IKN #278Premium

The IKN Weekly
Week 278, September 7th 2014
Contents
This Week: Gold’s negative week, Nobody cares about juniors.
Fundamental Analysis: The state of trade in the TSX Venture Exchange.
Stocks to Follow: Overview, True Gold (TGM.v), Timmins Gold (TMM.to) (TGD), Coro Mining
(COP.to), First Majestic (FR.to) (AG), Salazar (SRL.v), Reservoir Mineral (RMC.v), Santacruz
Silver (SCZ.v), Rio Alto (RIOM) (RIO.to), GoldQuest Resources (GQC.v), Focus Ventures
(FCV.v), NovaCopper (NCQ.to).
Copper Basket: Overview, Lumina (LCC.v), Augusta (AZC.to), Cordoba Minerals (CDB.v).
Low Cost Producer Basket: Overview, B2Gold (BTG) (BTO.to), Franco Nevada (FNV).
Regional Politics: Peru: Aduviri in Puno has a shot at winning the regional presidency job,
Mexico: Mining opponents in Baja California Sur and the “All Saints Pact”, Colombia: El Niño is
weak (so far), Brazil Presidential elections: Understanding corruption scandals in context,
Dominican Republic: President Medina vetoes the anti-mining nature reserve.
Market Watching: Radius Gold (RDU.v) arbitrage redux, It’s getting cheaper to operate mines
in Latin America, Argonaut Gold (AR.to) redux.
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
Gold’s negative week
GLD drops 1.45% week-over-week, the technical analysts I read (and some that my involuntary
eyes just catch on occasion) speak clearly about beroken downside resistance, gold miners (e.g.
the GDX mix) and PM juniors (e.g. the GDXJ mix) get hammered hard.
1

That was the post-Labor Day week that was, all on the back of S&P records and Goldman Sachs
analysts again telling us about shorting gold, how it would sink further (was it $1,050/oz the
target call?) and how the smart money (and hey, no arguing with the smart money) was using
the PM complex as a “natural hedge to the bull”. Love WallSt-speak.
Nobody cares about juniors
“When we ask for advice, we are
usually looking for an accomplice”
Saul Bellow
And that’s the cruel reality. Evidence includes:
• Mail exchanges. More than one source has told your author of the aversion real money
has about getting placed in explorecos. Funds are not moving into mining because a)
other funds aren’t moving into mining b) there are rich enough pickings for them in the
broad market bull run without exposing themselves to the high risk of metals c) the
trust larger money has for directors of mining companies has largely evaporated after
seeing how they wasted the cash in the last cycle and hid behind lies and deceptions.
• Market promos falling flat: The usual Canadian channels have been to work on two
pump stories in the past few weeks, those of Pretium (PVG) and True Gold (TGM.v).
Neither have worked and this chart
shows the flaccid nature of both
pump attempts. On this three month
chart, count PVG from the July 21st
point where the drop off shows its
first and largest equity raising of the
summer, then note the failure of
interest that its site visit and ensuing
sycophantic script induced. Then
count TGM.v from August 11th and
the FNV/SAND streaming deal
announcement, which got it
bouncing a little (I though we’d see
more and held for that purpose,
which meant I held for about two
weeks longer than I should have before selling (see below)) but again the pump job
was not to be and TGM sits this weekend below 40c, unloved and unwanted by the
instos it tried to attract.
• Exploration company newsflow: We’re getting decent news coming from a few corners
of the tinycap exploreco world and it’s good to be able to say that at least two
companies showing good and fundamentally interesting news, Coro Mining (COP.to)
and Salazar Resources (SRL.v), are part of The IKN Weekly ‘Stocks to Follow’ list. But
nobody else cares, nobody at all. What seems to be happening at the tinycap über-high
risk end of the market is the news gets digested by finding an excuse not to like it.
Coro: “Yes, that’s a decent deal. So how are they going to raise cash?”
Salazar: “Yes, that’s a decent deal. Hmmm, Ecuador you say...”
And nothing happens. Well virtually nothing, because in each case we’ve seen a pop on the
news and improved volumes, which is positive in relative terms but when absolutes are
examined, it’s difficult to get enthusiastic about a company which “improves” to $10,000 worth
of share trading per day. Away from the inner circle of hardcore exploreco followers and fans
(and one of those people is currently writing these words to a bunch of those very same
people) nobody cares. Which means I’m getting practical and not throwing out ideas for trades
on the tinycap stocks I like at the moment. They can wait, time is better spent on the larger
market cap stocks at the moment.
2

Fundamental Analysis of Mining Stocks
The state of trade in the TSX Venture Exchange
Something a little different in “Fundamentals...” today, because instead of tackling a direct
mining issue I’m going to look at a part of the equation that I usually pass over, or at best
make a few general remarks about specific cases and then move on. We get a lot of talk about
the “state of the mining market” (that’s the last time I use speech marks in this article, by the
way, not going to get all
twee on you) these days
and much hand-wringing
about the amount of
money that’s flowing
through the key Canadian
capital markets system in
order to feed and fund
mining companies and
projects. There are things
that we know, such as
how things aren’t as good
as they were a few years
ago and because of that,
I wanted to avoid sticking
up and showing you charts like this classic of the TSX Venture exchange volume which includes
the big market expansion of 2010 and 2011, before it all went wrong (for the easy money
seekers, at least). The 2010/2011 bump is well known, but it’s also unrepresentative of the
overall market plus the way in which is skews out comparatives means we can’t see whether
there’s any improvement to speak of in recent times. And because the charts we require to
concentrate of on the last two or three years don’t seem to be out there and available I did the
only thing possible under the circumstances; I made them myself.
The TSX big board: A necessary diversion, offered as benchmark
First up and after due consideration, it became clear as I crunched things that it’s not enough
just to throw the TSX Venture exchange charts and data at you. A benchmark is necessary and
the best out there is the big board TSX exchange. That’s because the Big Board of Canada has
its fair share of mining exposure, but not nearly the same amount in overall percentage terms
as the TSX Venture Exchange. The Big Board includes Teck, Goldcorp, Barrick and friends, but
also has all the big banks (RBC, TD, etc), Railways, Energy stocks (CNQ, ENB), Air Canada,
Blackberry (or what’s left of it), Tim Horton’s (coffee so good that US fast food couldn’t resist),
and plenty more besides. By looking at what’s happened to the TSX main listed, the Dot-Tee-
Oh stocks, we get a background with which to consider the miner-heavy TSX Venture exchange
more objectively. For all these TSX Main board charts I go back to 2009 and we start with
volume traded....
TSX Main Board Trade Volume
Billions of shares traded, per month
12
11
10
9
8
7
6
5
4
3
2
1
0
3
90naj yam pes 01naj yam pes 11naj yam pes 21naj yam pes 31naj yam pes 41naj yam
source: TSX
serahs
fo
snoilliB
TSX Venture Exchange Trade Volume
10 Billions of shares traded, per month
9
8
7
6
5
4
3
2
1
0
90naj rpa luj tco 01naj rpa luj tco 11naj rpa luj tco 21naj rpa luj tco 31naj rpa luj tco 41naj rpa luj
source: TSX
serahs
fo
snoillib

...go to Dollar value of trades...
TSX Main Board Dollar value of trades
180 Billions of Canadian Dollars, per month
160
140
120
100
80
60
40
20
0
4
90naj yam pes 01naj yam pes 11naj yam pes 21naj yam pes 31naj yam pes 41naj yam
source: TSX
$daC
fo
snoilliB
...and finish with the transaction count, i.e. the number of trade orders placed and settled.
TSX Main Board Transaction Count
Millions of transactions, per month
24
22
20
18
16
14
12
10
8
6
4
2
0
90naj yam pes 01naj yam pes 11naj yam pes 21naj yam pes 31naj yam pes 41naj yam
source: TSX
snoitcasnart
fo
snoillim
Today’s idea isn’t to dwell on these TSX main board numbers, but what we can see by simple
eye-sweep of the three charts and their monthly bars is that in chart one, the number of shares
being traded has dropped very significantly from the early 2009 period. That was of course just
after the worst moments of the Lehman/Subprime/Etc financial crash period and the markets
saw a lot of activity.
Chart two, the dollar value of shares traded, also shows a downwards decline but not as great
as the share volume numbers. This suggests that trading isn’t as frequent as five years ago, but
the amount of cash being moved in transactions hasn’t been such a big drop (instead of the
~50% drop in share volumes, we have perhaps a ~20% drop in money movements). That
would be explained by higher share prices and each share that changes hands being worth
more in absolute terms, something that fits in with the logic of the last five years.
Chart three helps confirm this type of background scenario. Here were see that the number of
transactions that go through the big board has changed but slightly, down from ~16m per
month to ~14m per month, give or take.
Overall it’s fair to say that the TSX main board ahs seen better times but it’s hardly in crisis
mode either. Canada as a country and the Canadian stock market as a financial entity is closely
tied to the fate of the US Stock Exchange and so when things are going well in The USA, the
benefits will rub off onto its Northern neighbour. If banks, retail, energy, O&G are in good
shape in New York, it’s going to be the same story in Toronto so the market’s action will remain
healthy. When it comes to mining the TSX has seen its market hit, but from the charts we see
above it’s a survivable situation among larger caps and that may be why we hear squeals from
the miners, but brokerages aren’t anywhere near their own crisis mode (though downsizing in
mining analyst departments has been a clear trend, one department’s bear is another’s bull).

The TSX Venture Exchange
With a rough background now laid out, it’s time for the feature of our piece today, the TSX
Venture Exchange data. For all but this first chart...
TSX: Aggregate number of shares traded on TSX main board plus
Venture Exchange, per month
20
15
10
5
0
5
90naj yam pes 01naj yam pes 11naj yam pes 21naj yam pes 31naj yam pes 41naj yam
source: TSX
serahs
fo
snoillib
TSX Venture
TSX Main
...which gives data for volume of the TSX and TSXV since 2009 to give an idea of proportions,
we’re going to ignore the hayday moment of 2010 and 2011 and focus in on the last three
years of the TSXV, because the object of today’s exercise isn’t to compare the best moments
with the worst, it’s to decide whether we’re past the worst and there truly is light showing at
the end of the tunnel.
The first chart is traded volume of shares from August 2011 to August 2014 (the latest dataset
supplied just last week).
TSX Venture Exchange Trade Volume
6
Billions of shares traded, per month
5
4
3
2
1
0
11gua pes tco von ced 21naj bef ram rpa yam nuj luj 21gua pes tco von ced 31naj bef ram rpa yam nuj luj 31gua pes tco von ced 41naj bef ram rpa yam nuj luj 41gua
source: TSX
serahs
fo
snoillib
We see the natural rhythm of the TSXV interest, with peaks coming in early year and once the
summer vacation period is over, the troughs invariably showing in July. This share volume chart
suggests that things aren’t as good as they were in 2011 or early 2012, which makes sense
because late winter 2012 is when gold finally broke down. However, 2014 does look at least as
good as 2012 and 2013 and even a little stronger.
Next chart (below) is dollar value of trades per month. Those shot higher in early 2012 (people
dumping) and reached a nadir in the late spring of 2013. This year has a modest upwards trend
to the bars.

TSX Venture Exchange Dollar value of trades
3.5 Billions of Canadian Dollars, per month
3
2.5
2
1.5
1
0.5
0
6
11gua pes tco von ced 21naj bef ram rpa yam nuj luj 21gua pes tco von ced 31naj bef ram rpa yam nuj luj 31gua pes tco von ced 41naj bef ram rpa yam nuj luj 41gua
source: TSX
$daC
fo
snoilliB
As for transaction counts, the late 2011/early 2012 higher points fit in with the above as does
the rest of the chart with the mid-2013 weakness and the gentle improvement to date, seasonal
trends notwithstanding.
TSX Venture Exchange Transaction Count
1.2 Millions of transactions, per month
1
0.8
0.6
0.4
0.2
0
11gua pes tco von ced 21naj bef ram rpa yam nuj luj 21gua pes tco von ced 31naj bef ram rpa yam nuj luj 31gua pes tco von ced 41naj bef ram rpa yam nuj luj 41gua
source: TSX
snoitcasnart
fo
snoillim
The datadump numbers from the TSX website shown in those first three charts suggest a
modest improvement in 2014, nothing to write home about but definitely a little better than
before. In order to check that initial and tentative conclusion I proceeded to run several
derivative crunches and charts, from which I’ve chosen these last two to make the point.
TSX Venture Exchange: Average number of shares per trade
(quantity), Average dollar value per trade (CAD$), per month
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
11gua pes tco von ced 21naj bef ram rpa yam nuj luj 21gua pes tco von ced 31naj bef ram rpa yam nuj luj 31gua pes tco von ced 41naj bef ram rpa yam nuj luj 41gua
Avg Nº shares/trade
Avg Dollar value/trade
source: TSX, IKN calcs
This first chart (above) in fact combines two separate datasets and it’s only because the Y-axis
works in both share number and dollar value terms that I can cheat slightly, save a bit of space
and put them together. The red line shows how many shares are being moved per trade on
average at the TSXV every month. Back in early 2012 when prices were higher, the average lot

dropped to a little over 4,000 shares. These days we’re back over 6,000. As for dollar values,
they’ve kept pretty steady over the last three years between CAD$2,000 and CAD$3,000 but
there has been an upturn in 2014 which I want to show on a separate chart.
This final exhibit (below) shows the year-over-year percentage change in dollar values traded
on the TSX Venture. Mid 2011 through 2012 compared badly to the previous years, which is to
be expected. But 2013 dropped even further and stayed in negative territory, losing ground on
even the poor 2012.
TSX venture: YoY % monthly change in dollar values traded
100
80
60
40
20
0
-20
-40
-60
-80
7
gua pes tco von ced 21naj bef ram rpa yam nuj luj 21gua pes tco von ced 31naj bef ram rpa yam nuj luj gua pes tco von ced 41naj bef ram rpa yam nuj luj gua
source: TSX, IKN calcs
ylhtnom
,egnahc
YoY
%
However, check out the right hand side of the chart and the light a the end of the tunnel is
showing. The last negative month for dollar values was January 2014, since then we’ve seen
either fair or big improvements in the maount of money flowing through the TSXV (and 80%
YoY for June is nothing to be sniffed at, under the circumstances). Therefore, we know from
these last two charts the follwing three things:
• The average number of shares in each trade has kept roughly equal in 2014
• The average dollar value per trade has also improved slightly in 2014
• The amount of dollars traded in the TSXV has improved significantly
This suggests that more expensive stocks are being traded on the TSXV. And as we know that
there are a lot of stocks priced in pennies rather than dollars out there, all beaten to a pulp by
the ongoing carnage at the tinycap end of the market, the implication is that the investment
community is steering away from the tiny priced stocks but maintaining its interest in the
Venture Exchange by trading the larger cap end of the offerings.
Conclusion
We hear a lot about the “death of the mining sector”, but quantifiable evidence suggest that
this death cycle is evolution and not wholesale extinction. Despite cries to the contrary there is
money flowing through the TSXV which isn’t in the same quantities of the best times in 2010 or
2011, but is already clearly better than 2013. However, access to that money flow and capital is
being restricted to the higher cap end of the market, the bigger average share prices and that’s
a numerical observation which fits right in all the anecdotals we’re hearing about explorecos
withering on the vine, moose pasture peddlers giving up the ghost, tinycap rockbangers
suddenly deciding that medical marijuana is a far smarter business plan, or simply the moment
when the TSXV company doesn’t have the cash to pay for the signature to its annual audit, is
removed from the TSXV and goes to chill in the NEX list (where companies die and are turned
into shells).
The numbers demonstrate that things are improving for the whole, but to see that
improvement you need to be in a serious company doing serious things. I for one thought this
process of evolution would have been more rapid and the thinning process has taken longer
than I expected, but slower or not it’s happening and as a result, little by little, the TSXV is
cleaning up its act. So when you hear the next round of whining, find the source and

recognized it for what it is; the whiners are that part of the TSXV in the Have Not column,
meanwhile things are getting better for the Haves and if 2014 showing us the start of what I
believe to be a new trend, that’s reason to be cautiously optimistic
Stocks to Follow
Considering that gold dropped by nearly 1.5% and the stocks that depend on the underlying
metals dived even harder, getting four of the 14 basket stocks into the positive column on the
week (RIO.to, SCZ.v, COP.to, SRL.v) wasn’t a bad return, including the modest 4c weekly win in
our Top Pick Rio Alto. However the trend was undeniably down and the portfolio took its hit just
like all the others, with ten droppers (TGD, IRL.to, FCV.v, RMC.v, AG, DNA.to, ARG.to, NCQ.to,
GQC.v, LRA.v) or eleven if you include the now closed True Gold.
With the closing of the TGM.v trade there now 14 open positions on our ‘Stocks to Follow’ list,
one less than our self-imposed maximum. Six are green, eight are red.
Reco Current
company Ticker this week Avg Price date PPS Gain/Loss% Notes
Top Picks
Rio Alto Mining RIO.to str buy C$2.30 07-apr-11 C$3.12 35.7% Top pick, $3.30 tgt June 15
Recommended long positions (in current order of preference)
Timmins Gold TGD hold/sell? U$1.38 09-apr-14 U$1.57 13.8% $2 tgt, holding in 3q14
Minera IRL IRL.to spec buy C$0.27 22-jul-12 C$0.16 -40.7% Ready for financing deal
Focus Ventures FCV.v hold C$0.23 01-jul-12 C$0.27 17.4% tgt 50c, added, avged up
Reservoir Min. RMC.v hold C$6.05 18-jun-14 C$5.83 -3.6% Big deposit, M&A, Cu play
First Majestic AG buy U$10.51 10-aug-14 U$9.60 -8.7% Main Ag play, 1st tgt $13.60
Dalradian Res DNA.to hold C$0.65 27-oct-13 C$0.84 29.2% Poss add window, tgt $1.70
Amerigo Res ARG.to buy C$0.445 20-jul-14 C$0.45 1.1% new position, sm Cu play
Santacruz Silver SCZ.v hold C$1.04 26-jan-14 C$0.94 -9.6% silver/M&A spec, rel. small
NovaCopper NCQ.to spec buy C$1.05 09-apr-14 C$1.20 14.3% small Cu play started well
Goldquest Min. GQC.v hold C$0.26 27-oct-13 C$0.17 -34.6% key drills results soon
Lara Expl. LRA.v hold C$1.15 08-apr-12 C$0.74 -35.7% 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 spec buy C$0.28 02-mar-14 C$0.245 -12.5% 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'14 C$0.48 22-sep-13 C$0.26 -45.8% sold small loser to make room
True Gold TGM.v sep'14 C$0.395 02-feb-14 C$0.41 3.8% M&A won't happen, sold
2009, 2010, 2011, 2012 and 2013 closed positions in appendices below
8

Now for some notes on a selection of the above stocks.
True Gold (TGM.v): Position sold. It went on Wednesday at 41c, which annoyed me
somewhat after watching the 42c and 42.5c trades on Tuesday but in the end it was for the
best, as Thursday and Friday’s very weak juniors market hit TGM hard and if I’d had waited, it
would have been booked for posterity at a minor loss instead of a minor win. So another trade
closes and although it’s going down as a 3.85 win it’s a real disappointment of a trade in real
terms, little more than breakeven and a company that’s given away too much of its upside to a
dilutive streaming deal that allows others to reap more rewards at a fraction of the risk. That’s
capitalism, I suppose.
Timmins Gold (TGD): May throw in the towel. Horrid. As it dumped hard on Thursday I
was close to giving in and that’s still an option for the week ahead. I’m not going to hold and
watch it revert to my mean, so if a Flash update that tells you I’m throwing in the towel comes,
don’t be too surprised. Yes I still think I’m on the right track about the takeover of TGD, with
Argonaut (AR.to) still the likeliest buyer. But priorities are priorities and protecting my capitalist
back pocket comes first.
Coro Mining (COP.to): There’s no better example of the type of tiny exploreco with good and
interesting news that’s getting ignored by the market. Again, not totally ignored because COP
popped from last week’s 5.5c and
early week’s 4.5c (at least one
reader bought that low number, well
done to you sir, you know who you
are) to finish on 6c with improved
volumes (here’s the five day chart).
The news out Wednesday (1) that
popped COP was very strong. To cut
a long story short (it’s not getting
detailed examination today, being
one of the tinycap stories we’ll cover
in depth when the time is right) COP
has struck a deal to buy a SX-EW
plant, it has the deposit to supply
the processing plant and has put
together a debt package with local
firms that will fund the ramp-up. Assuming all goes to plan (and what could possibly go
wrong?) COP will be a copper producer in 2015 and beyond, with plenty of opportunity to
expand from the initial small scale production.
And nobody cares.
So when the market decides it does care IKN will take that closer look. Unless (and here’s the
hook upon which I’m hanging a little informal public opinion polling this week) the readers of
IKN would like to find out more right now on the way COP is turning itself around and making
itself attractive. If so, drop me a line and if enough people reading these pages care, COP will
be main feature of IKN279 next weekend.
First Majestic Silver (AG) (FR.to): Ugh. I suppose it was understandable and the rally
Friday gives reason to the main “we’re at or close to the bottom” theory on which this position
firmly rests, but the selling was heavy and nasty by anyone’s standards. My only mitigation at
this point is how I had my eyes wide open about the risks of taking a larger slice of silver
exposure on opening and then expanding this trade: Although by no means a disaster, it hasn’t
started well I may lighten my AG holdings a little (without closing) if the rough passage
continues.
9

Salazar Resources (SRL.v): It’s nothing special so far, but SRL is doing bits of volume and
that alone is justification for the corporate decision to hire a market maker a couple of weeks
ago. Thanks due for the feedback on this one from one person,who pointed to the ballpark
figures that the new JV would run and said that he also liked the deal on paper. Agreed, but for
me there’s no rush here because 1) agreement from stakeholders to allow the project to
happen (by which I mean both formal national and tacit local permission) is key and 2) this
market continues to totally ignore a whole bunch of decent small scale development stories, let
alone one that’s in Ecuador and its ooga booga reputation (be that deserved or not). I’m
holding and just like the market (see pps improvement) I think the story more attractive now
than it was a month ago. But that’s all, there’s no rush to buy large swathes of this company.
Reservoir Minerals (RMC.v): We had minor level news from RMC last week, when on
Wednesday (2) Midlands Minerals (MEX.v), its JV partner at the non-flagship Parlozi
silver/lead/zinc project, released initial drilling results that showed (in the tightest of nutshells)
good metal grades at uneconomic widths and depths. This first pass drilling is a decent enough
start at the project, but not a market mover as yet. With RMC we continue to wait on an
announcement between it and Freeport (FCX) on the Timok property campaign to come, which
we understand should happen this month. Until that ones comes along, it’ll be no surprise to
see RMC continue to drift with the lazier market currents. Very easy to hold this one, though.
Zero concerns.
Santacruz Silver (SCZ.v): After last week’s closer look at SCZ it was pleasant to see the stock
rally, for sure not by much but it brought a little moral support to your numbercrunching
author. We also got news last Thursday (3) that Hochschild (HOC.L), the optioner on SCZ.v’s
San Felipe property, was happy to
accept easier payment terms from
SCZ for the buy-in which include
booting main payments of $5m and
$16m out to December 215 and 2106
respectively, leaving SCZ to cover $2m
this December (which it can manage
easily enough without needing to raise
extra cash). The renegotiated terms
on San Felipe (which we didn’t feature
at all in last week’s note, having
focused solely on the Rosario mine
ops) were largely expected by the
market, in general terms at least, but
it was still a positive to see come
through. The five day chart strongly
suggests that the payment booting was the catalyst for the rally, as Thursday saw SCZ rally
from 86c on decent relative (~150k) volume.
Rio Alto Mining (RIO.to) (RIOM): After RIO’s management did the rounds of Toronto last
week, from watching the coverage it seems to be slipping out that RIO expects Shahuindo
development to cost much less than the current $100m+ official price ticket. Not only that, but
guidance for “closer to $50m” is getting a bit of an airing too. For what it’s worth, I think $60m
is about right and that means RIO won’t need to add extra shares to the pile to build its new
machine. We’re bound to find out more about plans as the year unfolds and may even get news
this week, as RIO presents at the Denver Precious Metals bash (an industry favourite,
populated by producers and obvious less affected than the exploreco satellite shows that have
been cut to shreds, see IKN276 and 277 for more).
Back to RIO.to and there is one detail that’s worthy of concern in what I’ve read in the last
week, as the company still hasn’t managed to secure all the Shahuindo surface rights that it
needs. I know at least one of the corners of surface rights properties is theoretically needed but
in reality RIO can move ahead without getting the deal done (the corner in question being a
10

very minor surface area) but I also remember being told in early June, and confidently too by
new COO Loret de Mola, that those surface rights would be wrapped up and secured by July.
So here we are in September and there are still at the very least loose ends to tie up on this
issue. This could be something to watch and it’s certainly something I’d like to hear more about
from the company.
GoldQuest Mining (GQC.v): The news on GQC’s second drills came through and confirmed
the fears that the market had picked up over the last few weeks, making me into a classic
bagholder once again. It only took a look at the headline of the NR (4), “GoldQuest: Exploration
and Metallurgical Update for Tireo and Romero Projects, Dominican Republic” to see that it
wasn’t putting the three drill holes assays front and centre and that means they were nothing
special (of course they used “encouraging”, they’re geologists) and indeed, the quickest of
scans confirmed they were to all intents and purposes dusters. This five day chart shows the
effect of the news...
...with 16c and 17c the new level.
This sucks of course, not trying to say otherwise,
but you’d have noticed there was no Flash update
forthcoming on Thursday and that’s because I’ve
decided to hold through on the GQC position. The
basic reason is that I think the selling is way
overdone and the Romero deposit as stands is
worth much more than the current company
market cap and so there’s no rhyme, reason or
need to sell into this heavily discounted price,
especially as GQC managed to time its bad news
NR with to the day of a wholesale sector sell-off.
Focus Ventures (FCV.v): FCV told your author early last week that the awaited news on the
maiden resource for Bayovar 12 is close at hand, so at the moment the message on this one is
“slight delay, not a worry”. I know that the top table team is on site right now and they’re in
meetings with third parties next week in Lima. The thing here is to await the resource news,
gauge market reception and go from there.
NovaCopper (NCQ.to): A reversal of fortunes on low volume, which has taken the wind out
of the sails of this tentative rebound. To repeat, I’d prefer to see volume first and price increase
second. NCQ needs copper to move in order to do the same, but that’s why I own it.
11

The Copper Basket
After thirty-six weeks of 2014 The Copper Basket is showing a 7.42% 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 1.43 168.71 322.24 1.91 33.6%
4 Reservoir Min. RMC.v 4.97 47.55 277.22 5.83 17.3%
5 Nevada Copper NCU.to 1.35 80.5 172.27 2.14 58.5%
6 Panoro Minerals PML.v 0.35 220.25 96.91 0.44 25.7%
7 Copper Fox CUU.v 0.375 402.96 82.61 0.205 -45.3%
8 Hot Chili Ltd HCH.ax 0.425 333.11 76.62 0.23 -45.9%
9 NovaCopper NCQ.to 1.60 60.15 72.18 1.20 -25.0%
10 Western Copper WRN.to 0.76 93.68 71.20 0.76 0.0%
11 Curis Resources CUV.to 0.57 74.79 67.31 0.90 57.9%
12 Cordoba Min. CDB.v 0.90 58.81 24.70 0.42 -53.3%
13 AQM Copper AQM.v 0.11 139.24 13.92 0.10 -9.1%
14 Coro Mining* COP.to 0.10 159.37 9.56 0.06 -40.0%
15 Oracle Mining OMN.to 0.27 49.03 3.92 0.08 -70.4%
NB: HCH.ax priced in AUD$, rest CAD$ //CDB 2x1 split May'14 Portfolio avg 7.42%
Another losing week for the basket
The Copper basket 2014, weekly evolution
average, with around 2.5% shaved off the 25%
total score even though we now have two 20%
stocks that are halted and will remain
15%
UNCH for the rest of the year due to their
being bought out (LCC.v and AZC.to). As 10%
for the rest there were only two weekly
5%
winners (COP.to, AQM.v) and notably both
are smallfry, at the tinycap end of our list. 0%
The other eleven dropped so I’m not listing
them all, but the only big percentage losers
were Cordoba (CDB.v down 16.0%) and
Oracle (OMN.to down 10.0%) that are
again the small end of things, so maybe it wasn’t
quite as bad as the raw data makes out.
Copper market prices kept in a fairly tight trading
range all week, one that revolved around the
$3.15/lb level. You could stare at this five day chart
and squeeze some optimism from the gradual
uptrend and the recovery from Wednesday’s lows,
but it’s easy to read too much into these things even
during more volatile and changing moments. Best to
leave last week’s copper moves in the ‘undecided’
column, methinks.
As for inventories coverage, the regular bullet points
are right here:
• Overall world stock levels moved slightly higher, up down 2,511 metric tonnes (mt)
(+1.0%), to 255,509mt. This is the first week in five that we’ve seen an upmove in
12
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 ht7peS
source: IKN calcs

overall world copper stocks, so although a weak move it’s still different.
• However, the Shanghai Futures Exchange copper warehouse stocks dropped again,
down 5,442mt (-6.8%) to finish at 74,336mt. That’s a multi-year low for you right
there, lower than the mid-year bottom of 75k and a fat bullish signal once again.
• The LME copper warehouse inventories moved up to compensate for the Chinese move.
LME stocks this weekend stand at 154,700mt, up a chunky 6,550mt (+4.4%). to
148,150mt.
• The Comex warehouse stocks rose yet again, up 1,403mt (+5.6%) and this “up by a
thousand or so” reading is getting pretty regular, we’ve seen it in five out of the last
five weeks. Comex dropped to unheard-of lows around 12k in the first weeks of 2014
but have recovered and are now closer to the recent historical average, making its
stocks more globally relevant (after all-but dropping off the radar).
Here’s the Shanghai weekly tracking chart: Not much sign of re-stocking yet and I say to you
once again (blue in face style) that what we’re seeing from the business end of the Chinese
market is a clear bullish signal.
Shanghai Futures Exchange Warehouse Stocks, 2014
220000
200000
180000
160000
140000
120000
100000
80000
60000
13
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 ht7
Mt Cu
source: Cochilco
Now for some updates on a couple of our basket stocks.
Lumina Copper (LCC.v) and Augusta Resource Corp (AZC.to): Today marks the end of
the line for both stocks. Even if we see light remnant trading in either we’re now past the point
of logical coverage, both are officially bought out and as from this week they are both
automatic UNCH until the end of the year, at which point they’ll be withdrawn from the list.
Cordoba Minerals (CDB.v): This is becoming a real poster child for the market’s view of
Colombia exposure, as other projects (CNL.to,
Ventana, etc) have their own risks and weak
points while CDB’s downer can’t be leveled at the
rocks, community risk or exploration potential
because all are good; the continued sinkage of
this stock is all about the complete aversion the
market has taken towards Colombia.
As far as I can see from the outside, CDB has
executed its corporate plan well enough. Rocks
so far have lived up to expectations, the
company has simplified the corporate ownership
profile on plan and schedule, it’s picked up the
type of initial coverage it wanted from
brokerages. It’s seen some delay in permitting
for its second drill program but that’s the kind of thing that gets solved with time. Its only real
problem is that it’s in Colombia, but that’s more than enough.

The Low Cost Producer Basket
After 36 weeks, the Low Cost Producer Basket is showing a 13.86% 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 36.42 35.02 -7.2%
2 Goldcorp GG 21.67 812 20.93 25.78 19.0%
3 Barrick ABX 17.63 1000 17.16 17.16 -2.7%
4 Newmont NEM 23.03 497.87 12.93 25.97 12.8%
5 Silver Wheaton SLW 20.19 357.39 8.62 24.13 19.5%
6 Franco Nevada FNV 40.74 147.01 8.20 55.81 37.0%
7 Agnico Eagle AEM 26.38 173.43 6.06 34.94 32.4%
8 Pan American PAAS 11.70 151.41 2.04 13.45 15.0%
9 B2Gold BTG 2.02 651.4 1.51 2.32 14.9%
10 First Majestic AG 9.80 117.02 1.12 9.60 -2.0%
all prices in U$, using NYSE ticker prices Portfolio avg 13.86%
To celebrate the fact that the basket and its components got whacked to kingdom comes last
week, here’s a chart showing the week-over-week performance of all ten stocks:
Percentage change in basket components
Week of 7th September
0%
-1%
-2% -0.9%
-3%
-4%
-3.7% -3.6%
-5% -4.1%
-6%
- - 8 7 % % -7.0% -6.7% -6.3%
-9% -8.2%
-8.7%
-10%
-9.7%
BTG AEM GG PAAS ABX AG NEM FCX SLW FNV
source: NYSE
The basket average went down a big clunky 7.1% with (as you see) all stocks showing weekly
losses. B2Gold (BTO.to) (BTG) was again the biggest loser, Agnico Eagle (AEM) followed up,
Franco Nevada showed its normal Teflon spirit and returned the least worst. As for the year to
date performance, we now have three basket stocks in negative territory for the first time this
year
The Low Cost Producer Basket: Weekly performance and
comparative to GDX control
35%
30%
25%
20%
15%
10%
5%
0%
14
ts13ceD ht21 ht62 ht9 dr32 ht9 dr32 ht6rpa ht02 ht4yam ht81 ts1nuj ht51 ht92 ht31 ht72 ht01 ht42 ht7peS
basket
gdx control
source: Yahoo! Finance, IKN calcs

Low Cost Basket: Percentage difference between
basket and GDX control, 2014
8%
7%
6%
5%
4%
3%
2%
1%
0%
15
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 ht7peS
source: ikn calcs, NYSE/Nasdaq data
B2Gold (BTG): At the end of last week’s extended piece on BTO and my thoughts, this came:
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.
So let’s call that half right ☺. The correct part was waiting for September to do its thing and
seeing if it pushed the share price downwards a
little more, because we only had to wait three
trading days for BTO to be hit hard. The wrong
bit was suggesting last week’s U$2.57 was a
cheap entry point that you out there might
consider; I sincerely hope I didn’t prompt
anyone too much and you waited with me on
the sidelines. B2 had a horrid week and the
piece of this chart that really stands out for me
is Friday, when GDX and GDXJ managed to rally
a little but B2 could raise nary a smile, all on
heavy volume.
The upside is for those of us on the outside
looking in; If gold rallies in the week to come,
look no further than BTO for your trading vehicle as this is a sector leader and has a clearly
mapped history of fast and strong rallies under rebound conditions.
I may partake in a trade myself, but Flash update would come before any trigger pulling.
Franco Nevada (FNV): I stuck a pithy (dat da word?) little comment about the near-perfect
timing of FNV’s recent U$500m equity financing priced at U$59.75 late on last week (5) and it
didn’t take long for the mail exchanges to note that FNV and Lassonde getting a perfect high
score is only one side to the coin. This kind of bought deal raising on a high means that it’s the
brokerages carrying the bag and that means a heap of expensive inventory that will drag on the
market price over time. In fact, one mailer noted (no evidence, but a trustworthy soul from the
investment banking side of things if such a person exists ☺) that as much as 40% of the
bought deal hasn’t been shifted to end users and is stuck in the brokerages’ collective house
accounts and even with an U$8Bn company, $200m worth of stock is a headwind of merit.
Regional politics
Peru: Aduviri in Puno has a shot at winning the regional presidency job
Here’s something that’s either keeping Bear Creek (BCM.v) shareholders up at night or if it’s

not, they haven’t heard about it. Yet. Word from Puno is that with a month or so to go in the
regional election process, of the 12 candidates for the job of Regional President Walter Aduviri,
the man behind the protests that caused the cancellation of the BCM.v Santa Ana concession, is
one of the three best positioned to win the vote. This feature on Aduviri in the main regional
Puno newspaper (6) shows his candidacy is being taken seriously by one and all and according
to voter intention polls (that as explained last week must be taken with a pinch of salt) he’s at
least in the top three of options and has rising momentum on his side. So a call to the insto
desks; as this is a story that’s not going to make a splash up North until polling day, it may be
worth checking out short availability on BCM stock as you have a month to get positioned. If
Aduviri wins the Regional President job, the real world legislative power he’s wield would be
limited but the optics would be plain awful for BCM at both Santa Ana and importantly Corani
(though I hasten to add, less so for Minera IRL (IRL.to) at Ollachea, which has a far easier path
thanks to its key permitting already set and done, plus geographical and cultural advantages).
Be clear that I don’t know whether Aduviri will win, it’s tough to gauge until the results are in,
but if he does BCM’s share price would be hit very hard.
Mexico: Mining opponents in Baja California Sur and the “All Saints Pact”
In a meeting set for next Friday September 12th, the various groups and organizations that
oppose mining activity in the Baja California Sur State of Mexico plan to launch the “Pacto de
Todos Santos” (The All Saint’s Pact), that will apparently be a petition campaign to get as many
signatures against mining activity in the region as possible (and presumably, though the details
aren’t known yet, one with a deadline date of November 1st, which is All Saint’s Day and a big
festival in Mexico). In the words of one of the organizers (7) “It’s a pact that will be signed by
all peoples, all delegations, all South Californians, not only those in the South of the region” and
is designed to show the depth of feeling against mining held by the people, no matter to which
political party they might belong.
Colombia: El Niño is weak (so far)
Earlier this year (and as covered in the Weekly and the blog at the time), meteorologists
warned that the build-up of temperature in the Equatorial waters of the Pacific Ocean indicated
an elevated possibility of Latin America (and then later the world) experiencing the ‘El Niño’
effect, with the consequent weather upsets it brings (check Wiki for the list of those).
Colombia is one of the countries in the direct firing line of any El Niño effect and it’s been the
most active in prevention and monitoring plans for this year. Therefore the early reports of
lower than expected effects from El Niño that came from Colombia’s official watchdog body, the
Institute of Hydrology, Meteorology and Environmental Studies (Ideam) are good news. To
quote Ideam boss Ómar Franco (8) (and translating fairly literally so you get the idea of how
official-speak sounds in Spanish), “We have the opportunity to tell the country that we have the
evolution of a weak El Niño phenomenon. This has several explanations, equally this does not
mean that we are not going to have any sort of impact and due to this the call is not to drop
our defences”. Ideam went on to say that the next three months are considered the potential
development phase of the El Niño climate effects, with the maturity phase being the first
quarter of 2015. Therefore we’ll know in the next five or six months whether this El Niño has
turned out to be a damp squib (pun intended).
Brazil Presidential elections: Understanding corruption scandals in context
I’m glad I got my extended piece on the Brazil Presidential elections in last weekend, as the rise
of Marina Silva got a wide radar coverage in the bizpress last week (and rarely for LatAm over
the general media, rather than being confined to the usual suspect corners that cover our
region) and since the world started taking notice Dilma Rousseff has been fighting back and
English language press are having trouble in spelling third place forgotten guy Aécio Neves’s
name correctly.
With that backdrop, reader RB wrote in on Saturday with a link to this report (9) from BBC
World in English and the following cover note...
16

Dear Otto, Not sure if this is old news or not – if not then looks to be a game-changer.
...for which I thank you, RB. First a little of that BBC world report, dated September 7th, pasted
here so you get the general idea:
Brazil's ex-Petrobras director Paulo Roberto Costa claims corruption
An ex-director of Brazil's state-run oil company Petrobras has accused more
than 40 politicians of involvement in a kickback scheme over the past decade.
Paulo Roberto Costa - who is in jail and being investigated for involvement in
the alleged scheme - named a minister, governors and congressmen.
They were members of the governing Workers party and two other groups
that back President Dilma Rousseff.
She is seeking re-election in a poll due on 5 October.
Now for a comment and the basic story here, one of corruption at the highest levels of business
and politics in Brazil, will ostensibly make things look bad for members of the Dilma Rousseff
(PT) party, as well as some from the Marina Silva (PSB) parties that also get spattered with the
same paint and accused of receiving the bribes. Therefore and in theory at least, the person
with most to lose from this story is Dilma and the person with most to gain is the
aforementioned Aécio Neves, he of the nastily flagging campaign (and unsurprisingly he’s been
making the most of this story since it broke last week). Now, I’d agree with ‘RB’ that under
normal circumstances and in normal political circles, such accusations of corruption could be a
game changer, but Brazil isn’t a normal political circle, nor is it under its own normal
circumstances (which even at the best of times are wild and hairy).
The idea of a corruption scandal changing the game in a Brazilian election simply does not hold
water, because the Brazilian public knows and has known for a long time that all the parties are
knee-deep in bribery, corruption and all their trappings. For sure a revelation such as the one
from the ex-head of Petrobras captures headlines, but it’s unlikely to move the dial come
election day because there’s no new news there, particularly about the people who they’ll be
voting for as their next Head of State (Dilma has her faults but Brazilian public perception of her
as relatively honest and clear of scandal is well deserved; same goes for Marina). In other
regions or cultures with sterner attitudes towards flagrant criminality among politicians, such
things might change elections. Not Brazil, and what’s more not in most (not all) of South and
Latin America. It’s neither a bad or good thing, it’s just how things are.
Dominican Republic: President Medina vetoes the anti-mining nature reserve
As expected (see IKN277), President Danilo Medina of Dominican Republic promptly vetoed
(10) the parliamentary decision to turn the Loma Miranda hill into a nature reserve, a move that
would have stopped Glencore/Xstrata from expanding its nickel operation at the locality.
Medina’s pro-mining position made it a simple prediction to have called last week, but the
prompt decision and the Senate’s decision to comply with the Presidential veto still received
vociferous praise from Dom Rep’s business sector, such as the powerful Association of Foreign
Investment Companies (ASIEX) who said, “Fortunately this situation has now been overcome,
thanks to the position of President Medina and the positive attitude of the Senate to abide by
his objections.” This decision doesn’t mean the Loma Miranda expansion gets an automatic
green light, but it does underscore the Medina administrations positive pro-mining credentials.
Market Watching
Radius Gold (RDU.v) arbitrage redux
A week is a long time in politics, they say. True for explorecos, too.
17

A quick return to the argument for ownership of Radius Gold (RDU.v) as laid out last week, with
three subjects to add to the mix.
1) Last week RDU announced (11) it was drilling at the Blue Hill project in Idaho USA, the
property it optioned from Otis Gold (OOO.v) in July (12). That means RDU is coming
out of hibernation mode, at least a little, and will be spending money above
background burn rate in the next couple of quarters.
2) Also last week (and noted above) B2Gold (BTO.to) (BTG) took a hammering at market
and finished at CAD$2.54. As the RDU holding of BTO is its single largest liquid asset,
that affects the theoretical arbitrage significantly.
3) Buyers stepped up for RDU shares when it dropped to 10c and 10.5c last week, which
goes at least some way to validating the trade theory we floated at you in IKN277
To return to points 1) and 2) above and ignore 3) for the moment, we can run an estimated
updated arbitrage, using the table from last week and changing a couple of the assumptions. If
we a) assume BTO is a $2.50 stock, b) assume RDU burns $1.5m by the end of 2014 on its new
exploration and c) assume nothing of great discovery or market-moving value comes from the
Blue Hill exploration program, here’s how I’d estimate RDU’s arb to stand on December 31st
2014:
Radius Gold (RDU.v): Arbitrage to B2Gold share price movements
BTO cash
pps other $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 2.5 0.112 -13.595 -10.139 -6.39 -2.32 2.11 6.98
2.40 0.727 2.5 0.116 -11.084 -7.527 -3.67 0.51 5.08 10.09
2.50 0.727 2.5 0.119 -8.572 -4.915 -0.95 3.35 8.05 13.20
2.60 0.727 2.5 0.122 -6.060 -2.303 1.77 6.19 11.02 16.31
2.70 0.727 2.5 0.125 -3.549 0.309 4.49 9.03 13.99 19.42
2.80 0.727 2.5 0.129 -1.037 2.921 7.21 11.87 16.96 22.53
2.90 0.727 2.5 0.132 1.474 5.533 9.93 14.71 19.92 25.63
3.00 0.727 2.5 0.135 3.986 8.145 12.65 17.55 22.89 28.74
3.10 0.727 2.5 0.138 6.497 10.757 15.37 20.39 25.86 31.85
3.20 0.727 2.5 0.142 9.009 13.369 18.09 23.23 28.83 34.96
3.30 0.727 2.5 0.145 11.521 15.981 20.81 26.07 31.80 38.07
source: RDU data, IKN calcs
At Friday’s close for RDU of 11.5c, this means the stock shows a thin 3.35% arbitrage to
financial net and isn’t of much interest. Indeed, the dropping of cash treasury to $2.5m means
RDU doesn’t get interesting until BTO moves closer to CAD$3 per share.
18

Of course, the above model assumes nothing comes of Blue Hill and that might not be true,
because exploration companies are supposed to go out there, drill, explore and discover, so
RDU is only doing what any diligent exploreco should do. All power to them and if they manage
to hit a wide intercept of interesting and potentially valuable rock they’d deserve every penny of
the share price pop they get. However, he bottom line to last week’s news from RDU and the
price slump in BTO (that may reverse quickly, but we’ll take the snapshot position) is that RDU’s
decent treasury and balance sheet position will still provide plenty of backbone and support for
the stock price for the rest of 2014, but it’s not the outstanding arbitrage opportunity that it
was a mere seven days ago. As things stand and in the pitiless market atmosphere we have for
the tinycap juniors, I wouldn’t be interested in buying RDU for anything 10c or over unless BTO
rips much higher or RDU finds great rocks in its drill campaign.
It’s getting cheaper to operate mines in Latin America
As well as the largely anecdotal evidence, of cost easing in the mining industry, for things such
as four applicants for every geologists’ job (was 0.5 and companies had to outbid each other),
drill rigs laying idle, rebar discounts and general layoffs in all departments, there’s quant
evidence of cheaper life for mining companies tooas IKN is LatAm-centric by nature, the title is
as it is. Take for example the sudden weakness in currencies compared to the US Dollar which
is seen in Chile, Colombia, Mexico and all stations between (even the tougher to gauge
currencies such as the Argentine Peso and its official/black markets are seeing devals in the
official rates).
Here’s the best example of the lot and it’s topical too, because the Peruvian Nuevo Sol (PEN)
has remained stronger for longer than the rest of the region. But it too cracked in August and
September and when last week the Peruvian Central Bank (BCRP) adjusted its end-year
forecast and said (13) it expected the Sol to reach S/2.85 to the US Dollar (USD) by end 2014,
the currency immediately (and in minutes) filled that gap and went from 2.82.5 to 2.85, such
are newly found nerves. Good for me of course, as the next time I change U$1k I’ll get 2850
soles instead of 2800 and have no excuse not to buy my wife something pleasant. Good for
mining companies that have their outgoing operating expenses in Soles (or Pesos, or Reales
etc) but report in dollars, too
Argonaut Gold (AR.to) redux
Another follow-on from the short note of last week, again to air a couple of new angles. Firstly,
a handful of mails from other people that can loosely be grouped as “industry pros” and mostly
on the financial side of things, (as opposed to rockbanging). Those mails all said roughly the
same thing in agreement with your author’s position last weekend
• There’s something going on
19

• We don’t know what’s going on
• The radio silence is strange, especially from a company usually pretty leaky on intel
From there guesses are made, with most saying that AR.to isn’t likely to be bought and may be
a buyer. At this point Timmins Gold (TMM.to) (TGD) gets its mention, but as that’s such a well-
telegraphed piece of gossip that even your author sitting here hours of flight time away from
Vancouver has heard it multiple times there’s nothing new. The overall upshot is that the
feedback garnered from last week’s note (and thank you plural, you know who you are) largely
confirmed the contents of the short piece.
The second angle is from the company itself, as on Tuesday evening AR.to held what’s usually
called “An Analyst’s Dinner” (fine wines and after dinner drinks, but of course sir) that was
written up in several brokerage notes. The reports were fairly standard, nothing particularly
revelatory, but the thing caught my eye about stated corporate strategy was the prominence
AR.to is giving to San Antonio, its nastily stuck project in Baja California Sur Mexico (and yes,
check that small note above in ‘Regional Politics’ again, same place same woes). Here for
example are the crib notes from Scotia on Wednesday morning about what was said on San
Antonio by AR.to at the dinner:
• The local community is suing the municipality on the zoning issue (50% non-industrial;
50% zoned as industrial) - decision expected in 2H/14
• Current municipal leader plans to run for state governorship in 2015 with a new
municipal leader (mayor) expected to be pro-business and potentially mining-friendly
(possesses personal mining claims)
The first point is the ongoing legal battle that’s strictly courtroom, rather than the larger public
opinion/party politic issues that have effectively stopped all development. We’ve mentioned this
legal battle on these pages previously and it seems AR.to is more comfortable talking about this
than the grassroots opposition. The second point is the politics and more interesting: We
already know that the La Paz (Mex, not Bolivia) municipal leader is pro-mining but his is hardly
a majority position even among the locals and once you leave the immediate area of influence,
support for this position is thin indeed. Second, 2015 is a long way off. Third, why should
anyone think he’s a favourite for State governor and fourth, even if he becomes State governor
by some quirk of fate there’s no reason to suppose he can push through such a contentious
issue as mine development on simple governorship, as permissions will be granted and ratified
by parliamentary decision. Or in short, if this is the extent of the spin that AR.to can manage on
the project’s political and permitting chances they’re in a weaker position than even I imagined.
Scotia has San Antonio as $117m of its total NAV for AR.to of $898m (i.e. $5.68/share), which
is the rationale behind its $6.00 price target. Without even venturing an opinion on what I
consider to be the over-rated Magino, I submit to this audience that Scotia’s NAV assumptions
are off by at least $117m and I say at least because an asset that’s worth zero will cost the
company money all the time it’s being held. In fact it’s not an asset, it’s a liability.
Conclusion
IKN278 is done, we end with bullet points:
• At this point for the second week running, a shout-out for B2Gold (BTO.to) (BTG). The
current price looks very attractive and now the advantage is that it’ll be very buyable in
the first stages of a gold pop and stock rebound. All depends on what the market does
to the metals in the next five days, but put BTO front and centre on your trader’s radar.
• A tough week for gold and some of our portfolio stocks took big hits. First Majestic (AG)
is one, but that one has longer term appeal. Timmins Gold (TGD) is another and in this
20

case I’d consider dumping if things get weaker still.
• The political situation around Bear Creek (BCM.v) in Puno is worthy of close attention,
though no need to get hasty with any short position before October 5th and the regional
election results.
• The bottom line from our look at the TSX Venture charts: If your CEO is whining, he’s
on the wrong side of the fence. There’s money available, but preference is now
definitely for financing the quality end of the spectrum.
• I don’t understand Argonaut Gold (AR.to). When that feeling comes about a company I
step aside and avoid it.
• As for GoldQuest (GQC.v), if it were a larger position I’d sell it. For the moment and at
this beaten down price, I can hold it. Romero as stands is worth more than the current
$25m market cap.
• Next week sees the Denver Gold Show, the conference where the mining companies
with money gather and lament about how there’s no money in mining. There’s usually
some decent and worthy insights and presentations that come from this one.
The top long-term pick is Rio Alto Mining (RIO.to). I thank you in advance for any feedback.
Flash updates will be sent promptly if required by events
I wish you good trading fortune, ladies and gentlemen.
Otto
Footnotes, appendices, references, disclaimer
(1) http://finance.yahoo.com/news/coro-announces-debt-financing-acquisition-143528792.html
21

(2) http://finance.yahoo.com/news/reservoir-minerals-inc-drilling-intersects-201000602.html
(3) http://finance.yahoo.com/news/santacruz-silver-amends-san-felipe-071500790.html
(4) http://www.goldquestcorp.com/index.php/news/2014-news/273-goldquest-exploration-and-metallurgical-update-for-
tireo-and-romero-projects-dominican-republic
(5) http://incakolanews.blogspot.com/2014/09/a-message-to-pierre-lassonde.html
(6) http://www.losandes.com.pe/Nacional/20140907/82521.html
(7) http://www.bcsnoticias.mx/convocan-bcs-firmar-el-pacto-todos-santos-contra-la-mineria-cielo-abierto/
(8) http://www.elpais.com.co/elpais/colombia/noticias/tenemos-fenomeno-nino-debil-pero-hay-bajar-guardia-director-
ideam?
(9) http://www.bbc.com/news/world-latin-america-29097734
(10) http://www.entornointeligente.com/articulo/3383745/REPUBLICA-DOMINICANA-Valora-las-observaciones-hechas-
por-el-presidente-Medina-05092014
(11) http://finance.yahoo.com/news/radius-commences-drilling-blue-hill-123000187.html
(12) http://finance.yahoo.com/news/radius-options-blue-hill-gold-123000051.html
(13) http://gestion.pe/economia/se-elevan-estimados-tipo-cambio-y-cerraria-ano-s-285-2107821
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
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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
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Antares Minerals ANM.v dec'10 C$1.42 06-dec-09 C$8.40 491.5% trade closed
Rio Alto Mining RIO.v dec'10 C$0.69 23-mar-10 C$2.16 213.0% trade closed
Coro Mining COP.to dec'10 C$0.585 03-oct-10 C$1.24 112.0% target made, trade closed
Stocks To Follow Closed Positions, 2009
Closed positions closed closing PPS
Cardero Res CDY/CDU.to May'09 U$1.20 03-May-09 U$0.87 -27.5% sold on negative news
Eastmain Res. ER.to May'09 C$1.04 06-May-09 C$1.315 26.4% trade closed
Radius Gold RDU.v May'09 C$0.165 03-May-09 C$0.235 42.4% trade closed
Latin Amer Min. LAT.v May'09 C$0.12 03-May-09 C$0.158 29.2% trade closed
Aquiline Res. AQI.to July'09 C$2.03 16-Jun-09 C$1.68 -17.2% took loss, bad timing
Chariot Resources CHD.to Aug'09 C$0.20 12-Jul-09 C$0.415 107.5% trade closed
Castle Gold CSG.v Sep'09 C$0.64 02-Aug-09 C$0.60 -6.3% ST trade didn't work out
Guyana Goldfields GUY.to Sep'09 C$2.30 12-May-09 C$4.50 95.7% profit taken
Los Andes Copper LA.v Sep'09 C$0.09 21-Jun-09 C$0.09 0% trade closed
Pediment Gold PEZ.to Oct'09 C$0.80 09-Aug-09 C$1.00 25.0% trade closed
Minera Andes MAI.to Oct'09 C$0.68 03-May-09 C$0.71 4.4% too much bad news
Dynasty Metals DMM.to Nov'09 C$4.18 03-May-09 C$6.01 43.8% half sold
Rusoro Mining RML.v Nov'09 C$0.55 03-May-09 C$0.57 3.6% underperformed
Important Disclosure
The information and opinions contained within this report reflect the personal views of the author and therefore all
material within should not be construed as accurate or reliable or be utilized as advice for investment or business
purposes. Independent due diligence and discussions with ones own investment and business advisor is strongly
recommended. Accordingly, nothing in this report should be construed as offering a guarantee of the accuracy or
completeness of the information contained herein, as an offer or solicitation with respect to the purchase or sale of any
security or as an endorsement of any product or service. All opinions and estimates included in this report are subject to
change without notice. It is prohibited to copy or redistribute this report to any type of third party without the express
permission of the author.
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