IKN #274Premium

The IKN Weekly
Week 274, August 10th 2014
Contents
This Week: Buying First Majestic (FR.to) (AG), Fundamentals matter, Since we last spoke.
Fundamental Analysis: NOBS fundamentals report on First Majestic Silver (FR.to) (AG)
Stocks to Follow: Overview, GoldQuest Resources (GQC.v), Reservoir Minerals (RMC.v),
Focus Ventures (FCV.v), Santacruz Silver (SCZ.v), Lara Exploration (LRA.v), NovaCopper
(NCQ.to), Rio Alto (RIOM) (RIO.to), True Gold (TGM.v).
Copper Basket: Overview.
Low Cost Producer Basket: Overview.
Regional Politics: On Peru’s mining relations horizon part deux, Argentina fine Goldcorp (GG),
Colombia: Why mining development has stalled.
Market Watching: A recommended report from Paradigm Capital, Pretium (PVG): A case
against ownership, Gold Resource Corp (GORO) isn’t a short and here’s why, The Los Cardones
permitting Argonaut (AR.to) and Vista (VGZ) redux, Amerigo Resources (ARG.to): 2q14
quickview.
I remind subscribers that no part of this newsletter can be copied, reproduced or
given to any third party without the express permission of the author.
This Week
Buying First Majestic (FR.to) (AG)
The normal top box headsup when a new purchase is made, today your author is calling buy on
the larger-sized junior (or smaller sized midcap) First Majestic Silver (FR.to) (AG). Reasons are
examined in ‘Fundamentals...’ below. How it fits into a Stocks to Follow list that’s already at 15
names will be decided between now and next weekend.
And make a point of downloading that Paradigm Capital report mentioned below. It’s good.
Fundamentals matter
An interesting 2q14 earnings season so far (there’s more to come, mostly from the Venture
stocks) and the overriding message I’m picking up is that people really, but really care about
bottom line profits these days. Being the blogging troll that I am, rather than point to some of
the better 2q14 sets of numbers (SEMAFO did well, for example) here’s a chart that puts the
five day share price action of three stocks that disappointed in earnings up against the precious
metals ETF (GDX).
McEwen Mining (MUX) (MUX.to) showed a loss on operations once you backed out the tax
breaks it got from writing down its Los Azules copper project in Argentina. It’s always been a
company that I’ve placed at the most expensive end of the sector, probably due to the
selling/charisma/call-it-whatever factor of its boss man. But its 2q14 was a loss maker on
production (it’s mainly a silver play) and it underperformed the benchmark by ~5%.
Primero Mining (P.to) (PPP) is also a bit of a market darling but the $0.6m in net profit was well
below expectations, even though 2q14 is the one that’s most affected by the price it pays for its
1

streaming agreements and sales thereof. Operationally it wasn‘t bad at all and there’s
throughput upgrading now being baked into the company, but the market these days cares
about your capitalism (perhaps it’s fed up with
the never-ending promises of jam tomorrow) so
you need to show it post tax earnings, not a
virtual breakeven. It sold off €10% compared to
the GDX and rightly so.
Sandstorm (SAND) and its CEO got the sharp end
of my tongue on the blog (1) (not proud about it
though, I should really tone it down a bit over
there else I’ll never get invited onto panels with
Rick Rule). As well as posting a mediocre quarter,
it’s decided to double down on its losing bet at
Luna Gold (LGC.to) and now owns 19.8% of this
perennial disappointment of a company as well as
announcing to the market (at long last) the newsflow we’ve been following here for months
about the legal actions being taken against it by the Serra Pelada COOMIGASP co-operative.
The selling was Wednesday through Friday and volumes accelerated through the days too (fwiw
I get the strong feeling Wednesday sellers had been tipped off, but don’t expect the Canadian
market authorities to ever lift a finger). The result was a very nasty drop.
Three examples of negatives to the market benchmark and admittedly easier ones to highlight
because they’d caught my eye during the market week. However, the set up pattern wasn’t
confined to those three, as other companies reacted positively and negatively compared to the
mean on their own newsflow. Which brings me (finally, phew) to the point I wanted to make,
that it’s a change from just a few weeks ago when the market and its components would move
only on the tide, when good, bad and indifferent mining companies would register roughly the
same percentage moves, up or down, and the only real influence was changes in the underlying
metals prices (gold etc). What the 2q14 season indicates is that fundamentals still matter after
all. And that in turn means that being proactive and making correct choices from among the
companies in the mining sector will make a difference as the rest of 2014 rolls out. The IKN
Weekly hasn’t made much mention of its quasi-patented Rule One* for a while, but that’s likely
to change because the market and its influences are changing, too. Making sure your money is
positioned at the quality end is going to pay dividends, no matter if the quality is based on
strong net profits, rapid growth, best-of-breed management, world-class exploration projects
(or any combination of the above). Equally, weeding out the underperforming stories will pay
off in the medium term (which is one of my personal weak points).
*make a profit
Since we last spoke
The five day chart of gold looks pretty good at first glance,
couple of decent hikes in there along the way and back
above $1.3k. But honestly, we’re still wheeling around the
$1,300/oz number and nothing has really changed since
this time last week, except perhaps your ease in believing
my “just hold gold and don’t worry” message.
2

Fundamental Analysis of Mining Stocks
This week we look at First Majestic Silver (FR.to) (AG):
NOBS report dated August 10th 2014
First Majestic Silver Corp. (FR.to) (AG)
Company Overview
First Majestic Silver Corp (Canada: FR.to, USA: AG, Frankfurt FMV.f) is a producing silver
mining company operating in Mexico. It has five operating silver mines in the country, which go
by the names (and in production size order) La Encantada, La Parrilla, Del Toro, San Martin
and La Guitarra. La Encantada is located in the North of the country, with the other mines and
most of its development projects in the central zone of Mexico. Current share structure is as
follows:
Shares out: 117.499m
Options: 7.077m
Warrants: none
Fully diluted shares: 124.576m
Current share price: U$10.77 (NYSE ticker ‘AG’)
Market Cap: U$1.265Bn
Approx cash per S/O: U$0.26
All prices are in US dollars unless stated. Forex U$0.90=CAD$1
NB: As First Majestic reports in US dollars and quote on the NYSE, the US currency is used as default in this analysis.
Overview
Since the late ’08 financial crisis, First Majestic Silver Corp (FR.to) (AG) has been arguably the
most successful story in the silver space worldwide. As well as having the luck of champions on
its side with timing as far as the silver price was concerned, it executed its plan in near-perfect
style as well as leading many Canadian mining
companies by joining the NYSE under its ticker AG
when the concept was novel. But in the last couple
of years, FR.to winning story hasn’t exactly failed,
but it has stagnated and the inertia of the stock
compared to silver the metal is clear enough in this
first chart. Along with silver’s decline and refusal to
move up, FR.to has seen its costs of production rise
with the resulting crimp in margins. The balance
sheet has seen some weakening too, as FR.to has
taken on financial debt in order to fund its
expansion projects in the 2012 to 2014 period.
That’s the briefest of backstories into the stock’s
movements over five years (one paragraph over five years cannot do justice), but cutting to
today it looks as though FR.to may be ready for a second wind and a new, stronger period both
financially and operationally. Most of the capex bills are now paid and projects are coming to
fruition, which means the company is set for organic production growth at its current operating
mines while overall costs should drop, too.
3

I’ve had the feeling that FR.to “looks cheap” for a fair portion of 2014. A few weeks ago I looked
a little more seriously at its numbers and still wasn’t thrown off the scent, which was around the
time the potential for it as a trade idea began to get floated here again. Today’s the day the
thesis gets seriously tested and the upshot, down there in about a dozen pages’ time, is that:
• FR.to looks set to come out of a company-building consolidating stage, even if silver
doesn’t move up from here.
• Production upside and cash cost reductions now looked baked into the next few
quarters. That along with the drop in capex needed for projects means more cash
flowing to the bottom line.
• FR.to also looks at the right price point for leverage to silver. Downside looks limited
(unless of course the bottom truly drops out of the silver bullion market) and upside to
earnings looks tempting enough even if silver only makes it to around $22/oz. The
balance is low risk to good reward at the moment, that’s the right place to make an
entry.
• Above all FR.to is firmly in the category of “quality mining company”, which is where I
want to drag the portfolio (kicking and screaming if necessary) as 2014 plays out.
Adding from the quality end of the market and buying stocks that are cash flow positive
and profitable is the right strategy for this market.
So, to business.
Management and holdings
FR.to is headed up by Keith Neumeyer, its president and CEO. He’s a long established figure in
the Canadian mining scene, having also founded First Quantum back inthe 1990’s, and today at
FR.to heads what’s generally regarded as an all-star team of directors in both Canada
(corporate) and Mexico (operations). It’s a long note today, so at least on this point I’m not going
to go into great detail and leave it with a simple “no problems here”, but a quick nod of the head
is deserved by COO and main man running the company in Mexico, the equally highly regarded
Ramon Davila .
As for shareholdings, they’re pretty disperse with no one entity or person holding a large
percentage. CEO Neumeyer also holds 3.176m (~3.3%) of the shares outstanding, with the
other five directors of the company holding around 1.1m aggregate. That’s not a lot of skin in
their own game and it’s also worth noting that insiders have been regular and large sellers of
stock and options (exercised and quickly sold into the market). These people haven’t been slow
in cashing out, a process that was particularly noticeable when FR.to shares rose above $20 a
couple of years ago.
Other large institutional holders include (this list as per FR.to end July 2014) Van Eck (5.1%),
Sprott Asset Mgmt (3.9%), Resolute Funds (3.0%), Fiera Capital (1.9%), RBC, (1.7%) and so
on with a range of insto names that current hold around 40% of the float in total, with the rest
assumed to be in retail and private hands. This thinly spread ownership profile makes for very
good trading liquidity, with Canadian and USA tickers doing good business on a daily basis. In
other words, unlike many featured stock in The IKN Weekly there are no problems getting in
and out of this one.
Operations
Here come words on each of the main FR.to assets. We’re not going into deep detail today,
because this first pass report is more about the numbers and what we think First Majestic can
do compared to expectations and depending on silver’s movements, but a brief overview
wouldn’t do any harm.
La Encantada: A very pure silver mine (99% Ag, very little in the way of equivalents
production), La Encantada is FR.to’s mainstay operation and the baseline of its production
schedule since it began. It’s an underground operation that’s previously mixed old tailings in
with fresh ore from the mine, but as that’s now changing along with management plans to up
throughput to 3,000tpd (from ~2,300tpd currently) it’s also probably the most interesting growth
project the company has at the moment. It’s organic expansion is planned and its recent
production changes along with its impending growth seems to have been ignored by the market
4

and that’s a potential edge for us.
More about La Encantada’s growth profile later on (we make a special effort on this one), here
we note that with 37.2Moz Ag P+P the mine has eight years of production reserves. That
number more than doubles when M+I and
inferred are added.
FR.to: Production at La Parrilla mine
1400000
La Parrilla: In the last few quarters La Parrilla 1200000
has in fact been FR.to’s biggest single producer 1000000
in Silver Equivalent terms (AgEq), because
800000
along with silver (in 2q14 ~62% of production) it
600000
gives lead, zinc and gold as by-products.
400000
200000
There are just under eight years of P+P
0
reserves here too. Though La Parrilla has a lot
more to offer as inferred is put at a whopping
73.4Moz Ag.
Del Toro: This is FR.to’s most recent addition to its stable of operating mines, having first
started up production in 2q13. However, it’s still
very much in ramp-up mode and the company
expects production to move up in the quarters to
come, along with a significant drop that’s due in
its cash cost profile. By the end of the year Del
Toro should crack the 1m oz AgEq barrier, as
well as being far more efficient on costs.
With Del Toro now getting into ~4m oz AgEq
rhythm, it has 7 years of P+P reserves, as well
as 14 or 15 years resources in other categories.
Another long mine life here, typical of the assets
held by FR.to (you may have gathered by now).
San Martin: This is a smaller operation than the above mentioned mine, permitted for up to
1,300tpd. It’s also another interesting growth story for FR.to because as these two charts show,
FR.to has invested in upgrading capacity this year and 2q14 saw the first fruits of that.
Production went to over 500k oz AgEq for the quarter just gone, which compares to quarters of
around 300k previously (up to 400k max).
Yet again long mine life noted here, with around 10 years of reserves even at the new faster
throughput rate and then perhaps another 30 years if all the inferred turns out to be economic.
5
11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2
Parrilla other AgEq prod
La Parrilla Ag
source: company filings
FR.to: Del Toro quarterly production
1000000
Del Toro other AgEq prod
800000 Del Toro Ag
600000
400000
200000
0
1q13 2q13 3q13 4q13 1q14 2q14
source: company filings
San Martin: Quarterly throughput
120000
100000
80000
60000
40000
20000
0
11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2
source: company filings
dessecorp
sennot
cirtem
FR.to: San Martin production
600000
500000
400000
300000
200000
100000
0
11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2
Ag/AgEq
San Martin other AgEq prod
San Martin Ag
source: company filings

La Guitarra: This mine came as a producing entity to FR.to when it bought out the small junior
Silvermex. At around 200k to 300k AgEq production per quarter is the smallest of the asset
book, though FR.to does have to-be finalized plans to upgrade its current 500tpd to 1000tpd
once it’s completed an inventory of resources/reserves for an informed decision. Part of this
mine’s dynamic is the Plomosas project mentioned below, which could provide new feed.
Other projects: On the exploration and development front, FR.to has quite a few early stage
concessions on its hands that it’s now in the process of spinning out into a separate company,
according to the latest NR. But there are two projects promo’d by FR.to as its most advanced.
The La Luz project is located in the Real de Catorce area of Mexico, but there’s a serious
problem with community on this one. The project is located on (or some say next to, it’s
probably both) what’s regarded as a sacred site by locals, known as Wirikuta. Since picking up
the property FR.to has been well and truly stalled in moving it forward (here’s a 2011 report (2),
dozens more where this one came from) and for our purposes we’ll assume things stay that
way, because it’s very likely.
The other main project on FR.to’s books at the moment is Las Plomosas, which came with the
purchase of Silvermex and its La Guitarra operating mine. Plomosas is a silver project but it’s
not so very large and still fairly early down the development track (in fact re-development, it’s
one of those old U/G vein mines that was worked and has been mothballed for a considerable
period, a classic Mexico scenario).
Overall, the FR.to pipeline is one of the weak spots in the company, as it doesn’t have much in
the way of large and advanced projects coming on line (LA Luz stuck behind community
protests is a particular bind for the company) and it’s going to need to either up things at its
operating mines or buy something else in order to expand meaningfully.
Production overview
We’ve seen a few selected charts of individual mine production above, it’’s time to put it all
together and consider FR.to as a consolidated entity. Let’s start with these charts, that show
pure silver production per quarter here....
FR.to: pure silver production, per qtr
Oz Ag
3500000
La Guitarra Ag
Del Toro Ag
3000000
San Martin Ag
La Parrilla Ag
2500000
La Encantada Ag
2000000
1500000
1000000
500000
0
1q11 2q11 3q11 4q11 1q12 2q12 3q12 4q12 1q13 2q13 3q13 4q13 1q14 2q14
source: company data
...and of course include the 2q14 production numbers that were pre-announced in July (3) (we
get the financials on Wednesday), then here is this complementary chart the overall silver
equivalent production.
6

Oz AgEq
FR.to: Silver Equivalent production, per qtr
4500000
4000000 La Guitarra AgEq
Del Toro AgEq
3500000 San Martin AgEq
La Parrilla AgEq
3000000
La Encantada AgEq
2500000
2000000
1500000
1000000
500000
0
1q11 2q11 3q11 4q11 1q12 2q12 3q12 4q12 1q13 2q13 3q13 4q13 1q14 2q14
source: company filings
FR.to has a reputation of being “the pure
silver play”, the silver miner that doesn’t
mine other metals so very much. That used
to be very true back in the years to 2011
and still true in 2012 and 2013 but these
days with La Parrilla and Del Toro showing
a different mining mix, FR.to gets only
around 80% of its total revenues from
silver. That’s still pretty good percentage-
wise, but we can’t ignore the other 20%
that comes from sales of lead, zinc and
gold any longer.
Here’s the quarterly evolution of total processed ore/tonnes milled. We see how La Encantada
has moved from tonnage majority to minority, how production tonnages peaked in 4q12 and
since then have delcined, even with La Guitarra and now the new Del Toro coming online.
FR.to: Total ore processed/tonnes milled, per qtr
900000
800000
700000
600000
500000
400000
300000
200000
100000
0
1q11 2q11 3q11 4q11 1q12 2q12 3q12 4q12 1q13 2q13 3q13 4q13 1q14 2q14
source: company filings
7
ero
sennot
cirtem
FR.to: Percentage of pure silver in total silver equivalent
production, per quarter
100
95
90
85
80
75
70
65
60
55
50
La Guitarra
Del Toro
San Martin
La Parrilla
La Encantada
The above charts make a simple point; production at FR.to has gone up while overall tonnages
have dropped. That means higher grading and more efficient recoveries are the order of the day
and by way of an example, I’m going to highlight the recent changes in the company’s stalwart
La Encantada mine (there’s other changes afoot at San Martin and the new Del Toro, of
course). There are three points to make
11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2
% pure Ag
source: company filings

1) Up to recently, La Encantada has been running at around 2,000tpd if you include all
days of a quarter (FR.to puts that figure at around 2,300tpd because it excludes
scheduled production down days). This is now changing, and FR.to is implementing
plans to up production to 3,000tpd.
2) Until mid-2013, La Encantada’s mill was fed with a mix of new fresh ore recently mined
along with older stockpile/tailings ore of lower grade and with a higher manganese
content, which inhibited recoveries. This strategy changed at the end of 2013 and now
in 2q14, La Encantada had its first quarter (of many to come) when feed was 100%
higher-grading, better recovery fresh ore. The results of this can been seen in these
charts, which show how average head grade has improved to over 300 g/t (brushing at
10 oz) and recoveries have finally (after many years) reached the 60% level that FR.to
has always wanted from this operation.
3) If we assume the new throughput, head grades and recoveries work to 4q14 when
FR.to says it will have completed the production upgrade at La Encantada, this chart
shows what the mine is capable of production-wise. Indeed theory points us to 1.38m
oz Ag per quarter, which is a big jump from the typical quarter posted by this mine that’s
always revolved around the 1m oz Ag mark. In fact for our projection purposes (see
below for target assumptions and valuations) I’m assuming a more modest production
growth to 1.25m oz Ag for this mine, but the math exercise shows what La Encantada is
theoretically capable of achieving in the quarters to come, something that’s not as yet
been reflected in its share price movement. Or at least I say so.
La Encantada silver production, per qtr
1500000
1400000
1300000
1200000
1100000
1000000
900000
800000
700000
600000
500000
8
11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 tse41q3 tse41q4
FR.to: La Encandata silver grade, per qtr
350
300
250
200
150
100
50
0
Oz Ag
source: company filings
The story of improved production and operating growth isn’t confined to La Encantada, either.
Del Toro is now ramping up and 2q14’s numbers from that mine shows’ that it’s now on track
(we expect a much lower cash cost than the $77/tonne is posted in 1q14). San Martin too,
having just been boosted after capex projects were completed. Then others such as La Guitarra
which may be a small operation but is currently being reviewed for potential throughput
upgrading. Put the pieces together and we expect FR.to to surpass 4m oz AgEq/qtr this year
and 3.5m of pure Ag in early 2015, which will put it well on track for its longer term goal of 20m
oz per year (5m/qtr). But for me La Encantada is the showpiece of today’s FR.to, because in the
near future it’s going to shake up the opinions of anal ysts and market watchers who take that
mine for granted as the 1m steady state bedrock. When production goes up 25% in the couple
11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2
FR.to: La Encantada avg recovery %, per qtr
g/t Ag
70%
60%
50%
40%
30%
20%
10%
0%
source: company filings
11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2
source: company filings

of quarters’ time, they’ll be more pleasantly surprised by the news than us.
FR.to: Consolidated production, plus ests for 3q14 and 4q14
4500000
4000000
3500000
3000000
2500000
2000000
1500000
1000000
500000
0
9
21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 tse41q3 tse41q4
Ag/AgEq
other AgEq prod
total silver prod
source: company filings, IKN estimates for rest of 2014
Financials overview
The main task here is to check how the financials trends have been at FR.to in the last few
years, so we’re taking the longer view on quarters with some charts casting back as far as
2009. However, we’re also just a couple of days away from the company’s 2q14 financials,
which are due pre-open on Wednesday 13th August (4), so along the way I’ve added 2q14
estimates to most charts which should map
out what I’m looking for from the company
in this quarter’s filings.
Starting with balance sheet items and the
story told by both the assets and the
liabilities charts is one of capital expansion
in fixed assets. The process started in late
2012 (when silver was still riding high up
around the $30/oz mark) and the world was
a place in which growth, financing of
growth, plans for growth were rewarded. As
we now know, gold and silver dumped in
early 2013 and have stayed depressed
ever since, but FR.to has pressed on with its plans and added to its mining assets by both
acquisition and project growth. Today’s FR.to has an equity (book value) of just under $600m,
or $5/share if you prefer.
Most of the liabilities are locked up in long-term debt, with less than $100m in the currents
section. The cash position has got tight as we’ll see in the next chart, but by our calculations
and assuming silver doesn’t drop to new lows we should have seen the worst in FR.to’s
numbers already, which we’ll see this week if its 2q14 numbers come out with improvements to
these charts.
1000 FR.to: Assets Breakdown per qtr
900
800
700
600
500
400
300
200
100
0
80q4 90q1 90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 tse41q2
source: company filings
srallod
fo
snoillim
FR.to: Equity per share
6.00
5.00
4.00
3.00
2.00
1.00
0.00
fixed
other current
cash
80q4 90q1 90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 tse41q2
source: company filings
erahs/$U

FR.to: Debt Breakdown per qtr
350
300
250
200
150
100
50
0
10
80q4 90q1 90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 tse41q2
source: company filings
srallod
fo
snoillim
LT debt
current debt
This working capital chart is a really eloquent one and shows a clear correlation to the early
years of FR.to, its boom in 2011-2013 when the stock could do no wrong, then the drop off from
2013 to present. Working cap has been hit hard by the the capital programs at FR.to along with
the drop and stubborn refusal to any rebound shown by silver. The 1q14 number was just
$18.75m but as of this week we’re expecting that to improve slightly.
FR.to: Working Capital per qtr
120
110
100
90
80
70
60
50
40
30
20
10
0
80q4 90q1 90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 tse41q2
source company filings
srallod
fo
snoillim
Shares out look like this. The last equity raising was back in 2012 and since then, exercised
options have been the only difference to the pile. At 117.5m today and no reason to expect this
figure to grow, unless FR.to decides to print paper in order to acquire something.
130 FR.to: Shares Out
120
110
100
90
80
70
60
50
40
30
20
10
0
80q4 90q1 90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 tse41q2
source: company filings
serahs
fo
snoillim
So to the P+L items and starting with the most interesting chart of the bunch, the total expenses
breakdown. Ignore our house prediction for a slight improvement in costs profile for 2q14 at the
moment, because the main story here is that of increased costs. Mexico in general has become
a more expensive place to go mining, the enlarged operations footprint costs more money
(check out those deprec/amort lines) G&A runs at an average of $2m a month in this company

(which gives me the chance to remind you how Rio Alto runs its G&A at $1.5m a quarter). There
has been a topping out of costs over the last four quarters and I’m looking (hoping?) for good
news on this score on Wednesday but one thing’s for certain here, FR.to isn’t the same entity it
was back in 2011 and 2012 when its share price was handily over $20.
FR.to: expenses breakdown
60
55
50
45
40
35
30
25
20
15
10
5
0
11
90q1 90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 tse41q2
$m
other
share-based payments
depletion, deprec& amort
G&A
Cost of Sales
source: company filings
This next chart adds in the consolidated revenues figures to the total expenses seen above and
the story is clear, margins have been pushed down a long way.
90 FR.to: Quarterly Revs vs Cost of Mining
80
70
60
50
40
30
20
10
0
11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 tse41q2
source: company filings
srallod
fo
snoillim
revenues
Total Expenses
To its credit, FR.to has maintained profitability in its operations (and bar the two quarters in
2013 it took financial provisions, net profits have held up as well) and has seen the relationship
between sales and costs stabilize on the right side of the tracks in the last two quarters. We’re
expecting a slight improvement on this in 2q14 and as long as silver prices behave, better as
2014 turns into 2015 thanks to the stronger production profile.
FR.to: Operating Income per qtr
45
40
35
30
25
20
15
10
5
0
-5
90q1 90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 tse41q2
source: company filings
srallod
fo
snoillim
Net earnings are given to you by way of the EPS chart. Please note that I’ve remove that
70c/share loss bar from 4q13, because it skewed out the chart and also it was a wholly
financial/technical event caused by a goodwill write-down and a provision on the new Mexico
EBIT royalty tax law that came into effect in 2014.

FR.to: Quarterly EPS
0.40
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00
12
90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 tse41q2
source: company filings
erahs
rep
$
Let’s quote the filings to make sure that missing bar is clearly understood:
“Net loss in the fourth quarter of 2013 was attributed to $28.8 million non-cash
impairment on goodwill and mining interests as well as $38.8 million non-cash
adjustment to deferred income tax expense recorded in relation to the
Mexican Tax Reform.”
So there you go.
The bottom line to the financials is, check that working capital chart again. FR.to has expanded
operations and grown its fixed asset base at a time of dropping silver prices. Its not wavered in
plans and taken out lines of credit to make up for the gap in lost earnings from lower silver, the
result is a depleted treasury and higher liabilities. The other interesting chart (for me) is the
costs vs revenues, which shows how margins have been crimped by the rise of one while the
other feels the weight of lower market prices for silver. However, with the rump end of capex
projects now out the way and FR.to maintaining its cash flow positive position even through the
tough quarters, it’s set to reap the benefits and if better silver prices turn up this stock is one
that could rebound in great style in the months ahead. And that’s why we’re here.
Valuing First Majestic Silver (FR.to) (AG)
After all that background, the paydirt section may disappoint you but all the same and after
mulling it over for a couple of weeks, this is the direction I’m going to take on this. There are
three main thrusts to this potential investment:
• One: The asset value is baked into the share price, the upside will come from earnings.
What we’ve seen from FR.to in the last four years is a period of good times in 2011 and
2012 when it was priced on what it owned and what it made in profit. Then in 2013 and
2014 to date, when profits were minimized
• Two: FR.to looks like it’s now turning the corner, production is set to rise on a relative
drop in cash costs. It’s something of stealth growth story in that there’s more production
upside in the works than the market seems to be awarding the stock. This is good
because once the asset value is taken into consideration in the stock price, the share
price upside comes from cash flow, margin and plain simple bottom line EPS profits.
With capex obligations now dropping away, more cash should make its way to treasury,
shoring up the depleting working cap position and strengthening a balance sheet that
got rather debt heavy during 2013.
• Three: But as far as share price upside is concerned, FR.to is obviously a slave to the
silver market. We can expect some reasonable but modest quarterly profits in the
quarters to come if silver stays at-or-around $20, but the real upside will come if silver
bullion starts moving back up. This is the most attractive part to the trade; a low
downside risk leverage play on silver.

To this end, I’ve prepared just two exhibits for your consideration. First this chart, which shows
the history of FR.to’s share price compared to the type of PE multiple it’s been able to
command. For our comparison we use the end quarter share price of the US listed stock AG (in
US dollars of course) and the forward PE derived from that quarter’s earnings simply multiplied
by four to give a forward year. There are three main periods to the comparative:
Pre-2011 (shown here just with the 2010 numbers) when FR.to was setting itself up for
production and profits growth
2011 to early 2013, when earnings flowed and there was a clear and close relationship between
the PE ratio FR.to commanded at market. As it happens they both revolve coincidentally around
the number twenty (the dollar price for the stock and the PE ratio for the calc), a function of what
it made at the time compared to the number of shares out. Luck or not it makes the chart
comparative look neat and tidy which is why it’s here, a good visual.
Mid-2013 to date, when silver dropped and earnings dropped with it. I’ve again scrubbed out the
4q13 -70c per share loss because it gives a “not applicable” result, but the last couple of
quarters including the one about to be filed show how the market’s happy to assume a higher
PE for the moment, because it’s pricing in the assets held by FR.to as its baseline and probably
thinks there’s better profits to come.
FR.to: Share Price end Qtr vs Forward PE per quarter
50
45
40
35
30
25
20
15
10
5
0
13
01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 tse41q2
share price end qtr
fwd PE
What this chart says is what was noted in the above section on financials. First Majestic may
have the assets and those are what gives its valuation the $10-or-abouts backbone, but the
upside is about cash flow, cash flow and cash flow. When FR.to is working, the share price
moves up and roughly matches on a 20X PE ratio, which justifies its previous move to U$20
and beyond. That’s what we see in 2011 and 2012, times of plenty when the silver price
ballooned operating margins and allowed FR.to to demand a high multiple.
But the right hand side of that chart has a different chapter to the story. When the wheels came
off the silver price in early 2013 FR.to therefore sunk nastily, because although normally
profitable to some extent (2q13 and 4q13 forward PEs were removed from, the chart because
they flash false signals due to one-time losses) those profits are suddenly tinysmall slivers. 40X
PE is of course unsustainable in the long term, but the market isn’t selling FR.to down to $5 in
order to get the PE back in the 20X line because it understands it has the net asset value
backbone and five working and producing mines that give it intrinsic value, no matter if profits
are crappy for a while. Or another way of looking at it, more straightforward:
• The market typically offers a 10X PE multiple to silver producers
• However, it recognizes the wealth of assets held by FR.to
• Therefore the market gives the first 10X worth of multiple “for free” to cover its asset
book, its mines, those valuable long production life in-situ rocks etc.
• So when the good times roll, it gets a 20X PE multiple (first ten already free and baked
in) to earnings, but when things are tougher and (little more than) breakeven is the
touchstone, it’s back to the baseline which happens to be at-or-around U$10.
• That’s little more than where we are today, which means as long as the thesis holds an
investment in today’s FR.to is a low risk, well back-stopped proposition with decent

upside reward if things go well. That’s the right balance for us the investor.
Now for exhibit number two, this table that tries to make a little more sense of what we could
see from FR.to in the near future, now that more cash is set to flow to the bottom line and
improve profits. What we do here is the following:
• Assume 117.5m shares out (as per today)
• We assume FR.to produces 4m oz AgEq per quarter, which is roughly where we’ll be in
3q14 and probably pitching low for the quarters beyond that.
• We then compare different levels for all-in sustaining cash costs (AISC) and average
selling prices for silver, which give us a basic operating margin for the company. Thus
at $20/oz and $18.50 costs we get a 5C/qtr EPS, which is of course a ballpark
calculation but fits in closely with the parameters and eventual EPS reported by FR.to in
1q14.
FR.to: Qtrly EPS spread forecast, assuming 4m oz AgEq, 117.5m S/O, range of costs and silver prices
AISC/ounce AgEq (U$)
Ag price (U$)
$14 $15 $16 $17 $18 $18.50 $19 $20
$20/oz 0.20 0.17 0.14 0.10 0.07 0.05 0.03 0.00
$21/oz 0.24 0.20 0.17 0.14 0.10 0.09 0.07 0.03
$22/oz 0.27 0.24 0.20 0.17 0.14 0.12 0.10 0.07
$23/oz 0.31 0.27 0.24 0.20 0.17 0.15 0.14 0.10
$24/oz 0.34 0.31 0.27 0.24 0.20 0.19 0.17 0.14
$25/oz 0.37 0.34 0.31 0.27 0.24 0.22 0.20 0.17
$30/oz 0.54 0.51 0.48 0.44 0.41 0.39 0.37 0.34
source: FR.to data, IKN calcs
Yes it’s simple in structure, but simple works for me. The above table clearly shows the type of
leverage to both reduced costs and improved silver prices that FR.to might enjoy in the quarters
to come, so without feasting your eyes on the serious cash FR.to could make with silver at
$25/oz or $30/oz, please check the yellow shaded areas. If we assume FR.to is as good as its
word and brings its all in sustaining cash cost (AISC) down to around $16/oz Ag (see latest
company guidance, which pitches between $15.87 and $16.69 for 2014), the current $20/oz
share price implies a quarterly EPS of 14c. Considering the improvement we’re almost certainly
going to get from Del Toro and San Martin this quarter, plus La Encantada in the next quarters,
a drop from the 1q14 $18.50/oz number is highly likely.
By keeping to our simplified model and using that figure as our forward multiple plus today’s
silver price, we get 56c/annum. Applying the reasoned 20X PE we’re given a U$11.20 share
price target and a 4% upside from this weekend’s share price, in other words this scenario looks
baked into FR.to already.
But here’s where it gets interesting. With just $2/oz added to silver and the same parameters,
that EPS moves up to 20c/quarter, i.e. a 43% move in earnings for a 10% move in the price of
silver bullion. That’s leverage at just the right price point, because the simple 80c/annum
forward PE model and the 20X assumption now points to a U$16 target and a 48.6% upside.
This could continue and I could offer up more examples of price/cost combos of interest. It’s
also around now that I’d normally put forward the earnings model and eventual price target box
in the NOBS report, but this time I’m not going there because FR.to doesn’t need that. This
investment thesis is based around the following:
• The company has proven it executes well. We go with its production forecasts.
• Assuming that, we can plug in costs to current silver price and fully justify today’s share
price.
• Downside potential is limited, because the market has demonstrated its willingness to
pay up in order to own these assets, no matter if their net earnings have been lean
recently.
14

• And it’s all about silver price from here. If silver improves modestly, we can expect
FR.to at the current price point to leverage well and show outsized percentage gains to
the metal. That’s the selling point here and that’s why I want to take a position in FR.to
this week; it’s a lot of upside potential to minimal downside potential.
Conclusion
I’m buying First Majestic Silver Corp (FR.to) (AG) next week because:
• It’s a quality precious metals producer. I want more quality on my list and I want more
profit-making producers in my portfolio, less scraggy no-trade explorecos. This one fits
the bill.
• My current exposure to silver is minimal (basically SCZ.v). As I expect gold to improve
in the months to come, it’s reasonable to assume silver gets coat-tailed along and that
means leverage to gold.
• What’s more, FR.to at the current price point offers strong upside potential (perhaps
+50% if silver moves up by just $2/oz) to low downside risk (its assets prop up today’s
equity price well).
• Finally, FR.to is on the cusp of changing gears, out of “build and spend” and into
“bottom line profit maker” mode, which as far as I can see isn’t yet baked into the share
price by the market. We’ve seen it move from phase to phase before so with the end of
major capex works now here, we expect better production at lower per ounce cash
costs.
• The 2q14 results on Wednesday will show whether my thesis is either right, on on the
right lines, or wrong. But by then I’ll be long at least one part of my position and from
there we’ll see how things go. To recap, what I’m expecting from the 2q14 numbers are
a) slight improvement in balance sheet items b) lowered cash costs c) modest net profit
d) guidance for much better to come in the second half of 2014. On those four points I
hang my hat.
The IKN Weekly adds First Majestic Silver Corp (FR.to) (AG) to its ‘Stocks to Follow’ as of
next week and sets a nominal $16 share price target, representing a 48.6% upside to
Friday’s close. This target is somewhat flexible and assumes above all that silver manages to
move up to $22/oz by the end of the year. If it puts on less, expected gains would reduce. If
silver goes on a tear on reaching $16 I wouldn’t sell.
15

Stocks to Follow
Of the 15 stocks on the list, six made gains last week (RIO.to, GQC.v, RMC.v, SCZ.v, LRA.v,
SRL.v), one was unchanged (COP.to) and eight lost ground (TGD, IRL.to, FCV.v, DNA.to,
TGM.v, ARG.to, NCQ.to, EOM.to). So hardly a good week but not a bad one either and thanks
to RIO.to’s move your author’s overall account shows green. Hey ho.
The worst percentage moves were seen in Eco Oro (EOM.to down 18.3%) and Minera IRL
(IRL.to down 15.8%) and of those two, IRL’s drop on some volume acceleration was by far the
most depressing to witness. The best percentage move was from Salazar (SRL.v up 46.7%)
which traded weirdly all week.
We currently have 15 open positions on our ‘Stocks to Follow’ list, our normal and self-imposed
maximum. Seven are green, eight are red.
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$2.72 18.3% 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$1.73 25.4% $2 tgt but holding in 3q14
Minera IRL IRL.to spec buy C$0.27 22-jul-12 C$0.16 -40.7% Ready for financing deal
Goldquest Min. GQC.v buy C$0.26 27-oct-13 C$0.22 -15.4% drillplay spec, added end Jul
Reservoir Min. RMC.v buy C$6.05 18-jun-14 C$6.14 1.5% 2nd add this week, M&A play
Focus Ventures FCV.v hold C$0.23 01-jul-12 C$0.27 14.8% tgt 50c, added, avged up
Dalradian Res DNA.to hold/add? C$0.65 27-oct-13 C$0.83 27.7% Poss add window, tgt $1.70
True Gold TGM.v hold C$0.395 02-feb-14 C$0.42 6.3% LT hold, takeover play
Amerigo Res ARG.to buy C$0.445 20-jul-14 C$0.44 -1.1% new position, sm Cu play
NovaCopper NCQ.to spec buy C$1.05 09-apr-14 C$1.10 4.8% 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$0.77 -33.0% solid biz model, LT hold
Eco Oro Min. EOM.to hold C$0.48 22-sep-13 C$0.245 -49.0% paramo resolution missing
Recommended short positions
None at moment
Smaller/Riskier
Coro Mining COP.to spec buy C$0.125 26-jan-14 C$0.06 -52.0% Cu spec play, can add
Salazar Res SRL.v hold C$0.28 02-mar-14 C$0.22 -21.4% 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
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. They’re brief this week.
Rio Alto Mining (RIO.to) (RIOM): The re-rating process begins. Along with a lot of main
16

market participants RIO.to sold off sharply in late Friday trading (see it on the right hand side of
this 5 day chart) which took some of the shine away from an excellent week, but it was still a
fine performance that kicked in as soon as RIO.to announced on Tuesday evening that the
Sulliden merger was done, dusted and officially closed (5). Now with 328.8m shares out, RIO.to
is running a market cap of CAD$894.4m. That’ll be over a billion soon enough. Buy/add/own
and take the rest of the year off.
Timmins Gold (TGD): I won’t lie to you, this is
the one with the trading pattern that most
worried me last week. Ignoring the late Friday
dive (which affected TGD less than many others,
perhaps it was already baked in) this chart
shows how Timmins zagged when it should have
been zigging on Thursday and early Friday.
Any stock’s allowed a rough patch, especially one
in the volatile world of juniors. Reserving
judgement until next week but I’ll be watching
the ticker carefully.
GoldQuest Mining (GQC.v): GQC remains cheap and a good spec buy, as now the clock
should start ticking on the second set or three holes North of Romero that could-or-not give us
a new area of mineralization. If any of the three return a decent hit (lap of the rock Gods) the
current 2-handle will be left for dust.
Reservoir Minerals (RMC.v): On Wednesday, RMC announced (6) the start of exploration
drilling on the Nikolicevo concession. This is a 100% owned piece of land located just next to its
big/exciting/company value justifying Timok concession that holds the Cukaru Peki resource,
under JV with FCX (see editions passim). What different about Nikolicevo is that a) it’s 100%
owned by RMC b) it’s a new exploration story and c) it’s the first target picked by RMC away
from Timok to start its regional exploration drilling program.
Of course we’re now in a pure exploration geology drill story and that means there can be zero
guarantees. RMC can like the target all they like but if the truth machine eventually shows
dusters, it shows dusters. Still, with RMCs current ~$300m market cap fully justified by the
Timok JV what we’re on here is a bit of a no-lose. As for trading, it’s unlikely coincidence that
on the news the stock managed to break $6 for the first time in several weeks, with a little
more volume showing Friday too. We may see more spec cash enter and shore the price up
before first drill results from Nikolicevo are announced (after all, this is a winning team in their
17

favourite jurisdiction) and from that point, fundamentals take over. They always do in the end.
Minera IRL (IRL.to) (MIRL.L): The selling last week looked like people losing patience with
the story. Frankly, it’s understandable. Until real news on the Ollachea financing is with us, IRL
isn’t going to do much outside of this range.
True Gold (TGM.v): Well, here’s one I called
pretty much correctly this time last week.
Indeed TGM.v opened soft on the first day of
last week (the Tuesday, due to the holiday in
Canadian markets Monday) on heavy selling,
with prices as low as 39c touched on that day
and Wednesday. Then Thursday and Friday
saw it fight back as expected, with a closing
42c looking pretty decent in the great scheme
of things, though it’s still a weekly loser of
course.
I still fully expect this one to get back to the
previous week’s 44c and 45c range.
Amerigo Resources (ARG.to): See ‘Market Watching’ below for a summary of the 2q14
numbers and analysis. It’s definitely a hold, but I prefer to wait before adding unless cheap
stock 40c? Is seen.
Salazar Resources (SRL.v): It traded all over the place and ended the week with a near
50% gain, but it’s not anything to take seriously until true volume returns. SRL may be getting
a kick from a few spec players looking for deep value in unloved Ecuador, I don’t know. For the
time being I’ll hold on but if I want to keep the list at 15 stocks something will have to leave in
order to make space and it might be this one. Decisions next week.
The Copper Basket
After thirty-two weeks of 2014 The Copper Basket is showing a 12.34% gain to level stakes.
18

company ticker price 1/1/14 Shares out Market Cap current pps gain/loss%
1 Augusta Res AZC.to 1.51 144.41 555.98 3.85 155.0%
2 Lumina Copper LCC.v 6.29 44.07 439.38 9.97 58.5%
3 NGEx Resources NGQ.to 1.43 168.71 350.92 2.08 45.5%
4 Reservoir Min. RMC.v 4.97 47.55 291.96 6.14 23.5%
5 Nevada Copper NCU.to 1.35 80.5 181.93 2.26 67.4%
6 Panoro Minerals PML.v 0.35 220.25 99.11 0.45 28.6%
7 Copper Fox CUU.v 0.375 402.96 92.68 0.23 -38.7%
8 Hot Chili Ltd HCH.ax 0.425 333.11 78.28 0.235 -44.7%
9 Western Copper WRN.to 0.76 93.68 76.82 0.82 7.9%
10 Curis Resources CUV.to 0.57 74.79 66.56 0.89 56.1%
11 Nevada Copper NCQ.to 1.60 60.15 66.17 1.10 -31.3%
12 Cordoba Min. CDB.v 0.90 58.81 38.23 0.65 -27.8%
13 AQM Copper AQM.v 0.11 139.24 14.62 0.105 -4.5%
14 Coro Mining* COP.to 0.10 159.37 9.56 0.06 -40.0%
15 Oracle Mining OMN.to 0.27 49.03 3.92 0.08 -70.4%
NB: HCH.ax priced in AUD$, rest CAD$ //CDB 2x1 split May'14 Portfolio avg 12.34%
The basket average is down 0.04% from this time last week, that’s to say all-but unchanged.
Six of the basket stocks showed gains (RMC.v,
HCH.ax, PML.v, CUV.to, AQM.v, CDB.v), two The Copper basket 2014, weekly evolution
25%
were unchanged (NCU.to, COP.to) and seven
stocks dropped (LCC.v, NGQ.to, AZC.to, CUU.v, 20%
NCQ.to, WRN.to, OMN.to). Of all those just one
15%
made a double digit move, that was Hot Chili
(HCH.ax up 17.5%) as it rebounded on 10%
technicals after being whacked pretty hard in
5%
recent weeks. Overall, a neutral sort of week
for the sector and our representative stocks. 0%
Market prices for copper metal saw a 6c or 7c drop early week from the mid $3.20s to the
higher three teens. That’s clear on the first hourly chart here, while the second weekly chart
makes the case for last week being very much inside the normal trading range. We’re in
August, volumes aren’t great and fluctuations on trading winds rather than fundamental copper
19
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 dr3gua ht01
source: IKN calcs

matters are going to occur. We read nothing into last week’s price play.
Now the world copper inventories coverage, the bullet points as follows:
• We drop for a third week in a row. World stocks dropped 7,158 metric tonnes (mt) (-
2.6%), to 269,128mt.
• The Shanghai Futures Exchange copper warehouse gave us just about all of that
movement. Its stocks number dropped 7,447mt (-6.9%) to 100,946mt, just keeping its
head above that 100k mark. We mused that we’d see a lag in deliveries to the
warehouses unwind this time last week but in fact the opposite happened and more
metal left the system. Yes, that’s bullish for copper (just like me).
• The LME copper warehouse inventories made no move, staying at 146,200mt.
• The Comex warehouse stocks rose again saw a very small upmove, adding a small just
289mt to 21,982mt.
We’re at the end of another month, so here are the tracking charts updated and ready
So the story was Shanghai and to underscore the return of the bullish story there, here’s the
weekly stocks tracker for that warehouse system.
Shanghai Futures Exchange Warehouse Stocks, 2014
220000
200000
180000
160000
140000
120000
100000
80000
60000
20
ts13ceD ht5naj ht21 ht91 ht62 dn2bef ht9 ht61 dr32 dn2ram ht9 ht61 dr32 ht03 ht6rpa ht31 ht02 ht72 ht4yam ht11 ht81 ht52 ts1enuj ht8 ht51 dn22 ht92 ht6yluj ht31 ht02 ht72 dr3gua ht01
Mt Cu
source: Cochilco
We see the stocks rise strongly in early year as we reach the Chinese New Year period, then
the stronger drop as copper’s taken away. The lows of June were indeed very low, but then
came the double inventory scares in non-exchange bonded warehouses that were supposed to
spook the whole industry and had analysts talking of a massive influx into the more secure
Shanghai Futures Exchange warehouses. Indeed we saw stocks tick up over 100k again, but
this weekend in the fourth in a row where they’ve basically stayed unchanged at just over that
100k mark. Now you can tell me lots of things about copper, but you can’t tell me the above
chart is in any way bearish for the metal’s demand in by far its most important market.
The Low Cost Producer Basket
After 32 weeks, the Low Cost Producer Basket is showing a 23.80% 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 37.95 36.49 -3.3%
2 Goldcorp GG 21.67 812 22.78 28.06 29.5%
3 Barrick ABX 17.63 1000 18.69 18.69 6.0%
4 Newmont NEM 23.03 497.87 13.14 26.39 14.6%
5 Silver Wheaton SLW 20.19 357.39 9.50 26.57 31.6%
6 Franco Nevada FNV 40.74 147.01 8.60 58.52 43.6%
7 Agnico Eagle AEM 26.38 173.43 6.67 38.48 45.9%
8 Pan American PAAS 11.70 151.41 2.27 14.98 28.0%
9 B2Gold BTG 2.02 651.4 1.74 2.67 32.2%
10 First Majestic AG 9.80 117.5 1.27 10.77 9.9%
all prices in U$, using NYSE ticker prices Portfolio avg 23.80%
The basket average did ok, up 2.47% on the week and most components showing gains, which
is what you’d expect from the producer bunch when gold moves ~1.5% higher on the week.
The only loser since last Sunday was semi-odd-man-out Freeport (FCX), which was dragged
lower by its copper (and oil for that matter) weightings. Meanwhile, best of the bunch was the
very decent 4.7% upmove made by Newmont (NEM).
The Low Cost Producer Basket: Weekly performance and
comparative to GDX control
35%
30%
25%
20%
15%
10%
5%
0%
21
ts13ceD ht21 ht62 ht9 dr32 ht9 dr32 ht6rpa ht02 ht4yam ht81 ts1nuj ht51 ht92 ht31 ht72 ht01
basket
gdx control
source: Yahoo! Finance, IKN calcs
Our basket average dropped slightly behind our benchmark GDX once again and the gap is now
back up to 2.94% (it was down to less than a pip in June), the main culprits for this seem to be
FCX once again, and the equal weighting given to underperforming ABX and AG. In fact, there’s
quite a bit of silver exposure in our list compared to the GDX and as that metal has done worse
than gold during 2014, the effect probably shows.
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 dr3gua ht01
source: ikn calcs, NYSE/Nasdaq data

Regional politics
On Peru’s mining relations horizon, part deux
Last week we noted three examples of social, community or industrial relations problems that
are looming for Peru in the days and weeks ahead. This week we add to the comments made
on 1) Tia Maria (Southern Copper (SCCO) Islay copper project) 2) Las Bambas (MMG has to
move a village) and 3) Support protest marches for Gregorio Santos in Cajamarca at the end of
the month. Here come not one but four separate issues for the mix of Peru + social + mining.
Tia Maria reaction: On schedule, Peru’s government awarded the environmental permit to
Southern Copper (SCCO) for the Tia Maria copper project on Monday (the whispered picked up
and noted last weekend had got it spot on correct). Also on schedule and as expected was the
reaction of local landowners, agro communities and local towns who vowed to fight to the
death (quite literally at some meetings, the
language and rhetoric used was pretty incendiary
at times) to oppose to project. For what it’s
worth, locals both for and against the project are
meeting today Sunday (7) in order to decide on a
common position, if that’s at all possible.
Strangely, I read in the bizpress that SCCO
shares moved higher on this news (see Aug 4th
and 5th on this five day chart). I found that
strange because 1) the news was already
telegraphed and 2) there’s a long way to go
before SCCO can build this mine, something the
company has made clear itself. It’s already told
the world (8) that if they can’t get a “social
licence” from locals they won’t go ahead and that’s a process that starts in the next few days.
SCCO’s director of Institutional Relations, one Julio Morriberón Rosas, said, “There are still
many stages to get through before this project goes ahead and what’s more, if it doesn’t have a
social licence the mining company will not begin the construction.” The initial position is that
SCCO is willing to fund a small-ish amount towards regional development program (400 million
Soles plus 300m in govt sponsored tax deductible infrastructure projects, approx U$251m
total), the locals who don’t want the mine refuse all offers and the locals willing to negotiate
want a lot of money (the Moquegua negotiation team that did a deal with Anglo on Quellaveco
is slating 2,080 million Soles, approx U$748m). Bottom line: There’s plenty of talking to do
before this project breaks ground and I’m quite sure the current official timeline from SCCO of
starting before the end of this year is way too optimistic.
Two Hochschild (HOC.L) mines on strike: You’d never guess from the lack of news that
gets to the English language press (let alone any news release from the company), but workers
at the Hochschild (HOC.L) owned Ares and Arcata mines in the South of the country are on
strike because they claim they haven’t been paid the bonuses they’re due under Peruvian law
(9). The strike began on Friday in wildcat style, which means it’s already been classed as illegal
by Peru’s Mining and Energy Ministry (MEM). Even so, the workers have said they’ll increase
their actions (which usually means roadblocks and can be a call end with violent confrontations
with police) if they’re claims aren’t addressed.
Shougang to strike on Monday: This one’s something of a regular occurrence, but it’s also
one that gains column inches. Workers at Shougang Iron in the Southern coastal region of Peru
are set to go on strike tomorrow Monday over pay and conditions, according to their union
leaders on Friday (10). They tend to strike every August, which may be because it’s the rhythm
of the negotiation year or maybe because workers want time in their home towns when most
local fiesta weeks are held. This industrial action tends to be a little dance, a couple of weeks of
protests and then back to work. We’ll see.
22

Toromocho holdouts take legal action: Here’s one that could throw a legal spanner in the
works at Toromocho, as well as providing fuel for fires at Las Bambas and its plans to re-locate
a township starting the end of this month. At Toromocho, most of the locals who live din the
affected village of Morococha accepted the offer of a new home built by the mining company a
few kilometres away and have abandoned the old village, that’s due to be swallowed up by the
massive mine very soon. But a few have held out and now the remnant population of
“Morococha Antigua” (old Morococha, as it’s being named) have brought legal action (11)
against the Toromocho mine in order to stop it from using high explosives nearby the village. In
a weird way it’s similar to the Argentina bonds holdouts issue, because just a small bunch of
people may be able to halt the whole mine if this action is successful. On a wider scale, those
watching from Fuerabamba, the village due to be relocated in order to make room for the Las
Bambas copper mine, are going to be highly interested in any result or even settlement that
people in Morococha old town get. There’s a can of worms here, waiting to be opened.
Argentina fine Goldcorp (GG)
The environment agency of Santa Cruz province has handed down a ArgP$22m (U$2.67m at
the official rate) fine to Goldcorp (GG) (12) for serious breaches of environmental regulations at
its Cerro Negro mine project that date back as far as 2008. Pleasant place to work, no?
Colombia: Why mining development has stalled
Thanks due to several readers (four if memory serves) who took time to send in an interesting
article on the Colombia mining scene published by Northern Miner last week (13). This extract
shows the thrust of the note, written by Frederick Felder (ex-Greystar/Eco Oro, who has been
up against the country’s problems first-hand)
For the last 10 years, Colombia has been portraying itself as a beacon of opportunity to investors
in the mining industry.
Unfortunately, there is a wide gap between the official declarations about the country’s openness
to investment and the reality on the ground.
There appear to be a number of reasons why the Colombian investment climate for mining has
not been positive:
• Lack of institutional support for the sector
• Lack of a clear mining and environmental policy
• Changing rules, resulting in a lack of legal certainty
• Strong anti-mining socio-political climate
• Government institutions not ready for large-scale mining
• Fragmented and often confusing industry message to government
In his first-term inaugural address in 2010, Colombian President Juan Manuel Santos declared
the mining sector as one of his “four locomotives” for the country’s development. Unfortunately,
the rails to run that locomotive on were never put in place. As Santos prepares for his second
term in August, mining has dropped from his vocabulary and it seems it is unlikely to be a main
policy priority during his second term.
It’s a good piece and shows the gripes of the mining industry insiders towards the country well.
It does little in the way of mea-culpas however and seems to assume that junior mining
companies in Colombia have been paragons of transparency. They haven’t. Overall a
recommended piece for insight on the country and the arguments go a long way to backing up
your author’s long-held contention that Colombia isn’t the place for exploreco cash right now.
Market Watching
A recommended report from Paradigm Capital
I’d like to thank reader Ross for pointing the way to this report (14) from Paradigm Capital
dated August 7th 2014. In “Revival of the Takeover Twenty”, the house makes the case for
buying exploration stage junior gold/precious metals miners because, and to cut a long story
23

short, they believe it’s time in the cycle for beaten down asset valuations to stage a recovery.
Yes, they got my attention with that because it’s what I’ve been banging on about all this time.
Things to like about the report include:
• The macro overview and argument is straightforward and convincing.
• Also, Paradigm chooses 20 stocks to follow which are largely (though not totally)
different from IKN Weekly ideas. That’s good, I don’t need to read the samo samo and
neither do you.
• This chart below, found on page seven as the report works its way through its
introduction argument and investment thesis. Normally I don’t like charts that mix their
information (the classic red flag being the use of two scales on the Y-axis), but in this
case it doesn’t detract from the argument. The gold price is a detail in context and not
the main event, the world production line simply tells us “basically unchanged”. No, it’s
those “gold discovered” bars that speak loud and clear
I spend a fair proportion (too much?) of my blog time slamming into brokerages and anal ysts
who do poor work. Therefore it’s only right to point you towards good stuff when it’s out there.
You may not agree with everything Paradigm Capital proposes (I certainly don’t), but it’s a
smart and insightful report that’s well worth your time. Get your copy from link (14) in the
appendix. It’s a direct download link and easy stuff, but if you have any problems feel free to
drop me a line as I have a copy and can send on.
Pretium (PVG): A case against ownership
With Pretium Resources (PVG) (PVG.to) filing its 2q14 financials last week (15) here’s a brief
return and overview on why i don’t think this is one to own, because after shorting it and
covering at a loss earlier this year I still field regular comments on how it’s going to be the
great thing of the future. Fair enough, here’s a reply to those mailers.
This time I’d like to steer clear of the hype and/or controversy surrounding its VOK deposit at
Brucejack (in 50 words, the drill intercepts are undeniably great, the company swears its 43-
24

101 is reliable, but like it or not doubts on whether it hangs together as an underground bulk
mining deposit persist because if it were a sure thing it would have been bought by now; after
all it’s an advanced project with a feas study behind it so what’s stopping the majors?) and
focus on the financials. As an explorer it has no true income stream, barring the one-time
revenues it received from the sale of its bulk sample earlier this year, so the crux of the
company’s financial position is on the money it brings in via financings versus the money it
spends in development, that most basic of relationships.
PVG: Approximate cash burn rate, per quarter
40
35
30
25
20
15
10
5
0
In late 2012 PVG was a $14 stock. Nowadays it’s roughly (well, less then) half that price and at
least one of the reasons is the 20m+ share count dilution we’ve seen. PVG has just added a
heap of cash due to 1) mostly the equity raising and 2) minor factor the bulk processing gold
sale. That’s fine and the working capital evolution shows that clearly for the 3q14 estimate
number, but this is an expensive exploreco to run on a day to day basis. PVG went through a
quiet period in early 2014 but it’s back running development now and burn rate is expected to
return to previous average levels. This shows in the way working cap is expected to drop
between now and 1q15 and in real world terms, PVG will have until 2q15 or perhaps at a pinch
3q15 before it will need to go back to market and raise again. Another 10m shares to raise
$60m perhaps? Another round on the carousel, more value seeping away from current equity
holders.
The bottom line is that PVG needs to find a buyer. In a full bull market that would have
happened already, as three or five years ago the majors and wannabe majors were snapping
up the development assets and paying above the odds for the privilege too. My contention is
that in the current market climate, ruled by gold’s modest at best profitability and by gold
majors with boards of directors who’ve just watched a whole swathe of CEOs lose their jobs
because they took risky decisions that blew up in their faces, is not one that’s going to see big
gold miners make risk/reward calls such as the one you’d need to make in order to buy
VOK/PVG. In the meantime, the company’s high burn rate plays against it.
• Is there a mine at VOK? Yes, almost certainly. A lower tonnage vein operation for sure,
but that would be a whole different beast with probably lower annual production and a
longer mine life, to name but two variables.
25
11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 tse41q3 tse41q4
PVG: Mining activity expenditures vs Net cash from
Expenditure on mineral interests operating loss 80 financing
$m
70
60
50
40
30
20
10
0
Source: company filings, IKN ests for 4q13
11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 tse41q3 tse41q4
$m
Expenditure on mineral interests
net cash from financing
source: company filings, IKN ests
100 PVG: Working Capital per qtr
90
80
70
60
50
40
30
20
10
0
01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 tse41q3 tse41q4 tse51q1
source company filings, IKN ests
srallod
fo
snoillim
120 PVG: Shares Out
100
80
60
40
20
0
21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 tse41q3 tse41q4
source: company filings, IKN ests
serahs
fo
snoillim

• Is there a large tonnage bulk mine of the type planned by PVG? Up for debate. Talk to
Snowden and they’ll tell you no problem, talk to Strathcona (16) and you’ll probably
hear a different take on the rocks at VOK.
• Are there any major (or wannabe major) gold mining companies ready to commit
something in the order of U$1.7Bn or U$1.9Bn to the bulk mining project as stands
today ($750m in capex, at least a billion to buy out PVG)? I don’t think so, frankly. Now
for sure that call will depend in the future on what gold does and as I’m looking for
gold to trend to $1,400/oz come the end of this year, it’s possible that somebody in the
upper echelons of the sector gets enough courage from the trend to make a move and
prove me wrong. But I don’t see it.
There’s no denying that it’s a very rich deposit and has potential for big profits, my issue is with
the risk for the acquirer and taking all things into consideration, PVG at VOK looks too
expensive and with too many things that could go wrong for it to be at the top of anyone’s
shopping list. There’s my piece said, this time next year I expect PVG to be unsold and about to
raise more capital by selling more shares. I’m not a shorter of the stock any longer (unless it
goes much higher for no particular reason, something that would surprise me) but its set up
today isn’t one that favours beta to gold or alpha to peers. Neutral PVG.
Gold Resource Corp (GORO) isn’t a short and here’s why
This time last week I was floating the idea of another short trade on Gold Resource Corp
(GORO), one of my favourite shorting vehicles of the last couple of years, as it was due to
report and I thought there was a decent possibility of it disappointing. On Thursday evening
GORO reported and as noted in the Flash update of Friday morning (see Appendix 1) there was
no short there. I said I’d make a couple of extra comments on the numbers today and here we
are, but I also said I’d be brief so here come comments with couple of charts and that’s your lot
(if you’re interested in something a little deeper, mail over and ask).
GORO controlled its costs profile well, which allowed better operating profits. There are several
ways to chop and slice that statement and these charts show a couple of them. On the left we
see how revenues per tonne have remained roughly level, but costs per tonne have dropped
sharply. On the right the P+L breakdown chart, which shows how GORO has benefitted from
the that in 2014 it can now capitalize its construction and development costs thanks to having a
gold reserve at Arista, instead of expensing them as before. This has taken perhaps $5m off of
quarterly true costs. More savings have come from operations (the new COO seems to be doing
a better job, though I have no details to back up that supposition) and from G&A savings (it’s
not been as extravagant with its exes since old man Reid left, which is another credit to the
company version 2014).
U$/tonne GORO: Revs/tonne vs True Cost/tonne
GORO: Costs breakdown
400 revs per tonne 36
360 true cost per tonne 32
320
28
280 24
240
20
200
16
160
12
120
8
80
4
40
0
0
2q13 3q13 4q13 1q14 2q14
source: company data, IKN calcs
The net profit and EPS at 14c was right in line with my “reasonably optimistic” model forecast.
Which meant there was no disappointment in the quarterly numbers. Two more charts here,
with to the left revenues, COGS and gross profit and then to the right how the gross profit has
flowed through the corporate structure. With costs under control and the more modest
26
11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 tse41q3 tse41q4
U$m
cons+dev
exploration
G&A + stock comp
COGS
source: company data, IKN ests

production forecast in place (no more talk of 150k oz and 200k oz years) there’s no reason to
suppose a rise in costs in the next two quarters and so if silver and gold prices behave, GORO
should be able to return at least a couple more quarters that look the same as that 2q14 profits
chart on the right.
There’s still a tax liability it has to pay, so the treasury is slightly bloated compared to the long
term reality, but by concentrating on the working capital numbers you get a more accurate
picture and at ~U$27m it’s doing ok. Not wowsers great, but nothing to criticize either.
80 GORO: Working Capital per qtr
70
60
50
40
30
20
10
0
27
01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 tse41q3 tse41q4
source company filings, IKN ests
srallod
fo
snoillim
GORO: Quarterly Earnings overview
45
40
35
30
25
20
15
10
5
0
Production’s been steady in real terms, with the rise in throughput managing to balance the
drop in grade and the adverse effects of the rise in gold/silver ratio that screws GORO and its
silly “gold equivalent ounces” marketing.
One notable aspect is how the base metals credits now account for over 25% of gross revenues
at GORO. Gold accounts for under 32% of revenues, the rest made up by main revenue
generator silver.
11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 tse41q3 tse41q4
source: company filings, IKN ests
srallod
fo
snoillim
GORO: Evolution of profits
revenues 14
COGS 12
Gross profit 10
8
6
4
2
0
-2
-4
-6
21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2
source: company filings, IKN ests
srallod
fo
snoillim
op profit
pre-tax profit
Net Income
GORO: Tonnage mined per quarter
120000
100000
80000
60000
40000
20000
0
11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2
tonnes per qtr GORO: AuEq sales
25000
20000
15000
10000
5000
0
source: GORO data
31q1 31q2 31q3 31q4 41q1 41q2
AuEq
Au sold AuEq from Ag
source: GORO filings, IKN ests for 1q14

GORO: Percentage breakdown of revenues by metal
100
75
50
25
0
28
21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2
%Ag %Au %credits
source: GORO filings
In the medium term GORO still has a reserves issue to face come early 2015. The three year
trailing price average for gold that it uses in order to work out its reserve ounce count will drop
come January 1st and unless it gets more
ounces into P+P category between now
and then (we note GORO has budgeted an
extra $2.2m on drilling for the next two
quarters) its reserve count will drop
substantially). But that’s not going to
affect the next two quarters’ worth of
results and there’s no reason to suppose
its cost basis is going to rise dramatically
for the rest of 2014, either.
The bottom line is that GORO as a
company has stabilized and that’s to its
great credit. I thought 2q14 may show the
1q14 numbers to be something of a flash
in the pan but that was wrong. However,
part of last week’s plan was also to wait and see and look at the quarter before making any
trade decision and that was the right call. There is no short here for now nor is there likely to
be for the rest of 2014, I’m just going to have to look elsewhere for my shorting opportunity.
The Los Cardones permitting, Argonaut (AR.to) and Vista (VGZ) redux
As this chart shows...
...there was little or no reaction from either Argonaut (AR.to) or Vista (VGZ) last week when
compared to either other juniors (GDXJ) or gold (GLD) after the news that Los Cardones had
received its enviro permits. This surprised me somewhat, especially in the case of Vista Gold

(VGZ) that stands to gain around 15% of its current market cap in cash as long as the
Cardones new owners complete their payment for the property (as they almost certainly will do
now). I’m therefore leaving this one as a mystery, but consider the story a sleeper and one with
the potential for a pop once it gets more market radar.
Amerigo Resources (ARG.to): 2q14 quickview
Rounding up the roundups, here as promised in the Flash update of Friday (see Appendix 1) is
the story of Amerigo Resources’ (ARG.to) 2q14 financial results. As noted in the update, the
results came in roughly as expected, but there are always things that you get wrong or weren’t
expecting so rather than the overall “in line” call,
ARG.to: Revenues
we’ll check on the things that were different from
60
my assumptions and consider why. 50.499
50 44.231 47.108 43.161
40.013
Revenues came in at $27.3m, which was lower 40 37.035
31.446 31.95 32.37
than my guesstimate of $28.5m. From what I can 30 27.325
see, the difference was due to ARG.to getting a
20
slightly lower gross price for its moly ($13.33/lb)
10
than I assumed. No biggie.
0
There are two part to this costs chart below. First
COGS was booked at $26.127m, plenty lower than
my $30.5m estimate. I’d erred on the side caution
with my estimate but obviously too much, as that was plain wrong in hindsight. That’s one of
the things that comes from covering a stock for the first time (in a long time) and the guesses
will get better as quarters go on. Honest guv. Then
the second part is the much larger than expected
“other”, which includes an $8.066m adjustment
which is basically a write-down. It’s much more an
admin thing than anything to affect the day-to-day
running of ARG.to and is about the company’s
liability assumptions on the day they hand back the
fixed assets to El Teniente come the end of the
current contract in 2037. It’s a book-keeping thing
but it means a hole appears in earnings for one
quarter, which happens to be this quarter.
Finally, G&A at $1.32m was higher than I’d
assumed (0.5m). That’s one I’ll watch in the future.
So you put that and that together and the result is this. To be honest, the gross profit being in
profit was better than I’d expected (I’d assumed a $2m loss on the “hump effect” of the drop in
grades before the higher throughput helps things,
plus the low-ish copper prices). So that was pretty
good from ARG and on reflection, this gross profit
number (due largely to lowered COGS) is probably
why ARG.to’s share price didn’t see a big drop last
Thursday or Friday.
However, the adjustment (aka write down) on end
contract assumptions hit the operating and net
income lines heavily. For sure it’s a one-time and
somewhat artificial effect, but it also has to be
swallowed for a quarter. For what it’s worth, post
tax credit ARG says that the total negative impact
on earnings was $6.2m which means that by
backing it out we would have seen a $-2m-and-bits net figure this quarter. That’s acceptable
and compares to my own $-2.0m forecast well enough.
29
21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2
U$m
source: company filings
ARG.to: Costs breakdown
60
55
50
45
40
35
30
25
20
15
10
5
0
-5 11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2
U$m
other
G&A
COGS
source: company data, IKN ests
ARG.to: Evolution of profits
6
4
2
0
-2
-4
-6
-8
-10
11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2
source: company filings, IKN ests
srallod
fo
snoillim
op profit
Net Income
Gross profit

15 ARG.to: Working Capital per qtr
12
9
6
3
0
-3
-6
30
11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2
source company filings, IKN ests
srallod
fo
snoillim
As for balance sheet items, I’m not going into assets/liabilities/share count etc because the
adjustments are mainly knock-ons from that write-down and pretty uninteresting. The only
chart I care about enough to show you is working capital, which at $4.35m is nearly a million
more than I’d forecast and that’s a fully OK number. ARG.to has more than enough liquidity to
run its daily thing and as the worst quarter of 2014 (and beyond?) is almost certainly now
behind us, it can run its current operations just fine. We have yet to learn just how ARG.to
intends to raise the capital for its expansion plans of 2015/2016 which are slated to near-double
production, but by assuming Klaus Z’s word is good and there are Chilean financiers ready to
provide, then by assuming the new upgrade is a separate function than today’s steady state
operations, the current share price looks justified.
The last chart to show you is the share price evolution. On Friday morning I wrote that I was
slightly disappointed that the bottom line numbers from ARG didn’t cause it to sell off in any
great way (because as the plan stated in the original IKN271 NOBS report of three weeks ago
(July 20th), any drop and second purchase was
part of the strategy) but thinking about it
further and taking that rock solid looking price
action in 2014 into account, it’s not that
surprising after all. If we see 41c or 42c that’s
a probable buy next week and who knows,
there may be a delayed reaction seller who
liquidates in the week to come.
If not I’ll be patient with the small amount I
have on board already.
Bottom line: With variations here and there,
ARG posted results that were along the lines
expected and suit our original purchase thesis to a tee. ARG offers good upside leverage to
copper with minimal downside risk, and that’s a nice equation. I’m definitely holding what I
have and ARG.to will be a good one to add if copper the metal makes further price progress.
Conclusion
IKN274 is done, but just for a change and a bit of retro fun here’s a change to our normal
programming. For completely different reasons I found myself checking back at IKN240, dated
December 2013, this weekend while compiling today’s weekly. I read it through and got to the
end bullets of that day, which said this (bold type today):
IKN240 is done, we end with bullet points:

• Seriously folks, consider how much you’re spending on newsletter
subscriptions (this one and others) and consider how much value you’ve
been getting for your money. There are too many people making easy money
by writing this tosh that should be flipping burgers, if you ask me.
• It’s difficult for me to bang on the table about Rio Alto (RIO.to) (RIOM) at
this point, because it’s boy-who-cried-wolf material. But shameless I am and
the number compel me to state that we are faced with one of those rare
buying opportunities in a stock. I’m going to hold fire until the end of the
month comes around, but it’s nearly time for the reserve money to be dusted
off and put into play.
• It’s tough to get too enthusiastic about the market today, even for a near-
term trade set-up (the GLW/RDU/RYG trio show the lack of interest in
obvious though small bargains). With that said, Curis may turn out to be one
to follow more closely as if the Florence town council blinks, there’s a lot of
untapped value in this equity at-or-around 60c.
• To clean up the sector properly, the number of juniors in the market has to
drop. The number of parasites hanging on to the sector has to drop. And the
system of resource disclosure needs to be fixed, too. There’s a long way to go
on all three of those, so in the meantime I’m going to try my hardest to keep
looking for and backing the good guys when I find them. Two of those are
mentioned in the next lines under “The top long-term picks”.
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.
IKN274 back and you know, those comments have stood the test of eight months of time.
• On that day as I wrote about banging on the RIO.to table for the Nth time it was a
$1.37 stock, so it’s not quite a 100% move but it’s only missing a couple of pennies.
• Curis Resources (CUV.to) isn’t one I’ve gone for, but it’s still up nearly 50% from the
IKN240 publication date. Meanwhile, it’s very true that I’m hotter on copper exposure
than I was at the end of 2013, which is working out quite well so far.
• Plenty of people have indeed unsubscribed from this service. Hopefully they’ve saved
money in other places, too.
• The number of juniors has indeed begun to drop, with some dead-ender minnows
fusing together, some removing themselves from mining to become marijuana pumps,
some shuffling to the NES (the junior deep freeze and source for shells one day in the
distant future), some even going into bankruptcy. But there’s more that need to go, a
lot more.
• The only regret is that off Minera IRL (IRL.to), which is still failing to rally and we’re still
waiting for a deal to fund Ollachea.
The top long-term pick is Rio Alto Mining (RIO.to). No Minera yet. 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
31

Footnotes, appendices, references, disclaimer
(1) http://incakolanews.blogspot.com/2014/08/nolan-watson-new-tye-burt-sand.html
(2) http://www.jornada.unam.mx/2011/04/09/opinion/018a2pol
(3) http://finance.yahoo.com/news/record-3-86-million-silver-110000455.html
(4) http://finance.yahoo.com/news/first-majestic-silver-corp-second-160800656.html
(5) http://finance.yahoo.com/news/rio-alto-sulliden-complete-plan-232509273.html
(6) http://finance.yahoo.com/news/reservoir-minerals-initiates-exploration-drilling-201000241.html
(7) http://www.larepublica.pe/10-08-2014/tia-maria-se-debate-entre-la-aceptacion-y-la-protesta
(8) http://www.larepublica.pe/06-08-2014/dirigentes-de-tambo-alistan-protestas-por-aprobacion-a-tia-maria
(9) http://www.rpp.com.pe/2014-08-08-arequipa-trabajadores-mineros-en-huelga-indefinida-exigen-pago-de-bono-
noticia_714747.html?
(10) http://www.rpp.com.pe/2014-08-08-shougang-peru-planea-huelga-indefinida-para-este-lunes-noticia_714830.html?
(11) http://servindi.org/actualidad/110444
(12) http://opisantacruz.com.ar/home/2014/08/06/multaron-con-mas-de-22-millones-de-pesos-a-la-minera-goldcorp-en-
santa-cruz/22712
(13) http://www.miningmarkets.ca/news/why-colombias-mining-sector-hasnt-lived-up-to-its-
promise/1003191917/?&ref=rss&ctid=1003191917&er=NA
(14) http://www.carlislegold.com/pdfs/Gold%20Sector%20140807%20Revival%20of%20the%20Takeover%2020.pdf
(15) http://finance.yahoo.com/news/pretivm-reports-second-quarter-2014-234115506.html
(16) http://incakolanews.blogspot.com/2013/11/the-pretium-pvg-pvgto-soap-opera.html
Appendix 1: Flash updates dated Friday August 8th
Good Friday morning, 07:50am here local time and 40 minutes before the open, fresh and sunny here without a cloud in
the sky (looks like the worst of winter is done and there's not much Niño Effect as yet)
That intro is probably longer than this Flash update's contents.
Amerigo Resources (ARG.to): Waiting for a lower price to add
The 2q14 numbers came out valong expected lines yesterday morning pre-open...
http://finance.yahoo.com/news/amerigo-announces-q2-2014-financial-113000788.html
...with new recent low for revenues and a net loss. However, we didn't get much of a negative reaction from the share
price during trading yesterday, with a close of 43.5c on light volumes. I'd like to see it lower for my addition buy if
possible, so will wait a few days to see what happens. No fixed price for the add, but 40c would probably be enough to
get my second purchase.
Gold Resource Corp (GORO): Not shorting the stock
Post-close yesterday Gold Resource Corp (GORO) came out with its 2q14 financials...
http://finance.yahoo.com/news/gold-corporation-reports-second-quarter-210509246.html
...which includes a 14c/share net profit. In the underlying numbers there are still some strange things to note (i'll do a
quick overview on Sunday, nothing too much because we've covered this stock in detail previously) but overall this isn't
the shorting opportunity that I considered it might be in last week's edition. It's not a long either (in my opinion). Neutral
position here.
Enjoy your Friday. This weekend's edition will feature First Majestic (FR.to) (AG) in the main analysis note.
Best, O
32

Stocks To Follow Closed Positions, 2012
Closed in 2012 closed close PPS
Soltoro SOL.v jan'12 C$0.87 07-nov-11 C$0.94 8.0% cash moved to BCM.v
Gold-Ore Res GOZ.to feb'12 C$0.84 13-oct-10 C$0.98 16.7% trade closed on ELG.v offer
Minefinders MFN feb'12 U$11.68 17-nov-11 U$14.80 26.7% target made, trade closed
Iron Creek IRN.v mar'12 C$0.58 26-sep-10 C$0.31 -46.6% time up on small bad trade
U.S. Silver USA.to apr'12 C$2.18 15-mar-12 C$1.86 -14.7% ST trade no good, cut loss
Augusta Res. AZC.to may'12 C$3.10 29-jan-12 C$2.07 -33.2% bad mkt, bad trade cut loss
Bellhaven BHV.v may'12 C$0.50 22-sep-10 C$0.28 -44.0% new mgmt not impressive
Zincore Metals ZNC.to may'12 C$0.325 29-jul-11 C$0.17 -47.7% bad mkt, bad trade cut loss
Soltoro SOL.v may'12 C$0.70 18-mar-11 C$0.41 -41.4% bad mkt, bad trade cut loss
U.S. Silver USA.to aug'12 C$1.78 27-jul-12 C$1.36 -23.6% fail ST trade close pre split
Estrella Gold EST.v aug'12 C$0.91 27-mar-11 C$0.14 -84.6% Closed on port realignment
Fortuna Silver FVI.to sep'12 C$1.07 03-may-09 C$5.32 397.2% sell call $6.17/ Mar25
Strait Minerals SRD.v oct'12 C$0.125 09-dec-11 C$0.12 -4.0% closing coverage til FY13
Sunward Res SWD.to oct'12 C$1.47 13-mar-11 C$1.21 -17.7% sold, took loss
Gold Res Corp GORO oct'12 U$21.47 09-sep-12 U$17.40 19.0% Short trade closed
Yellowhead Min. YMI.to nov'12 C$1.00 01-apr-12 C$0.63 -37.0% sold, took loss
Primero Mining PPP nov'12 U$7.26 07-oct-12 U$6.73 7.3% Short trade closed
Bear Creek Min. BCM.v nov'12 C$3.38 07-nov-11 C$3.72 10.1% Took small profit
Vena Resources VEM.to dec'12 C$0.70 31-may-09 C$0.18 -74.3% Failed trade (caps F)
Galway Res GWY.v dec'12 C$2.19 24-nov-12 C$2.30 5.0% closed good ST arb trade
Stocks To Follow Closed Positions, 2011
Closed in 2011 closed close PPS
Sunward Res SWD.v jan'11 C$1.05 21-nov-10 C$1.63 55.2% target made, trade closed
Serengeti Res SIR.v mar'11 C$0.245 05-dec-10 C$0.285 16.3% sold pre-tgt, ST trade fail
Fronteer Gold FRG apr'11 U$2.37 03-may-09 U$15.24 543.0% buyout, trade closed
Minefinders MFN apr'11 U$9.09 07-nov-10 U$16.89 85.8% target made, trade closed
Metalline Min. MMG may'11 U$1.04 26-jan-11 U$0.89 -14.4% exit, resource disappointed
Peregrine Met PGM.to jul'11 C$0.87 06-mar-11 C$2.60 198.9% buyout offer, closed
Dynasty Metals DMM.to jul'11 C$4.20 03-may-09 C$2.85 -32.1% Sold. Fail. Move on.
Aura Silver AUU.v aug'11 C$0.22 13-oct-10 C$0.16 -36.4% Bad pick. Take loss
U.S. Silver USA.v aug'11 C$0.52 26-jan-11 C$0.71 36.5% closed to make room
B2Gold Corp BTO.to sep'11 C$2.80 12-may-11 C$4.27 52.5% target made, trade closed
Bear Creek Min. BCM.v sep'11 C$3.80 27-may-11 C$4.17 9.7% macro sell call victim
Minefinders MFN sep'11 U$14.70 10-aug-11 U$15.15 3.1% macro sell call victim
Great Panther GPR.to sep'11 C$3.03 22-aug-11 C$2.64 -12.9% macro sell call victim
Fortuna Silver FVI.to sep'11 C$1.07 03-may-09 C$5.36 400.9% sold 20%, macro sell call
Focus Ventures FCV.v nov'11 C$0.40 20-apr-10 C$0.20 -50.0% cut losses, bad trade
Regulus Res. REG.v dec'11 C$1.17 14-aug-11 C$0.52 -55.6% cut on news of poor 43-101
2009 and 2010 closed positions in appendices below
33

Stocks To Follow Closed Positions, 2010
Closed in 2010 closed close PPS
B2Gold Corp BTO.to Jan'10 C$0.88 08-nov-09 C$1.49 68.2% target made, trade closed
Radius Gold RDU.v Jan'10 C$0.18 23-aug-09 C$0.40 122.2% target made, trade closed
MAG Silver MVG mar'10 U$5.60 23-nov-09 U$7.28 30.0% closed in pdac week
Riverside Res RRI.v mar'10 C$0.435 20-sep-09 C$0.60 37.9% closed in pdac week
Amarillo Gold AGC.v mar'10 C$0.81 31-may-09 C$0.70 -13.6% closed in pdac week
B2Gold Corp BTO.to apr'10 C$1.24 18-feb-10 C$1.50 21.0% target made, trade closed
Lumina Copper LCC.v apr'10 C$0.84 14-jun-09 C$1.55 51.2% total position now sold
Troy Resources TRY.to may'10 C$1.10 03-may-09 C$2.25 104.5% sold on negative results
AuEx Ventures XAU.to may'10 C$2.51 24-may-09 C$3.38 34.7% trade closed
Nevada Copper NCU.to jun'10 C$3.27 14-mar-10 C$2.03 -37.9% need to lower Cu exposure
Carpathian Gold CPN.to jun'10 C$0.39 14-mar-10 C$0.35 -10.3% too exposed to cap raising
Amerix PM Corp APM.v jun'10 C$0.065 08-nov-09 C$0.05 -23.1% victim of macro bear
Antares Minerals ANM.v jun'10 C$1.42 06-dec-09 C$2.10 47.9% sold half
Vena Resources VEM.to jun'10 C$0.37 31-may-09 C$0.23 -37.8% sold half
Minera Andes MAI.to sep'10 C$0.75 28-jul-10 C$0.95 26.7% ST trade closed
Gold-Ore Res GOZ.to sep'10 C$0.52 01-aug-10 C$0.75 44.2% target made, trade closed
B2Gold Corp BTO.to sep'10 C$1.45 25-may-10 C$2.01 34.5% target made, trade closed
Blue Sky Uran BSK.v oct'10 C$0.41 19-may-10 C$0.22 -46.3% v small v bad trade closed
Dia Bras Expl DIB.v oct'10 C$0.14 30-aug-09 C$0.35 150.0% target made, trade closed
S. Amer. Silver SAC.to nov'10 C$1.38 24-oct-10 C$1.60 -15.9% loss on short, small fail
Ventana Gold VEN.to nov'10 C$7.92 27-jun-10 C$13.51 70.6% trade closed on buyout
Lumina Copper LCC.v nov'10 C$1.42 11-aug-10 C$3.65 157.0% trade closed
Antares Minerals ANM.v dec'10 C$1.42 06-dec-09 C$8.40 491.5% trade closed
Rio Alto Mining RIO.v dec'10 C$0.69 23-mar-10 C$2.16 213.0% trade closed
Coro Mining COP.to dec'10 C$0.585 03-oct-10 C$1.24 112.0% target made, trade closed
Stocks To Follow Closed Positions, 2009
Closed positions closed closing PPS
Cardero Res CDY/CDU.to May'09 U$1.20 03-May-09 U$0.87 -27.5% sold on negative news
Eastmain Res. ER.to May'09 C$1.04 06-May-09 C$1.315 26.4% trade closed
Radius Gold RDU.v May'09 C$0.165 03-May-09 C$0.235 42.4% trade closed
Latin Amer Min. LAT.v May'09 C$0.12 03-May-09 C$0.158 29.2% trade closed
Aquiline Res. AQI.to July'09 C$2.03 16-Jun-09 C$1.68 -17.2% took loss, bad timing
Chariot Resources CHD.to Aug'09 C$0.20 12-Jul-09 C$0.415 107.5% trade closed
Castle Gold CSG.v Sep'09 C$0.64 02-Aug-09 C$0.60 -6.3% ST trade didn't work out
Guyana Goldfields GUY.to Sep'09 C$2.30 12-May-09 C$4.50 95.7% profit taken
Los Andes Copper LA.v Sep'09 C$0.09 21-Jun-09 C$0.09 0% trade closed
Pediment Gold PEZ.to Oct'09 C$0.80 09-Aug-09 C$1.00 25.0% trade closed
Minera Andes MAI.to Oct'09 C$0.68 03-May-09 C$0.71 4.4% too much bad news
Dynasty Metals DMM.to Nov'09 C$4.18 03-May-09 C$6.01 43.8% half sold
Rusoro Mining RML.v Nov'09 C$0.55 03-May-09 C$0.57 3.6% underperformed
Important Disclosure
The information and opinions contained within this report reflect the personal views of the author and therefore all
material within should not be construed as accurate or reliable or be utilized as advice for investment or business
purposes. Independent due diligence and discussions with ones own investment and business advisor is strongly
recommended. Accordingly, nothing in this report should be construed as offering a guarantee of the accuracy or
completeness of the information contained herein, as an offer or solicitation with respect to the purchase or sale of any
security or as an endorsement of any product or service. All opinions and estimates included in this report are subject to
change without notice. It is prohibited to copy or redistribute this report to any type of third party without the express
permission of the author.
34