IKN #276Premium

The IKN Weekly
Week 276, August 24th 2014
Contents
This Week: Road trip, plus possible delay in delivery of The IKN Weekly next weekend,
Mailbag, Ten days of metals and miners.
Fundamental Analysis: Filtering News Releases, Atacama Pacific (ATM.v) pre-feas edition.
Stocks to Follow: Overview, Eco Oro (EOM.to), True Gold (TGM.v), First Majestic (FR.to)
(AG), Rio Alto (RIOM) (RIO.to), Timmins (TMM.to) (TGD), GoldQuest Resources (GQC.v),
Minera IRL (MIRL.L) (IRL.to), Amerigo (ARG.to), NovaCopper (NCQ.to), Salazar (SRL.v),
Dalradian (DNA.to).
Copper Basket: Overview, Hot Chili (HCH.ax), AQM Copper (AQM.v).
Low Cost Producer Basket: Overview, B2Gold (BTG) (BTO.to), Franco Nevada (FNV).
Regional Politics: Uruguay: Aratiri still blocked, Chile: More on mining costs, Mexico: Grupo
Mexico (GMEXICOB.mx)/Southern Copper (SCCO) acid spill update, Peru: The Minister of
Energy and Mining will “be resigned” this week.
Market Watching: Junior explorecos are dying part 953, The U.S. Dollar move isn’t such a big
thing, Pretium Resources (PVG) (PVG.to): Site visit reports due, Starcore (SAM.to) announces
market-moving news.
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
Road trip, plus possible delay in delivery of The IKN Weekly next weekend
Before we get this week’s edition, a quick headsup about next week’s edition. Back in July I
mentioned that there’s a site visit I’m very interested in doing and it was roughly planned for
that time too. It’s been a bit complicated logistically to make it happen, but this week coming it
should take place (plans are nice, but confirmation only comes tomorrow Monday 25th) which
means I’ll be away from the office a few days next week. Thing is and due to the nature of this
trip, assuming that it happens it may turn into something a little longer and seep into next
weekend. At this point today I honestly don’t know, but if I were still road-tripping by the end
of the week it would mean that IKN276, scheduled for August 31st, would arrive later than
planned.
I’ll keep you informed on this and if the trip does ruin my normal weekend working, you’ll know
about it beforehand in a Flash update. However, I will say that if things well on this site visit we
could have a really good investment opportunity on our hands any near-term inconvenience
would be well worth it in the longer run.
Mailbag
Thanks for the feedback on last week’s edition, and particular thanks go to the people I’ve
annoyed by reading and not replying (promise promise, I do read and consider all mails,
promise promise, I hate my bad habit and know I come across as ignorant as a result).
Interesting comments on many issues, but the ones on the opening piece “The problem with
silver is that I don’t understand it very well” were cause for content at this end of the pipe. As
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mentioned to a couple of you who commented on that part, I nearly scrapped the whole article,
but in the end took a chance and left it in. I thought it was a bit too meta for its own good,
outside the scope of this publication and bordering on the pretentious. Unfortunately, through
praise you’ll only encourage me so get your criticisms in quick else suffer more of the same
type of bunkum further down the road.
Ten days of metals and miners
That title line is nearly the same as a series of weekend posts called ‘Five days of metals and
miners’ that I ran on the open blog all through 2013. It used the same chart ingredients as you
see here today (ETFs for gold bullion
(GLD), silver bullion (SLV), PM miners
(GDX), PM junior miners (GDXJ)), but
this time the timescale is doubled and
we take in two weeks:
The main takeaway of putting this chart
in front of you today just about speaks
for itself, that the performance of
precious metals and PM miners is very
similar over the period. Why should that
be so? Jackson Hole came and went,
with a pre-emptive downmove in gold on
Thursday that didn’t see any follow-
through once Ms. Yellen had spoken,
mainly because she didn’t say anything particularly specific. So a nudge down that looked like
testing resistance levels for a while, but they’ve just about held. For me, there’s simple too
much being read into the slack August period, we’re seeing slight downwards drifting over the
whole sector, there’s a general lack of direction and it’s going to stay that way until the
Northern summer vacation period is behind us, Labor Day is ticked off the calendar, people get
back to doing some real work, we begin to get some definition for the way in which the metals
are to trade for the rest of 2014.
Fundamental Analysis of Mining Stocks
Leisure
What is this life if, full of care,
We have no time to stand and stare.
No time to stand beneath the boughs
And stare as long as sheep or cows.
No time to see, when woods we pass,
Where squirrels hide their nuts in grass.
No time to see, in broad daylight,
Streams full of stars, like skies at night.
No time to turn at Beauty's glance,
And watch her feet, how they can dance.
No time to wait till her mouth can
Enrich that smile her eyes began.
A poor life this is if, full of care,
We have no time to stand and stare.
WH Davies, 1911
Filtering a News Release
I’ve had the idea to run a piece like this one for a while, off and on. As market news and
activity generally was low this week, plus the upcoming weeks look like being busy ones for
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both myself and The Weekly, plus an interesting and fairly example of the type of NR that
needs to to filtered falling into my lap and nudging me into action, the opportunity is taken this
weekend. So you’ve had an intro from the poem Leisure by William Henry Davies and now for a
primer on what to look for in a NR.
The subject is simple in essence: With the amount of news and data available some sort of
filtering system is needed to do the job of analyzing any given market or sector, else be bogged
down by an overdose of information. We need to read like a critic and look for holes, because
the faster we can get behind the inevitable and understandable company spin to decide
whether a project, company, story etc is worth our time following and investigating more
deeply, the better. To cut this intro as short as possible (yes, that means I’ve just edited out
several hundred words of waffle in my Sunday afternoon edit) what we’re looking for is the
fatal flaw, the piece or pieces of information that are enough to put us off looking more deeply,
spending more time on a potential investment and maybe even eventually stumping up some
cash and buying shares. The fatal flaw might be exaggerated numbers, or overstretching facts
to suit the company’s pitch, or maybe it comes from a company pitching dead straight and
offering conservative type numbers that don’t impress. On the odd occasion it may even be a
straight fat lie. But our job is to find the flaw and if not, the project or company is probably
worth more DD time. And be clear that you don’t need a dozen fatal flaws to draw a line under
a project, a feas, pre-feas, PEA or company as one is more than enough, thank you very much.
In short, find the flaw and save time, don’t find the flaw and the project or news release you’re
currently looking at may be the one in twenty, or one in a hundred that catches your eye, gets
you interested and make you want to read more.
Today’s example is about a pre-feas study and the news that came out last week, so it has
more substance than most. But it’s a good example because one thing rings true about all
junior exploration stage companies, and it’s the touchstone on which your investigations and
DD should rest. These companies sell stories, no more and no less. The entire valuation
of an exploration stage mining company, by which I mean absolutely every single dollar of
value it is given by the capital markets (yes, underlined and blod typed), is based on 1)
the value the market gives to the interest and trustworthiness of the story in question. No good
project, no value. No trust in what they’re saying, no value. To keep it simple, here are four
scenarios:
• You have the management of a 100% straight and honest mining company
telling you about a mediocre or uneconomic project.
• You have the management of a 100% straight and honest mining company
telling you about an exciting and potentially economic project.
• You have the management of a dishonest mining company telling you about a
mediocre or uneconomic project.
• You have the management of a dishonest mining company telling you about
an exciting and potentially economic project.
In only one of those four situations would you be put off at face value by the words spoken by
the company. Yes for sure there are grey areas between those four corners of the argument,
for example there are plenty of company directors who’ll swear blind they’re honest upstanding
corporate citizens but it’s obviously their job to promote and make the best case for their
property or exploration project.
The picture should be clear enough by now, it’s our job to separate the wheat from the chaff in
the most efficient way possible. That’s what the process below will try to demonstrate.
Atacama Pacific (ATM.v) pre-feas news release
So to the example today, this NR (1) that was offered by Atacama Pacific (ATM.v) on
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Wednesday August 20th. Entitled “Atacama Pacific Delivers Pre-Feasibility Study for the Cerro
Maricunga Oxide Gold Project”, it announces the completion of the PFS at that project and as
that’s a pretty important step for any junior exploreco, it’s a fairly long and detailed NR that
gives us an overview of the full pre-feas document (that’s not yet in the public domain). The
narrative that follows below tries to capture in as close a manner as possible the thought
process that I went through while reading the NR and as always, the main point of studying
such a NR is to find the fatal flaw if it exists.
The first thing is a bit of background; this NR on the pre-feasibility study for ATM.v’s that the
study is late. It’s not an immediate red flag of course, there have been examples where a late
pre-feas has turned out to be a sparkling document, but the weight of history is against
companies that drag their feet at these stages so with the already deferred study supposed to
have arrived in July (ATC.v said so in June), the delay to late August is a factor.
But arrive it has (well, the NR with the overview details at least, we have to wait for the PFS
itself and the company has the requisite 45 days in which to file it on SEDAR), so when opening
up such a document the thing I do is scan the contents and the tables to see if it passes a smell
test for the economics, because that’s what NRs that announce Scoping Studies, pre-feas
studies, feasibility studies, etc are designed to do. In such an NR there are a bunch of numbers
I want to see first. They are:
• The post-tax IRR. Not the pre-tax (the one they’ll often throw sequins in your eyes
with), because I don’t want to read the numbers of a company that assumes it won’t
have to pay tax, I want to see the numbers of a company that lives in the real world
and pays taxes on its earnings, it’s as simple as that. As for the number, the higher the
better but usually I don’t want anything less than 20%.
• Its base case metal price assumptions, which have (as in HAVE, must, got to, no
exceptions) to be lower than the current spot price for the metal or metals in question.
• The discount rate. I’m happiest when seeing an 8% discount rate offered in the
literature, I’ll take 5% at a pinch if the project in question has a particularly good risk
outlook.
With those three in mind, let’s go to the ATM.v NR and see how those “find them first” figures
stand up. Here’s the paste of the Table 1 from the NR, which has all three available:
1) The post-tax IRR of 25.0% is fair enough.
2) Using a 5% discount on the NPV isn’t great, but I wouldn’t throw out a PFS NR on that
alone.
3) As for the metal price assumption for the base case, the first real red flag shows up
(and that’s too early for anyone’s liking). As ATM’s project is a gold project, seeing the
assumption at $1,350/oz with gold doing what it’s doing today is simply no good.
So at the first pass ATM already has a doubt cast on its PFS by that gold price. It’s the first
thing I’d want to investigate further if I remain interested in this stock, so without either a) the
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full PFS or b) the will to run calculations of my own at this point (we’re filtering a news release
and its the company’s job to impress me, not the other way around) I’m left with a quick scan
of the NR for any further clues. And in this case ATM has given us calcs on an alternative, lower
gold price further down the NR, which is U$1,250/oz (far more reasonable as an assumption)
and ends up bringing the after-tax IRR down to 17.0%. Now that’s lower than I’d like but it’s
not a disaster for a low-ish price assumption either; I haven’t discarded yet, I’m still interested
enough to look around, but there’s enough to doubt here already.
The next thing I care about is the other side of the profit equation. This is a pre-feas NR, it’s all
about the economics of the potential mine, we know about revenues, so what about costs? On
this there are two aspects, the cash cost and the capex. In this case the first dataset I come
across in the NR (reading from top to bottom) is about cash cost and here’s an excerpt:
Projected total gold production over the 13-year LOM is 2.96 million ounces at an
average operating cash cost of $683/oz Au. All-in sustaining cost of $941/oz Au,
including total cash costs of $864/oz Au, have been projected.
Now that sounds ok at first pass. Lots of gold, under $700/oz op costs, under a thousand for
AISC, in theory at least that leaves plenty of free cash flow. I like the optics. So I keep reading
and...
Gold will be produced from heap leaching 294.4 million tonnes ("Mt") of ore with an
average grade of 0.40 grams per tonne gold ("g/t Au"). Ore will be mined at a rate of
80,000 tonne per day and an average LOM strip ratio of 1.76 to 1 (517.4 Mt waste to
294.4 Mt ore) has been calculated.
Wait a moment, where did you say this project was located? Suddenly a small alarm bell is
going off in my head on reading this. There are never any apples to apples comparatives to
make, but when it comes to this type of heap or dump leach operation there are enough similar
type of operations out there and one I know well (to the point of memorizing the numbers) is
Rio Alto at La Arena. What Atacama Pacific is proposing to me here is that its mine will be every
bit as cheap to run on a cash cost per ounce level as Rio Alto, even though:
a) It’s in Chile, not Peru, and that’s a more expensive country in which to operate on
many levels (wages, fuel, water, etc). What’s more, it’s in the Maricunga where it’s
going to have to pipe in water supply, truck in diesel, pay extra to employees etc.
b) The 0.40 g/t gold grade is lower than the 0.5% that Rio Alto runs. Add to that the
recovery rate, which isn’t shown in that snippet but is planned at just over 79% while
Rio Alto gets 85% typically.
c) The strip rate, which at 1.76/1 means a lot of waste stripping compared to RIO.to’s
levels nowadays.
Now I’m not saying those financial parameters are impossible, but I’m now more than a little
leery about taking them at face value because they don’t look particularly conservative at first
pass. What I want from a serious PFS is just that, a sense of the company not trying to wow
the market with its numbers but in the process of trying to convince itself, internally, that the
project in question is one that should move forward. Or a company trying to convince real
operating mining companies with buildings full of geologists and engineers and accountants
who’ve been through the project selection process many times and have the decision-making
call on multi-million dollar investments.
And that above means I’m now actively looking for a fatal flaw in these cost assumptions. So
rather than spend time on the preliminary capex data (under $400m to build the machine,
which isn’t cheap but is bearable for a 200k+ oz annum operation) I now want to dig deeper on
what I suspect to be “optimized” op-ex numbers that won’t stand up to scrutiny. It’s chasing
the fatal flaw and remember, you only need to find one of those and you can close the NR and
go open another. As this isn’t the PFS document yet and only a NR things can be difficult to
check but in this case we do have at least some financial parameters given, here in this table
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further down the document. Therein lies the fuel to reject this PFS:
So far it’s been a scanning process to pick holes in the offered project. On another day one part
such as the operating cost economics may pass muster and I start wondering more critically
about the capex criteria. But in this case my eyes have been drawn to the cash cost credentials
and here at the bottom of the NR comes the table that crystallizes the growing suspicions.
First the forex assumption and, dear people at ATM.v, you can assume a USD/CLP forex of
1:600 if you want. Hell, you can assume
700 to one or whatever other number you
care to imagine, feel free and be my
guest, but when it comes to a pre-feas
study you need to put in serious numbers
and not ‘optimize’ (i.e. bullshit) them to
suit your own ends. Right now we have a
CLP that’s weakening against the US
dollar, having moved from ~500 in mid to
late 2013 and is up to 583 to the
greenback as at Friday’s close. But that’s
still a way from the 600 assumption and
as this ten year chart makes patently
clear, a 600/1 forex between this pair is
very much the exception in recent times,
by no means is it the rule.
Which brings us to the fuel price assumption, the second one in the list and basically as far as I
got with this news release. As it happens I was already getting mightily suspicious about ATM.v
and its way of presenting the best possible case for its project and I was pretty sure just on
memory that fuel doesn’t come as cheap as that in the Maricunga. So a quick check (2) at the
right site (official government data, you’ll note) and indeed diesel is currently selling at CLP703
per litre in that zone, i.e. U$1.20. As fuel is one of the biggest cost inputs of a heap leacher,
making an assumption that’s 25% lower than the current going rate is going to “optimize” the
merry hell out of your cash cost figures. You might also recognize that the two cost inputs I
circled in red above are interconnected because if you play about with the forex you start
bending other price assumptions in USD as well; the cheaper the CLP is per dollar, the better
things are going to look in USD terms. In this case I got as far as the second number for fuel
and that’s all I need to read, the NR is now closed and ATM.v with its Cerro Maricunga Oxide
Gold project have been filed under “one less to worry about”, or “avoid”, or “somebody’s going
to have to give me a darned good reason to care about these jokers again before I do”.
However, I’d wager good money that the 1:600 forex ratio chosen for this Pre Feas skews out
the price assumptions for energy, lime, cyanide etc in dollar terms and all in the favour of
project economics.
Bottom line: A junior exploreco is selling you a story, no more no less. If you can’t trust their
story they have nothing to offer, so the job is to try to pick holes in their promo and see
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whether their pitch stands up to a little critical thinking. In this case I’ve already seen enough
(more than enough, in fact) and don’t have the slightest inclination to check out capex
assumptions, check whether they’ve taken into account the changes in the tax code under the
new Bachelet government, any number of other line items. I only need to be BSsed once in
order to walk away and the way in which this company has stretched parameters away from
the conservative, through the potentially acceptable and out to a world of perfect for their
purposes is all I need to know. If they’re doing it to me with things as obvious as a “base case”
for gold that sits $50/oz higher than current spot, or with a CLP/USD forex rate that has no
connection at all with reasonable assumptions for the future, then I simply don’t want to know.
One final word: Thanks to reader M, on Saturday I received Canaccord’s regular publication
“Mineral Exploration Review” (aka Metaland) for the week, in which I read in the covering mail
blurb the following (author’s highlights)
Based on the improving "risk-on" environment, we have decided it is time to build a diverse, gold-
focused basket for exposure to the small cap, pre-cash flow mining sector. For a good start, we
have turned to the three mining constituents of the Canaccord Genuity Canadian Small
Cap Focus List: Dalradian Resources (DNA-T | Speculative Buy | $1.65 TP) with its flagship
Curraghinalt high grade U/G gold deposit in Northern Ireland, Premier Gold (PG-T | Speculative
Buy | $4.10 TP) with its flagship Hardrock open pit gold project near Geraldton, Ontario,
and Roxgold (ROG-V | Speculative Buy | $1.20 TP) with its flagship Yaramoko high grade U/G
gold deposit in Burkina Faso. To these, we have added one conviction name under coverage
in Canada, Atacama Pacific (ATM-V | Speculative Buy | $2.10 TP) with its Cerro Maricunga
oxide gold project in Chile, and two from our Australian Metals & Mining team: Gryphon
Minerals (GRY-ASX | Speculative Buy | A$0.34) focused on its 3.6 Moz Banfora gold project in
Burkina Faso, andOrbis Gold (OBS-ASX | Speculative Buy | A$0.57) advancing its gold projects
in Burkina Faso.
That got me interested enough to open the PDF and see what the house had to say about
ATM.v. Here’s the relveant snippet from the Canaccord document:
Atacama Pacific (ATM-V | Speculative Buy | $2.10 TP) has delivered a positive prefeasibility study
on the Cerro Maricunga oxide gold project in Chile. The study shows significant improvement
through reduced capex and a solid production profile of 228,000oz/a at $683/oz cash cost over a
13-year life.
I’d agree that on paper ATM has indeed delivered “significant improvement”, but sadly mines
are built of other things than paper. I wonder how long the people at Canaccord took to make a
buy decision on reading that NR Wednesday evening, and even if they’d bothered to think
about some of the cost inputs, do they really care? However, I must say that I agree with their
call on Dalradian (DNA.to) and wish them every success with their investment in that one.
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Stocks to Follow
There are now 15 open positions on the list and of those stocks, seven made on the week
(IRL.to, FCV.v DNA.to, ARG.to, NCQ.to, LRA.v, SRL.v), two were unchanged (TGM.v, COP.to)
and six went down (RIO.to, TGD, GQC.v, RMC.v, AG, SCZ.v) and as most of the moves were
only a penny or two in either direction, it was an acceptable portfolio performance in a week of
weakness in gold and such. Only two stocks made double figure percentage moves and both
were in the right direction, with Minera IRL (IRL.to up 15.2%) and Lara Exploration (LRA.v up
13.5%) both registering decent rebound moves, though both were on low volumes.
With the loss of Eco Oro (EOM.to) we’re back to 15 open positions on our ‘Stocks to Follow’ list,
our self-imposed maximum. Seven are green, eight red.
company Ticker this week Avg Price Recodate CurrentPPS Gain/Loss% Notes
Top Picks
Rio Alto Mining RIO.to str buy C$2.30 07-apr-11 C$2.96 28.7% 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$1.64 18.8% $2 tgt but holding in 3q14
Minera IRL IRL.to spec buy C$0.27 22-jul-12 C$0.19 -29.6% Ready for financing deal
Goldquest Min. GQC.v spec buy C$0.26 27-oct-13 C$0.22 -15.4% key drills results soon
Reservoir Min. RMC.v buy C$6.05 18-jun-14 C$5.98 -1.2% Big deposit, M&A, Cu play
Focus Ventures FCV.v hold C$0.23 01-jul-12 C$0.265 15.2% tgt 50c, added, avged up
First Majestic AG buy U$10.51 10-aug-14 U$9.85 -6.3% New trade, now main Ag play
Dalradian Res DNA.to hold C$0.65 27-oct-13 C$0.87 33.8% Poss add window, tgt $1.70
True Gold TGM.v sell soon C$0.395 02-feb-14 C$0.44 11.4% takeover won't happen
Amerigo Res ARG.to buy C$0.445 20-jul-14 C$0.47 5.6% new position, sm Cu play
NovaCopper NCQ.to spec buy C$1.05 09-apr-14 C$1.25 19.0% small, add slowly Cu play
Santacruz Silver SCZ.v hold C$1.04 26-jan-14 C$0.90 -13.5% silver/M&A spec, rel. small
Lara Expl. LRA.v hold C$1.15 08-apr-12 C$0.84 -27.0% solid biz model, LT hold
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$0.20 -28.6% 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
Eco Oro Min. EOM.to aug'15 C$0.48 22-sep-13 C$0.26 -45.8% sold small loser to make room
2009, 2010, 2011, 2012 and 2013 closed positions in appendices below
Now for some notes on a selection of the above stocks. Short ones though, there really wasn’t
much happening in the market outside of a minor drop in gold.
Eco Oro Minerals (EOM.to): Position closed. I didn’t sell all my position because the
volume traded was too thin and I’m not in a hurry anyway. But a few went and it’s being
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removed from the list all the same. A loss is a loss, I’ve given it too much rope and Colombia
isn’t getting its act together.
True Gold (TGM.v): Still on selling watch. No Flash update on this means that I didn’t sell
the position, there’s no need to jump at the first low price and the way in which gold acted
First Majestic Silver (AG) (FR.to): After the poor showing of the week before last, when I
bought in twice only to see it move
from cheap to very cheap, First
Majestic did better than most of its
peers and held its price pretty well.
As this five day comparative chart
shows, it bounced back strongly
from the Thursday dumpage and
almost returned a profit on the
week (in fact, the Canadian FR.to
ticker did just that, while AG in
NYSE lost just a penny).
We had news from the company
too, when on Friday it announced it
was listing on the Mexico Stock
Exchange (3) which is probably a
better thing for corporate relations
that any sort of active share price driver, but isn’t a bad move at all. I class it as a minor net
positive.
Rio Alto Mining (RIO.to) (RIOM): RIO traded like a champ early week, handily over the $3
barrier most of the time and for a while re-claimed its status as a $1Bn market cap mining
company (in Loonies at least, the dollar billion will have to wait for another day).
It’s been pointed out to be by several sources that come September 12th the GDXJ ETF is
almost certainly going to add RIO.to back to its holdings list, which means in theory at least
that around 1.3m shares will be bought up and taken off the market. My attitude towards this
event is the same as when RIO was removed from the GDXJ a year or so ago; it makes no
difference on a fundies level whether its an ETF component or not, its eventual success or
failure will be decided by what the company does rather than who owns it
Timmins Gold (TGD): Ugh. TGD traded poorly once again and as this 10 day chart shows,
lost ground even against GLD (which means poorly against all the sector, as the chart in today’s
intro shows). For fun(?) I also
stuck Rio Alto’s NY ticker on the
chart (RIOM) to gie an idea of
how poorly TGD showed
against a peer.
What to do? TGD is worth
more, I’m giving it 3q14 to find
a buyer, but at some point
realism has to kick in and if the
slide continues, I’ll take my
coins and go play somewhere
else because the basic fact is
that I have a portfolio to take
care of.
9

GoldQuest Mining (GQC.v): Still no news, and as a result GQC drifted with the negativity in
the market and although it closed the week just half a cent lower, you could have had all the
21c stock you could have eaten. I’m going to remain long here and hope (ugh) the company
strategy involves unveiling decent drill numbers at-or-around the Labor Day return. But I have
to say, I’ve seen this foot dragging movie before and it doesn’t bode well.
On the other hand, I maintain that its current resource, not including any new discoveries, is
more than enough to justify its current share price or even higher. As long as gold gets its mojo
back and climbs back over $1,3007oz, anyway.
Minera IRL (IRL.to) (MIRL.L): The percentage increase on the week was good, the volume
wasn’t (true for both Toronto and London) so don’t read too much into this rebound until real
money starts buying this price.
Amerigo Resources (ARG.to): I’d be happier about the move we saw last week if I had the
bigger position I’d wanted, but I can’t gripe too much.
The sense is that ARG at and above 47c is moving into a new trading bracket.
NovaCopper (NCQ.to): Although not heavy heavy, I do like the increased volume that’s come
with the price move in this stock and NCQ is showing signs of a sustained recovery now. It’s
one of those pleasant and lucky occasions when I feel I’ve got in at the lowest price.
Salazar Resources (SRL.v): Some news from SRL on Friday (4), as it’s decided to hire a
market maker in Canada, which will hopefully add a little more interest to the trading of this
stock. One of the main complaints here is the lack of interest in trading, as the stock often has
a bid/ask gap wide enough to drive a truck through. With this new move that should become a
thing of the past, thus encourage a little more buy/sell movement. It’s not a fundamental
change, but it’s not a bad thing either. Let’s see if traded volumes improve in what’s left of
2014.
Dalradian Resources (DNA.to): The news (5) Tuesday that the government of Northern
Ireland was investing GBP326,000 (approx U$541k) into DNA is more symbolic than
fundamentally dramatic, but on a community and social scale it’s concrete evidence that both
parties are pulling in the same direction, so should be wholly welcomed. The two photos
attached to the NR also show that Patrick Anderson has put on plenty of weight since getting
rich and needs to do something about it.
The Copper Basket
After thirty-four weeks of 2014 The Copper Basket is showing a 11.64% gain to level stakes.
10

company ticker price 1/1/14 Shares out Market Cap current pps gain/loss%
1 Augusta Res AZC.to 1.51 144.41 558.87 3.87 156.3%
2 Lumina Copper LCC.v 6.29 44.07 440.70 10.00 59.0%
3 NGEx Resources NGQ.to 1.43 168.71 334.05 1.98 38.5%
4 Reservoir Min. RMC.v 4.97 47.55 284.35 5.98 20.3%
5 Nevada Copper NCU.to 1.35 80.5 178.71 2.22 64.4%
6 Panoro Minerals PML.v 0.35 220.25 101.32 0.46 31.4%
7 Copper Fox CUU.v 0.375 402.96 86.64 0.215 -42.7%
8 Hot Chili Ltd HCH.ax 0.425 333.11 84.94 0.255 -40.0%
9 Western Copper WRN.to 0.76 93.68 75.88 0.81 6.6%
10 NovaCopper NCQ.to 1.60 60.15 75.19 1.25 -21.9%
11 Curis Resources CUV.to 0.57 74.79 65.07 0.87 52.6%
12 Cordoba Min. CDB.v 0.90 58.81 35.29 0.60 -33.3%
13 AQM Copper AQM.v 0.11 139.24 13.23 0.095 -13.6%
14 Coro Mining* COP.to 0.10 159.37 9.56 0.06 -40.0%
15 Oracle Mining OMN.to 0.27 49.03 4.90 0.10 -63.0%
NB: HCH.ax priced in AUD$, rest CAD$ //CDB 2x1 split May'14 Portfolio avg 11.64%
The basket lost 2.5% on the week, and saw eight losers (NGQ.to, RMC.v, CUU.v, HCH.ax,
WRN.to, CUV.to, AQM.v, CDB.v) outweigh
six winners (LCC.v, AZC.to, NCU.to, The Copper basket 2014, weekly evolution
25%
NCQ.to, PML.v, OMN.to), mostly because
the winners were small in percentage 20%
terms except for Oracle (OMN.to up
15%
25.0%) and the losers were a little larger,
particularly at AQM Copper (AQM.v down 10%
32.1%). COP.to was the only UNCH.
5%
So a losing week for our basket, but as 0%
the weekly tracker shows we’re still very
much in the range of performance for
these stocks in the summer months,
nothing much is happening outside of the
wild swings in the small and highly volatile
names, we wait for some definition and that’
going to come from copper, not the miners.
This time last week I was fretting a little over a
big spec bear attack in the copper price pit and
what it might mean. This week it’s much better
news for bulls, because the world quickly forgot
about the dire predictions of cheap copper and
bid the metal right back from whence it came,
as this five day chart shows. We’re back at
$3.20/lb, back in the longer-term trading range,
metal shorters had their hind quarters handed
to them on a silver platter.
We move to our regular world copper
inventories coverage, data from our preferred
Cochilco source (6), here are the bullet points:
• Overall world stocks dropped again, down a significant 9,352 metric tonnes (mt) (-
3.5%), to 256,866mt.
• The Shanghai Futures Exchange copper warehouse stocks was the big mover, with
11
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 ht71 ht42
source: IKN calcs

stocks dropping 14,390mt (-14.3%) to finish at 86,556mt. That’s a big drop and as the
Shanghai-only tracker chart for 2014 shows (below), we’ve moved back towards the
lows of June after that re-building period which coincided with the double accounting
scare in other Shanghai bonded warehouses.
• The LME copper warehouse inventories moved back up a touch, up 4,050mt to finish
Friday at 146,325mt. By the way, the LME warehouses in New Orleans account for
121,225mt of the whole world aggregate alone. That looks like some sticky metal there,
not easy to clear and to that end, in real terms the world market is probably even
tighter than the already low sub 300k number suggests.
• The Comex warehouse stocks did virtually the same thing for the second week running,
and rose just under a thousand tonnes to 23,985mt. That makes 2k in two weeks,
which isn’t that much in the great scheme of things but it’s ~10% to Comex. Worthy of
mention as a counter to the Shanghai drop.
The Shanghai stocks move was big and it signals a return to tight market supply (or at least
tight perception of supply. The bearish
Shanghai Futures Exchange Warehouse Stocks, 2014
attack of the week before was quickly
forgotten by the market when tonnage left 220000
the system, but we wait until the world gets 200000
back to serious business post-Labor Day 180000
before marking the definitive all-clear. Yes 160000
140000
I’m bullish copper, but if things go to plan
120000
the world will be no-brainer raging bullish
100000
two or three weeks from now. U$3.50/lb Cu
80000
is a reasonable near-term price target and
60000
if that move kicks in, everything with
copper will enjoy the ride.
Now for some updates on a few of our basket stocks.
Hot Chili (HCH.ax): HCH took a step back after its three or four steps forward of the previous
week, closing down 2c or 7.3% at 25.5c. I’ve spent more time looking over the change in share
structure and the ownership structure of its flagship Productora project (locals CMP have
recently taken 17.5% and have an option to move to 50.1% and operator status, with HCH
being carried) and the takeaway I have is that there’s no rush to be on board this company yet,
even though it has finally stopped the share price rot with its dealings of the last three weeks.
AQM Copper (AQM.v): A big percentage jump last week, the big drop this week, still no
volume to speak of. I’d like to like it more, but there are others higher up my potential shopping
list at the moment and until AQM garners real market momentum, it’s easy to stay away.
The Low Cost Producer Basket
After 34 weeks, the Low Cost Producer Basket is showing a 18.66% gain to level stakes
12
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 ht71 ht42
Mt Cu
source: Cochilco

company ticker price 1/1/14 Shares out Mkt Cap (Bn) current pps gain/loss%
1 Freeport FCX 37.74 1040 37.90 36.44 -3.4%
2 Goldcorp GG 21.67 812 22.12 27.24 25.7%
3 Barrick ABX 17.63 1000 18.24 18.24 3.5%
4 Newmont NEM 23.03 497.87 13.14 26.39 14.6%
5 Silver Wheaton SLW 20.19 357.39 8.90 24.90 23.3%
6 Franco Nevada FNV 40.74 147.01 8.22 55.90 37.2%
7 Agnico Eagle AEM 26.38 173.43 6.48 37.34 41.5%
8 Pan American PAAS 11.70 151.41 2.13 14.09 20.4%
9 B2Gold BTG 2.02 651.4 1.62 2.49 23.3%
10 First Majestic AG 9.80 117.02 1.15 9.85 0.5%
all prices in U$, using NYSE ticker prices Portfolio avg 18.66%
A chunky 3.75% drop for our overall basket last week, as the bigger PM producers were hit
harder than most by the gold price slump. Just one of the components registered a gain (FCX),
with all the other nine showing losses (though AG did quite well to limit things to just a penny).
Biggest losers were B2Gold (BTG down 5.7%) and Agnico Eagle (AEM down 5.4%).
The Low Cost Producer Basket: Weekly performance and
comparative to GDX control
35%
30%
25%
20%
15%
10%
5%
0%
13
ts13ceD ht21 ht62 ht9 dr32 ht9 dr32 ht6rpa ht02 ht4yam ht81 ts1nuj ht51 ht92 ht31 ht72 ht01 ht42
basket
gdx control
source: Yahoo! Finance, IKN calcs
Our basket it notably falling behind the GDX benchmark again. Apart from one outlier week in
March, this is as wide as the gap has been.
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 ht71 ht42
source: ikn calcs, NYSE/Nasdaq data
B2Gold (BTG): Since announcing its 2q14 numbers BTG has dropped by 11%, which is not an
insubstantial loss in just seven trading session. Yes, over at the blog I had a good shout at the
time (7) (8) about its poor financial performance and the brass neck shown by management as
they took their $3.8m in bonus payments at the same time, but we should also recognize that
B2Gold is a good operator, it will bounce back and we’re on the cusp of a big new production
boost due to the Otjikoto mine coming online in 4q14.

Expected to add over 140k oz Au in annual production to the company over its first five years
(of 12 year LoM) at low quartile cash costs, the marketing opportunities that Otjikoto offers this
most market-savvy company are obvious.
While playing with charts here’s another one, the three year price of BTG that shows how it’s
fluctuated in a reasonably tight range since early 2013. Today’s price may be a resistance level,
U$2.25 the next stop if it isn’t (here’s me talking like a TA expert, eh?).
Franco Nevada (FNV): Further to last week’s piece on FNV, this chart:
14

Nobody does it better than Lassonde. Impressive.
Regional politics
Uruguay: Aratiri still blocked
On Wednesday, the official environmental impact study for the Aratiri iron ore mine in Uruguay
was handed in to the Mujica government offices. At 13 volumes and over 5,000 pages, it’s not
going to be the easiest of evening reading and the reports (9) on this development in the
Uruguayan press were quick to pick up on the fact that the Mujica government’s term of office,
which ends on March 1st 2015 (the elections to succeed him happen late this year), is now
unlikely to see this project green lighted.
We’ve followed this story for just about as long as I can remember. For example, on checking a
few notes and IKN back copies this morning I see that we commented in mid-2011 that Mujica
gave his ministers a document entitled “Myths and Errors on the Aratiri Mining Project” during a
cabinet meeting and urged them to get the word out that the project was good for Uruguay.
That was near the start of his term, we’re now near the end and no progress has been made,
not even the signature of the final agreement on terms and conditions between company and
country. Uruguay has turned out to be another case of ‘spirit willing, flesh weak’ for the
development of a formal, large scale mining industry (add to Ecuador, Colombia, Paraguay) and
points once again to the difficulties for the industry to establish itself in regions and/or locations
where it’s not understood on a cultural or generational level. This is how countries such as
Chile, Mexico and Peru, to name but three, hold and maintain their advantage.
Chile: More on mining costs
After last week’s note about the deceleration in Chile’s key Northern copper mining region
around the city Antofagasta, my eye was caught by the news from Chile Thursday (10) that its
Producer Price index for July 2014 showed a somewhat unexpected hike, putting the country’s
PPI at +1.1% for
the first seven
Chile: Monthly variation in Mining Producer Price Index,
months of 2014. versus same month of previous year
What’s more, the 20
pop was mainly
15
due to the +4.0%
subsector of Mining 10
PPI in July alone
5
(and to get even
more granular, that 0
was mainly due to
-5
the 4.4% hike in
copper production -10
prices compared to
-15
the same month of
2013). That news
sat in opposition to
the industrial
inertia reported last week, so the only thing for it was to discard the wire reports and go find
the data, stored at Chile’s beancounter bureau INE (11). From there I created these two charts,
with this first one showing the month-over-month changes from 2009 to date.
The above chart is the best gauge of things and shows how prices popped back quickly after
the 2008 financial crisis, then kept on moving up quickly as copper shot to $4/lb and the
bonanza time was upon us. From there things have been quieter, with lower monthly
fluctuations and more negative comparative months, too. However, I recognize the above
chart’s a bit busy to be an easy visual, so here below is the price changes done in a year-over-
year style, including 2014 to date (July)
15
9002
naJ
rpa luj tco 0102
naJ
rpa luj tco 1102
naJ
rpa luj tco 2102
naJ
rpa luj tco 3102
naJ
rpa luj tco 4102
naJ
rpa luj
%
Source: INE Chile

%
Chile: Mining Producer Price Index, annual change
35
30
25
20
15
10
5
0
-5
-10
-15
-20
2010 2011 2012 2013 2014*
source: INE Chile *to date
Now it’s easier to see that producer price pressure has been slack for at least the last couple of
years, which fits in with the tales of a drop in economic activity in the North Chile copper
production zone. This fits with lower copper prices of course, but does suggest this month’s
+4.0% for mining costs was a blip and a one-off.
Mexico: Grupo Mexico (GMEXICOB.mx)/Southern Copper (SCCO) acid spill update
Last week we noted the horrendous PR job done by Grupo Mexico/Southern Copper (SCCO) at
its Buenavista copper mine in Sonora State, Mexico, after the company had spilled sulphuric
acid into the local water system. First the company simply tried to cover up the news, then they
lied about the cause (they said it was due to heavy rainfall, when in fact it was a broken tube
that connected waste collection tanks) in official statements to locals, then tried to make out
that it wasn’t such a big deal.
It took a motion tabled and approved in Mexico’s National Congress to debate rescinding the
GMEX/SCCO licence at Buenavista for the company to finally sit up, take notice, and make a full
and honest admission of its failings at the mine. On Thursday (i.e. two full weeks after the
accident occurred), GMEX/SCCO took out large-page advertising space in many of Mexico’s
national and regional daily papers to apologise (12), explain what happened and then to explain
what they were doing to remedy the problem and rectify mistakes.
Last week, some of my words on this were...
I speak to you as a long-term shareholder of SCCO (who are better in their Peru PR
dealings) and say that this company needs to fire its IR department now and get
people with some common sense in before they screw up their company bigtime.
...and you know what? I’d like to believe that at least some of the message has finally sunk into
the brains of the mining Neanderthals running the company. This is 2014, it’s years since you
could treat local communities and the public in this arrogant, high-handed, insolent manner and
get away with it. If GMEX (more than SCCO, who still share the blame but as noted last week
are better in their Peru operations) gets this via what amounts to perhaps a last warning, then
good. If not, another accident and cover-up truthiness reaction from these people could cause a
whole lot more damage than elevated H2SO4 levels for a period of time in a single locality. If
we witness another chain of events like this one that shows GMEX/SCCO hasn’t learned its
lesson, then good divi payer or not I’ll sell my near-decade old position and move on.
Anyway, by the looks of the latest out of Mexico’s Environmental oversight body Semarnat (13)
GMEX/SCCO is going to get fined and that’s all, with the news on how much to be handed down
at some point next week. No concession removal this time, but the days of mushroom politics
are over and companies stuck in the past need to get the message and fast.
Peru: The Minister of Energy and Mining will “be resigned” this week
16

I often have an internal debate about how much day-to-day political comings and goings need
to be reported in the “Regional Politics” section, because sometimes the wider political events
that are only ever interesting to people insider the country in question affect matters in a
knock-on way for our focus subject, that of mining. In particular, following politics in Argentina,
Colombia, Mexico etc will bring up these moments and today’s from Peru is an example.
What you don’t need to know (unless you care enough) is the power struggle between Nadine
Heredia and the current government’s opposition (media moguls first, political figures in tow),
neither do you really need to know about parliamentary procedure and just why a ministerial
cabinet needs to get permission from the country’s Congress via a vote of confidence before it’s
officialized. What’s more relevant here is that due to the negotiations between friend and foe
and the political point-scoring exercises and opportunism of this most banana of republics we’ve
had the dubious pleasure in watching for the last few weeks, it’s now almost certain that Peru’s
Minister for Energy and Mining, Eleodoro Mayorga, will resign his post in the next few hours and
a new Minister will be nominated and ratified on Tuesday.
As for real world effects, as Mayorga is (was) one of the right wing members of the current
cabinet there may be a minor change of direction on the sweeping macro policy level. It’s
possible that the change will slow down President Humala’s push to make the permitting and
development of mining projects easier. Some changes have already taken effect, such as easier
permitting for drilling and exploration, and they’ll stay on the books. Other plans to streamline
the development track are likely to be put on hold. But overall, the view of Peru’s mining scene
from the outside isn’t going to change that much.
Market Watching
Junior explorecos are dying, part 953
On Friday, Iwnattos over at his blog (14) noted that the Cambridge House September
conference had changed location for 2014 (was Toronto, now Vancouver, and is now grandly
called the “Canadian Investor Conference”) and was expanding to try and attract companies
from different spheres of business. Which may be explained by the number of mining
companies set to exhibit there:
Number of mining companies at the Cambridge House
September conference, 2012 to 2014
100 94
90
80
70
60
50 42
40
30 23
20
10
0
2012 2013 2014
source: cambridge house website
Along with the 23 small miners (all but a couple of them are utterly uninteresting companies
too, the only one I’d really care about talking to there would be GoldQuest (GQC.v)) they’ve got
four other publicly quoted companies in from other fields so far, so 27 public traded company
exhibitors. That’s well down from even last year’s poor turnout (15) and a mile away from the
type of attendance you should expect from such a get-together. Perhaps attendance is being
affected by the change in city host, but I doubt it’s that big an influence. This is more about an
industry where the flotsam and jetsam has been hanging on by its fingernails for a while and
17

now can’t even afford an event booth.
The U.S. Dollar move isn’t such a big thing
There are things that worry me in the current market (there always are, as a better Petri dish
for neuroses has yet to be invented) but the state of
the U.S. Dollar (USD) and its newly found strength
isn’t one of them. The move last week through 81.5
got a lot of coverage in the bizpress and this daily
chart (right) shows it well enough.
Though it may go without saying, we also had the
queue of experts ready to tell us why (US economic
strength, Eurozone weakness, bonds purchases from
China, Ukraine threat, lack of Ukraine threat, host of
other reasons) and what it might mean (yield curve
expansion, signal of US inflation medium-term, near-
term bearish for commods, etc etc ad infinitum yawn).
The world ready with an explanation in exchange for
airtime and/or a fee which is fair enough, it’s the post-
modern game.
However (and here’s where the opinionating starts), if
we step out further and take in the weekly chart
(below left), we see that the move might be news for 2014 but it’s not that out of place for
2013 or 2012. But then dial out further to the monthly chart (below right )and...
...a whole different comparative opens up. Most of the reaction to last week’s move was about
it being different, because we need to recognize that for at least two years and perhaps three,
the US Dollar has been going through a remarkably calm period, in terms of relative valuation
to the big wider world of stuff.
Pretium Resources (PVG) (PVG.to): Site visit reports due
Last week Pretium Resources (PVG) hosted its (now seemingly annual) site visit to
Brucejack/VOK for house analysts and assorted brokerage people. Expect a raft of analyses to
hit the airwaves tomorrow morning and expect most if not all of them to be the usual glowing
tributes. I’ll continue to dislike the stock, but avoid any further shorting position unless it goes
crazily higher. Meanwhile, it’s another along with True Gold (TGM.v) that could benefit from an
18

all-points brokerage pump in the days ahead, so fliptraders reading may want to consider it as
a vehicle. Longer term, you know my thoughts on how it might be a victim of dilution.
Starcore (SAM.to) announces market-moving news
When Starcore International Mines (SAM.to) came out with its news release early on
Wednesday morning (16), as a couple of readers who mailed in know I was tempted to send
out a Flash update on the event, In the end I deferred, because because my thoughts were
about the impact of the news on near-term pricing for the stock and as the pre-open market
forming made abundantly clear, the upmove was already being priced into the stock and this
particular horse had already bolted. However, to give the general feel of what I thought at the
time, here’s my mail to A.N Other (slightly redacted) sent pre-open that day:
Only NR of interest this AM is Starcore (SAM.to). I fished at this stock last year and
ended up losing a bit on a small play, but it's likeable still. It's paying a 2c divi and it's
a 16c stock (the yield calc i leave to yourself, suffice to say it's nice). It has 143.55m
S/O, cash treasury of $5.3m as at April 30th, include ST investments at that's nearly
$10m. Working cap $11.8m as at same date. Hasn't reported July qtr yet but has given
us production and looks good for another $1m profit qtr (roughly).
bottom line: supports divi well, and i can imagine this becoming a yearly type
payment. Damned cheap and most importantly this strategy is exactly what a)small
b)profitable c) PM producers should be doing right now.
In other words, I liked the news (face it, difficult not to like a 2c divi on a 15.5c stock), though
as it turns out my quickcalc on working
cap was slightly wrong (see below). The
NR had a three prong attack of news, of
which the most interesting and market-
moving was the decision by the company
to award a 2c/share dividend to holders
of record on August 29th. As SAM.to was
a 15.5c stock at the time of the pre-open
announcement, that’s a pretty hefty
dividend compared to stock price and it’s
little wonder we saw the jump up to a
typical 19c and 20c for the rest of the
week (we closed at 21c, highest point
and not a price I expected on running
the numbers.
As well as the divi news, SAM also announced it was making a friendly offer to American
Consolidated Minerals (AJC.v), a tiny junior with a handful of early stage properties, just 12 and
bits million shares out, no cash and about 800k in liabilities. But more interestingly a number of
directors in common such as SAM.to CEO Robert Eadie, which means this is a bailout deal. It’s
going to go through too, thanks to that healthy dividend keeping everybody happy.
The last piece of news was that of a share buyback, with SAM.to setting aside up to $1m in
cash in order to repurchase its own shares. That’s not a bad thing either, given the
circumstances, and should put some backbone into this new upmove in the stock. I’d expect it
will trade around 20c for the time being.
Here are just three charts of the SAM.to fundies, to give the overview. Of main interest is the
working cap, which at around 10c/share right now (pre-divi payment and pre-buybacks). That’s
a good position, so it’s unsurprising to see SAM.to putting a bit of that liquidity to work.
19

SAM.to: Working Capital per qtr
15
12
9
6
3
0
-3
-6
-9
-12
20
11.yluj 11.tco 21.naj 21.rpa 21.yluj 21.tco 31.naj 31.rpa 31.yluj 31.tco 41.naj 41.rpa tse41.yluj tse41.tco
source: company filings
srallod
fo
snoillim
The other implication of this company paying a divi is that it’s in a good financial position in its
current quarter and doesn’t expect to post net losses as things stand. By running what we know
through the XLS (not showing all the charts here, but we have preliminary production figures
for the July quarter already and a company that has fairly steady op costs), there’s every
reason to expect a modest net profit when SAM.to reports its end July quarter too.
SAM.to: Pre-tax Earnings and Net Earnings
3
2.5
2
1.5
1
0.5
0
-0.5
As for the current share count, the 143.55m S/O it has at the moment will be able to swallow
the ~4m shares it will need to emit in order to buy AJC.v quite easily. Not a big dilution factor.
Overall I like what SAM has done here and it fully deserved its move. However, I don’t expect
this 2c dividend to become a quarterly event as taking $2.8m from treasury is too much of a
burden to be a regular matter so maybe, if things go well for the company, it will put in a
repeat divi performance this time next year. As for that AJC merger, it’s likely a move of
convenience that suits insiders more than that of a company looking to add immediate value to
the early stage assets held. I have nothing against it, but I don’t see the merger as a potential
catalyst, either. Finally, the buyback is a good thing, it will certainly help shore up the price but
it’s again doubtful that it can add to the share price.
The bottom line to the SAM.to news from last week is that here post-facto it’s not one I’m
interested in buying at this point. The good news was immediately baked in and SAM.to is
going to rise and fall, near-term at least, along with all others via the fate of the gold price.
However the dividend payment is indeed smart strategy and if gold does make an upmove,
people will be more interested i buying SAM.to as they’re bound to think another tasty sized
dividend is on the way.
21.tco 31.naj 31.rpa 31.yluj 31.tco 41.naj 41.rpa tse41.yluj
source: company filings
srallod
fo
snoillim
SAM.to: Shares Out
200
pre-tax earnings 180
net earnings 160
140
120
100
80
60
40
20
0
01.tco 11.naj 11.rpa 11.yluj 11.tco 21.naj 21.rpa 21.yluj 21.tco 31.naj 31.rpa 31.yluj 31.tco 41.naj 41.rpa
source: company filings/IKN ests
serahs
fo
snoillim

Conclusion
IKN276 is done, we end with bullet points:
• First Majestic (AG) (FR.to) did well in the face of headwinds, it should bounce back
better than most and the same message as last week applies; sub U$10 is a
knockdown bargain.
• Rio Alto (RIOM) (RIO.to) also traded well despite the gold weakness.
• At what point will I like B2Gold (BTO.to) (BTG) enough to buy it again? Let’s see how
long the current negativity towards the stock lasts, then make a call.
• It should go without saying that Atacama Pacific (ATM.v) is an avoid ☺. No matter what
Canaccord might think to the contrary ☺.
The top long-term pick is Rio Alto Mining (RIO.to). I thank you in advance for any feedback.
Flash updates will be sent promptly if required by events
I wish you good trading fortune, ladies and gentlemen.
Otto
21

Footnotes, appendices, references, disclaimer
(1) http://finance.yahoo.com/news/atacama-pacific-delivers-pre-feasibility-232902220.html
(2) http://www.24horas.cl/economia/donde-comprar-la-bencina-mas-barata-y-consejos-para-ahorrar-1126542
(3) http://finance.yahoo.com/news/first-majestic-list-mexican-stock-175400161.html
(4) http://finance.yahoo.com/news/salazar-retains-questrade-inc-165000211.html
(5) http://finance.yahoo.com/news/dalradian-receives-326-000-investment-131053891.html
(6) http://www.cochilco.cl/archivos/Semanal/20140822120714_MERC%202014%2022%2008.pdf
(7) http://incakolanews.blogspot.com/2014/08/b2gold-btoto-btg-and-its-crazy-g.html
(8) http://incakolanews.blogspot.com/2014/08/rule-one.html
(9) http://www.elpais.com.uy/informacion/plazos-presionan-mujica-autorizacion-aratiri.html
(10) http://economia.terra.cl/mayores-precios-en-mineria-ayudan-en-alza-mensual-de-
ipp,3a1915f5efdf7410VgnVCM10000098cceb0aRCRD.html
(11) http://www.ine.cl/boletines/detalle.php?id=8&lang=
(12) http://noticias.terra.com.co/internacional/latinoamerica/mexico-minera-lamentas-derrame-sobre-dos-
rios,a60f6cf05e9f7410VgnCLD200000b1bf46d0RCRD.html
(13) http://www.mexico-moderno.com.mx/noticias/index.php/informacion/sonora/38900.html
(14) http://myownmarketnarrative.blogspot.com/2014/08/vric-toronto-oh-crap-i-almost-forgot.html
(15) http://incakolanews.blogspot.com/2013/09/chart-of-day-is_18.html
(16) http://finance.yahoo.com/news/starcore-announces-payment-dividend-shareholders-105500311.html
Stocks To Follow Closed Positions, 2012
Closed in 2012 closed close PPS
Soltoro SOL.v jan'12 C$0.87 07-nov-11 C$0.94 8.0% cash moved to BCM.v
Gold-Ore Res GOZ.to feb'12 C$0.84 13-oct-10 C$0.98 16.7% trade closed on ELG.v offer
Minefinders MFN feb'12 U$11.68 17-nov-11 U$14.80 26.7% target made, trade closed
Iron Creek IRN.v mar'12 C$0.58 26-sep-10 C$0.31 -46.6% time up on small bad trade
U.S. Silver USA.to apr'12 C$2.18 15-mar-12 C$1.86 -14.7% ST trade no good, cut loss
Augusta Res. AZC.to may'12 C$3.10 29-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
22

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
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
23

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.
24