IKN #272Premium

The IKN Weekly
Week 272, July 27th 2014
Contents
This Week: Shanghai: A small favour, On subscription renewals, Gold last week and next.
Fundamental Analysis: Reservoir Minerals (RMC.v) 2q14 numbers.
Stocks to Follow: Overview, Amerigo Resources (ARG.to), Reservoir Minerals (RMC.v),
Timmins Gold (TGD) (TMM.to), Minera IRL (IRL.to) (MIRL.L), Focus Ventures (FCV.v),
Santacruz Silver (SCZ.v), Lara Exploration (LRA.v), Rio Alto (RIOM) (RIO.to).
Copper Basket: Overview, Panoro (PML.v), Nevada Copper (NCU.to), Augusta (AZC) (AZC.to).
Low Cost Producer Basket: Overview, Goldcorp (GG).
Regional Politics: Peru: The country’s flagging growth the President’s July 28th speech and
mining, First Majestic’s (FM.to) Panama Cobre project and how IR departments work, Chile tries
to make the best of DL600, Mexico: A push for tax breaks on mining exploration, Argentina’s
default show.
Market Watching: Argentex Mining (ATX.v) is a possible penny crapper, Avoid Gold Reserve
(GRZ.v), Hochschild (HOC.L) nearly done selling its Gold Resource Corp (GORO), The Ernst &
Young mining productivity report, Good news for gold prices next week.
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
Shanghai: A small favour
Do I know anybody who lives in Shanghai, preferably on a permanent basis? If so I have a very
small and simple favour to ask of you that is extremely unlikely to cause you any bother but
would bring peace of mind to a friend of mine. A mail to the usual address and I’ll explain.
Thanks in advance.
On subscription renewals
A word or three on the subject of recurring payments and subscriptions to The IKN Weekly,
which I’ll do as concisely as possible in bullet point form:
• Every so often, there comes a raft of failed payments through the PayPal system which
are often connected to subscribers’ credit/debit cards expiring and new ones not
automatically taken up by PayPal. This gets mentioned today because there have been
a batch in the last few weeks.
• If this is happening to you at the moment and you’d like to remedy the situation, just
drop me a line and I’ll tell you how the process works and how to get round it easily
(this by experience, I’ve been through the process more times than I care to
remember).
• However, be clear that I have no control whatsoever in the relationship you have with
PayPal (and quite right too, for obvious security reasons at your end). This means I
cannot reconnect your credit card (new or old) to PayPal, nor should you ever (to me,
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or to anyone else EVER) send through your account and/or card details or number to
me in an e-mail.
• Also, if you prefer to let your subscription drop and don’t renew, I’m not going to chase
you up on this. I have a few “pending subscription” subscribers that have had a week
or two of grace period this end, but I’m not going to bug you, plead with you or insist.
I’ll be happy to help you re-subscribe (just drop me a line, usual address, I’ll walk you
though the process and it’s easy) but if not, I thank you for your previous custom and
will wish you well. I’m not into all that 21st century push-pushing for custom, you won’t
get it from me.
That’s all.
Gold, last week and next
A week in which the metal that underlies them all stuck its head above $1,300/oz for a couple
of days, then tested recent lows under $1,290/oz, then left the bears disappointed for a change
with a quick return to what’s looking like its main line in the sand. A lot was made of Friday
being options expiry day and the action looked pretty strong Friday afternoon with buyers ready
to step up at all prices to 1.3k, the implication being gold was pushed down to and then back
up at the whim of a few market players who gained a quick buck. But that also implies
confidence in the average price and a lack of real movements from bigger money, so if I had to
guess I’d say that we’re going to see little change in
the action until Labor Day at least. Yup, the
message of summer and its Doldrums again.
For the week to come, I bring three items to your
attention: first we have FOMC on Tuesday and
Wednesday, with the normal Fed declarations 2pm
local time Weds (no press conference scheduled
this time, though). Second we have . For those two
events the recommendation is the usual one; follow
and check into Calculated Risk (1), it has the best
US macro coverage out there. Thirdly, check out
the rationale for higher gold prices shown in ‘Market
Watching’ below today, because even though it’s an
anti-signal and one that started as a semi-joke last
year, the track record of its poor predictive power
has reached the point where, for me at least, it can
be taken very seriously as a signal on the near-term
moves in gold. This publication is predicting
gold goes higher in the next five days, partly because the market is conducive to better
gold prices but mostly because the people who think they’re special are calling it lower. There’s
my neck firmly stuck out, mouth-God’s-ears etc, see you this time next Sunday for the post-
mortem.
Fundamental Analysis of Mining Stocks
Reservoir Minerals (RMC.v) 2q14 filings
Wednesday afternoon saw Reservoir Minerals (RMC.v) report its 2q14 and partly as a result of
studying the filings I sent out my decision to add to my position in RMC in the Flash update of
Thursday lunchtime. Along with the solid things seen in the report, my decision was influenced
by 1) my bullish outlook to the copper sector 2) my conviction that not only are we going to see
more M&A action in the sector but RMC is a prime target for takeover (by FCX), 3) the
weakness in the metals sector on Thursday and Friday which allowed me to add to my RMC
position and get all the sub-$6 that I wanted, which allowed me to average down and bring the
2

position up to what I now class as full.
What doesn’t happen today are any re-hashes of the other factors. I’m not going to repeat my
position on the bullish outlook for copper in this week’s fundamentals section, as that one’s
been picked over enough time I believe. The M&A situation is getting better and we’re seeing
deals in the larger-scale copper sub-sector such as Taca Taca (LCC.v), Rosemont (AZC), Las
Bambas (bought from Glencore by China’s MMC) as well as interest picking up in other juniors
and deposits, not to mention new build-outs and expansion projects that mean money moving
into large-scale copper (Las Bambas again, Cerro Verde expansion, Toromocho, Cobre Panama,
Tia Maria etc).
What happens today is a look at the current state of RMC, as per its financials and some of
the more interesting snippets from its MD&A. This isn’t a full NOBS report on the stock, but all
the same let’s kick off with the regular topbox that shows the share structure and related
things:
Shares out: 47.549m
Options: 2.063m (all in the money)
Warrants: none
Fully diluted shares: 49.612m
Current share price: CAD$6.00
Market Cap: CAD$285.29m
Approx cash per S/O: CAD$0.85
All prices are in US dollars unless stated. Forex U$0.90=CAD$1
For a closer look at the structure here are a few selected charts from IKN’s run-of-mill tracking
spreadsheet. First up assets and liabilities. Liabilities couldn’t be much easier to explain, with no
sort of long-term debt held and something around $1m in normal run-of-company stuff.
RMC: Assets per qtr RMC: Liabilities per qtr
50 $m
2 LT debt
40 current debt
30 1.5
20
1
10
0.5
0
-10 0
May'12 Aug'12 Nov'12 Feb'13 May'13Aug'13 Nov'13 Feb'14 May'14
source: company filings
As for assets, as exploration has always been expensed (now FCX officially owns 55% of the
main Timok project that won’t change), the
stand-out is the latest column which sees the
difference was made by the March private
placement. Run at $5.75 and raising a net of
just over $32m, it’s put RMC’s financials into
the ‘very comfortable thanks very much for
asking’ category.
As a result of the fat treasury and negligible
liabilities, working capital at RMC stood at
$43m as at May 31st 2014 and as the next
chart shows...
3
11'voN 21'beF 21'yaM 21'guA 21'voN 31'beF 31'yaM 31'guA 31'voN 41'beF 41'yaM
$m
cash&ST other current fixed
source: company filings
RMC: Working capital
50
40
30
20
10
0
11'voN 21'beF 21'yaM 21'guA 21'voN 31'beF 31'yaM 31'guA 31'voN 41'beF 41'yaM
U$m
source: RMC filings, IKN ests

RMC: Operating losses, per qtr
2
1.75
1.5
1.25
1
0.75
0.5
0.25
0
4
21'beF 21'yaM 21'guA 21'voN 31'beF 31'yaM 31'guA 31'voN 41'beF 41'yaM
$m
G&A
Exploration Exp
source: company filings
...being carried on its main Timok exploration project by Freeport (FCX) as it earns into its 75%,
along with other JVs such as Midland in the same regional location at another JV, means that
RMC’s $43m treasury is set to last the company for a near-indefinite period, what with RMC
spending less than $2m a quarter. For what it’s worth the difference between operating and net
losses (not showing that chart, not much point) are minor, so what you see above is to all
intents and purposes the quarterly corporate burn rate. This is the simplest of companies to
analyze at a financial level because it’s now 1) cashed up to the gills 2) spending very little of
its own cash 3) waiting for somebody to like its assets enough to buy them out. The only ways
we can see the current rock-solid balance sheet form changing in a share-price moving way
are:
• The company gets bought out (likely, and by FCX)
• Nothing happens for years and the treasury is gradually depleted (very unlikely)
• RMC gets busier on some of its other 100% owned properties and starts spending
some of the raised cash on sole-funded exploration (possible, at least for early stages)
Meanwhile, over at the MD&A published by RMC last week we were given this snippet on the
ongoing nature of the FCX/RMC JV;
The Company and Freeport continue to negotiate and make progress in reaching a
definitive Joint Venture Shareholders Agreement, which will be based on the Earn-in
Agreement finalized in March 2010. Until such time as a definitive Joint Venture
Shareholders Agreement is finalized for the Timok Project, it is expected that
exploration activity and expenditure will be minimized by Freeport, who is the operator
of the project. Currently, no drill rigs are operating at the Timok Project. Once a
definitive Joint Venture Shareholders Agreement is finalized, exploration activity is
anticipated to increase significantly.
It’s easy to read too much into these things, but on sniffing around and getting a hunch or two
backed up by informed observers, that says to me FCX is trying to slow-play its hand on Timok.
Which is fine by me and allows a relative quiet period in these Northern summer months to
position into the target stock, but don’t let FCX’s apparent indifference in getting an exploration
program deal finalized with RMC fool you into thinking they’re going off the project, because
they’re not. As a reminder, here’s the current resource table:
It is indeed only at a 43-101 inferred level at the moment, but there are plenty of conservative

parameters already being baked into this pie (e.g. 1% cut-off, copper price of $2.95/lb, 90%
recovery for copper and 75% for gold when others at this early stage would blanket assume
100% metals recoveries, others beside) and it’s still only the discovery zone Timok resource,
with no credit given to the very prospective porphyry-style area next door to the high-grading
area. We’re already at 3.8Bn lbs copper and 3.1m oz gold, which in global terms is 5.1Bn lbs
CuEq. If we assume (as we should) that FCX is going to own 75% once it has its pre-feas done,
RMC is already outright owner of 1.275Bn lbs CuEq, which means it’s getting its in-situ resource
priced at 2.2c/lb. If you prefer you calculation done on an enterprise value (EV) basis, that in-
situ calc goes under 2c/lb. Those are the type of valuations that should double before the
eventual buyout, even if zero zip nada comes from all the other prospective rocks RMC has to
offer the world. Bottom line, RMC may be close to a $300m market cap these days, but it’s still
damned cheap.
Regarding its share price action, we have seen some selling pressure in the last few days. Along
with the potential macro and company operation specific reasons we’ve considered, a part of
the weakness may be due to the four million shares that came out of escrow on July 20th,
product of the latest placement.
Along with the normal ebb and flow we’ve witnessed in the metals markets, the publication of
RMC’s financials brought focus on its strong financial position and the opportunity thrown my
way thanks to specific market circumstances to buy more RMC at a relative discount to the
prices of the last few months (we’ve seen $7.50 not so long ago, after all).
Summing up, I took the opportunity to add a decent amount of RMC to my holdings via the
Flash update of Thursday because:
• Its financials look strong, via the 2q14 numbers out Wednesday.
• Timok will be mined one fine day, it’s not going to be ignored and RMC will eventually
be bought out, most likely by FCX. Whatever near-term foot-dragging is going on today
only means there’s a window to buy at a better price (same goes for the shares that
came out of escrow).
• I am bullish copper and want more exposure to the sub-sector’s explorecos.
Although I’m long some more speculative copper stocks (e.g. NCQ.to) and thinking of others as
well (e.g. AQM.v) I can think of no better place to play copper exploration than
Reservoir Minerals (RMC.v). To be bought at or under $6 without fear.
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Stocks to Follow
Despite the way and interest in the juniors was tepid at best and precious metals
underperformed through the week, our portfolio held its own with six winners (RIO.to. IRL.to,
DNA.to, ARG.to, LRA.v, SRL.v) three unchanged (GQC.v, RMC.v, COP.to) and six losers (TGD,
FCV.v, TGM.v, NCQ.to, SCZ.v, EOM.to), though most of the moves were smallish with a penny
either side making the difference. The two biggest percentage moves were both in our favour
thanks to the late rises in Lara Exploration (LRA.v up 22.1%) and Salazar Resources (SRL.v up
11.1%).
With the addition of Amerigo Resources (ARG.to) to the mix we now have 15 open positions on
our ‘Stocks to Follow’ list, our normal and self-imposed maximum. Six are in the green, nine are
in the red, the raw ratio slipping back to the negative again. Hmmmm.
Reco Current
Company Ticker this week Avg Price date PPS Gain/Loss% Notes
Top Picks
Rio Alto Mining RIO.to str buy C$2.30 07-apr-11 C$2.60 13.0% Top pick, $3.30 tgt June 15
Recommended long positions (in current order of preference)
Timmins Gold TGD buy U$1.38 09-apr-14 U$1.91 38.4% $2 tgt but holding in 3q14
Minera IRL IRL.to hold C$0.27 22-jul-12 C$0.22 -18.5% Ready for financing deal
Goldquest Min. GQC.v spec buy C$0.295 27-oct-13 C$0.255 -13.6% drillplay spec, good vibes
Reservoir Min. RMC.v buy C$6.05 18-jun-14 C$6.00 -0.8% 2nd add this week, M&A play
Focus Ventures FCV.v hold C$0.23 01-jul-12 C$0.275 19.6% tgt 50c, added, avged up
Dalradian Res DNA.to hold C$0.65 27-oct-13 C$0.90 38.5% Going well, tgt up to $1.70
True Gold TGM.v hold C$0.395 02-feb-14 C$0.45 13.9% LT hold, takeover play
Amerigo Res ARG.to buy C$0.445 20-jul-14 C$0.45 1.1% new position, sm Cu play
NovaCopper NCQ.to spec buy C$1.05 09-apr-14 C$1.03 -1.9% small, adding slowly
Santacruz Silver SCZ.v hold C$1.04 26-jan-14 C$0.86 -17.3% silver/M&A spec, rel. small
Lara Expl. LRA.v hold C$1.15 08-apr-12 C$0.83 -27.8% solid biz model, LT hold
Eco Oro Min. EOM.to hold C$0.48 22-sep-13 C$0.24 -50.0% paramo resolution missing
Recommended short positions
None at moment
Smaller/Riskier
Coro Mining COP.to spec buy C$0.125 26-jan-14 C$0.07 -44.0% Cu spec play, can add
Salazar Res SRL.v hold C$0.28 02-mar-14 C$0.20 -28.6% small risky spec, vg rocks
6

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
Gold Res Corp GORO may'14 U$5.07 26-jan-14 U$4.12 16.7% Re-short now full position
Bear Creek Min BCM.v may'14 C$1.63 23-mar-14 C$2.05 25.8% Ag/pol risk trade, avged down
2009, 2010, 2011, 2012 and 2013 closed positions in appendices below
Now for some notes on a selection of the above stocks.
Amerigo Resources (ARG.to): Position opened. It was good to see sellers on Monday that
pushed ARG.to a penny or two lower and I took advantage of that moment, plus a bit more
later in the week that got the position to my idea of “reasonable start” size and turned the cost
average to 44.5c.
Some good feedback from last week’s note, most of it positive as well. One thing was
mentioned in the wrap-up bullet points but somehow got edited out of the conclusion of the
main piece and because of that, I need to make mention here today. The idea for the entry into
ARG.to isn’t to rush in all at once, but go in perhaps two or three stages. The first foot-in-door
buy is now done (personally), but as the figures for 2q14 point to a weak results quarter I’m
also betting on a bit of a share price dump when the numbers are revealed in August that will
give a window on a cheaper entry point. This is a bit of a detail, because as long as it revolves
around the current 44c to 47c range it’s still a very good place to pick up shares, but while the
summer slows are with us I don’t see why I can’t try to pick up an extra bargain as well.
However, be clear that I fully expect to have what I consider my full position come Labor Day
when people get their serious market heads back on.
Reservoir Minerals (RMC.v): Added. As per the Flash update Thursday (see appendix 1) I
added to this position at prices under $6. Best reply to that Flash update came from somebody
who’ll remain nameless but is close to the management team. He wrote two words, “good call”.
Lots more above.
Timmins Gold (TGD): The moves in this one sums up many of the others we saw last week,
so here’s the Canadian TMM.to ticker (does more volume than my TGD vehicle) placed against
the juniors ETF (GDXJ).
TMM’s switchback was a little more violent than the average, but the pattern of 1) down
7

Wednesday in anticipation of soft gold 2) down Thursday due to gold dump 3) up Friday when
world decides it’s not coming to an end after all was typical. Personally the near-term result was
mixed, as calling buy in a Flash update Thursday was nicely timed but I didn’t pick one of the
stocks that would react best to a sector rebound (for that you need the TMM’s of this world, the
ones with gold and good traded volume).
In other news, I was pointed at a Seeking Alpha report by a couple of you calling TGD a sell at
early week prices (i.e. just under U$2) and written by one Ben Kramer-Miller. Two things to say
about that:
• As my original plan was to ride TGD to U$2 and sell, I do at least understand the
potential fundamental analysis motives behind his call. However, on reading the link
sent over (yes guys I did read it, I read a lot of things without ever mentioning them) I
think he’s misunderstood a couple of key signals, not least the active participation of
Sentry in the boardroom shake-up. As stated last weekend, I’m going to hold through
on TGD for the current 3q14 quarter because of the potential for M&A (yes, I think
Argonaut’s the suitor and strength of intel is to my personal satisfaction). Therefore I
disagree with the call.
• It took a couple of minutes to remember where I’d seen the analyst’s name before, but
it came and the answer is that he’s spoken badly about Rio Alto a couple of times, the
latest on June 17th (2) when he put people off buying RIO.to at CAD$2.25 because
they’re paying too much for Sulliden. One month and a 15.5% upmove later, I think the
IKN position re RIO.to has worked out better. This might come across as catty and a
little ad hominem, but if my only references to the analyst are a) one bad call and b)
one call I disagree with in c) a mediocre financial website* then it’s easy to form an
opinion.
So there you go.
*For metals at least and from what I’ve seen, including from behind scene there, as noblesse oblige and I repeat that
I’ve been told that the coverage at Seeking Alpha for biotech is excellent
Minera IRL (MIRL.L) (IRL.to): IRL was up, but trading was thin in both Toronto and the UK.
One question on the stock arrived from reader RK (and fellow suffering long, who at least if
memory serves has a better overall cost average than I), who noticed that there hasn’t been
any sort of insider action recently and wouldn’t it be the right sort of sign to see buying if things
are going well. The answer is that IRL has put in place a self-imposed quiet period.
Focus Ventures (FCV.v): Down 2.5c but still in the recent trading range, so the only worthy
thought here is that if you’re looking to buy or add, you should be looking to bid at this level
rather than pay asks at 30c.
Santacruz Silver (SCZ.v): Soft along with many other silver names, SCZ didn’t show much of
a springback, though.
Lara Exploration (LRA.v): A decent little move in LRA in percentage terms, but volume
remained low all week (an aggregate of 150k traded) so the snapback was technical in nature,
nothing more. Currently trying to set up a face-to-face meeting with the company players.
Rio Alto Mining (RIO.to) (RIOM): On a corporate level it’s a big week for RIO.to next week,
as the special meeting set for Wednesday is due to vote on and close the merger deal (barring
the minor legalese) between itself and Sulliden (SUE.to). Not expecting anything but a pro-vote
here.
8

As for trading, the stock managed to climb to a modest gain on the week thanks to some late
buying Friday. This five day chart shows the late uptick, as well as the way most juniors (see
purple GDXJ line) also had a good close to the week. And as noted on the chart, RIO.to may be
doing just fine and executing its plan, but its prone to the whims of a skittish market and
juniors still tend to sell off en-masse (late Weds thru early Thursday, RIO.to dropped around
9%, which means I’m glad I wasn’t watching too closely at the time).
As for what’s down the line, once RIO.to has closed its merger it’ll be in the position to talk up
its new project and tell people the nitty-gritty details of its plans. I’m expecting the market to
be pleasantly surprised when that starts happening. But hey, that’s just me and my wild
guesses based on nothing in particular.
The Copper Basket
After thirty weeks of 2014 The Copper Basket is showing a 13.49% gain to level stakes.
company ticker price 1/1/14 Shares out Market Cap current pps gain/loss%
1 Augusta Res AZC.to 1.51 144.41 564.64 3.91 158.9%
2 Lumina Copper LCC.v 6.29 44.07 470.23 10.67 69.6%
3 NGEx Resources NGQ.to 1.43 168.71 362.73 2.15 50.3%
4 Reservoir Min. RMC.v 4.97 47.55 285.30 6.00 20.7%
5 Nevada Copper NCU.to 1.35 80.5 193.20 2.40 77.8%
6 Copper Fox CUU.v 0.375 402.96 94.70 0.235 -37.3%
7 Panoro Minerals PML.v 0.35 220.25 92.51 0.42 20.0%
8 Western Copper WRN.to 0.76 93.68 80.56 0.86 13.2%
9 Hot Chili Ltd HCH.ax 0.425 333.11 66.62 0.20 -52.9%
10 Curis Resources CUV.to 0.57 74.79 62.08 0.83 45.6%
11 º NCQ.to 1.60 60.15 61.95 1.03 -35.6%
12 Cordoba Min. CDB.v 0.90 58.81 41.17 0.70 -22.2%
13 AQM Copper AQM.v 0.11 139.24 13.92 0.10 -9.1%
14 Coro Mining* COP.to 0.10 159.37 11.16 0.07 -30.0%
15 Oracle Mining OMN.to 0.27 49.03 4.41 0.09 -66.7%
NB: HCH.ax priced in AUD$, rest CAD$ //CDB 2x1 split May'14 Portfolio avg 13.49%
9

A ride of 0.88% in the overall basket average, which is a neutral sort of performance and
reflects in the individual scores of just five
upmoves (LCC.v, AZC.to, HCH.ax, PML.v, The Copper basket 2014, weekly evolution
25%
CUV.to), five unchanged (NGQ.to, RMC.v,
CUU.v, COP.to, CDB.v), and five downmoves 20%
(NCU.to, NCQ.to, WRN.to, AQM.v, OMN.to).
15%
There were no moves registered at more
than 10% on the week in any basket stock, 10%
neither up nor down. 5%
0%
Meanwhile, copper the metal did quite well,
rebounding back to the mid-$3.20s level on
Thursday after data from China (where
else?) came in bullish and talked of strong
demand for all the growth-related
commodities. The rally didn’t hold through the Americas
on Friday, so let’s see how copper trades on the open in
Hong Kong Sunday night/Monday morning.
To our world copper inventories coverage, the bullet
points this week tell us that last week’s big rise didn’t
see a follow-through.
• World stocks dropped back a touch from the big
rise of the previous week, with stocks dropping,
6,158 metric tonnes (mt) (-2.1%), to
281,262mt. Last week’s bearish signal is
therefore on hold.
• The Shanghai Futures Exchange copper
warehouse inventories covered all of that rise,
finishing down 6,706mt (-6.2%), to finish the
week at 102,145mt
• The LME copper warehouse inventories were
unchanged at 157,700mt.
• The Comex warehouses copper again saw a percentage rise, though not as hefty as
last week. Comex now holds 21,417mt, up 548mt or 2.6%.
So an updated look at the state of world inventories shows us the rebound in the number
between june and now, but also
demonstrates how small it is compared to
the de-stocking of the system we’ve
witnessed since early/mid 2013. In fact, the
bounce has only taken us back to May 2014
levels so far, so context suggests that
there’s a long way to go before we should
consider the bearish side of inventory
fundies. This is the start of a bull market
for copper and prices haven’t come off lows
in a steady and sure way just by chance.
Take the hint
Now for updates on a couple of our basket stocks
Panoro Minerals (PML.v): PML last week announced (3) an interesting addition to its board.
10
ht5naj ht21 ht91 ht62 dn2bef ht9 ht61 dr32 dn2ram ht9 ht61 dr32 ht03 ht6rpa ht31 ht02 ht72 ht4yam ht11 ht81 ht52 ts1nuj ht8 ht51 dn22 ht92 ht6luj ht31 ht02 ht72
source: IKN calcs
Copper inventories, per month 2012-2014
1000000
900000
800000
700000
600000
500000
400000
300000
200000
100000
0
21.naJ bef ram rpa yam nuj luj gua pes tco von ced 31.naJ bef ram rpa yam nuj luj gua pes tco von ced 41.naj bef ram rpa yam nuj WON
Mt Cu
LME Shanghai Comex
source: Cochilco

Anthony Laub is partner at Laub and Quijandria law practice and while that name may not grab
your attention up there, it got mine because that’s one of the top corporate law firms in Peru,
knows everyone and even gave the country its current Mining and Energy Minister, Eleodoro
Mayorga, who was a partner at the firm before being called up by Ollanta earlier this year.
Nevada Copper (NCU.to): This 2014 year to date chart shows how NCU has done far better
than I’d thought it would do this year, putting in a solid double from lows to $2.75 or so. It’s
fallen sharply since the early July highs though, potentially because of the July 16th update (4)
that told the world plenty of things, but the world mainly heard the message that NCU was
looking to raise more cash for its development and promptly sold stock. I still fail to see the
attraction in this stock and its marginal looking economics at Pumpkin Hollow, and will remain
with no dog in the fight.
Augusta Resource (AZC.to) (AZC): The complexity of the Rosemont permitting process (the
one that HudBay has now officially bought into) was underscored last week by the local political
spat that erupted between the administrator of Pima country (location of Rosemont) and those
for and against the project’s development. The whole shebang is reported in great and careful
detail by local reporter Tony Davis in this article (5) which is too long to excerpt correctly here,
but the top couple of paragraphs should give you some idea:
Huckelberry defends negotiating with Rosemont on land preservation
Pima County Administrator Chuck Huckelberry and Rosemont Copper are negotiating
a possible deal that could preserve more than 7,600 acres of state trust land in the
Cienega Creek and Davidson Canyon watersheds southeast of Tucson.
If the deal goes through — it’s too early to tell if it will — it could make it easier for the
Rosemont Mine to get a key federal permit allowing construction.
The negotiations have two county supervisors and the head of an anti-Rosemont group
upset at Huckelberry, a longtime opponent of the proposed mine.
But as stated, that short intro doesn’t do the complicated issue or the ensuing well-written
report any justice, you need to read the whole thing.
The Low Cost Producer Basket
After 30 weeks, the Low Cost Producer Basket is showing a 25.20% gain to level stakes
11

company ticker price 1/1/14 Shares out Mkt Cap (Bn) current pps gain/loss%
1 Freeport FCX 37.74 1040 39.51 37.99 0.7%
2 Goldcorp GG 21.67 812 22.90 28.20 30.1%
3 Barrick ABX 17.63 1000 18.68 18.68 6.0%
4 Newmont NEM 23.03 497.87 12.52 25.15 9.2%
5 Silver Wheaton SLW 20.19 357.39 9.55 26.71 32.3%
6 Franco Nevada FNV 40.74 147.01 8.48 57.69 41.6%
7 Agnico Eagle AEM 26.38 173.43 7.25 41.82 58.5%
8 Pan American PAAS 11.70 151.41 2.27 15.00 28.2%
9 B2Gold BTG 2.02 651.4 1.82 2.79 38.1%
10 First Majestic AG 9.80 117.02 1.23 10.51 7.2%
all prices in U$, using NYSE ticker prices Portfolio avg 25.20%
Marginal stuff from our larger producer tracking basket this week, with an overall average move
of just 0.11% to the downside. The count was split too, with four moving down (FCX, ABX,
NEM, PAAS) and six moving up (GG, SLW, FNV, AEM, BTG, AG) and none of those were very
big, either.
These days our basket and the benchmark GDX are performing pretty much hand in hand (I’d
again point to the semi-mistake of adding FCX into the mix at the start of the year, that’s
probably the difference)
The Low Cost Producer Basket: Weekly performance and
comparative to GDX control
35%
30%
25%
20%
15%
10%
5%
0%
12
ts13ceD ht21 ht62 ht9 dr32 ht9 dr32 ht6rpa ht02 ht4yam ht81 ts1nuj ht51 ht92 ht31 ht72
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 ht81 ht52 ts1nuj ht8 ht51 dn22 ht92 ht6luj ht31 ht02 ht72
source: ikn calcs, NYSE/Nasdaq data
Goldcorp (GG): Cerro Negro pours gold
Even before the news GG was one of the better performing big mining players last week. As
history has shown, Friday afternoon isn’t usually the time for good news in a NR from a mining
company but there are always exceptions to rules and this from Goldcorp (GG) (6) is a wholly
positive development. It’s not a declaration of commercial operations or anything pretending to
be cash flow positive yet, but first pour at any new mine is a milestone and in this case, getting
a multi-billion dollar gold mine project off the ground in Argentina at what GG is calling $100m

under budget (though as a regular mailpal quickly pointed out “...I’ve never come across a
company who had failed to hit their revised guidance”) is a notable achievement.
The five day price chart shows that its Friday pop was already largely baked into GG before the
NR hit (just under two hours before the close), though the extra volume end day may have
something to do with the Cerro Negro news.
Over time I’ve picked up gossip of both a positive
and negative nature on the development at Cerro
Negro, with some unofficial word saying the
project was running into trouble with both locals
and employees, other hearsay stating that things
were going well enough and development was
on track, despite the kind of teething troubles
you’re always going to get with a new mine.
What Friday’s news indicates is that things are
on the better side and I’ll repeat, that’s no small
achievement in a jurisdiction like Argentina. I’d
be unsurprised to see GG rallying at the open
tomorrow on this news, but the larger effect may be enjoyed by the country as it will have
another piece of “look, the detractors are wrong and here’s solid proof” to show to the world.
Regional politics
Peru: The country’s flagging growth, the President’s July 28th speech, mining
Tomorrow Monday July 28th is Peru’s Independence Day. Among the traditional events of the
day comes a speech that’s akin to the U.S ‘State of the Nation’ event, when the country
President stands up and gives account to Peru’s Congress. Depending on the year and the spot
in the political cycle it can be little more than a pomp-filled event of little substance, but this
year’s speech by President Ollanta Humala is being eagerly await, mainly because of the
contents of this chart.
Peru: Monthly GDP during Humala government
10
9
8
7
6
5
4
3
2
1
0
13
11luJ 11ogA 11peS 11tcO 11voN 11ciD 21enE 21beF 21raM 21rbA 21yaM 21nuJ 21luJ 21ogA 21peS 21tcO 21voN 21ciD 31enE 31beF 31raM 31rbA 31yaM 31nuJ 31luJ 31ogA 31peS 31tcO 31voN 31ciD 41enE 41beF 41raM 41rbA 41yaM
source: Peru Cenbank
PDG
ni
egnahc
%
YoY
YoY trailing monthly GDP growth in Peru hit 1.84% in May 2014, the lowest since the crisis year
of 2009 and a reading that followed straight on from the 2.01% number in April, which was
also a record low. Peru’s economy has hit the brakes pretty sharply in 2014 and projections for
the year are already down to the 4%-or-so level, after starting 2014 at 5.5% or 6% typically.
These latest projections also assume a better second half to 2014 which may or may not pan
out (and it’s already clear this government’s official projections aren’t the type to be taken very

seriously). In the words of local economics office Macroconsult (7), “The President must explain
to the country why the economy has slowed in the sharp way that’s been confirmed and what
he plans to do, as fiscal policy has been clearly pro-cyclical [so far] and has contributed to the
problem.” I chose that comment form Macroconsult as an example of the feeling in Peru,
because it rightly picks up on the pro-cyclical policies and the problems they’ve brought. As
opposed to places such as Chile, which typically uses counter-cyclical policies and injects capital
into projects from its reserve funds when times get rough, Peru has stuck with the old pattern
of cutting public spending/projects/etc when times get hard and accelerating when there’s
immediate funds to be spent, the best example of this being the so-called ‘Canon Minero’ fund
that has seen cuts in monies flowing from the central to reginal governments because of the
drop-off in metals prices in 2013 and 2014. As a result, projects at a regional level have been
left un-funded or under-funded up and down the country, with the resulting drop off in
economic activity. Making hay while the sun shines works of course, right up until the moment
the clouds turn up.
So to the solutions. We’ve already seen Peru introduce a package of ostensibly business-friendly
and mining friendly measures that are designed to boost activity and investment (see IKN
Weekly editions from earlier this month and last) including tax breaks and tax stability schemes,
plus the easing of environmental permitting for exploration and operations in both paperwork
and content terms. What we’re now expecting from the Ollanta speech Monday are more
measures and that’s not much a secret, as large hints have already been dropped by the
executive and the Finance Ministry. As for specifics there are plenty of rumours, including the
lowering of VAT/sales tax and more benefits handed directly to end-users (Ollanta may be in
charge of a government that tackles the country-level problems in a classic neoliberal right-
wing manner, but he’s still keen on his lefty-style social programs, particularly ones that spread
services rather than money). That and plenty other rumours which will all be resolved by
around midday tomorrow.
At this desk we’ll be looking for more initiatives that benefit either businesses in general, mining
companies in particular, or both. Setting aside the way in which the new laxer rules on
permitting and oversight of mining operations may be baking serious social and community
problems into Peru’s future (something to watch out for in the medium-term, not so likely this
year and it’s interesting to see well-source comments (8) coming out about how Humala will
address the subject tomorrow and argue that the changes aren’t that big or threatening to
communities) the Humala government seems to have finally worked out that Peru needs the
strength from the financial side of its main exports (metals are traditionally ~60% of everything
Peru exports in dollar terms, with just copper and gold ~50%, but as this exports mix chart
shows the recent drop in price and export volume for gold has moved the ratio closer to 50/50).
Peru: Mining exports and all other exports, per month
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0
14
70enE 70rbA 70luJ 70tcO 80enE 80rbA 80luJ 80tcO 90enE 90rbA 90luJ 90tcO 01enE 01rbA 01luJ 01tcO 11enE 11rbA 11luJ 11tcO 21enE 21rbA 21luJ 21tcO 31enE 31rbA 31luJ 31tcO 41enE 41rbA
U$m
Non-mining exports (U$m)
Mining exports (U$m)
source: Peru CenBank
To complement the above chart, here are two more (data from Peru’s Central Bank) that show
how the the lowering exports and sustained amount of imports have changed the trade balance

substantially
Peru: Total exports and imports, per month
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0
15
11enE 11raM 11yaM 11luJ 11peS 11voN 21enE 21raM 21yaM 21luJ 21peS 21voN 31enE 31raM 31yaM 31luJ 31peS 31voN 41enE 41raM 41yaM
U$m
Exports (U$m)
Imports (U$m)
source: Peru CenBank
The problem here (from page 35 of The Boy’s Own Book of Macroeconomics) is that a negative
trade balance will eventually weaken the local currency, a direct knock-on effect of which being
higher prices for imported good. Yes, that says inflation in so many words.
Peru: Monthly Trade balance
1500
1000
500
0
-500
-1000
50enE 50luJ 60enE 60luJ 70enE 70luJ 80enE 80luJ 90enE 90luJ 01enE 01luJ 11enE 11luJ 21enE 21luJ 31enE 31luJ 41enE
U$m
source: Peru CenBank
I’m not moving any further into macro and the point is already hopefully made. What we’re
looking for from Peru is re-activation of its industrial base. That means mining and that means
we should look for bullish signals from Humala’s quasi-State-Of-Nation speech tomorrow. If
anything truly actionable comes up it’ll make it into a Flash update, if not we’ll chew the cud
over what was said and proposed in IKN273, next week.
Panama: The Cobre Panama project and how IR departments work
Here’s an object lesson in how mining company IR departments move and work, because the
best indication of how things really are is often when they don’t say anything and not just when
you get a reply from them. By way of some back story (just to keep up to date, not really
today’s subject) we know that the First Quantum Minerals (FM.to) owned Cobre Panama
recently had a bit of labour relations upset in May and June, when it moved to change the shift
working at the project, but after a few days of semi-strike the situation was resolved and the
company got back to work.
Now to today’s episode and last week, an article in the Panamanian newspaper La Estrella de
Panama (9) claimed, citing local press sources and its own source, that rather than being in
mere project stage, Minera Panama (the local wholly-owned subsidiary of First Quantum that
holds the Cobre Panama project) had been producing gold to the value of U$1Bn in the last five
years and of that, just $10m had found its way to government coffers via taxes, royalties etc.

That same day FM.to via Minera Panama published a rebuttal to the claims (10), calling the
accusations wholly false and then going on to explain what it was doing, at what point in its
development track it was at the moment, how many people it employed (for what it’s worth,
currently 2,700 with 90% of those Panamanian nationals, a number that will rise to 6,000 as
the project builds out) and called for a retraction to the wholly false information previously
published.
Good for Minera Panama that it was on the ball (on reading the original attack piece, it looks
like the somewhat uninformed and agenda-ridden author confused Minera Panama with
Petaquilla Gold (PTQ.to) close by) but let’s note how IR departments will be very quick in
correcting falsehoods. The corollary therefore exists, which is that IR departments that don’t
knock down accusations quickly are not responding for good reasons.
As an FM.to shareholder (long-term portfolio, not doing anything other than holding) I’m
reasonably happy with the way the Cobre Panama project is progressing and although I’m only
keeping one eye on it the teething troubles look minor compared to the big prize, so far at
least.
Chile tries to make the best of the rescinding of DL-600
In Chile, the new Bachelet government’s move to rescind the DL-600 law which gave mining
companies a tax stability regime as well as several significant tax breaks has moved through the
gears to such an extent that the industry has given up trying to stop it from happening and has
moved to the default position of trying to make out it’s not that much of a problem (when in
fact it is). This article (11) is a good example: Found last week in Chile’s serious bizpress
‘Economia y Negocios’ and entitled “Experts and the Mining Sector Look for Positives from
DL600 (rescinding)”, in which things such as “non-discrimination” between Chile national and
foreign capital under the new law are a thing to be lauded...even though it was exactly the
same under DL600. Also, it’s now apparently “more transparent” to admit to the current or
potential FDI that laws may change from time to time, instead of offering them a guarantee of
tax stability that eventually changes.
The whole thing is an exercise in grasping at straws, as Chile knows it’s taken a reputational hit
from the loss of tax-stability for FDI. With Peru now passing an extension to its tax stability
laws for large-scale ($500m+ capex) projects and now actively marketing itself as the go-to
region for cost effective large-scale copper projects (after all, it has the rocks) it will be
interesting to see how production balances change over the next five years or so.
Mexico: A push for tax breaks on mining exploration
With the new 7.5% (+0.5%) royalty on EBIT laws now in effect, Mexico’s Chamber of Mining
Camimex has changed tack and is now looking (12) to get 100% tax deduction for exploration
projects in the country. In the words of Humberto Gutiérrez-Olvera, Camimex president, “This is
an important point on which we must push so that mining activity rebounds”. In 2013, the
valuer of exploration activity in mining in Mexico was estimated at U$862m and if such a sum
was made wholly tax deductible, would mean large producers (Peñoles/Fresnillo, Grupo Mexico,
Frisco, Goldcorp, Newmont and all the others we could list, down the scale) would be more
willing to take on exploration and avoid what Gutiérrez-Olvera warns could be a collapse in
exploration work two or three years down the line.
For what it’s worth, the move by Camimex looks like a smart initiative to me and better than
the somewhat Canute-versus-tide defence it used last year when failing to stop President Peña
Nieto’s royalty project. Tax breaks are a way forward and targetting the grassroots sector of
exploration means money will flow through the industry’s strata as time goes on. Time will tell
whether the plan gets tacit or real approval from the government, but as we follow juniors
closely and they’re the people doing a lot of the exploring, it’s a subject we’ll watch carefully.
16

Argentina: The default show
I ran a few thoughts on the impending default of Argentina’s bond at the combined hands of
the vulture funds and Judge Griesa on the blog last week, with this post (13) saying in essence
that yes, it is a default rather than some made-up name such as “semi-default” or “technical
default” then this post (14) noting that once the screaming headlines are stripped out, there
really isn’t going to be much effect on Argentina’s economic present or medium-term
performance, because without knocking any balls out the park the country’s not doing badly
and is in a far better position than it was when it went through its real-live disaster default back
in 2001/2002. I’m sticking to the call made last week that Argentina may become an interesting
place for a trade in the miners, because of a semi-rigid combination of its desire to attract new
capital (dollars), the advantage seen by alternative capital sources (e.g. China) with North
America out of favour, and of course the 2015 Presidential election that’s already looming large
as candidates jockey for CFK’s job (and all main players have already shown their ostensible
pro-mining credentials).
As for possible trades, that’s something I’ve been think about and one possible gets floated at
you in the very next section, in ‘Market Watching’.
Market Watching
Argentex Mining Corp (ATX.v): A potential pennycrapper play on Argentina
As noted in the last couple of weeks and today, after months and years of stating avoid I’m
getting a little more interested in the potential for a trade in Argentina. The question therefore
moves from whether to what and today I’d like to float an idea for one potential trade,
Argentex (ATX.v). There are of course many ways to play a potential rebound in the Argentina
mining scene and one that’s not going to be discussed today is whether to follow up on the
‘Taca Taca’ model and look for big deposit copper plays that would need high capex to make
them into a mine (e.g. MUX/TNG, NGQ, SWC). If I’m going to stick a toe back into Argentine
junior waters, the trade potential is going to have to meet with the following requirements:
• Small and beaten to death share price
• Which implies a high risk/high reward equation that allows a small speculation outlay
which could pay strong rewards if the high leverage trade works (a cute way of saying I
still don’t want to plonk too much hard cash into anything Argentina)
• Ignored by the market in a backwater sector (rather than popular copper post-Taca
Taca)
• Decent assets that pass first base examination at least
• Good (or at least reasonable, can’t be too choosy) management team
• In one of the friendlier regional zones of Argentina (e.g. not Mendoza, Chubut, Rio
Negro).
Which is where Argentex comes in, because it fits all those filters. Let’s start with the share
price and here’s the five year chart:
17

Yes it’s horrible, basically what’s required at this point.
Second, the share structure and financials. As per its latest filings, which show ATX at April 30th
(there have been no great changes since then) the company has
• 88.941m shares out
• 4.185m options
• 19.437m warrants
All the derivatives are way out the money, so little in the way of overhang to worry us. As
ATX.v shares closed Friday at 6.5c, this gives the company a market cap of CAD$5.78m which
is the kind of pennycrapper-cheap beaten down number I’m looking for. Add to that an IKN-
estimated treasury today of around $1.8m (see below for a little more detail) and this market
cap has at least some real asset backbone to it as well.
Thirdly, the team which is OK and the flagship project, which is the silver target by the name
Pingüino (Spanish for penguin) in Santa Cruz. It has a 43-101 indicated resource from 2013
that runs to 23.7m oz silver equivalent (~80% Ag, rest gold) and presented as a potential vein
mine. It’s chopped and changed focus over the years (once upon a time it was planned as a
larger, lower grade bulk mining operation) and there’s doubts over skinny veins today, but it’s a
resource and the grade at ~4.2oz/tonne AgEq stands up, as long as a cost effective mining
plan can be put together. There’s also specific zones of high-grading material which could
provide a small and more profitable early stage operation. Without going deeply into this part,
we can say it’s not the best resource out there but it’s promising and deserves more work, but
at current company valuations it’s very cheap on a per-ounce in-situ basis.
Next up, the deal that’s recently fallen through with Austral Gold, a local Argentine company,
may have opened up a window of opportunity for us the (potential) bottom feeder. In its NR
last week that announced the falling through of the deal with Austral (15), ATX’s CEO Michael
Brown was quoted as saying this,
"Discussions with Austral Gold have not culminated in a business combination
and we believe we should now conduct a full review of our opportunities. The
recent activity in Argentina's resource sector coupled with the advance of our
Pingüino project, our exceptional team of exploration professionals and cash
in treasury puts us in a great position to evaluate a range of options."
Let’s take that little paragraph piece by piece:
• “Discussions with Austral Gold have not culminated in a business combination...”,:
Which is probably a good thing from where we, the spec traders, are looking.
• “...and we believe we should now conduct a full review of our opportunities”: Because
the company doesn’t have much else to do at the moment, I strongly suspect.
• “The recent activity in Argentina's resource sector...”: Yes I’d agree that there’s been
some, but it’s a bit of a stretch to take a large tonnage copper project in the North of
the country such as Taca Taca and use it as a reason as to why we should build a
smaller tonnage silver mine in the South.
• “...coupled with the advance of our Pingüino project...”: That’s a bit of a stretch. We
had a small drill program that wrapped up six months ago, plus some minor trenching
results in March, but none of that has added to the current 43-101 compliant resource
that’s been with us since January 2013.
• “...our exceptional team of exploration professionals...”: If you insist.
18

• “...and cash in treasury...”: This part of ATX isn’t bad, but it’s not king’s ransom stuff
either. With current assets at $2.285m as at April 30th (its latest reported quarter end),
working cap of ~$2m and tickover burn rate of around $200k/month, ATX has enough
cash at bank to move it into 2015. That cash would evaporate quickly if the company
runs another drill program, but it’s not running on fumes yet and that gives it time and
therefore strategic choices.
• “...puts us in a great position to evaluate a range of options.”: Apart from the “great”
company spin vocab, basically agreed. See above.
To underscore the thought process here, I’m aware that ATX isn’t the perfect exploration stage
mining company but at 6.5c a pop and under $6m market cap, you need to add a healthy dose
of realism into the mix. We’re not after perfection, we’re after value and at the current
parameters, ATX is the type of stock (has cash, has 43-101, has new opportunity, has
reasonable internal location, has respected management) that could provide a decent trading
win if a couple of other elements go its way (i.e. Argentina given 2nd chance by market players,
silver explorecos catch a bid or two).
This isn’t a stock reco nor am I buying ATX.v without telling you first (that would come in a
separate Weekly or a Flash update), this is a trade idea that has crystallized a little more thanks
to last week’s news, but it’s still not an active call. It’s one that I’m considering however, and
it’s now being considered in the public eye. Do with the idea what you will.
Gold Reserve (GRZ.v): Avoid
Last week saw Gold Reserve (GRZ.v) announce (16) that its arbitration case against the
government of Venezuela had wrapped up and both sides were now awaiting a ruling from
ICSID/CIADI, the offshoot of the World Bank that acts as apparently “unappealable” tribunal in
these events. From the tone of GRZ’s NR it expects to win the argument and what would be,
on paper at least, a multi-million (even pair of billions) payout from the courtroom, which is as
maybe but this is still a stock that should be avoided like the veritable plague. Reasons:
• It may not win. These CIADI/ICSID affairs have an air of siding with the businesses and
against “anti-capitalist” countries such as Venezuela, but that’s not always the case and
a ruling partially or fully against GRZ would be more surprising to other than to this
desk.
• Even if GRZ wins, they’re not getting paid. Not while the PSUV/Maduro is in charge, no
way and forget it. Even if Venezuela goes through a (counter)revolution and “friendlies”
are put in charge, you shouldn’t hold your breath on any immediate payout from
country to private business.
• Venezuela may change its rules and then we’re
all back to square one, locked in litigation at
another level for years to come. As an example,
check out Bolivia’s new law bill that if passed
would overrule any international tribunal and
mean all disputes be settled in courtrooms inside
the country (17). If Maduro a) copies that idea
and b) makes it retroactive, that’s one $2Bn
cheque less to sign.
• At its current market cap of CAD4331m, GRZ has
a lot of case upside already baked into its share
price and that means large-scale potential downside when (not if, but when) it doesn’t
get paid in the time window it demands from Venezuela.
19

Hochschild has only a few Gold Resource Corp (GORO) left to sell
We noted the drip-drip type selling of GORO by HOC.L on the blog last week, but come
Thursday HOC.L bit the bullet (18) and
dumped a larger chunk of 3.483m shares at
U$4.85 (must have been a pre-arranged
block sale) which leaves the bigger company
with just 2.177m shares. The way in which
GORO has traded recently (and yes I’ve been
watching, with thoughts about re-shorting
the thing) suggest a share price that’s being
propped, i.e. kept artificially higher. With
drip-drip trades frm HOC going through at
just above U$5 and then last week’s trade at
a substantially lower price than the $5.32
finish Friday, my guess is that once this HOC
exit process is done GORO may come under
renewed pressure. As we’re now close to
GORO’s 2q14 financial report filing date (2q13 was filed on August 9th last year, by way of
reference), that’s a set of financials I’ll be poring over very carefully come the day.
Good news for gold prices next week
Forgive me if this section seems a little flippant, but it’s reached the time when this subject gets
transferred from the semi-serious and mouthy world of the IKN blog and to these more studied
pages. With the news that a full 63.6% of the Kitco Gold Survey participants expect gold to
drop next week (21), I believe we’re looking at a strong contrarian signal and a bullish near-
term for the world’s precious metal of choice. I’m deadly serious this time and here’s why.
Back when I started following the Kitco Gold Survey more carefully in September last year
(instead of giving them a neutral’s pass) it seemed a bit of a joke that on examining their track
record carefully, they weren’t just bad as a collective predictor of gold but downright contrarian.
There’s always been a slightly sardonic tone to my coverage (well ok, not slightly, it’s full scale
sarcastic) because any body of forecasters can go through a rough patch (tell me and my
portfolio all about it) but such patches tend to end, or at least ebb and flow But not this one,
they’ve just gone from bad to worse.
Here’s a paste-out of the table I use to follow the Kitco Gold Survey on a weekly basis. It’s a
little daunting at first sight but it’s not so complicated, I promise From left to right the columns
read like this:
1) The date of the Kitco Gold Survey predictions (always a Friday)
2) How many participants are asked by Kitco
3) How many responses they receive
4) The next three are the number of bullish, bearish and neutral calls they get.
5) After that, I turn those figures into percentages for each choice (colour-coded green,
red and blue, aren’t I the pretty one?). You’ll also notice that the biggest percentage is
shaded in order to show which call is the week’s preferred one from the ‘experts)
6) The next column shows the closing price of the gold ETF (GLD) on the date in question.
When that’s compared with the next week’s close...
7) ...the “result” column shows how gold did on the week (NB: as we’re most worried
about percentage change of the gold price, rather than gold’s absolute price in dollars,
GLD as a proxy works very accurately). You’ll also note this column is colour coded,
with red for a losing week, (a loss of more than 0.5%), green for a winning week (a
gain of more than 0.5%) and blue for a neutral week (which I set to my own
preference and assume is a week where gold stays within 0.5% of last Friday’s close,
plus or minus
8) The final column notes whether the gold Survey prediction was correct or incorrect.
Importantly, when the week in question has a “strong signal” from the participants, i.e.
20

more than 50% of responses give one of the three options, that box is shaded in yellow
to help the eye see when the Gold Survey’s most confident picks happened.
Checking the accuracy of the Kitco Gold Survey, 3q13 to date
% %
date part responses bull bear neutral bull bear % neutral GLD $ on date result % survey accurate?
sep.6 36 20 13 6 1 65.0 30.0 5.0 134.15 -4.72 no
sep.13 36 22 10 11 1 45.5 50.0 4.5 127.82 0.11 no
sep.20 36 19 9 8 2 47.4 42.1 10.5 127.96 0.79 yes
sep.27 36 19 11 4 4 57.9 21.1 21.1 128.97 -1.89 no
oct.4 34 21 10 6 5 47.6 28.6 23.8 126.53 -3.11 no
oct.11 34 26 4 18 4 15.4 69.2 15.4 122.60 3.47 no
oct.18 34 25 10 7 8 40.0 28.0 32.0 126.85 2.85 yes
oct.25 34 26 20 5 1 76.9 19.2 3.8 130.46 -2.69 no
nov.1 34 19 3 13 3 15.8 68.4 15.8 126.95 -2.10 yes
nov.8 34 18 4 12 2 22.2 66.7 11.1 124.28 0.03 no
nov.15 34 25 10 8 7 40.0 32.0 28.0 124.32 -3.54 no
nov.22 34 25 6 14 5 24.0 56.0 20.0 119.92 0.65 no
nov.29 34 20 7 7 6 35.0 35.0 30.0 120.70 -1.78 not really
dec.6 34 19 7 7 5 36.8 36.8 26.3 118.55 0.70 not really
dec.13 34 23 8 9 6 34.8 39.1 26.1 119.38 -2.88 yes
dec.20 34 23 8 11 4 34.8 47.8 17.4 115.94 1.02 no
dec.27 34 17 10 5 2 58.8 29.4 11.8 117.12 1.85 yes
jan.3 2014 34 17 10 6 1 58.8 35.3 5.9 119.29 0.81 yes
jan.10 33 23 12 5 6 52.2 21.7 26.1 120.26 0.56 yes
jan.17 33 27 16 8 3 59.3 29.6 11.1 120.93 1.12 yes
jan.24 33 22 13 5 4 59.1 22.7 18.2 122.29 -1.80 no
jan.31 33 21 11 7 3 52.4 33.3 14.3 120.09 1.73 yes
feb.7 33 23 16 4 3 69.6 17.4 13.0 122.17 4.08 yes
feb.14 33 26 20 3 3 76.9 11.5 11.5 127.15 0.34 not really
feb.21 33 23 19 2 2 82.6 8.7 8.7 127.58 0.03 no
feb.28 33 19 6 12 1 31.6 63.2 5.3 127.62 1.15 no
mar.7 33 21 10 6 5 47.6 28.6 23.8 129.09 3.11 yes
mar.14 33 25 21 2 2 84.0 8.0 8.0 133.10 -3.48 no
mar.21 33 18 6 8 4 33.3 44.4 22.2 128.47 -3.04 yes
mar.28 33 22 6 12 4 27.3 54.5 18.2 124.56 0.81 no
apr.4 33 18 11 5 2 61.1 27.8 11.1 125.57 1.08 yes
apr.11 33 22 14 4 4 63.6 18.2 18.2 126.93 -1.72 no
apr.18 33 21 7 12 2 33.3 57.1 9.5 124.75 0.55 no
apr.25 33 19 12 4 3 63.2 21.1 15.8 125.43 -0.31 no
may.2 33 19 4 11 4 21.1 57.9 21.1 125.04 -0.75 yes
may.9 33 24 6 11 7 25.0 45.8 29.2 124.10 0.32 no
may.16 33 25 6 8 11 24.0 32.0 44.0 124.50 0.01 yes
may.23 33 22 9 7 6 40.9 31.8 27.3 124.51 -3.28 no
may.30 33 27 7 18 2 25.9 66.7 7.4 120.43 0.15 no
jun.6 33 22 7 12 3 31.8 54.5 13.6 120.61 1.95 no
jun.13 33 24 16 3 5 66.7 12.5 20.8 122.96 2.88 yes
jun.20 37 26 18 6 2 69.2 23.1 7.7 126.50 0.13 no
jun.27 37 25 13 9 3 52.0 36.0 12.0 126.66 0.39 not really
jul.4 37 18 7 8 3 38.9 44.4 16.7 127.16 1.27 no
jul.11 37 25 17 6 2 68.0 24.0 8.0 128.78 -2.24 no
jul.18 37 25 11 9 5 44.0 36.0 20.0 125.89 -0.08 no
jul.25 37 22 4 14 4 18.2 63.6 18.2 125.79 ? ?????
21

If you add up the results, you’ll see that:
• Out of the total 46 weeks, the Kitco Gold Survey has made the right call just 16 times.
• Even worse, in the weeks when the Survey gives us a strong signal (i.e. more than
50% choose one option, its predictive powers are even worse than that. From the 31
‘strong signal’ weeks just 10 are correct.
At best, the results of this band of “experts” are merely random (it’s why I use the phrase
‘monkeys with dartboards’ on my regular posts. But truly, this track record is abysmal and as
fellow stats buff Mickeyman over at The World Complex has pointed out, their choices are far
more to do with the kneejerk reaction of the previous week’s performance in gold than any
considered opinion of the future of the metal.
Which brings us to this week. The survey participants didn’t get to factor in the late-day surge
in gold on Friday and were probably using lizard brain to consider what gold tends to do in an
FOMC week. I beg to differ on this one and along with the contrarian signal given from the
above, am expecting a good five days ahead for the metal.
The Ernst & Young mining productivity report
Mentioned on the blog last week (19) this is a second headsup on a most interesting eight page
report from E&Y entitled “Productivity still down in mining and metals sector”. Get your free and
free-access copy of the report here (20) (it’s an optimum situation download, one click and
you’re done, no forms or fuss or tracking). It’s getting a second mention today because it’s
really worth reading by those who take their mining sector seriously and I’ve always presumed
that means a fair percentage of this Weekly’s audience, so here we are. And by way of a
primer, the section near the end under the heading “To be effective, you need to be
committed” is the part that provided most food for my thoughts. It’s a concise but thought-
provoking PDF, highly recommended.
Conclusion
IKN272 is done, we end with bullet points:
• Buy Rio Alto, hold Rio Alto, watch Rio Alto re-rate higher in 3q14 as the newly merged
company moves forward and gets attention.
• Unusually for a Presidential once a year special, it’s going to be worth watching the
Ollanta Humala speech in Peru tomorrow because there may be some real and market-
moving packages unveiled. I’ll be watching at least and anything time-sensitive enough
will come your way in a Flash update if necessary.
• Meanwhile, fret not for Argentina (better than saying ‘don’t cry’). There’s even a chance
than Judge Griesa swallows a heap of pride and re-instates the stay. If that happens,
buy the Merval index and then sell it the next day. Small headsup.
• Gold will have a strong week. U$1,330/oz the next time we meet, it’s written in the
mirror image of the experts.
• Reservoir Minerals (RMC.v) offered a value buying moment thanks to its own and
market circumstances. As copper is going to shine through the rest of 2014, it’s time to
buy and add.
• Be bullish this juniors market, people. Don’t be wild and to-da-moon, keep things in
perspective and don’t expect smooth riding either. But now is the time to position
yourself for the larger gains down the line. Most of you money in quality, some of it for
for the speculative high risk stocks.
22

The top long-term pick is Rio Alto Mining (RIO.to). I thank you in advance for any feedback.
Flash updates will be sent promptly if required by events
I wish you good trading fortune, ladies and gentlemen.
Otto
Footnotes, appendices, references, disclaimer
(1) http://www.calculatedriskblog.com/
(2) http://www.veooz.com/news/XHGjBh2.html
(3) http://finance.yahoo.com/news/panoro-announces-appointment-director-132000024.html
(4) http://finance.yahoo.com/news/nevada-copper-provides-2014-120000210.html
(5) http://tucson.com/news/business/article_241af13b-02cc-5c42-a401-4cd60dc4a32b.html#
(6) http://www.newswire.ca/en/story/1391402/cerro-negro-achieves-first-gold-production
(7) http://gestion.pe/economia/politica-fiscal-gobierno-contribuyo-desaceleracion-economia-segun-macroconsult-
2104079
(8) http://www.aminera.com/index.php/mineria-internacional/item/5677-minam-impacto-de-paquete-de-medidas-en-
sector-ambiental-es-bastante-menor-de-lo-que-se-cree.html?
(9) http://laestrella.com.pa/opinion/columnistas/urge-moratoria-extraccion/23787358
(10) http://www.aminera.com/index.php/mineria-internacional/item/5676-minera-panam%C3%A1-se-encuentra-
actualmente-en-la-fase-de-construcci%C3%B3n-del-mega-proyecto-cobre-panam%C3%A1.html
(11) http://www.economiaynegocios.cl/noticias/noticias.asp?id=121561
(12) http://www.aminera.com/index.php/mineria-internacional/item/5641-m%C3%A9xico-deducci%C3%B3n-fiscal-a-
100-pide-camimex-a-la-shcp.html
(13) http://incakolanews.blogspot.com/2014/07/argentina-is-it-or-is-it-not-default.html
(14) http://incakolanews.blogspot.com/2014/07/argentina-going-into-default-question-is.html
(15) http://finance.yahoo.com/news/argentex-mining-announces-commencement-strategic-163400381.html
(16) http://finance.yahoo.com/news/gold-announces-proceedings-icsid-arbitration-211500148.html
(17) http://spanish.china.org.cn/china/txt/2014-07/27/content_33070120.htm
(18) http://www.sec.gov/Archives/edgar/data/1160791/000120919114048970/xslF345X03/doc4.xml
(19) http://incakolanews.blogspot.com/2014/07/ernst-young-productivity-still-down-in.html
(20) http://www.ey.com/Publication/vwLUAssets/EY-Productivity-in-mining/$FILE/EY-Productivity-in-mining.pdf
(21) http://www.kitco.com/news/2014-07-25/Survey-Participants-Look-For-Lower-Gold-Prices-Next-Week.html
23

Appendix 1: Flash update dated Thursday July 24th
Good Thursday afternoon, just before 1pm local time, tow hours to go before the close.
Adding to Reservoir Minerals (RMC.v)
Reservoir (RMC.v) reported its quarter yesterday afternoon, the numbers were clean and in line with house
expectations, plenty of cash on hand and low burn, plus positive and even intruiging commentary in its MD&A.
Along with the stock's sub-$6 price and general junior negativity today (sorry bears, it's negative but it's not the start of
some massive PMs or sector crash) it looks like a good time to add. That's what I'm going to do between now and the
Friday close, and the addition will be enough to turn it into a decent and full-sized position. It also means that copper
exposure for the overall IKN Weekly portfolio is rising towards the place I eventually want to see it.
We'll take a close look at RMC.v this weekend in IKN272.
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
24

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.
25