click the cost average down a little into the bargain.
Gold Resource Corp (GORO): Thinking about covering and taking profits. Wrapping up
last week’s edition, one of the end bullets stated that, “The gloss is well and truly off Gold
Resource Corp (GORO)...”, and wow, was that ever the case last week. A big move for this big
8

short that papered over all the long side cracks in my personal portfolio with profits to spare.
This chart continues from last week’s exhibit and shows the last ten days of trading, marking
the point where GORO released its reserves report for Arista and the continuing consequences.
It’s been nasty for longs, but that’s their problem.
That bullet last week went on to say that “...but the quarterly filings for 1q14 will still be a key
factor in deciding whether I continue shorting this dog” and that is still very much in play.
According to GORO’s latest NR (3) the company will offer up a 1q14 conference call this
Tuesday coming (May 13th) which implies publication of the 1q14 numbers Monday evening or
Tuesday pre-open. We’re expecting operating profits to improve now that GORO can capitalize
its construction/exploration spending rather than deduct it from operations and as a result,
we’re expecting the Reids to make a song and dance about that. However and as mentioned in
the last couple of editions, the acid test will be treasury cash because if that starts to move
back up, GORO will have legitimate reasons to say they’re turning a corner. If not this one is
going to continue to be weighed down by its lacklustre fundamentals, but I’ll say out loud and
clearly that I’m now looking for a reason (an excuse if you prefer) to cover the short, take
decent profits off the table (this is a fairly sizeable position that’s seen two significant additions)
especially as it’s snapped the apparent $5 logjam and finally showing as a broken stock.
I’m making no decision without a good look at the fundies and that means perusing the 10-Q
when it hits in the next 48 hours.
Dalradian Resources (DNA.to): This is the
one position i hold that’s getting talked about
all the time in polite (and not so polite) mining
circles, the epitome of the fashionable
exploreco story. I’m not sure if that’s a good
or bad thing, but I know that I’m plenty up on
this position and as they tell you to let the
winners run until they can run no more,
there’s no reason to change a thing here.
Happy holder, let’s see if it can break $1.
Rio Alto Mining (RIO.to) (RIOM): Lots on RIO.to above today, here a word on its price
action and as the five day chart illustrates, it sagged with the rest of them midweek as gold lost
$1.3k, but did ok (without managing to break away) on Friday on elevated volumes once the
1q14 numbers were known. We’ll probably get a raft of brokerage analyses on the stock pre-
bell tomorrow and they’ll probably stick to their own preferred narrative. Just the way I’ve
done, in fact.
9

Eco Oro Minerals (EOM.to): The piece in ‘Regional Politics’ below sums up the indecision and
foot-dragging we’re suffering in this páramo de Santurbán saga, which is reflected in the stock
price here, drifting lower on zero interest. After thin king over the frustration (vented last
week), the call here is that I’ll dump EOM if the space is needed on this “15 maximum” list (it’s
the discipline the system brings) but if that 15th space isn’t needed EOM can stay at the tail end
of the main section list and bide its time until some sort of resolution comes along. This position
is a bit of a pain in the hind quarters, but it’s not a life-changer either and in the great scheme
of things I can grant it a modicum of patience.
Santacruz Silver (SCZ.v): A poor week for SCZ, dragged down by the weak silver sub-
market. The idea of holding some limited Ag exposure via SCZ and BCM was to poke the head
out above the proverbial parapet a little and add some risk to the portfolio. It was done gently
and as things have turned out, you could either say it was a mistake to have added anything or
it was smart to have taken it little by little, because silver’s looking particularly weak right now.
Not one I’m worried about overall, despite the nasty looking percentage drop so far.
The Copper Basket
After nineteen weeks of 2014 The Copper Basket is showing a 6.41% gain to level stakes.
company ticker price 1/1/14 Shares out Market Cap current pps gain/loss%
1 Augusta Res AZC.to 1.51 144.41 431.79 2.99 98.0%
2 NGEx Resources NGQ.to 1.43 168.71 354.29 2.10 46.9%
3 Reservoir Min. RMC.v 4.97 47.5 304.48 6.41 29.0%
4 Lumina Copper LCC.v 6.29 44.07 260.01 5.90 -6.2%
5 Nevada Copper NCU.to 1.35 80.5 161.00 2.00 48.1%
6 Copper Fox CUU.v 0.375 402.96 94.70 0.235 -37.3%
7 Hot Chili Ltd HCH.ax 0.425 333.11 91.61 0.275 -35.3%
8 Western Copper WRN.to 0.76 93.68 89.00 0.95 25.0%
9 NovaCopper NCQ.to 1.60 53.4 66.75 1.25 -21.9%
10 Panoro Minerals PML.v 0.35 204.71 61.41 0.30 -14.3%
11 Curis Resources CUV.to 0.57 74.79 54.60 0.73 28.1%
12 AQM Copper AQM.v 0.11 139.05 15.30 0.11 0.0%
13 Coro Mining COP.to 0.10 159.37 12.75 0.08 -20.0%
14 Cordoba Min. CDB.v 0.45 31.88 12.75 0.40 -11.1%
15 Oracle Mining OMN.to 0.27 49.03 7.84 0.16 -40.7%
NB: HCH.ax priced in AUD$, rest CAD$ Portfolio avg 6.41%
10

A mixed week for the list, with six names making gains (LCC.v, AZC.to, RMC.v, HCH.ax, NCQ.to,
CDB.v), three staying unchanged (CUU.v,
PML.v, AQM.v) and six showing weekly The Copper basket 2014, weekly evolution
losses (NGQ.to, NCU.to, WRN.to, CUV.to, 25%
COP.to, OMN.to). seven of our 15 basket 20%
components made gains. The overall result
15%
was a slight composite loss (basket average
down 0.94%) but that was due more to the 10%
chunky percentage losses seen at the
5%
smaller, more illiquid end of the copper
exploreco sector (COP.to and OMN.to down 0%
15.8%). On the other wide, decent moves
from Cordoba (CDB.v up 17.6%), Lumina
(LCC.v up 12.0%) and Hot Chili (HCH.ax up
10.0%) leavened things out, though they were
all rebound type moves rather than anything to
get newly excited about, methinks.
The overriding feel here is that of another
neutral-ish week for the sector, still in wait and
see mode.
Copper prices over the week had two phases;
the first was a gentle drop towards $3.02/lb
(futures contract rather than spot, our preferred
chart series) to midweek and then moving up
into the close on Friday. Copper finished slightly
higher than it started at ~$3.08/lb but we’re still
not breaking out and upwards from the new
developed trend. Those wishing to position
themselves long(er) copper have time to do so
while this gentle upwards trend continues,
because once it breaks higher (and the chances
of it breaking out higher rather than lower are
very strong, see the inventories commentary below for more on that) the real upmoves will
show themselves. I like copper from here.
A big weekly move in copper inventories to report this week, with all arrows pointing
downwards and once again, the signal we’re getting from the world warehouses is fully bullish.
So one by one:
• Shanghai Futures Exchange copper warehouse inventories dropped by 14,576 metric
tonnes (mt), a whopping 13.9%, to finish the week at 90,580mt.
• LME copper warehouse inventories dropped by 21,475mt, an also big 9.3%, to finish
the week at 208,325mt.
• The Comex warehouses copper warehouse inventories dropped by 341mt, or 2.1%, to
finish the week at 16,089mt.
Add them all up and the aggregate total is 314,944mt in inventories at the three world systems,
representing a a 36,442mt drop or 10.4% in percentage terms. That’s a big move by any
standard and comes on the back of the previous drops, as this end month (apart from our
current “now” figure on the right) shows clearly:
11
ht5naj ht21 ht91 ht62 dn2bef ht9 ht61 dr32 dn2ram ht9 ht61 dr32 ht03 ht6rpa ht31 ht02 ht72 ht4yam ht11
source: IKN calcs

Copper inventories, per month 2012-2014
1000000
900000
800000
700000
600000
500000
400000
300000
200000
100000
0
12
21.naJ bef ram rpa yam nuj luj gua pes tco von ced 31.naJ bef ram rpa yam nuj luj gua pes tco von ced 41.naj bef ram rpa woN
Mt Cu
LME Shanghai Comex
source: Cochilco
Those still bearish about China’s copper consumption have not been paying attention.
Now for updates on a few of our featured basket stocks:
Reservoir Minerals (RMC.v): RMC refuses to drop on volume and the light trading give no
clue as to direction, which means I’m still in limbo and wondering what to do about this most
attractive prospect (or put another way, “Which wrong decision shall I make this time?”). I’m
now leaning towards taking a small foothold at current prices and then seeing what happens,
but it’s a bit of a kop-out call because even if it shoots up after that then FCX buys RMC out for
a very pretty penny, my hard cash win wouldn’t be so great and bragging rights about a small,
late-taken position would just be so much bullshit on my part (a double dose, in fact). I remain
undecided, but I also remain ready to change that and send out a Flash update to announce
any eventual purchase...just wish the market would do something to the stock first instead of it
fiddling around in a light breeze.
Augusta Resource Corp (AZC.to) (AZC): The most interesting junior copper news last week
came from here, when on Monday (4) HudBay Minerals (HBM) decided to extend its hostile bid
offer for AZC to May 16th. A lot of people were expecting them to go for June 15th instead,
which would allow one day after the lapsing of the current shareholder rights plan (aka poison
pill) is due to expire, but it would seem HBM is making a type of strategic chessmove. This way,
there is of course a chance that HBM lets the hostile bid drop at the end of this week coming (I
wouldn’t blame them considering the permitting doubts that are again swirling around the
stock) but it’s likely to be a type of staging post extension and HBM are expected to extend
again by one month.
Which makes this put-up-or-shut-up time for AZC, who have told the market they have other
potential buyers at better terms, the veritable White Knight, and when AZC pres/CEO Clausen
said as much last week the stock rallied in expectation. Meanwhile, it’s certainly a bullish bet for
HBM, which matches that company’s leveraged strategy to common in the medium/long term
as it takes out financing in order to cover its expansion aspirations. Personally, I see this whole
thing ending in tears and prefer to simply avoid the mess in the making. Somebody else with
larger cojones than I can speculate on the outcomes here and make their killing.
The Low Cost Producer Basket
After 19 weeks, the Low Cost Producer Basket is showing a 9.77% gain to level stakes

company ticker price 1/1/14 Shares out Mkt Cap (Bn) current pps gain/loss%
1 Freeport FCX 37.74 1040 35.27 33.91 -10.1%
2 Goldcorp GG 21.67 812 20.18 24.85 14.7%
3 Barrick ABX 17.63 1000 17.23 17.23 -2.3%
4 Newmont NEM 23.03 497.87 11.96 24.02 4.3%
5 Silver Wheaton SLW 20.19 357.39 7.75 21.69 11.8%
6 Franco Nevada FNV 40.74 147.01 7.22 49.08 19.5%
7 Agnico Eagle AEM 26.38 173.43 5.64 32.51 23.2%
8 Pan American PAAS 11.70 151.41 1.92 12.67 8.3%
9 B2Gold BTG 2.02 651.4 1.80 2.76 36.6%
10 First Majestic AG 9.80 117.02 1.09 9.32 -4.9%
all prices in U$, using NYSE ticker prices Portfolio avg 9.77%
With a score of eight down (use deduction, my dear Watson) and just two up (FNV and the
new market fave AEM), it was a
negative week for the larger producer The Low Cost Producer Basket: Weekly performance and
stocks which followed the action in comparative to GDX control
35%
gold quite closely. Nobody’s panicking
30%
about a bullion price that jinked down
25%
but stayed inside its recent trading
20%
range, but then again the drop was
15%
taken into account via modest sector
10%
discounting. And onece again the silver
5%
names (AG down 4.8%, PAAS down
3.9%, SLW down 3.9%) took a bigger 0%
relative hit to the gold names as the
true asset metal continues to
outperform its lesser, semi-industrial
cousin.
As for our control level, the GDX ETF, the gap is
now down to 2.53% which is the smallest since
February and as half of that is the
underperformance of the coppery-goldy FCX,
we now have a more sensible situation from
our chosen low-cost stocks than a couple of
months ago. Our picks and their flat-weighted
influence on our index still aren’t
outperforming, but we can see how some
players (medium-sized gold producers) are
doing better than others (silvers, biggest gold
players). Why that might be is up for debate, though one idea for the relative
underperformance of big gold versus medium gold is that the largest of the corporations tend
to carry a bigger debt load (credit lines, convertibles, etc) and as such are not as lean (and
mean) as the up-and-coming names.
B2Gold (BTG) (BTO.to): Because the earlier production report from BTO dated April 30th (5)
was pretty detailed and we already know gold produced (96,303oz), gross revenues ($129m)
and preliminary operating costs per ounce ($624) numbers, we can fully expect a couple of
things from the 1q14 financials that are due released pre-open Wednesday May 14th:
1) We’re going to get a lot of accurate estimates from analysts
2) The rather soft looking results are already baked into the share price
Therefore catalysts on Wednesday will concern any news of the development projects at BTO,
either via the filings or the company CC later that morning. For me it’s going to be a non-event
13
ts13ceD ht21 ht62 ht9 dr32 ht9 dr32 ht6rpa ht02 ht4yam
basket
gdx control
source: Yahoo! Finance, IKN calcs
Low Cost Basket: Percentage difference between
basket and GDX control, 2014
8%
7%
6%
5%
4%
3%
2%
1%
0%
ts13ceD ht5naj ht21 ht91 ht62 dn2bef ht9 ht61 dr32 dn2ram ht9 ht61 dr32 ht03 ht6rpa ht31 ht02 ht72 ht4yam ht11
source: ikn calcs, NYSE/Nasdaq data

and assuming a steady state gold price, we’ll stay around our current U$2.80-ish share price.
Still, I’m going to be on this CC because relatively expensive today or not, it’s still one of the
better gold mining companies out there.
Regional politics
Argentina: More early polling for the 2015 presidential election
As noted previously, if a week’s a long time in politics it’s an eternity in Argentina, but all the
same I’m keeping one eye on the early moves between the candidates and parties for the 2015
Argentina presidential election because a) it’s certainly going to be a politically important event
for the country that may set (or re-set) its political route after over a decade of ‘Kirchnerism’,
but also b) it may become a tradeable event for our sector.
We’re now beginning to sniff the run-up to the primary voting for each party and although
rather complicated and not a black and white situation at all (just as one example, pre-
candidates inside the broad-umbrella Peronist PJ party may choose to run for the government
candidacy post, may not do so or may swap and change in or out as the campaign progresses),
there is some sort of race already shaping between Sergio Massa and Daniel Scioli now that the
other potential government candidate, cabinet chief Capitanich, has been (voluntarily?) shuffled
to the back of the pack. Both Scioli and Massa are nominally government candidates, but Massa
fell out with the CFK government a while ago as is looked upon as a righter-wing-than-her
renegade (at the moment anyway), while Scioli has been making plenty of pro-CFK backroom
moves and looks (at the moment anyway) as though he’s going to get the type of official CFK
anointment that will give him a run through to the final stages at least. Along with those
“officialist” candidates we also have a loose (I’d even say strange) coalition of non-Peronist and
semi-Peronist left of centre politicos that go under the UNEN banner (they have several figures
who’d like to get the nomination, the primary system will decide on their pick) and then on the
right of the picture, current mayor of Buenos Aires city Mauricio Macri of the right wing PRO
party, one that espouses pretty standard neoliberal policies for the country (expect his
candidacy to be talked up by the pro-biz foreign press).
So that’s a quick and dirty overview of the field now shaping and according to an opinion poll
published in national (anti-govt) paper Clarín this weekend (6) Sergio Massa currently leads
voter intention with 20.6% and Daniel Scioli is in second spot with 17.3%. Mauricio Macri
scores 9.5% intention. Also come a gaggle of UNEN candidates that poll between 1% and 10%
(Hermes Binner the highest score so far, but this group needs to choose its single candidate
before any real block of intention is understood) while don’t know/no vote for next year is still
14

high, at 36% of those polled. It is early days, after all.
And although early days, the way in which the field is shaping suggests that Daniel Scioli has a
real shot of becoming the next President of Argentina and taking over from Cristina. It can’t
possibly be a confident prediction so early in the process, but the way in which he’s been
shoring up key political supporters (he now has San Juan’s Gioja on his side after some sort of
backroom pact, which is a key pre-Kirchnerite figure and a semi-kingmaker in the provinces) all
points to the candidate who’ll get the grassroots PJ or Kirchner PJ backing at the right time,
further along in the campaign. As as it happens, a Scioli President would be a positive for the
mining industry in the country because he’s already come out and made official and strong pro-
mining speeches which include last week as guest of honour during the Day of the Miner
celebrations in Jujuy Province (May 7th). Massa wouldn’t be a bad result for the mining sector
and neither would Macri (at first anyway, the chances of industrial relations strife in all sectors
further down the line would be very high though). The only clear negative for the mining sector
at the moment would be a strong showing from any eventual UNEN candidate.
As for a personal call, I’d be OK with Scioli as President, as Massa isn’t my idea of a
‘Presidenciable” (as they say round these parts) and lacks the necessary gravitas. Meanwhile
the shaky nature of the UNEN coalition doesn’t convince me in the slightest and looks more like
a vehicle to allow disparate national political characters to get a seat in Congress, While Macri
would be downright dangerous for the country even if his politics are the easiest for pro-biz
foreign observers to swallow. Therefore and while being no fan of Scioli, as a least worst he’ll
do for me.
Colombia’s Environment Ministry “is bicycling” the páramo border decision
A quick translation of one segment from this May 8th report (7) sums up the situation succinctly:
Avoiding the subject
For several weeks, different groups including environmentalists, local community
groups and mining companies have demanded the limitation coordinates for Santurbán
[regional nature reserve] from the Environment Ministry but have not received an
answer..
On being consulted about when the final cartography will be known, [Environment]
Minister Luz Helena Sarmiento said that, “The border is the same. It’s under revision
[for the specific locality of] Suratá and that’s all.We’re not going to publish the
coordinates yet”, this during her latest visit to the Berlín (Colombia) region.
This fits with the scene we’ve witnessed here in the last two months. Rather than deciding the
issue, Colombia’s environment ministry has deliberately fudged it (the term in colloquial Spanish
that comes to mind is “bicicletear”, or “to bicycle”, meaning to keep the wheels turrning and
kicking a problem into the future) and refuses to be transparent enough for decisions to be
made on all sides (locals to protest because they can’t mine any longer, locals to celebrate
because they can mine, environmentalists to kick up a fuss or even litigate, EOM to litigate or to
move project forward or both, and dozens of other variations too).
It’s unlikely to be sheer coincidence that the Presidential election is now just two weeks away,
as it’s in the best interest of any sitting government that aspires to re-election not to rock the
boat or provide fuel for opponents. By keeping things deliberately vague, Santos helps his
national cause in purely political terms and as we expect him to get the re-election after the
round two run-off in June, that’s when we may (and only may, sadly) get some sort of
resolution here.
Mexico: Baja California Sur latest
As expected last week, the newly installed anti-mine protests at the Baja California Sur (BCS)
parliament (protests in the building, permanently staffed booth outside, protesters with banners
available at any given moment) has brought the whole mine-or-not issue back into the public
eye in the region. Adding to the anti-mine cause were declarations made by the president of
15

the local association of hotels and tourism, who told the region last week (8) that mining
degrades the positive perception of the tourist towards any given destination and this
phenomenon could happen to them in BCS. He went on to say that BCS should convert itself
into “the Costa Rica of Mexico” by the promotion green tourism and was also adamant that
tourism was a better development option for the region than mining. Surprise surprise.
The man hasn’t heard about the explosion in the tourist industry of Peru, obviously.
There are valid anti-mining arguments and there are the bullshit claims and the above sits
firmly in the second category. However, it’s part of the fight for public opinion in BCS and it has
to be said clearly, that the pro-mining contingent are being beaten at every stage.
Uruguay: Update on the Aratiri iron ore project test case
This weekend saw a a march through the capital Montevideo protesting against the Aratiri iron
ore mine project. The march was the sixth annual protest against the project and all mining in
Uruguay by environmentalists and was attended “by thousands”, but the datapoint that caught
my eye (I’ll admit it had passed by by in the meantime, which was lapse of me) was that
although the Mujica government and Zamin Ferrous, owners of Aratiri, were due to sign the
definitive contract on the mine which would allow it to become reality back in January (we
reported this on these pages at the time) and despite various statements to the effect that the
deal has been “ratified” by both sides, it turns out that the contract has not yet been signed
into effect. With Uruguay now in its Presidential election year, the (lack of) real progress on the
project may agian be due to party politics dragging it down.
Market Watching
Almaden (AMM.to) (AAU) states the obvious
There are several things that set off my red flags regarding junior mining companies and one of
those is when a company uses a common situation to make out that something special or
different is happening. An example of that came Friday evening when Almaden Minerals (AAU)
(AAM.to) release a very short NR (9) that I reproduce here in its entirety (except for the
standard disclosure and legalbeagle stuff that accompanied it):
VANCOUVER, BRITISH COLUMBIA--(Marketwired - May 9, 2014) - Almaden
Minerals Ltd. ("Almaden" or "the Company") (AMM.TO)(NYSE MKT:AAU), in
response to third party enquiries, reports that it has entered into a number of
confidentiality agreements in respect of its various projects.
About Almaden
The question: What was the point in that? Most fairly established junior explorecos will have
confidentiality agreements (CA) signed with other companies and in fact, one of the things I’ll
ask any company’s officers on meeting them is how many they have in place at the moment.
Sometimes the answer is three, sometimes seven or 12 or whatever other number. The other
point is whether a company has active CAs with the other company (or companies) checking
out datarooms, visiting properties and in more advanced talks on potential deals or not. A
company officer is allowed to tell the snooping outsider (e.g. myself) whether they have CAs,
how many are in place and whether any CAs are further advanced in talks or potential deals.
They’re not allowed to say with whom they have CAs or any specifics of what they’re talking
about, but the point here is that AMM decided last week to dedicate a post-Friday bell NR to
something that’s normally taken for granted.
Why should that be so? Once you apply a dose of Occam’s Razor, there are only two reasons
that stand up to examination:
1) AMM wants to send a “we’re in play” message to the world.
2) AMM is trying to impress people who think CAs are a special thing.
16

The first one is possible. By stating the obvious, it could be using a bit of inverse logic to attract
the attention of people like me, who then dedicate musing and thought time to the company.
The idea here is that of a company trying to hint “a M&A deal is close” which isn’t something
they can possibly say out loud. However, if this is so then they’ve just mightily pissed off the
company that’s been courting them to an advanced stage, perhaps concerning the main Ixtaca
project or perhaps over the whole caboodle, and that would in turn mean that AMM thinks it’s
not getting a good enough offer from any suitor. But really, I can’t get over the fact that there
seems to be no particular strategic advantage for AMM to wink-hint to the world that they’re in
late-stage negotiations here.
That leaves the second option and that might be explained by this chart:
Perhaps AMM is feeling dumped upon by this market and has tried to drum up a bit of interest
by stating the obvious in order to attract attention from people who would be impressed by a
“hey guys, we got a CA” announcement. If so, it smacks of short-termism and not a little
desperation as well.
The bottom line is that AMM stated the obvious when it said it had CAs in place, which is
slightly weird. Whether it’s a nudge to the market towards upcoming M&A, whether it’s a type
of message to the larger suitor to try and gee the process up a bit or whether it’s just a “please
look at me!” call to people who might be more impressed than they should be, it doesn’t add up
and it looks suspcious and weird. I do not like suspicious or weird from my juniors.
Goldquest (GQC.v): A legitimate drill play speculation
By way of the briefest of heads-up, a couple of paragraphs to state that I’m considering
Goldquest (GQC.v) as a speculative drill play trade. The news last Tuesday (10) was that after
completing a airborne ZTEM survey, GQC has embarked on a 10,000m drill program at and
around its flagship Romero property in Dominican Republic is interesting, as are a few other
dynamics GQC brings to the table:
• There’s plenty of interest in the company and its share price, with a lot of interested
players and holders want to see this stock higher, not least because it was hyped to
kingdom come a couple of years ago. But once follow-up results didn’t match the best
early drills the stock price faded and caught plenty of bagholders, including several
brokerage analysts and newsletter writers who forgot to sell. That means if GQC shows
a good drill intersect, you can be sure the news will travel fast.
• Romero is very prospective, as explained to me by third party geologists who’ve visited
and like the look of things. It has a few issues to get over, but the chances that a new
drill hole will show good rock are reasonable and worth a chance. There’s certainly
plenty of reason in theory that will allow the current deposit to grow
• Jungle drums on the recent survey results are good, according to trustworthy people
17

who have had contact with company geologists
• It’s in the Dominican Republic, which I like as a potential address. It’s still under radar,
but the government has shown itself to be keen on moving the mining sector forward
and projects have the right type of institutional support.
• The news last week didn’t catch on immediately, but come the end of the week GQC
was trading higher. I see no reason at all to chase this price and would be interested
only at 30c or thereabouts, but the trading last week again shows people with eyes on
the company.
With 145.76m shares out and a current share price of 33c, GQC currently runs a $48.1m market
cap, which isn’t the cheapest exploreco out there but is covered by $10.7m in treasury as at
end 1q14 (that’ll be down to perhaps $7m by the end of this drill program), fruit of that well-
timed (I think that’s the phrase they use) round of financing when GQC was hot news a couple
of years ago. That’s not a mountain of cash but it will allow them to be strategic and not need
to go to market during 2014 (even chunks of 2015) if things don’t suit the company, so it’s not
a bad position either. Thus ends this heads-up. All I really wanted to do here is not keep a
secret, but I’m not gasping to get on at any price so if nothing comes of this don’t take me to
task. However, this one’s also on my shopping list now and if the trigger is eventually pulled,
we’ll look at the company and its pros and cons in more detail.
Minera IRL (IRL.to) (MIRL.L): A meeting with CEO Chamberlain
The Canadian ticker IRL did ok in thin trading last week, the main London ticker up the same
amount but on better volumes (particularly a decent
day Friday), while on Thursday morning all agenda
items passed and were rubber stamped.
Meanwhile, I had the chance to sit down for an
hour with CEO Courtney Chamberlain in Lima on
Thursday afternoon for an hour before both he and
I made our separate ways to the city’s airport, he to
fly to Argentina and meet with the teams building
and financing Don Nicolas, I to pick up my mother
from her transatlantic flight (she’s now relaxing with
her grandchildren and has no need of me, which is
good). Enough jovial banter, here’s the lowdown on
what was said in bullet form:
• To be honest, there was nothing particularly new in the way of news, it was more a
case of hearing about progress on several fronts
• Don Nicolas is getting into shape and first pour at the mine is still scheduled for 1q15,
18

though I think I can kiss my somewhat optimistic aspirations of a first pour in 4q14
goodbye. The project has had some minor delays here are there, nearly all kooky-
Argentina-politics related and therefore (for me at least) foregiveable under the
circumstances. It’s always difficult getting ducks in line in that country, perhaps more
difficult is keeping them in line during the extended period needed for mine
construction. So a few bumps along the construction path, but the main news is good
in that the mine is indeed being constructed, the cash is flowing to the project form the
JV partner in good style and 1q15 is a real and reasonable target for the start-up. Also,
Don Nicolas is getting national and regional political support and even to the extent
that a small mine project (compared to neighbours such as Cerro Negro (GG) and Cerro
Moro (AUY)) normally gets, because in theory at least it’s the next brand new mine to
come on line in Argentina and is getting support from the mining minister Mayoral as
the one that breaks the logjam.
• Corihuarmi continues on rails and although small, is doing better than budgeted in 2014
so far. As IRL has cut down on its G&A bill, the cash flow from Corihuarmi basically
covers corporate running expenses bar the burn needed to maintain Ollachea while the
financing package gets put into place (more on that key issue below).
• Regarding corporate treasury, CEO Chamberlain estimated treasury at $5m (which is
basically the last drawdown from the Macquarie facility and says that’s more than
enough to get the company through to the end of of 3q14. IRL isn’t running on fumes,
which is fine.
• And so to Ollachea and before briefing on the state of play in the financing, let’s clear
up a couple of other matters. Firstly, there’s decent and expected progress on the final
construction permit, with the company fielding the normal type of observations from
the government and smoothing the path to the eventual permit award. We can be
confident that this piece of paper arrives and things look on track for the permit by the
end of 2q14, which would be right on schedule. Also, IRL is in the tender process with
local civil engineering companies for the construction contract and Chamberlain reports
there are ten companies in the bidding for the job, which is a lot and a good signal that
it can be done at a competitive price. Lastly, community relations remain at optimum
levels at Ollachea and it’s one of those “no news is good news” situations. Locals
remain fully onside the project.
• So to the key matter of the financing package and according to Chamberlain, there has
been good progress towards the final deal. Although there’s still technical due diligence
going on, term sheets have been signed with major backers and main equity backers
have said they want into a last round of equity type financing (that may be straight
share sales or may be done via convertibles) that will fully cover the capex bill. I have
no solid numbers on this, but from reading between the lines it looks as though 50% of
the capex is to be covered by bank debt (Macquarie leading that), then 25% via
mezzanine deal or deals that may include off-takes or other non-dilutive mechanisms,
then a final 25% or so via equity (the larger, long-term holders are apparently keen on
getting in on a last round of cheap shares and IRL likely feels obliged to reward their
long-term loyalty). When asked about timing on the closure of the package,
Chamberlain said that he was still “hopeful” about the current timeline of end 2q14, but
it might run into 3q14 (I didn’t sigh in front of him, though it rude). In fairness, he
went on to explain that a lot of the fianl timing on the deal is now out of the company’s
hands and in those of the financier third parties, who IRL can help as much as possible
but in the end they’re going to take their own time about coming to their own third
party conclusions. Also, the deal is also waiting on the official construction permit
award and although we should be fully confident that Ollachea will get its permit, the
big money backers won’t just want a promise from a government department that all is
well, they’ll want to see that piece of paper with the4 signature on the bottom.
19

Overall, the news from IRL was good without having news on the key breakthrough on
financing. Things are obviously progressing there but patience is required and until the deal is
done, we can expect the share price to continue in its current low price range. Those of you
courageous enough could pick up a few of these cheapies (in fact a couple of subbers wrote in
independently of each other last week and mentioned they’d done just that), but I’m already as
much as I want and will wait for solid news before taking any further steps.
Conclusion
IKN261 is done, we end with bullet points:
• Rio Alto (RIO.to) (RIOM) is a top pick and still wildly undervalued.
• I’ll be paying attention to Fortuna Silver’s (FVI.to) (FSM) quarter due Tuesday, and
B2Gold’s (BTO.to) (BTG) on Wednesday pre-bell, but the one that I’m really waiting to
see is Gold Resource Corp (GORO) either tomorrow evening or early Tuesday morning
(I assume it will be filed before the CC at least), because it’s been hit hard recently and
the change in reserve status means it has a shot at returning a nominal net profit (for a
change). It might turn out to be style over substance, but this short is a fairly chunky
position and now it’s a fairly chunky winner, I don’t expect gold to keep dropping for
long and it might be time to cover and take profits, freeing up cash for other purposes.
We’ll see.
• Minera IRL (IRL.to) (MIRL.l) is coming along but it’s slow. The big development will be
the financing deal announcement so until then, wait and see.
• Goldquest (GQC.v) interests me at last. I left it alone during its first run up and that
turned out to be the right call, not there may be a decent trading win in sight. Risky for
sure, no decision yet, price has to be right to enter.
• Meanwhile still watching the wires for Focus Ventures (FCV.v) drill assay news.
• Things to look forward
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://finance.yahoo.com/news/rio-alto-announces-net-income-120000396.html
(2) http://www.sedar.com/new_docs/new_financial_statements_en.htm
(3) http://finance.yahoo.com/news/gold-corporation-first-quarter-conference-124500914.html
20

(4) http://finance.yahoo.com/news/augusta-shareholder-rights-plan-cease-090000533.html
(5) http://finance.yahoo.com/news/b2gold-reports-first-quarter-2014-170311820.html
(6) http://www.clarin.com/politica/Massa-sigue-arriba-Binner-Cobos_0_1136286398.html
(7) http://www.vanguardia.com/economia/local/259164-definiciones-sobre-mineria-en-santurban-no-avanzan
(8) http://www.bcsnoticias.mx/la-mineria-seria-un-obstaculo-para-el-turismo-emprhotur/
(9) http://finance.yahoo.com/news/almaden-reports-confidentiality-agreements-231035400.html
(10) http://www.goldquestcorp.com/index.php/news/2014-news/241-goldquest-commences-10-000m-exploration-drill-
program-surrounding-the-romero-project-dominican-republic
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
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Stocks To Follow Closed Positions, 2010
Closed in 2010 closed close PPS
B2Gold Corp BTO.to Jan'10 C$0.88 08-nov-09 C$1.49 68.2% target made, trade closed
Radius Gold RDU.v Jan'10 C$0.18 23-aug-09 C$0.40 122.2% target made, trade closed
MAG Silver MVG mar'10 U$5.60 23-nov-09 U$7.28 30.0% closed in pdac week
Riverside Res RRI.v mar'10 C$0.435 20-sep-09 C$0.60 37.9% closed in pdac week
Amarillo Gold AGC.v mar'10 C$0.81 31-may-09 C$0.70 -13.6% closed in pdac week
B2Gold Corp BTO.to apr'10 C$1.24 18-feb-10 C$1.50 21.0% target made, trade closed
Lumina Copper LCC.v apr'10 C$0.84 14-jun-09 C$1.55 51.2% total position now sold
Troy Resources TRY.to may'10 C$1.10 03-may-09 C$2.25 104.5% sold on negative results
AuEx Ventures XAU.to may'10 C$2.51 24-may-09 C$3.38 34.7% trade closed
Nevada Copper NCU.to jun'10 C$3.27 14-mar-10 C$2.03 -37.9% need to lower Cu exposure
Carpathian Gold CPN.to jun'10 C$0.39 14-mar-10 C$0.35 -10.3% too exposed to cap raising
Amerix PM Corp APM.v jun'10 C$0.065 08-nov-09 C$0.05 -23.1% victim of macro bear
Antares Minerals ANM.v jun'10 C$1.42 06-dec-09 C$2.10 47.9% sold half
Vena Resources VEM.to jun'10 C$0.37 31-may-09 C$0.23 -37.8% sold half
Minera Andes MAI.to sep'10 C$0.75 28-jul-10 C$0.95 26.7% ST trade closed
Gold-Ore Res GOZ.to sep'10 C$0.52 01-aug-10 C$0.75 44.2% target made, trade closed
B2Gold Corp BTO.to sep'10 C$1.45 25-may-10 C$2.01 34.5% target made, trade closed
Blue Sky Uran BSK.v oct'10 C$0.41 19-may-10 C$0.22 -46.3% v small v bad trade closed
Dia Bras Expl DIB.v oct'10 C$0.14 30-aug-09 C$0.35 150.0% target made, trade closed
S. Amer. Silver SAC.to nov'10 C$1.38 24-oct-10 C$1.60 -15.9% loss on short, small fail
Ventana Gold VEN.to nov'10 C$7.92 27-jun-10 C$13.51 70.6% trade closed on buyout
Lumina Copper LCC.v nov'10 C$1.42 11-aug-10 C$3.65 157.0% trade closed
Antares Minerals ANM.v dec'10 C$1.42 06-dec-09 C$8.40 491.5% trade closed
Rio Alto Mining RIO.v dec'10 C$0.69 23-mar-10 C$2.16 213.0% trade closed
Coro Mining COP.to dec'10 C$0.585 03-oct-10 C$1.24 112.0% target made, trade closed
Stocks To Follow Closed Positions, 2009
Closed positions closed closing PPS
Cardero Res CDY/CDU.to May'09 U$1.20 03-May-09 U$0.87 -27.5% sold on negative news
Eastmain Res. ER.to May'09 C$1.04 06-May-09 C$1.315 26.4% trade closed
Radius Gold RDU.v May'09 C$0.165 03-May-09 C$0.235 42.4% trade closed
Latin Amer Min. LAT.v May'09 C$0.12 03-May-09 C$0.158 29.2% trade closed
Aquiline Res. AQI.to July'09 C$2.03 16-Jun-09 C$1.68 -17.2% took loss, bad timing
Chariot Resources CHD.to Aug'09 C$0.20 12-Jul-09 C$0.415 107.5% trade closed
Castle Gold CSG.v Sep'09 C$0.64 02-Aug-09 C$0.60 -6.3% ST trade didn't work out
Guyana Goldfields GUY.to Sep'09 C$2.30 12-May-09 C$4.50 95.7% profit taken
Los Andes Copper LA.v Sep'09 C$0.09 21-Jun-09 C$0.09 0% trade closed
Pediment Gold PEZ.to Oct'09 C$0.80 09-Aug-09 C$1.00 25.0% trade closed
Minera Andes MAI.to Oct'09 C$0.68 03-May-09 C$0.71 4.4% too much bad news
Dynasty Metals DMM.to Nov'09 C$4.18 03-May-09 C$6.01 43.8% half sold
Rusoro Mining RML.v Nov'09 C$0.55 03-May-09 C$0.57 3.6% underperformed
Important Disclosure
The information and opinions contained within this report reflect the personal views of the author and therefore all
material within should not be construed as accurate or reliable or be utilized as advice for investment or business
purposes. Independent due diligence and discussions with ones own investment and business advisor is strongly
recommended. Accordingly, nothing in this report should be construed as offering a guarantee of the accuracy or
completeness of the information contained herein, as an offer or solicitation with respect to the purchase or sale of any
security or as an endorsement of any product or service. All opinions and estimates included in this report are subject to
change without notice. It is prohibited to copy or redistribute this report to any type of third party without the express
permission of the author.
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