IKN #277Premium

The IKN Weekly
Week 277, August 31st 2014
Contents
This Week: US jobs headsup, No road trip, Summer’s End.
Fundamental Analysis: Santacruz Silver (SCZ.v) 2q14 results.
Stocks to Follow: Overview, True Gold (TGM.v), First Majestic (FR.to) (AG), Rio Alto (RIOM)
(RIO.to), Timmins Gold (TMM.to) (TGD), GoldQuest Resources (GQC.v), (IRL.to), Focus
Ventures (FCV.v), NovaCopper (NCQ.to), Salazar (SRL.v).
Copper Basket: Overview, Hot Chili (HCH.ax), AQM Copper (AQM.v).
Low Cost Producer Basket: Overview, B2Gold (BTG) (BTO.to).
Regional Politics: Brazil Presidential elections: Tight at the top, Peru regional elections: Also
October 5th, Argentina Presidential election: Game on, Guatemala: Anti-mine groups try the
courts again, Argentina Mining in Salta next week, Dominican Republic: A violent anti-mining
protest, Chile: Bachelet wants to speed up court cases, Peru: The Minister of Energy and Mining
isn’t resigned yet, Chile: Changes to water laws, Ecuador trying to strut, LatAm State Burdens.
Market Watching: Death of the junior exploreco conference circuit redux, Radius Gold
(RDU.v): Updating the potential for arbitrage, Argonaut (AR.to) catches a bid, Catalyst Copper
(CCY.v): Heavy hitters and the IKN view
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
US jobs headsup
Friday sees the BLS August jobs report for the USA, with current consensus looking for between
210k and 245k jobs added along with a headline unemployment number of 6.1%. As always,
worth factoring in the movements this pre-opening bell report can create in the market.
No road trip
It’s not the first time I’ve been dicked around by a junior mining company (which will remain
nameless, even though the temptation is there) and it’s unlikely to be the last time. But it’s one
way in which you get to sort the wheat from the chaff when it comes to the officer level of
these companies.
All that’s a long-winded way of saying that the planned site visit didn’t happen last week.
Summer’s End
I have a mind myself and recognize
Mind when I meet with it in any guise
No one can know how glad I am to find
On any sheet the least display of mind.
From ‘A Considerable Speck’, Robert Frost
Another week of light movements into which the commentators tried to read far too much, but
1

there was slight improvement in the gold price which is better than nothing. And so tomorrow is
Labor Day, the world is supposed to come back to work and whether or not the mining
companies catch new bids, one sure thing is a welter of news releases from the companies, all
waving their arms in a collective ‘look at me’.
Fundamental Analysis of Mining Stocks
Santacruz Silver (SCZ.v) 2q14 results
Thursday saw Santacruz Silver (SCZ.v) post its 2q14 financials (1) and here comes a short
analysis of the main points, plus a guess or three at what we can expect from 3q14 and 4q14.
Before diving in to the details, I’ll make my opinions clear here at the top (so those that prefer
to scan can get the picture and move on quickly):
• The SCZ 2q14 were acceptable. It had already telegraphed being behind its scheduled
ramp-up in 1q14 and had adjusted us down for the quarter. But on the new targets
throughput was as expected and silver production was just a few thousand ounces off
the target, which was ok.
• Costs were slightly higher than I’d have liked, but there’s good reason to expect them
to continue trending down.
• The key cash position looks a little tight, but as long as SCZ goes free cash flow positive
in the quarter to come (which i now fully expect) it should be enough. This is however
a concern and places more pressure on SCZ to get 3q14 right.
• On that subject, if we take the SCZ predictions for throughput, metal grade and
recoveries at face value, 3q14 would nearly double the production seen in 2q14 (and
then more to come in 4q14). As this company has disappointed on guidance too many
times I’m going to cut their forecast criteria for my own, but all the same we’re about
to see a big jump in production from the Rosario mine and that’s no bad thing at all.
• As long as silver doesn’t cave in completely and as long as SCZ doesn’t suddenly go
crazy and spend its new positive cash flow on exploration projects at its other assets,
we should see 3q14 as a breakeven or thereabouts quarter for SCZ. Then 4q14 should
see its first bottom line net profit of substance.
2

• If 3q14 goes well, my whole game plan of holding SCZ for its decent assets and
takeover potential gains traction. If it doesn’t , SCZ may need to raise more cash and
dilute share count further. That would mean it’d be time for me to give up on the plan
and move somewhere else.
Therefore 2q14 is worth studying because of the clues it gives us for the important 3q14
quarter currently in progress, so it’s time to do just that. Though you must understand that
“important” is in context, because this company’s 3q14 isn’t as important as potential
movements in the price of silver. Nor is it as important as ebola, or the Ukraine, or world peace,
or the potential that life on this planet is extinguished in a momentous one-time event such as
the one faced during the Permian extinction. And even then Gautama Siddartha would tell us
the world universal caboodle is one big illusion and only exists in our minds, so there’s that
angle to consider as well.
So, important, in context, yes? Good, on with the show and first we consider how production
metrics have been doing and what we’re looking for the in the two quarters to come.
Here’s how average daily throughputs have progressed at the Rosario mine, with 2q14 coming
in at 251 tonnes per day (tpd). According to the MD&A, Rosario was running at 270tpd at the
end of Q2 and expects to be running at 450tpd come the end of 3q14, which implies that if the
increments work out perfectly and the mine plan does too, the mine would be running at an
average of 360tpd in 3q14. That’s a) a big jump from the last two quarters and b) not
something I’m going to take as gospel,
because SCZ has this tendency to over- tpd SCZ.v at Rosario: Throughput (tonnes per day)
promised and under-perform. However, 450 422
there’s good reason to believe that this 400
throughput acceleration is now happening so 350 333
for 3q14 I’m factoring in an average of 300 251
333tpd. In 4q14 I’m going to ignore the fact 250 227
200
that the company should have its mill
150
upgrade finally working (it’s about 6 months 95
100
late) and by then have a theoretical capacity
50 33
of 700tpd at the mill. I’m also going to
0
completely ignore the company’s plan to use
3q13 4q13 1q14 2q14 3q14est 4q14est
200tpd of that capacity to run toll milling on
third party rock, because what I really care source: SCZ filings, IKN ests
about is the Rosario mine-plus-mill working
profitably. Finally, I’m going to pitch my throughput on the 100% owned material lower than
company estimates at 422tpd, for the same reasons of caution noted for 3q14.
Next, head grades. In 2q14 they averaged 153 g/t silver (not silver equivalent, we come to
those estimates later) which perhaps 10% was
SCZ.v at rosario: Silver head grade
below expectations and the reason SCZ g/t Ag
missed by a few thousand ounces on the 225 200 200
200
quarterly production target, despite reaching
175 167
its throughput target. Now this is the key 153
bit for the rest of 2014: (cid:1)(cid:1)(cid:1)(cid:1) The average 150
125
head grade for the first half of the year was
100
affected by the company running toll milling
75
on lower grade material from third parties.
50
That ended in May 2014 and now SCZ is
25
confident it can supply all the throughput
0
upgrade planned for 3q14 and 4q14 with its
1q14 2q14 3q14est 4q14est
own material, which apparently grades at a source: company filings, IKN estimates
steady 230 g/t silver (NB: not silver
equivalent). That means we’re about to see grades jump higher and although SCZ is guiding at
230 g/t, for the production model IKN is going to pitch lower at 200 g/t as a best guess until
3

otherwise corrected (makes sense to pitch low, as always).
As for recoveries, they’ve now steadied at the mine projected 90% for silver and we can expect
those to continue, so no chart and we’re going to use 90% in the model too (my one true act of
faith today).
Therefore, time to put them all together and look at mine production in this next chart. 2q14
saw silver production of 100,240 oz and silver equivalent production of 168,300 oz, which is the
same kind of 60/40 ratio we saw from SCZ Rosario in its first quarter of commercial production
of 1q14 too (Rosario has minor metal production from gold, lead and zinc).
As for quarters to come (and to make my job easier, for the time being ballpark estimates are
good enough) we apply the same 60/40 ratio to what we expect from pure silver production to
get to a AgEq estimate for 3q14 and 4q14. They give us these production estimates:
• 3q14: 174,000 oz Ag, 287,100 oz AgEq
• 4q14: 220,000 oz Ag, 363,000 oz AgEq
You note that even after conservatively cutting back on our estimates for both throughput and
grade and not using the SCZ guidances, those production figures are plenty higher than those
we’ve been seeing from SCZ at Rosario so far.
SCZ.v at Rosario: Ag and AgEq production
400000
350000
300000
250000
200000
150000
100000
50000
0
1q14 2q14 3q14est 4q14est
source: SCZ filings, IKN ests
4
zO
qEgA
dna
gA
Ag prod
AgEq prod
As for sales in AqEq (payable ounces are lower than production ounces), here’s how they’ve
gone and are modelled to go. 2q14 saw sales of 148,800 oz AgEq, that’s set to jump to 270,000
oz AgEq in 3q14 and 340,000 oz AqEq in 4q14. Big jumps and the thing is SCZ has to do it now.
SCZ.v Rosario: AgEq prod. vs sales (payable AgEq)
Oz AgEq
400000
350000
300000
AgEq prod
250000
AgEq sold
200000
150000
100000
50000
0
1q14 2q14 3q14est 4q14est
source: SCZ filings, IKN ests
So to revenues and after checking on how sales compare to reported revenues in 1q14 and
2q14, here’s how we expect things to progress in the next two quarters:

$m SCZ Rosario: Revenues
6 5.4
5
4.3
4
3
2.302
1.932
2
1
0
1q14 2q14 3q14est 4q14est
source: company filings, IKN ests
The obvious caveat here is the silver price (I’m assuming at-or-abouts current Ag prices) but
assuming steady state on that we get $4.3m and $5.4m in metal sales for the next two quarters
respectively.
The next chart adds in some costs estimates, which we expect to grow somewhat in the next
two quarters due to the extra throughput but more importantly they should drop on a per
ounce basis as the mine reaches something
$m SCZ at Rosario: Mine revenues and costs
akin to its expected efficiency. With an in-line
approximation for amortization and 6 R O e p v -E e x nues
depreciation, we can expect SCZ at Rosario 5 amort/deprec
Mine operating profit
to return a mine operating profit for the first 4
3
time in 3q14.
2
1
This is important (see above for full
0
definition of that word) for my investment
-1
thesis, as it would mean Rosario stops being source: company filings, IKN ests
-2
a burden on treasury. If SCZ can reach this
1q14 2q14 3q14est 4q14est
stage it a) proves that its assets are worthy
of interest to third parties looking to add on
efficient production and b) will avoid the spectre of further share dilution. As both of those are
key points about holding this stock, although I’m not really interested in the money that gets
thrown off by the operations of this small growth story, it’s a key point this quarter that will add
to the larger investment thesis. And the flipside is in play as well of course; no positive free
cash flow in 3q14 will be a full disappointment, cast doubt on the mine quality and make the
chances of SCZ running another dilutive
financing a lot higher. All reasons to leave the 2 SCZ: Net Profit, per qtr
stock if necessary.
1
0
Here’s how we see net profit and the model
-1
points to just-about-breakeven for 3q14 and a
-2
modest net profit for 4q14, though this of course
-3
will depend on whether SCZ decides to spend the
-4
cash flow on exploration projects immediately.
-5
The takeaway from this net profit chart is that
we want SCZ to show itself as self-sustaining
from the next quarter onwards, the precise
numbers then become details.
Before wrapping up, a quick look at balance sheet items though in this analysis they’re of
secondary importance. Assets and liabilities look this way, with best guesses for 3q14 and 4q14
(and a firm reminder that in small company books, any strategic corporate-level decision can
throw these charts out quite substantially so it’s not the specific quarter that matters, rather it’s
the trend).
5
21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 tse41q3 tse41q4
source: company filings
srallod
fo
snoillim

Here’s the working cap table, which does matter. We’re currently expecting this one to bottom
out in 3q14 (today’s quarter) and show upturn
from 4q14 onwards. Be clear that liquidity is
tight at SCZ and getting 3q14 right is vital for
that reason. It’s absolutely time for SCZ to
show positive free cash flow and this table is
why.
Finally, shares out. We’re modelling that to stay
at just under 104m at the end of this year, any
change via a placement would be a clear
negative for the share price.
110 SCZ: Shares Out
100
90
80
70
60
50
40
30
20
10
0
6
11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 tse41q3 tse41q4
source: company filings, IKN ests
serahs
fo
snoillim
SCZ: Assets Breakdown per qtr
80
70
60
50
40
30
20
10
0
Discussion and conclusion
The three main things about Santacruz Silver (SCZ.v) and its 2q14 numbers are:
• With room for slight quibbles, 2q14 came in well enough.
• 3q14 is set to bring considerable operating improvement.
• We expect SCZ to show positive free cash flow from this coming quarter onwards,
which should re-rate the stock nicely.
And those are the three reasons why I’m holding onto this stock until at least 3q14 results time.
However, be clear and warning due, SCZ needs to come good in 3q14, deliver the significant
improvement it’s now signalling and get the burden of its nascent operations off the treasury as
of this quarter, with no if buts or excuses. I’ve given this stock time in 2014, but I’m also aware
of the loss trap it could turn into if it doesn’t deliver (strong recall as I write these words of the
spec trade I made in Aurcana (AUN.v) a couple of years ago, one I managed to sell at a small
loss just a couple of days before its share price fell off a cliff) so 3q14 will be the quarter that
decides its fate.
11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 tse41q3 tse41q4
source: company filings, IKN ests
srallod
fo
snoillim
SCZ: Liabilities position
10
fixed 9
other current 8
cash 7
6
5
4
3
2
1
0
11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 tse41q3 tse41q4
$m
LT debt
current debt
source: company filings
25 SCZ: Working Capital per qtr
20
15
10
5
0
11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 tse41q3 tse41q4
source company filings, IKN ests
srallod
fo
snoillim

Santacruz Silver (SCZ.v) has always appealed as a buyout proposition, with the potential asset
value of its three main mine projects (and we’ve concentrated almost exclusively on just the
working Rosario so far) far higher than the current $94m market cap. That’s why we hold but
it’s also why SCZ has to deliver on its promise in the current quarter. Any slip up come 3q14 or
any news of a placement financing beforehand that telegraphs its failing liquidity will see me
sell out and take the loss on this spec, especially as now First Majestic (AG) gives me the type
of silver exposure size I’ve wanted for a while.
Stocks to Follow
Seven of the 15 open positions in our ‘Stocks to Follow’ list made gains last week (RIO.to, TGD,
FCV.v, RMC.v, AG, NCQ.to, SRL.v), two remained unchanged (ARG.to, SCZ.v) and six lost
ground (IRL.to, DNA.to, TGM.v, GQC.v, LRA.v, COP.to), but as most (not all) of the losers were
at the smaller end of the weightings and Rio Alto (RIO.to) managed to paper over portfolio
cracks once again by rising 4.1%, it was a generally successful week for the back pocket here.
The biggest percentage winner by quite some distance was Salazar (SRL.v up 20.0%), while
the worst percentage dropper was Lara (LRA.v down 9.5%) and it bounces around in a wide
trading range.
There are 15 open positions on our ‘Stocks to Follow’ list, our self-imposed maximum. Seven
are green, eight red.
7

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$3.08 33.9% 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$1.72 24.6% $2 tgt, holding in 3q14
Minera IRL IRL.to spec buy C$0.27 22-jul-12 C$0.18 -33.3% Ready for financing deal
Focus Ventures FCV.v hold C$0.23 01-jul-12 C$0.275 19.6% tgt 50c, added, avged up
Reservoir Min. RMC.v buy C$6.05 18-jun-14 C$5.99 -1.0% Big deposit, M&A, Cu play
First Majestic AG buy U$10.51 10-aug-14 U$10.24 -2.6% Main Ag play, 1st tgt $13.60
Dalradian Res DNA.to hold C$0.65 27-oct-13 C$0.85 30.8% Poss add window, tgt $1.70
Amerigo Res ARG.to buy C$0.445 20-jul-14 C$0.47 5.6% new position, sm Cu play
Santacruz Silver SCZ.v hold C$1.04 26-jan-14 C$0.90 -13.5% silver/M&A spec, rel. small
NovaCopper NCQ.to spec buy C$1.05 09-apr-14 C$1.29 22.9% small Cu play started well
True Gold TGM.v selling C$0.395 02-feb-14 C$0.415 5.1% takeover won't happen
Goldquest Min. GQC.v hold C$0.26 27-oct-13 C$0.20 -23.1% key drills results soon
Lara Expl. LRA.v hold C$1.15 08-apr-12 C$0.76 -33.9% 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$0.055 -56.0% Cu spec play, can add
Salazar Res SRL.v spec buy C$0.28 02-mar-14 C$0.24 -14.3% small spec, new China JV
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% took profit
Bear Creek Min BCM.v may'14 C$1.63 23-mar-14 C$2.05 25.8% Took profit, sm near-term win
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.
True Gold (TGM.v): Selling. I’m disappointed that the reaction to the Canadian brokerage
promo push on this stock has been so flat. Even after waiting until the apparent warrant
overhang had been lost TGM hasn’t made its move, so I’ll take my opportunity to leave this
position in the next five days. However, I’ll probably wait until midweek at the earliest because
TGM may get some formal coverage on Monday and Tuesday (Labor Day may cause a delay)
after its 2q14 financials were reported late last week (nothing out of the ordinary to report from
those numbers. The reason to buy TGM was for its takeover potential. Now that FNV and SAND
have jointly provided the capex funds, it means 1) the chances of a takeover have dropped to
near zero and 2) some of the blue sky has been scooped away from TGM into into the
streamers’ pockets. As noted previously, this for me adds up to a stock that’s going to
underperform peers in the months to come, therefore
First Majestic Silver (AG) (FR.to): A good week, which went a long way to support my
working theory that First Majestic is about as low as it’s going to go at U$10 (or a couple of
dimes under). This 10 day chart shows the stock next to silver bullion (SLV) and the juniors ETF
(GDXJ) and how it kept pace with the week before, then started its recovery last Tuesday.
8

What AG needs is a bit of favourable winds from the price of silver, not much more. Of all the
stocks I currently hold, this is the one that most tempts me into a further addition. Right place,
right time, cheap.
Rio Alto Mining (RIO.to) (RIOM): RIO traded like a champ again. I was asked by reader
‘KP’ for some words on RIO this weekend, but to
be honest I don’t know if there’s anything of
great enlightenment to say at the moment. The
stock is doing what I hoped (ugh) it would do,
get its re-rating and a more realistic valuation
from the market considering what it is and all at
the $1,300/oz or abouts price level for gold (it’s
needed no help from the underlying market
fundies to add 55% to its share price since I
visited Cajabamba). The current target is set at
$3.30, it’ll get there, once it does it’ll be time to
look again.
What we’re looking for from RIO now is news on
how it sees the development of Shahuindo, including capex plans. I strongly suspect that RIO is
going to come in with a capex bill that will be lower than the current expectations, perhaps
even much lower. That’s another place we might see a catalyst as the world suddenly realizes
it’s not going to need to sell a whole new bunch of shares in order to build its next mine.
Timmins Gold (TGD): Slightly better. The object of my personal neurosis traded as though it
had found its low point on the cycle, volumes were reasonable and buyers appeared. It’s still
under a watchful eye and I’m not planning to fritter away the paper profit via inaction if it turns
weaker again. Still Argonaut is going to buy it at some point, maybe that’s what all the AR.to
trade fuss was about on Friday.
GoldQuest Mining (GQC.v): Still no news, which gets me guessing that GQC has waited until
Labor Day to release the key second set of drills and if that’s the case, I’m going to guess at
good news. The Dominican Republic mining protests (that had nothing zip zero to do with the
company or the region in which it’s working, see below in Regional Politics for more) may have
been the downer on the stock price last week. I’ve already added to this one so won’t do any
more until the drill news hits.
Focus Ventures (FCV.v): FCV should be due to report its maiden 43-101 resource at Bayovar
12, as this timeframe was always in mind for the first one. We’ve seen slack trading in FCV over
the summer months and this may give it the catalyst to break into the 30s, but what it really
9

needs is a JV deal with a bigboy mining company.
NovaCopper (NCQ.to): The thing to like the most is the improvement in traded volume, as
even though things petered out at the end of the week we saw Monday and Tuesday with
100k+ trade days in NCQ,much better and indicative of a market trying to snap up a bargain.
There’s no real catalyst expected from NCQ in the next 12 months, so it’s not going to get that
much IKN coverage (I’d expect). What it is is a ship that will rise (or fall) on the copper
exploreco tide, but it’s also one I managed to buy at just the right price, Twice, in fact. That’s
going to make it very easy to hold if this recovery continues.
NCQ started the year at $1.60, every reason to suppose it can finish there too.
Salazar Resources (SRL.v): Some good news last week (2), with a deal that brings in a
moneyed partner in the shape of Chinese Guangshou to fund the first 450m development of the
El Domo VMS project in exchange for 60% of the project.
There’s a lot to like about this deal if it a) gets
out of LOI stage and b) gets the necessary
permits and moves into formal development and
although I’ve worked on some preliminary
numbers, I’m going to defer on a deeper look
until next week (it may turn into a full NOBS
report). Also, it’s good to see a decent and
trustworthy shop like Scarsdale as the brokers,
as that’s a firm that doesn’t sully itself with any
old project.
The initial share price reaction was good, with a
20% pop that’s fully deserved, but volumes
afterwards hardly light the world on fire and (probably correctly) it’s getting the “Ewww it’s
Ecuador though” initial reaction from people I’ve already canvassed. The coverage I’d like to
put together for SRL is of the “if things go well, we can buy more”, that’s to say the analysis will
be of a pre-emptive variety. Digging for details now.
The Copper Basket
After thirty-five weeks of 2014 The Copper Basket is showing a 9.77% gain to level stakes.
company ticker price 1/1/14 Shares out Market Cap current pps gain/loss%
1 Augusta Res AZC.to 1.51 144.41 541.54 3.75 148.3%
2 Lumina Copper LCC.v 6.29 44.07 440.70 10.00 59.0%
3 NGEx Resources NGQ.to 1.43 168.71 323.92 1.92 34.3%
4 Reservoir Min. RMC.v 4.97 47.55 284.82 5.99 20.5%
5 Nevada Copper NCU.to 1.35 80.5 176.30 2.19 62.2%
6 Panoro Minerals PML.v 0.35 220.25 101.32 0.46 31.4%
7 Copper Fox CUU.v 0.375 402.96 84.62 0.21 -44.0%
8 Hot Chili Ltd HCH.ax 0.425 333.11 78.28 0.235 -44.7%
9 NovaCopper NCQ.to 1.60 60.15 77.59 1.29 -19.4%
10 Western Copper WRN.to 0.76 93.68 74.94 0.80 5.3%
11 Curis Resources CUV.to 0.57 74.79 68.06 0.91 59.6%
12 Cordoba Min. CDB.v 0.90 58.81 29.41 0.50 -44.4%
13 AQM Copper AQM.v 0.11 139.24 13.23 0.095 -13.6%
14 Coro Mining* COP.to 0.10 159.37 8.77 0.055 -45.0%
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 9.77%
10

Another losing week for the basket average, down 1.87% and now under the 10% line for the
first time since June. Just three stocks in
the basket registered gains (RMC.v, The Copper basket 2014, weekly evolution
25%
NCQ.to, CUV.to), then four others stayed
unchanged (LCC.v, PML.v, AQM.v, 20%
OMN.to). That means eight losers 15%
(NGQ.to, AZC.to, CUU.v, HCH.ax,
10%
NCU.to, WRN.to, COP.to, CDB.v) with
the worst loser Cordoba (CDB.v down 5%
16.7%).
0%
The downdraft was fuelled by the drop in
copper, which wasn’t that bad and
stayed in our backstopped range.
This weekly chart gives more cheer than the 60 minute version above. Though I’ve been
banging on about $3.15/lb as the bottom of a trading channel, $3.10 looks just as important
and the action since the early year dive has been pure price recovery, nothing’s broken it.
Time for the regular inventories coverage, data from our preferred Cochilco source (3), here are
your bullets:
• Another drop in overall world stocks, down 3,868 metric tonnes (mt) (-1.5%), to
252,998mt.
• The Shanghai Futures Exchange copper warehouse stocks was again the big mover.
Shanghai went down 6,778mt (-7.8%) to finish at 86,556mt. Not as big as last week’s
14% whopper but that’s still a significant move and a fully bullish signal for our
underlying metal.
• The LME copper warehouse inventories up a smallish 1,825mt to 148,150mt.
• The Comex warehouse stocks rose for the third week running, again by a near-1k
tonne number (this time 1085mt, or +4.5%) to 25,070mt.
As we’re (just about) at month’s end, here are the monthly tracking charts and
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 ts13guA
source: IKN calcs

Copper inventories: percentage held per exchange
80
70
60
50
40
30
20
10
0
12
21.naJ bef ram rpa yam nuj luj gua pes tco von ced 31.naJ bef ram rpa yam nuj luj gua pes tco von ced 41.naj bef ram rpa yam nuj luj gua
LME Shanghai Comex
source: Cochilco
Copper inventories, per month 2012-2014
1000000
900000
800000
700000
600000
500000
400000
300000
200000
100000
0
21.naJ bef ram rpa yam nuj luj gua pes tco von ced 31.naJ bef ram rpa yam nuj luj gua pes tco von ced 41.naj bef ram rpa yam nuj luj gua
Mt Cu
LME Shanghai Comex
source: Cochilco
The story this time around is the apparent reversal in Shanghai stocks, the warehouse we’ve
kept the closest eye upon during the summer period. To reinforce that, here’s the Shanghai-
only 2014 weekly tracker chart again and last week saw us approaching the year’s low.
Whichever way you cut the cloth, world copper stocks are low and that’s going to translate into
higher prices on the markets sooner or later.
Shanghai Futures Exchange Warehouse Stocks, 2014
220000
200000
180000
160000
140000
120000
100000
80000
60000
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 ts13
Mt Cu
source: Cochilco
Now for some updates on a couple of our basket stocks.
Hot Chili (HCH.ax): HCH took another step back and until things settle I see no reason to
rush in here.
Panoro Minerals (PML.v): On Friday evening PML reported its 2q14 numbers. The important
stuff was in the balance sheet, with cash treasury just over $5m as at June 30th and working
cap standing at $4.3m. as cash was ~$10 and working cap ~$9m as at December 31st 2013, it
gives you a fair idea of the current burn rate at PML, plus the statement of cash flows shows

that $2.74m of the money spend in the first half of 2014 has been on exploration expenditures
at the Cotabambas project as PML moves towards the publication of the PEA, expected next
month (September).
The Low Cost Producer Basket
After 35 weeks, the Low Cost Producer Basket is showing a 20.96% gain to level stakes
company ticker price 1/1/14 Shares out Mkt Cap (Bn) current pps gain/loss%
1 Freeport FCX 37.74 1040 37.82 36.37 -3.6%
2 Goldcorp GG 21.67 812 22.79 28.07 29.5%
3 Barrick ABX 17.63 1000 18.39 18.39 4.3%
4 Newmont NEM 23.03 497.87 13.49 27.09 17.6%
5 Silver Wheaton SLW 20.19 357.39 8.94 25.02 23.9%
6 Franco Nevada FNV 40.74 147.01 8.28 56.30 38.2%
7 Agnico Eagle AEM 26.38 173.43 6.64 38.29 45.1%
8 Pan American PAAS 11.70 151.41 2.17 14.36 22.7%
9 B2Gold BTG 2.02 651.4 1.67 2.57 27.2%
10 First Majestic AG 9.80 117.02 1.20 10.24 4.5%
all prices in U$, using NYSE ticker prices Portfolio avg 20.96%
The basket average improved 2.3% on the week, with the story being general sectorwide
improvement in the PM names. The only loser was the zag-when-they-zig Freeport (FCX) and
while all others went up, no stock gave us even a 5% improvement to highlight above all
others.
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
And the breach got bigger between the basket and the GDX control.
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 s13guA
source: ikn calcs, NYSE/Nasdaq data
B2Gold (BTG): Some explanations are in order, first the backdrop:
• The previous week at the blog I lashed into BTO for its 2q14 results, making a

particular point about the sky-high G&A that company’s running.
• Then a different tone in last week’s IKN276, which had me mulling over a return to a
long position in BTO and noting the good things about the company, the process
wrapped up in the closing bullets with, “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”.
• The next day Monday August 25th I whack into BTO again with a post (8) entitles
“B2Gold $BTG (BTO.to): Scales fall from eyes” that again criticized the company and
highlighted how badly it’s traded recently.
The process above puzzled at least three of you to some extent (I have the mails), thus this
section today that should (hopefully) clear things up:
First up, don’t take the open IKN blog seriously. Well, don’t take it too seriously. Don’t get me
wrong, of course I stand by everything I say over there (unless a retraction for factual error is
in order, such as the one I’ll put up there tomorrow morning about ARG.to), but the views are
those of somebody mouthing off and they’re rarely connected with what I do with my money,
which is the acid test. The serious stuff goes on here in the Weekly.
Now for the main course: In the positive aspect piece in IKN276 last week I limited myself to a
vague-ish comment 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”, then went on to outline the Otjikoto catalyst a little,
then left it at that. In order to get a better grip on BTO’s present, it’s worth taking a closer look
at the main P+L line items of the 2q14 financials so starting with the basics...
• Sales $120.258m
• COGS $98.285m
• Gross profit $21.973m
In other words, BTO may have posted a hefty loss in 2q14 but its mines are profitable enough.
As for corporate costs...
• The G&A number of $13.094m, which is where that $3.8m bonus award is itemed and
is way too expensive for this size of company, no matter which way you cut it.
• Then other corp stuff which is pretty standard
• Operating income: $4.131m
So, BTO is still showing positive cash flow even when its expensive office is paid for
Financial adjustments are next and there are a bunch of them which come to over $9m. They’re
mostly one-time costs, but there are some things that will repeat. Here’s where BTO is pulled
down to read ink and we’re left with..
• Pre-tax loss $5.396m
• Then comes a tax provision of $5.925m. That also is a big chunk.
• And finally we get to the headline number..
• 2q14 net loss of $11.529m
Now for an interpretation and as a few of you read in mail replies, for me that has all the look
of a classic kitchen sink quarter. That’s when a company collects all the potential drags and
financial negatives it can reasonably think of and then puts them all into one quarter, with the
plan of shining like a bright and shiny star once again when the next set of numbers comes
around, which in this BTO case will be 3q14 and mid-November. As that’s also 1) almost
certainly after BTO’s deal to buy out Papillon (PIR.ax) closes (that should be September) and 2)
14

just around the day BTO announces first production or commissioning or first pour from
Otjikoto, we have three prongs to the
bullish marketing this company will be
able to offer.
As it happens and as this 10 day chart
shows, my final blog salvo on BTO last
Monday coincided with the stock’s near-
term low and it staged a decent recovery
for the rest of the week. As noted in
IKN276, I wasn’t sure when BTO would
rally and I’m still not sure about it,
either.
I’d definitely consider this one a near-
term or medium term trade, let’s say
three month time window, but it’s not a company I trust enough to make into a buy and hold.
The world and his brokerage analyst will wax lyrical about how Clive Johnson “has built an $XBn
dollar company from scratch in just X years”, which is fine if you only care about market caps, I
need to know about the share price performance and I also know that the heavy dilution BTO
uses to make its corporate moves have taken away share price upside. Consider that BTO is
unchanged over the last 12 months. Also consider that BTO and GLD are level pegging in price
performance over the last two years. BTO had its explosive share price phase early on, but in
equity terms it’s done nothing for the patient buy’n’hold investors for years on end and as
there’s scant chance of BTO getting a buyout offer in this current market ambiance, I’d be
utterly unsurprised to see Johnson
continue with his corporate strategy of
swapping new paper for good rocks. Fine
for the long-term, but condemning it to a
longer period of treading water.
But a near-term or medium term trade?
Yes why not and what’s more, there’s a
fair case for buying this current CAD$2.80
(BTO.to) or U$2.57 (BTG), riding it up to
what looks like the ceiling of the trading
range CAD$3.20 or $3.50, taking your
20% or 30% scalp in a few weeks or
months, saying thank you and walking
away (normally that would also coincide
with the highest volume of sycophantic
script on BTO from the usual suspects, so be prepared to sell when the other are buying).
It’s not a trade for me at the moment as I’m going to wait at least a little longer and consider
what September brings. However be clear about the appeal of today’s price, the trading range
currently at its low end and the push BTO is likely to get as 2014 closes out.
Regional politics
Brazil Presidential elections: Tight at the top
We’re now in the active part of the Brazilian presidential election and after the systemic shock
created by the death of Brazil Socialist Party (PSB) candidate Eduardo Campos in an air crash
earlier this month, his running mate (and previous Presidential candidate) Marina Silva has
taken over the nomination. What’s more, she’s running with the sympathy vote and momentum
caused by Campos’s untimely and purely accidental death (sorry conspiracy theorists, nothing
for you this time) having put in an excellent performance in the first televised debate between
15

candidates this week (4) (there are another three debates programmed before election day)
and is now in a statistical dead-heat for first place with current incumbent and re-election
seeker, Dilma Rousseff of the Worker’s Party (PT). According to the latest poll (5) from the
reasonably unbiased and reliable survey company ‘Instituto Datafolha’, Rousseff and Silva each
have a 34% voter intention for the October 5th vote. Behind them comes Aecio Neves from the
centre-right (or right as some say) Social Democrat party, who has 15% of voter intention.
That’s down from 20% in the penultimate survey and indicates that “anti-Dilma” sentiment is
now concentrating around Marina Silva. As for the peripheral candidates, add up all the other
eight aspirants’ voter intention and it comes to just 3% of the total, which leaves 14% in the
undecided/no comment/will spoil ballot column.
Brazil Presidential Election: Instituto Datafolha, 28/29 August
50%
45%
40% 34% 34%
35%
30%
25%
20% 15% 14%
15%
10%
3%
5%
0%
Rousseff Silva Neves total of other undecided/no
comment/spoil
source: Inst Datafolha ballot
(As for the technicals, the survey was conducted under the supervision of Brazil’s electoral
authority, there were 2,874 people interviewed in 178 different municipalities during August 28th
and 28th, the survey has a margin of error of 2% and a 95% confidence level).
If, as is now extremely likely, no candidate gets 50% +1 vote in round one, we go to a second
round run-off between the top two on October 26th. The headline from Datafolha on that
eventuality is that if it were Rousseff versus Silva tomorrow, voter intention is 50% Silva, 40%
Rousseff. In other words, Marina Silva has some serious momentum all of a sudden, it’s coming
at the right time and the current administration is now worried.
For the record, I fully expect that:
1) Dilma and Marina go to a run-off
2) Dilma wins the October 26th decider
It’s one thing to have a lead in a projected vote, quite another have the massive, efficient and
media-savvy PT party bearing down on a single candidate from a party that doesn’t have the
national reach or resources of the PT. In Silva the PSB has its real chance, but she’s also well-
known to the PT (she was a minister in Lula da Silva’s government before splitting away) and
they’ll know exactly how to attack her credibility. Indeed that’s already started (6) with Rousseff
going after Silva this weekend on her plans to scrap certain government subsidies, calling her
plans “adventurist, shady and backward” as well as hinting of corrupt goings on in the
background (never a difficult image to call upon in Brazilian politics). The Brazilian economy
currently slipping into ‘technical recession’ (one monthly reading under 0% just out) adds an
extra element to the fight) as Silva will be able to blame PT, while the experienced and
economy-savvy government will be able to strike fear into the populace by showing Silva’s party
as woefully lacking in ability to run a country at such a critical time. The final factor is the
Brazilian tendency for a tactical protest vote when stakes aren’t high, but when it comes to the
crunch the country gets serious: It’s not that surprising to see Silva running neck and neck with
Rousseff at this point, nor is it so strange to see her getting the best of any round two intention
vote at the moment. Most of Brazil already understands that they’re going to see Silva vs
Rousseff on October 26th and that’s when things are serious, until then it’s not such a bad idea
to send a stark warning to Dilma and the PT party. Come the moment when people have to put
16

crosses next to names, things change.
Overall it’s going to be a tight one, but I’m pretty sure Dilma will escape in something of the
same manner that Colombia’s Santos did in his second round vote. Meanwhile, as for our focus
subject of mining, the best realistic result for us FDI-holding outsiders looking in is a win for
Dilma Rousseff and the current sitting PT, because Marina Silva comes from a strongly pro-
green, ecological background and if she came to power it would be seen as a clear negative for
mining due to its (deserved or not, a debate for another day) reputation as an anti-green
industry.
Peru regional elections: Also October 5th
This one is literally closer to home and I’m fed up already with the 120 decibel speakers sitting
on flatbeds that come past my house every 20 minutes or so. But that’s my problem and the
real reason to mention the Peru regional elections here is to note that we’re now in full
campaign and in a couple of key areas for mining, e.g. Cajamarca where they’re already
starting to shoot at people or run them out of town if the wrong candidate comes a knocking,
things are getting pretty hot between pro-mining and anti-mining candidates. The voter
intention numbers for the Gregorio Santos vs Everybody Else campaign are somewhat shaky
and prone to survey house bias, but even so the latest pinch-o-salt numbers circulating (7)
have Gregorio Santos on 29.5%, the Fujimori party candidate Osías Ramirez on 25% and PPK-
backed Absalón Vasquez in a distant third on 14.5%. The barrier to get automatic win is 30%
of the popular vote, so Santos is close and as surveys tend to favour urban areas more than the
Santos rural stronghold, he must fancy his chances from here. However leery one must be
about these regional opinion polls what we can say is that he’s in with a serious chance of
winning even though he’s stuck in jail, and come what may in the results there’s likely to be
trouble afterwards. It’s also worth noting that out of what seems like the blue, the national
congress last week decided to table and debate a law proposal that would stop anyone from
being re-elected into the post of regional governor anywhere in Peru (8). That smacks of an
executive that’s a little nervous about Santos’s chances, though as anything can happen in a
quasi-banana republic they might even be able to force that one through and get it into law
before time runs out.
Due to the biased nature of reports and such on these regional elections let’s wait until they’ve
are over before shifting through the wreckage and deciding whether things are better or worse
for mining in Peru. But context is necessary, because these regional elections are happening
countrywide and there are only a few specific potential trouble spots such as Cajamarca; overall
and across the country there shouldn’t be too much to worry about for outside investment cash.
Argentina Presidential election: Game on
One last word on regional elections, but as this one got analysis just a couple of weeks ago and
it’s still over a year to the vote, only a few words. Last week saw opening election shots from
Daniel Scioli, governor of Buenos Aires Province and the man most likely to get President CFK’s
official anointment come the time. He’s taken aim at Sergio Massa (the ‘rebel Kirchnerist’ of you
like, who wants to pull the country more to the centre/centre-right and has been adopted as
the Anti-Cristina candidate by those who want things to change from inside the PJ party) and
it’s the first time we’ve seen open campaign talk from Scioli, who’s apparently trying to secure
centre-stage for himself and cement his image as one of the favourites. In fact for me he is the
favourite to be next President of Argentina, but as there’s such a long way to go yet it I’m not
making that into a formal prediction. But back to today and the gloves are now off. Massa
supporters were quick to retort and we can expect this election to take up more and more
media space, even with a year to go. Of all the regional election in the last few years, this one
is probably the most important for the South America regional political balance, it’s one that
matters to us on the outside and not only because of any exposure to Argentina.
Guatemala: Anti-mine groups try the courts again
The main anti-mine group in Guatemala CALAS is again trying to make its presence felt in the
country’s courtrooms, this time against the El Tambor project owned by U.S private firm KCA
17

and centre of much resistance to mining activity. Last week it presented an ‘Amparo’ demand (a
slightly idiosyncratic word in Spanish and I’m never 100% sure how to translate it, though
normally covered well enough by “blocking order”) against the government for granting the
mine a permit without going through due process or allowing locals the required pre-permit
consultancy (9). The chances are that CALAS will get nowhere with this legal move, in much the
same way that the government has managed to stifle all CALAS legal moves against the Tahoe
Resources (THO.to) (TAHO) Escobal mine. However, it’s a reminder that the anti-mine people in
the country are still active.
Argentina Mining in Salta next week
Next week sees a mining conference in Argentina that’s not particularly big, but tends to be
regionally influential. The ‘Argentina Mining’ conference in Salta, September 3rd to 5th is the
occasion (10) and along with the 60 companies booked to the booth hall, there are
presentations from a handful of Argentina mining bigwigs on many aspects of the sector, with
particular emphasis on the exploration stage companies.
Dominican Republic: A violent anti-mining protest
I’ve been cautiously optimistic about the state of the mining scene in Dominican Republic, but
the scenes last week around the Glencore-Xstrata owned Loma de Miranda (aka Falconbridge or
Falcondo) nickel mine and expansion project have likely set things of a public opinion nature
back several steps. Your basic story is:
• Loma de Miranda is a working mine with a long history of operations, but it now wants
to expand and start mining a neighbouring concession it holds in order to extend mine
life
• Protesters have been against this expansion for a long time, saying that it will gravely
affect the local ecosystem and cause pollution for locals.
• Last week protesters (led by local Catholic priests) marched in a nearby town to the
mine and project, but the so-called “green strike” got into confrontations with police
that turned to scuffles and then outright violence. Two protesters were reportedly
killed, two police officers shot by marchers and many injuries and arrests reported.
In the light of the violence, Dominican Republic’s parliament tabled and quickly passed a motion
to make the hill which Glencore-Xstrata wants to mine into a protected national park, thus
stopping all development rights (11). However this won’t become law unless the President signs
its passage (he won’t) and the local business community has already pointed out (12) that if
the concession is cancelled, Dom Rep may open itself to a multi-billion dollar law suit. As things
stand today the congress is still debating on the events and trying to decide what best to do,
but feelings are running high and the whole issue of mining is being polemicized.
Chile: Bachelet wants to speed up court cases
The top story from the traditional Head of State speech at Chile’s National Mining Society
annual gala dinner came from the part where President Michelle Bachelet told the assembled
suits and frocks that her government wanted to speed up the permitting and decision-making
process for mines and mining project in Chile. She said her government would “revise in detail
the causes for project delays in mining” and if the bottlenecks were government administrative,
“we will improve them rapidly”. She went on to say (13) Chile must “stop the litigation of
mining projects” and get those projects stuck in the courtrooms back into active development,
and went on with “it’s not easy to harmonize mining and the environment, but it’s an
unavoidable condition for our sustained development [as a country]. And we can count on state
apparatus that we will continue to modernize in order to make it more effective, more efficient
and less reactionary”, all of which interpreted by those present (and the Chilean press the next
day) as a big wink and nudge in favour of the Barrick (ABX) Pascua Lama project.
Peru: The Minister of Energy and Mining isn’t resigned yet
As things turned out, my prediction last week that Eleodoro Mayorga wouldn’t see the week out
as Peru’s Minister for Energy and Mining was incorrect. He’s still there, thanks mainly to the
18

government managing to squeak a vote of confidence in the new ministerial cabinet by 55
votes to 54. However his job is still very much in the balance, as those opposed to his
permanency in the job (and there are many) have started an official process against him which
is a type of call to account by congress, where he has to turn up and answer congressional
questions. He’s still walking a tightrope here.
Chile: Changes to water laws
Next week will see Chile’s new Congress start the debate on two new law proposals that have a
direct influence on the country’s mining industry. Neither should be particularly feared, but they
do involve change so here we are (14). The first is the bill that proposes a royalty be levied on
water use from free flowing water sources (i.e. rivers, not wells). What’s near certain is that
some sort of royalty is going to happen here, what’s not certain is how much or to whom it will
apply (those will be the main points for debate). The second is the proposal to change
ownership of water use licences, which are currently granted as perpetual, to permits that allow
use for a 30 year period after which they lapse.
Both these measures have the potential to add cost to operating in Chile, so we need to keep
an eye on them as the debate unfolds.
Ecuador trying to strut
In Chile last week, Rafael Poveda, Ecuador’s Minister of Strategic Sectors (i.e. the minister in
charge of promoting the country’s mining industry) met with a delegation mining people known
as the “Mining Council”, made up of the suitable diplo people from the 17 largest mining
companies in the world in order to promote Ecuador as a country good for the mining business
in the future (15) along with the minister, Ecuador sent a carefully selective delegation of locals
around the Llurimagua copper project in Ecuador, the one that used to be called Intag and is
the focus of strong anti-mining sentiment along with a new exploration program that’s a JV
between Ecuador and Chile on a State mining company level.
. Afterwards, we heard from the relevant Chilean mining bigwigs about their interest in Ecuador
as a new jurisdiction for mining, such as the people from Antofagasta (ANTO.L) who were
quoted as being “very interested” (16) in projects in the country, and were now watching
closely to see how the national government’s proposals for law changes were going through.
LatAm State Burdens
This slide is from a presentation made in Ecuador by mining consultancy firm Wood Mackenzie
in May 2014. I’m showing it for three reasons:
KEY: DARK BLUE “IMPUESTO A LA RENTA” = CORPORATE INCOME TAX
LIGHT BLIE “UTILIDADES LABORALES” = WORKER PARTICIPATION
19

YELLOW “IVA” = SALES TAX OR VAT
GREY “REGALIA” = ROYALTIES
GREEN “IMPUESTO EXTRAORDINARIO = WINDFALL TAX
RED “AJUSTE SOBERANO” = SOVEREIGN ADJUSTMENT (which means the amount that Ecuador
needs to add in order to comply with the current law)
Y AXIS “% DE LOS INGRESOS BRUTOS” = PERCENTAGE OF GROSS MARGIN
1) It’s good to see how WoodMac considers the State burdens for the four main regional
mining countries (plus Colombia and Ecuador, though in this case the only project
taken into consideration for Ecuador is the ECSA Chinese capitals Mirador copper
project). The WoodMac figures aren’t based on the strict letter of the law in each
country (e.g. corporate tax in Peru is strictly speaking 30%), but rather the real world
amount that is paid in each country once tax breaks and legal loopholes are used. As it
happens, the global burden average of 26% of gross sounds about right to me.
2) It fits in with the previous piece about how the Ecuador government of Rafael Correa is
now trying to promoted itself as the next best thing for large scale formal mining
(there’s plenty more in the WoodMac presentation, happy to pass it on if anyone would
like a copy, usual address).
3) Perhaps the most fun, it suggests that Wood Mackenzie has a protagonist’s role in
Ecuador’s mining strategy. I was very interested to see that date on this presentation,
May 2014, because it was just after that when President Correa started making his “we
got it all wrong” mea culpas about the mining laws he and his government introduced
and then moved to modernize and relax the current statutes, a process that’s now
going on (though you never know how long these things will take in Ecuador, evidence
on that abounds).
I find it most encouraging that Ecuador’s government (which basically means Correa’s opinion
on things) is being apparently influenced by the pragmatic and industry-wise WoodMac. The
timing of this presentation goes a long way to explaining just why Correa has done his law U-
turn this year, though the main problem in Ecuador is still the local attitudes and opposition to
mining projects, rather than the national one.
Market Watching
Death of the junior exploreco conference circuit redux
Following on from the note last week that noted how the junior conference market in Canada
was withering on the vine, here’s a mail received from kind reader PB (who’s a constant source
of interesting stuff, so public thanks to you, PB). Reprinted with no further comment:
While Cambridge House has moved and been renamed. My local conference has died
after being renamed. P
San Francisco Metals & Minerals Investment Conference
The organizers of the Metals & Minerals Investment Conferences (formerly known as
the Hard Assets Investment Conferences) announced on July 16, 2014 they are
suspending their schedule of events indefinitely. This includes the upcoming San
Francisco program, which was scheduled to take place November 30 to December 1.
The current challenged metals market has led us to make the difficult decision to
suspend our events in the best interest of our participants, speakers, sponsors and
stakeholders.
As organizers we are committed to delivering quality content and the best networking
platform for all of our participants. When obstacles, market conditions or otherwise,
prohibit us from fulfilling the mission of our events, we must make the right decision.
To our loyal supporters we apologize for not being able to continue with our programs.
20

Radius Gold (RDU.v): Updating the potential for arbitrage
We’ve run the numbers on RDU previously, wondering whether this reasonably cash (incl
available for sale assets) offered a decent enough arbitrage compared to its beaten down share
price. There was an arb showing earlier in the year and we pointed that out, but as it didn’t
quite offer enough upside to assets I never pulled the trigger and bought. Here we are a few
months later and it’s fair to say the decision to stay on the sidelines with this play was the right
one, because the share price movements have been a wash at best, probably a small loser once
realistic entry prices and commissions are taken into consideration.
Anyway, enough background and as last Friday evening brought RDU’s 2q14 financials up, we
can catch up and see how things stand today. We check out the cash $3.841m, then the
available-for-sale investments (shares in BTO, MED and FCV) then how the rest of the current
assets basically cancel out the current liabilities. That gives us a decent handle of the liquid
asset value and what you could get for RDU if you close the company down tomorrow and
liquidated everything at market price. As for those shares held, here’s the portion of script from
the filing that explains all:
Available-for-sale investments are recorded at fair value. As of June 30, 2014,
available-for-sale investments consisted of 2,826,394 common shares of B2Gold Corp.
(“B2Gold”), 1,007,406 common shares of Focus Ventures Ltd. (“Focus”), and
5,000,000 common shares of Medgold, all of which are public companies.
And here’s a quick calc to show you what that little lot is worth this evening:
• MED.v $0.09 (X 5m) = $450,000
• BTO.to: $2.80 (X 2,826.394) = $7,913,903
• FCV.v: $0.275 (X 1,007,406) = $277,036
As shares out at RDU haven’t moved a jot since the last time we looked (still 86.676m) it means
we can dust off the calc table used previous, move things around a little bit to reflect the
current market prices of BTO and RDU, then use it to show what kind of arbitrage RDU
currently offers. All the above assumes that the 2q14 cash treasury is today’s (it’s probably a bit
less, but as RDU is in lockdown low burn mode it won’t be that different) and it also assumes
CAD$1 = U$1, for ease of calcs.
Here’s the table, explanatory notes below:
Radius Gold (RDU.v): Arbitrage to B2Gold share price movements
BTOpps other cash$m RDU "fair value" %arb to 13c %arb to 12.5c %arb to 12c %arb to 11.5c %arb to 11c %arb to 10.5c
2.30 0.727 3.841 0.128 -1.694 2.238 6.50 11.13 16.18 21.71
2.40 0.727 3.841 0.131 0.818 4.850 9.22 13.97 19.15 24.82
2.50 0.727 3.841 0.134 3.329 7.462 11.94 16.81 22.12 27.93
2.60 0.727 3.841 0.138 5.841 10.074 14.66 19.65 25.08 31.04
2.70 0.727 3.841 0.141 8.352 12.686 17.38 22.49 28.05 34.15
2.80 0.727 3.841 0.144 10.864 15.298 20.10 25.32 31.02 37.26
2.90 0.727 3.841 0.147 13.375 17.910 22.82 28.16 33.99 40.37
3.00 0.727 3.841 0.151 15.887 20.522 25.54 31.00 36.96 43.48
3.10 0.727 3.841 0.154 18.398 23.134 28.27 33.84 39.93 46.59
3.20 0.727 3.841 0.157 20.910 25.746 30.99 36.68 42.89 49.70
3.30 0.727 3.841 0.160 23.422 28.358 33.71 39.52 45.86 52.81
source: RDU data, IKN calcs
From left to right in this table we have:
• “BTO pps”, the share price of B2Gold (BTO.to) at 10c increments. On Friday it closed at
$2.80, which is why that line is bold-typed
• “Other”, which cover the share RDU holds in Medgold (MED.v, 5m shares at 9c) and
21

Focus Ventures (FCV.v, 1,007,406 shares at 27.5c)
• “Cash $m”, the end 2q14 treasury at RDU. As it happens, the other parts of current
assets all-but cancel out the minor liabilities, so it’s fair to say this cash is in the clear
and a net asset.
• “RDU fair value”, which adds up the liquid assets at the company, ignores the fixed
assets, divides the total into the number of shares out (86.676m) and tells us as a
result how much liquid asset value back up each share of Radius Gold. As you can see
a BTO at $2.80 means each share of RDU is worth (whatever that strange word may
mean) 14.4c, which is a whole bunch higher than the current 11.5c price of the stock.
• The final six columns show the percentage arbitrage of the “fair value” versus current
price. Using a blob of pink I draw your eye to the current arb, which is 25.3%. That’s
not bad.
Therefore, today’s 11.5c in RDU.v isn’t a bad entry point at all, considering what the company
owns, but the track record shows that it doesn’t have much push to close up the arbitrage gap.
The other thing that puts me off is the traded volume in the stock, which has its decent days
but is patchy and can go through period of
low liquidity when it’s suddenly hard to get
out. So at current prices, although interested
to a certain extent I’m still not going to pull
the trigger and make this a trade.
What would probably change my mind on
that would be arbitrage move chunkily above
30%, which means seeing BTO move up or
(more likely) RDU dropping down a penny or
so. As things stand today 10.5c would be a
good place to buy RDU and then if BTO
rallies, you’d probably be able to sell them
back for 12.5c or 13c fairly simply (a pre-
commish 23.8% can be yours).
Argonaut (AR.to) catches a bid
I’ve cast around since Friday afternoon via various contacts, but nobody seems to know (or
they’re not telling me) about the sudden pop we saw in Argonaut Gold (AR.to) on Friday, which
turned out to be a 7% gain on a significant volume acceleration and included a in-at-any-price
spike at the height of the buying which triggered the IIROC circuit breaker trading halt.
AR.to is not a stock I’d hold personally, as I think it’s far more likely to see it buy something
22

(TGD) than see it being bought (New Gold is the only company that fits the frame for me,
perhaps Alamos but less so). Worth watching to see how it trades early week, though.
Catalyst Copper (CCY.v): Heavy hitters and the IKN view
The news out of Catalyst Copper (CCY.v) on Friday was of the type that gets the whole sector
to sit up and take notice. Richard Warke (of Ventana Gold fame, among other jobs), Ian Telfer
(or Goldcorp Chair fame, among other jobs) and Frank Giustra (of Bill Clinton, Serafino Iacono
and Tommy Humphreys friendship fame, as well as a endless multi-million dollar deals in
mining and other places) have joined as directors of the company, with Warke taking over as
President and CEO (17). Along with their presence the three are adding $630k (pocket change)
to CCY via a private placement to get things rolling again...or something. As a result, this is
what CCY.v did on the five day chart:
That’s a big move on Friday but pretty normal under the circumstances, the arrival of mining
big hitters into a small exploreco company is always going to do this sort of thing.
Here below is a different visual perspective, the two year chart that shows some (not all) of the
damage done to the CCY stock price under its previous board and management, namely John
Greenslade (as well as her daughter the goth Denby as head of IR) of Baja Mining infamy.
Cataluyst was always Greenslade’s side scam, he held a whole bunch of shares in the company
and tried on more than one occasion to get Baja to buy it out (and give him a mountainous
cash windfall), but it was not to be and to cut a long story short, the whole thing unravelled.
At the time I took more than one good look at CCY.v and its flagship asset, the Verde Copper
project in Mexico. What I know about that project is that it’s a total piece of shit and will never
become a mine and as such, it’s going to be very easy for me to permanently ignore CCY.v,
23

Giustra & Friends on board or not, unless of course they have a trick up their sleeves and bring
in some different project to be the new flagship of the company. However, as the share price
rise and fall of the equally awful Copper Fox (CUU.v) over the last three or four years shows,
it’s possible to pump these dog copper properties and keep them pumping and going higher for
an extended period of time on pure promotion and fan-club appeal, so it’s not out of the
question that CCY.v starts moving back up from here once Giustra’s very well oiled marketing
department(s) start their operations.
Conclusion
IKN277 is done, we end with bullet points:
• As a near-term trade, B2Gold (BTO.to) (BTG) holds plenty of appeal. It’s not my idea of
an investment because its board clearly puts the welfare of its shareholders low down
the list of priorities.
• Santacruz Silver (SCZ..v) put in a reasonable set of numbers for 2q14 and I’m good
about holding here, but the real test on whether this thing will show its operational
worth is now on, in the current 3q14 period. I’m here and long for its assets, but if it
can’t stabilize operations at Rosario and avoid its starter operation from draining
treasury, it’ll be time to move on. Today it’s a hold, no more no less.
• The risk for Salazar (SRL.v) is Ecuador, the reward if it gets permits and approvals
(both formal national and tacit local) will be a free ride to production on its excellent
VMS rocks at El Domo. The deal it struck with the Chinese last week is a good one for
our tiny risk play, the key moment will be the day it starts building the mine because
until then, there has to be political risk doubts.
• I like the way First Majestic (FR.to) (AG) traded last week. Rio Alto (RIOM) too, which is
fulfilling its value role and re-rating like a champ, but the turnaround seen by (FR.to)
under generally adverse conditions in the silver market added extra substance to my
contention that this stock has very little downside from current levels, a lot of potential
to the upside if the metals market pops. FR has that ducks in line feeling about it today,
all it requires is a spark from the silver price.
• Plenty of content in the ‘Regional Politics’ section today, which is good at face value I
suppose but does remind me of the “may you live in interesting times” curse. Too much
politics is bad for your mining business, on the whole.
• Radius Gold (RDU.v) is right on the borderline as an arbitrage trade here. If it were
larger, be sure that the 25% between its current market cap and its liquid asset book
wouldn’t exist. It’s well run on a corporate level and won’t fritter its cash or advantages
away. If that nice Mr Market offers a 10.5c entry point, take it.
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
24

Footnotes, appendices, references, disclaimer
(1) http://finance.yahoo.com/news/santacruz-silver-reports-second-quarter-212900792.html
(2) http://finance.yahoo.com/news/salazar-guangshou-group-announce-letter-113000422.html
(3)
http://www.cochilco.cl/Archivos/destacados/20140829162307_MERC%202014%2029%2008%20(ingl%C3%A9s).pdf
(4) http://online.wsj.com/articles/marina-silva-shines-in-brazils-first-presidential-campaign-debate-1409156618
(5) http://www.americaeconomia.com/politica-sociedad/politica/nuevo-sondeo-da-un-empate-tecnico-entre-dilma-
rousseff-y-marina-silva?
(6) http://www.americaeconomia.com/politica-sociedad/politica/rousseff-considera-gravisimo-que-silva-quiera-extinguir-
subsidios-estatal?
(7) http://elcomercio.pe/opinion/columnistas/aldo-mariategui-mamita-tsunami-que-se-nos-viene-noticia-1753596
(8) http://www.rpp.com.pe/2014-08-29-propuesta-de-la-no-reeleccion-regional-causa-controversia-en-cajamarca-
noticia_720760.html
(9) http://www.elperiodico.com.gt/es/20140829/pais/1104/Accionan-contra-Ministro-por-proyecto-minero.htm
(10) http://www.argentinamining.com/es
(11) http://www.notimerica.com/republicadominicana/noticia-rdominicana-congreso-aprueba-convertir-parque-
concesion-minera-glencore-xstrata-20140829010844.html
(12) http://elnuevodiario.com.do/app/article.aspx?id=389007
(13) http://economia.terra.cl/bachelet-revisare-en-detalle-retrasos-que-afectan-a-
mineria,f8580f4bcdf18410VgnVCM10000098cceb0aRCRD.html
(14) http://www.aminera.com/index.php/component/k2/item/6463-derechos-de-agua-royalty-y-caducidad-los-principales-
cambios-que-impulsa-el-gobierno.html?
(15) http://www.andes.info.ec/es/noticias/17-empresas-mineras-mas-grandes-mundo-muestran-interes-invertir-
ecuador.html-0
(16) http://www.pichinchauniversal.com.ec/noticias/nacionales/item/14753-chile-manifiesta-interes-en-el-portafolio-
minero-de-ecuador.html
(17) http://www.newswire.ca/en/story/1404610/catalyst-copper-appoints-new-directors-and-ceo-and-announces-non-
brokered-private-placement
25

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
26

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.
27