IKN #301Premium

The IKN Weekly
Week 301, February 15th 2015
Contents
This Week: Closed for holidays Monday trading, Fe erratum: Santacruz Silver (SCZ.v).
Fundamental Analysis: NOBS report on Teranga Gold (TGZ.to) (TGZ.ax).
Stocks to Follow: Overview, McEwen Mining (MUX) (MUX.to), Starcore Intl (SAM.to), First
Majestic (AG) (FR.to), Fortuna Silver (FVI.to) (FSM), Minera IRL (IRL.to) (MIRL.L), Focus
Ventures (FCV.v), Rio Alto Mining (RIOM) (RIO.to), GoldQuest (GQC.v), Dalradian Resources
(DNA.to).
Copper Basket: Overview.
Low Cost Producer Basket: Overview, Kinross Gold (KGC) (K.to).
Regional Politics and Market Watching: Rio Alto Mining (RIO.to) (RIOM) to be bought by
Tahoe Resources (TAHO) (THO.to).
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
Closed for holidays Monday trading
A quick reminder that both the New York markets (Washington’s Birthday) and the Toronto
markets (Family Day) are closed tomorrow Monday.
Fe erratum: Santacruz Silver (SCZ.v)
Last week I made a big mistake in stating that the Charcas mine in Mexico that was under
investigation for its lax safety standards and was under threat of closure was owned by
Santacruz Silver (SCZ.v). In fact SCZ does have a mine in that zone, but it’s some 12km away
from the offending mine noted in the news story. For what it’s worth, the SCZ management
pointed out the error and were most cordial about it all, which gives me an extra reason to
highlight my mistake. I’ve already run a correction on the blog (1) and will run another
tomorrow Monday as well, to make sure as many people as possible see my crass error.
Apologies for the screw-up, I have noting to declare except my stupidity.
Fundamental Analysis of Mining Stocks
Do not go gentle into that good night.
Rage, rage against the dying of the light.
Dylan Thomas, 1914-1953
This week we look at Teranga Gold (TGZ.to) (TGZ.ax).
1

NOBS report dated February 15th, 2015
Teranga Gold Corporation (TGZ.to)(TGZ.ax)
Company Overview
Teranga Gold Corporation (Australia TGZ.ax, Canada: TGZ.to, USA: TGCDF, Frankfurt 0TG.f)
is a junior gold mining company operating in Senegal West Africa. It has one operating mine,
the Sabodala mine and surrounding concession and property package which includes other
deposits. Current share structure is as follows:
Shares out: 352.8m
Options: 21.47m
Warrants: Zero
Fully diluted shares: 374.27m
Current share price: CAD$0.57
Market Cap: C$201.1m
Approx working cap per S/O: 7c
All prices are in United States Dollars unless stated. Forex U$0.80=CAD$1
NB: Teranga Gold reports in US Dollars and runs most of its operations with the USD as
baseline currency. Gold is usually managed in USD terms. Therefore, even though TGZ
shares are priced in Canadian or Australian currency, unless specified we use the US
Dollar as default currency in this analysis.
A complicated but simple mining company
Even though it is for all intents and purposes a one-mine company, Teranga Gold (TGZ) isn’t a
simple stock to analyze financially and that’s why it took me longer than I’d expected to publish
today. However the crux of the matter turns out to be simplicity itself; once I’d come full circle
and made it out of the details and sidebars of its financials, the thing that really matters to us the
investor is encapsulated in this four year price chart:
• The set-up is simple: For two years TGZ was a $2 and $2.50 stock. Then came the
early 2013 drop in the gold price and since then, it’s been a 50c and 70c stock.
• The question is simple: What will get TGZ back at $2 and $2.50?
2

• The answer is simple: Higher gold prices.
People, you can groan and mutter “duh” under your breath all you want, I like simple. But what
makes it an interesting purchase now, early 2015, is that TGZ was for quite some time in
danger of seeing its share price and therefore its ultimately viability as an investment vehicle
crushed by the consequences of the gold price drop. The approximate two year period of low
share prices has been a downer for many companies of course, but producers with light debt
loads and the opportunity to rationalize costs weren’t under threat of financial collapse. TGZ
was, but in that period it’s turned around its corporate financial position to the point today where
it’s now on an even and steady keel. TGZ did not go gently into the night, instead it raged
against its adversity and today it is on the cusp of reaping the rewards. The big difference
between the TGZ of 2013 or one year ago and the TGZ of today is that downside is now limited.
So while the trio of simple statements above is perfectly true, it’s only one half of the story. The
TGZ upside potential is strong if gold starts recovering well, but the thing I really like about the
stock today is its lack of downside risk. TGZ management has put in the work and turned a
fragile balance sheet into a strong one, which will allow the company to benefit from ongoing
production success. That’s the story of this stock, one of financial turnaround rather than
operational turnaround and it’s the thing that the market has been missing up to now.
Overview of the mine
As is often the case, my problem isn’t what to talk about but what to leave out because readers’
patience gets frayed after the first 35 pages (I know, you’ve told me). Because I’m mostly
interested in TGZ due to its financials, the model and the numbers side of the puzzle I’ve made
the executive decision not to ramble on for page after
page on the basics of the company, or its socio-
political background. Today’s report covers
background basics only so I’m going to point you once
again to the latest company presentation (2), a good
place to get an the overall view of the company plus
operational and social details on what they do and why
at Sabodala. I’m going to excerpt just a couple of
things for this report and your direct viewing pleasure,
starting with this simple map that shows location of
country, region and mine.
Sabodala and the larger TGZ concession, comprising
of a 246km2 mine licence and a 1,055km2 land
package, lies in the extreme Southeast of Senegal.
It’s the largest formal mining operation in the country but as the company is quick to point out,
its apparent isolation is more a case of political borders than reality because it’s on a well-
established geological trend and sits a modest 90km from working gold mines on the other side
of the nearest border in Mali (including the large Loulo mine, operated by Randgold (RAND) and
set to produce over 640,000 oz in 2014).
On the potentially sticky political and social issue, I will again restrict the DD into a couple of
short paragraphs but the main message is that I’m reasonably comfortable with the country and
community risk situation. The #1 problem is that Senegal is in Africa, blindingly obvious of
course but as noted many times before, I’m never going to be as comfortable about holding
Africa exposure than about taking on LatAm risk, simply because I’m better at LatAm and,
within reason, know where to find or avoid the good or bad places for mining operations. With
Africa it always has been and will be a bit of a closed book, ignorance is not bliss. And as cases
such as True Gold (TGM.v) have shown recently, we the retail public get told how wonderful
and welcoming a country (Burkina Faso) and a community (around the Karma project) is in
these Western Africa States, all while being fed sentence with words such as new, thrusting,
great future, promise, development, wealth about the win-win-win relationships being forged,
right up to the moment when it goes wrong. And then it isn’t. Bye-bye money.
However, among the reasons to be cheerful about TGZ are three major items which have me
comfortable enough to consider holding shares without worrying constantly about having the rug
3

pulled from under my feet at any given Black Swan moment.
1) The country does seem pretty stable. There was a political kerfuffle in 2012 when the
two-times President Wade decided to change the constitution in order to allow himself
to run for the job again, but as it happens he lost in the second round run-off and then
did the right thing by taking the defeat correctly and handing over power to the current
President, Macky Sall. Since then the country’s story has been of the no-news-good-
news variety, with relative political stability such as the way Senegal reacted in a
mature and level-headed way to the Ebola outbreak that briefly threatened to cross into
Senegal (and briefly, after doing the necessary DD I have zero problems with investing
in the “Ebola Zone” in 2015). A career politico, President Sall is roughly half way
through his term and runs things on a fairly orthodox economic platform. FDI is
welcomed and actively encouraged and the smallish, rumbling lefty rebellion in some
isolated Southern parts of the country has died down as well.
2) Teranga has been doing its social/community relations the right way. I linked up that 13
minute video that ran on CNBC in last week’s edition and I’m going to do so again right
here (3) because it’s an good window into the issue. Yes I know it’s a cool slick
corporate production and that has to be taken into account, but the reporter wasn’t
stupid and she’d obvious done her homework before asking the right questions. The
really strong point? What I saw from the responses of the people interviewed are
exactly the same type of answers and statements I hear from locals when I visit a
project or a mine here in S.Am that’s been doing things the right way. And it’s not just
the words spoken (which if scripted made the locals professional level actors, because
it’d be very difficult to fake the honesty of the delivery seen) but the way in which all
sections of community, from employees to neighbours to social action leaders had a
chance to state their piece. Also, the integrity of the “yes we had a lot of doubts about it
at first and there were a lot of discussions and meetings” was spot on.
3) It’s a producing mine. The most prosaic argument of them all is one that stands up to
the test of time in all world regions. Getting a project from exploration stage to
production stage is the difficult one, even for a socially responsible player such as TGZ,
because that’s when the protests and the rejection is strongest and most dangerous to
the capital plans. But once a mine is working, even a socially dubious company is very
difficult to dislodge and if the company is a good one (23% of TGZ G&A goes on
community and government relations, that’s a sizable budget) the chances of it hitting
big problems is small indeed. We note for example that on Friday February 13th (4) (i.e.
two days ago) TGZ received the permits for its new Gora operation after the necessary
meetings, permits that have arrived on time. That’s the type of thing that happens to
mining companies enjoying good local acceptance.
Bottom line: There’s always going to be a nagging doubt on the “It’s Africa” scale, the political
cycle of elections will come around again and you simply never know what an emerging/frontier
market nation is going to throw at you tomorrow. But on balance TGZ at Sabodala looks like a
lower than average risk proposition, so far it’s operated well without any major social or
community glitches for at least three years, people seem happy around the mine, there are far
worse profiles than that out there. On the risk/reward balance, this one’s in our favour.
Recent history
This is a section I’ve chopped down from about 10,000 words so if you want more another day
just say so, I have tonnes. Today we’re sticking to brevity and since acquiring Sabodala and
going public in 2010, there have been three main phases of development at TGZ. The first to
early 2013 ran on the back of the high gold price and saw the company expand quickly using
debt and equity raisings. Then came the gold price drop, which caught TGZ with plenty of debt
on its books and a legacy hedge which crimped profitability. After buying out the hedge book for
just under $9m and re-negotiating the main $60m debt package (held by Macquarie) TGZ got
itself on an even keel and although not wildly profitable at its operations any longer, started to
execute on its plan to buy out the owners of the neighbouring OJVG land package, host of
several deposits known collectively as Somigol. The ongoing negativity in gold the the gold
miner sector continued to weigh heavily on TGZ as 2013 became 2014, at which time they put
4

together an innovative deal with Franco Nevada, which set up a streaming deal on TGZ
production in exchange for $135m in cash. With that money TGZ paid down a lot of its financial
debt and also finalized the buyout and merger with OJVG.
For the rest of 2014 TGZ has been concentrating on improving its corporate financial structure
and growing operations at Sabodala, more on that below. The new Sabodata material is now
being mined and processed and the company expects to be operationally profitable in 2015 at
U$1,200/oz gold. One weak point in the story is insider holdings, as directors own only 3.2% of
shares between them which means they don’t have much skin in the game.
And I really don’t think this section could be shorter than that.
The rocks at Teranga
TGZ at Sabodala (which assumes all other named areas around the main mine) is an open pit
operation that feeds a processing mill. Its average grade of mined material and plant head
grade is reasonably high for a open pitter. This chart shows the average mined grade per
quarter in grey, with the average head grade
of the rock put through the machine on top.
The issue is grade control, adherence to cut-
offs, knowing your rocks and engineers that
know how to run a mill efficiently, but we can
also see how head grades dropped compared
to mined grades in a period from mid-2013.
TGZ now says that due to changes in practice
and staff they’ve worked through those
problems and the 4q14 result is a decent
indication that that’s true. Also as a slight
sidebar, you’ll note through today’s report
estimates for 2015 included in charts. These
are based on company guidance for 2015,
which is annual but in most cases I’ve simply divided guidance into four equal quarters. The
actual quarters aren’t likely to work out that way of course (Gora for one thing), but for the time
being it provides a reasonable baseline.
So grade’s pretty good for an open pit operation, but to the downside it runs a high average strip
rate because the good stuff is small minority of all the rock it needs to move. This chart shows
the story:
TGZ: Tonnages mined, per qtr
10
9
8
7
6
5
4
3
2
1
0
5
21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 41q3 41q4 tse51q1 tse51q2 tse51q3 tse41q4
source: company filings, IKN ests from TGZ guidance
TM
snoilliM
TZG: Mined grade to head grade, per qtr
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
cap. waste mined
op. waste mined
ore mined
• The red is the ore mined and taken to the processing facility
• The light grey is waste mined.
• The dark grey is “capitalized waste”, which in real-speak is low grade material they’re
mining by necessity but are not using for the moment. This is being stockpiled with the
objective to process it eventually via a heap leach or dump leach operation. It still needs
to be moved from A to B and it costs money to do that on a day to day operating level,
but the gold it contains is being accumulated as a non-current inventory asset on the
balance sheet. According to the company it’s worth around $80m right now.
21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 41q3 41q4 tse51q1 tse51q2 tse51q3 tse41q4
g/t Au
head grade
grade mined
source: TGZ filings, IKN ests from TGZ guidance

You’ll note that in 2015, TGZ estimates the strip rate for operations at 3.2X, or using the
numbers behind that chart, to get 1.75m tonnes of ore TGZ will have to move a total of 7.4m
tonnes of rock.
So to the resource and here’s the standard table which gives the skinny on the TGZ rocks.
Notes below:
• As usual lots of numbers but the main section to zoom in on is the Measured and
Indicated Resource column on the right. With 6.05m oz in M+I (plus not featured here
2.37m oz in inferred resources) there’s plenty of rock to mine here and at current run
rates just the M+I is good for 23 years of operations. Mine life is a strong point.
• Next, check the 5.0 g/t grade that the small but interesting Gora deposit has. This is the
one that’s just been given its operating permits after the necessary community
consultation and TGZ plans to bring it on line in the second half of 2015. The idea is to
use the ore as high grade blend that will compensate when necessary for lower grading
material when from other areas and make for a better, more homogenous mill head
grade. This is a welcome development because one of the problems TGZ has had over
the years is patchy and erratic grades, due to the nature of the relatively high grading
material (for an open pit operation) and the high strip rate needed to get it to the mill.
• Just one more I’d like to highlight, the Masato line. This is part of the newly acquired
OJVG land package and this deposit began mining operations in 4q14. Although overall
average grade is low-ish, the host rock is softer and easier for both mining and
processing, which means cheaper costs and better throughput. Much of the 2015
guidance is based on the growth of feed from Masato and the company expects
production to be more predictable as a result.
Overall, this is one of the strong points of TGZ the company. The admirably long mine life also
comes with an apparent improvement in understanding of how to mine it efficiently.
Operations
Here’s where the numbercrunch starts.
TGZ: gold produced vs gold sold, per qtr
There’s no better way to kick off than get
straight to the point and see how much gold 80000
TGZ produces. 70000
60000
50000
One thing that jumps out here is the big
40000
improvement seen in 4q14, compared the
30000
previous six quarters. That Q4 of 71.3k oz
20000
mined brought 2014 annual production to
10000
~212k. A big quarter yes, but we must also
0
note it means TGZ missed on its original
annual guidance (minimum 220k) and even
the adjusted guidance number of minimum
215k it gave mid-year.
6
21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 41q3 41q4 tse51q1 tse51q2 tse51q3 tse41q4
Oz Au
reported Au prod
Au sold
source: company filings, IKN ests from TGZ guidance

TGZ saw throughput rise and production improve thanks to the new Masato deposit coming on
line, but there’s more behind that than simple
“oh new rock, good new rock, rock good”.
TGZ: Ore mined vs ore milled
This chart that stacks the ore mined (not 3.0
waste, just the “live ore”) compared to ore
2.5
milled and processed to produce gold is one
part of the story. 2.0
1.5
You can see there was a lot more mined ore
than milled ore in 4q14, which means the 1.0
people running the ~1,000tpd processing 0.5
facility could pick and choose what rock they
0.0
were going to process. That shows in the
head grade chart we saw earlier on, because
in 1q14 there was just 0.4 g/t difference
between mined grade and processed grade.
In 2q14 it was 0.3 g/t, in 3q14 a thin 0.18 g/t. But in 4q14 it jumped to a 0.97 g/t difference,
which means more gold per tonne and better production. QED.
In 2015 TGZ is aiming to get head grade at an average of between 2.0 and 2.2 g/t (I model
using 2.1 g/t), some 0.6 g/t higher than mined grade. As mentioned above, it’s looking for more
predictable results this year.
So that’s production, now for sales and as you can probably make out in that first chart above,
allowing for normal quarterly fluctuations that cancel each other out up to mid-2014 TGZ sold all
the gold it produced at market. But that’s now changed, because as from last year the deal
between TGZ and TGZ means that TGZ will deliver for the first six years 22,500 ounces of gold
at 20% of spot price to FNV. After that, FNV gets 6% of production (which should turn out to be
more than the 22.5k number as long as TGZ executes on its growth plans). I’ve reflected that in
the above chart and my price model by subtracting delivered gold from sold gold (even though
TGZ gets a small amount for each ounce), the main operating difference brought by the FNV
stream deal.
Production check, sales check, the other thing we need to know for revenues calculation
purposes is the realized average price of
gold at TGZ, which you can see in this chart
(and please note the cut down Y-axis,
done to show contrasts and not to be
dramatic or fool you).
Here I’ve deliberately made no adjustment to
the 2013 received price average, so that you
get a good feel for how much of a burden the
inherited hedging program was on TGZ’s
revenues. When that hedge was closed mid-
2013 things got back to normal and as a rule,
TGZ has managed to realize a price very
close to the LME Fix averages for each
quarter. The other thing to note is that for
FY15 I’m assuming a flat U$1,250/oz gold price for the IKN model. In its guidance TGZ is using
a U$1,200/oz base case and that’s fine by me, but if things turn out the way I imagine both our
numbers may look like lowballing come the end of the year. We’ll see, but at this time I consider
U$1,250/oz as a reasonable place for a base case.
Before moving to the P+L here’s a preview of the other side to the equation, costs. This chart
shows the evolution of both total cash costs (the things at the mine, more or less) and All-In
Sustaining Costs (AISC; everything but project capex and tax, more or less)
7
21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 41q3 41q4 tse51q1 tse51q2 tse51q3 tse41q4
source: TGZ filings, IKN ests from TGZ guidance
TM
snoilliM
ore mined
ore milled
TGZ Realized price for gold vs LME fix avg, per qtr
1800
1700
1600
1500
1400
1300
1200
1100
1000
21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 41q3 41q4 tse51q1 tse51q2 tse51q3 tse41q4
U$/oz Au
realized price
LME avg
source: TGZ filings, IKN ests

TGZ: Total Cash Costs vs All In Sustaining Costs
1400
1200
1000
800
600
400
200
0
8
21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 41q3 41q4 tse51q1 tse51q2 tse51q3 tse41q4
U$/oz Au tot cash cost
AISC
source: TGZ filings, IKN ests form TGZ guidance
The extra production in 4q14 brought these down nicely, which needed to happen because an
AISC edging $1,000/oz was too much for 2014, especially as the company had to pay down
liabilities at the time. For FY15 TGZ is guiding for AISC of between $900/oz and $975/oz. In the
above chart and in my model I’m assuming a $900/oz number on this metric, because after
looking closely at what TGZ plans for 2015 I’ve convinced myself they’re being deliberately
pessimistic here and that costs will come in lower. So, 900.
Revenues work first, balance sheet second
Both demand examination at this point and for me the balance sheet’s the most important thing
to get straight because it’s the thing that’s seen most improvement in recent quarters. But for
the sake of narrative and running on from the production stuff above, we do the P+L items first.
Here’s the main chart, which compares
revenues (open market sales plus the
FNV delivery ounces at 20% spot), Costs
Of Goods Sold (including depletion,
depreciation and royalties to Senegal)
and gives us a gross profit number as a
result. Please note that 4q14 is still
“estimated” because TGZ hasn’t
reported those financials yet. They’re
due this week, but as the company gave
us lots of preliminary financial data with
its 4q14 production NR in January (5) we
shouldn’t be too far out.
This below is exactly the same chart but
with just the FY14 and FY15 numbers, to make recent comparatives easier:
TGZ.to: Quarterly Earnings Overview
90
80
70
60
50
40
30
20
10
0
-10
41q1 41q2 41q3 tse41q4 tse51q1 tse51q2 tse51q3
TGZ.to: Quarterly Earnings Overview
130
120 110
100
90
80
70
60
50
40
30
20
10
0
-10
-20
$m revenues
COGS
gross profit
source: company filings/IKN ests
Again we assume the TGZ annual guidance figures for 2015 cut into four equal quarters (and
$1,250/oz Au). One thing to note is that in 4q14 TGZ and FNV deferred delivery of 1,875 oz
gold to the stream deal. We assume those ounces are added to the 1q15 scheduled delivery,
21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 41q3 tse41q4 tse51q1 tse51q2 tse51q3
$m
revenues
COGS
gross profit
source: company filings/IKN ests

after that things get back to normal and TGZ delivers at the normal rate of 5,625oz/qtr.
What comes across from the chart visuals is how after struggling in in 2q14 and 3q14, the 4q14
financials are set to come in strongly. Our gross profit estimate sits at $21m and that’s good, but
the other notable is how it’s also set to be a bit
of a flash in the pan. Gross profit estimates of TGZ.to: Gross profits, per qtr
25
1q15 $7.3m, then 2q15 and 3q15 of $11.6m
20
are a climbdown from the recent quarter.
15
From there we move to operating earnings, 10
which in the case of TGZ is also de facto net 5
earnings because the company has enjoyed a 0
start-up tax break since arriving in Senegal
-5
that means it has paid no corporate tax as yet
-10
(royalties, social funds, etc yes, but taxes on
earnings no). That tax break finishes in May
this year and after TGZ pays at 25% on
earnings (a minor detail is that any tax due in
2015 won’t be paid until FY16).
The difference between gross and operating
(net) is G&A, finance costs and the nebulous
“other”, which in the case of TGZ isn’t usually
too heavy. When it comes to finance costs,
we’re now modelling those to drop to near
zero thanks to the paying off of its financial
debt in 4q14 (see below). G&A usually comes
in around $3.5m/qtr.
We again see how 4q14’s good result to come
looks like a bit of an anomaly. Come the
second half of 2015 things get back to a
reasonable $7m profit (~2c/share), but 1q15
shapes as softer. Directly from that, here’s the
EPS chart (right).
If TGZ could give us a 4c/share quarterly EPS
on a regular basis, this operation with its long
mine life and improving balance sheet would
look mightily cheap at its current CAD$ 0.57
share price. As it is, with 2015 shaping the
way it is and assuming gold at a reasonable
though perhaps modest $1,250/oz, 1q15 is
going to be a comedown and the rest of 2015
is booked for 2c EPS quarters.
Balance sheet items
This section has taken most of my time. The story of TGZ’s assets and liabilities isn’t
straightforward and can be cut and sliced various ways, but for easy narrative we can consider
three periods in its development:
1) Early on, with and inherited hedge position plus financial debt, which was bearable
while gold was flying high but then...
2) ...the big gold waterfall drop in prices in early 2013 meant that suddenly, from a
situation where TGZ was servicing its debt easily, the hedge book and the financial loan
threatened to swamp the company. This coincided with a time of somewhat inconsistent
production (above) and the likelihood it would have to curtail or at least defer its land
buying expansion plans; this was the period when TGZ was most under pressure.
3) The Franco Nevada stream, that started in January 2014 and has now been in place for
just over a year. With this deal TGZ managed to get rid of the welter debt burden, close
9
31q2 31q3 31q4 41q1 41q2 41q3 tse41q4 tse51q1 tse51q2 tse51q3
$m
source: company filings, IKN ests
TGZ.to: Op. Earnings
20
15
10
5
0
-5
-10
-15
31q2 31q3 31q4 41q1 41q2 41q3 tse41q4 tse51q1 tse51q2 tse51q3
source: company filings/IKN ests
srallod
fo
snoillim
TGZ.to: net earnings per share
0.08
0.06
0.04
0.02
0.00
-0.02
-0.04
-0.06
31q2 31q3 31q4 41q1 41q2 41q3 tse41q4 tse51q1
cents
source: company financials/IKN ests

its acquisition and bring the new land into production as well as pay off all other
financial debt. The advantages the streaming deal has brought are many, including a
safer liquidity position as well as the wherewithal for TGZ to get on and expand as it
planned to do. The downside is that the stream will weigh on future earnings and
potentially make the company less attractive as a buyout target.
And now a few charts to show all that in an easier to swallow visual form. Just for a change
we’re going to start with liabilities and just by looking at this overview chart, you’d never be able
to guess at the corporate upheavals we’ve seen in the period.
TGZ.to: Liabilities per qtr
300
275
250
225
200
175
150
125
100
75
50
25
0
10
11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 41q3 tse41q4 tse51q1 tse51q2
source: company filings
srallod
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LT debt
current debt
In this we see again how the model was going swimmingly up to 1q13 and the gold slump, then
current debt crept up, then the big change in the yellow bars when the FNV streaming deal was
struck as at 1q14. but since that time we’ve seen current debt drop and we expect that, plus
long-term, to continue in the same direction in 2015.
Now it’s time to see what at least part of that streaming deal with FNV did for the company. Yes
the major part was buying the OJVG land but the way in which TGZ put the cash to use in order
to greatly improve its balance sheet deserves special focus. Here’s a chart that isolates
borrowings (i.e. financial debt) between 2012 and 2014. The two main liabilities held here were
the $60m that was loaned to TGZ by Macquarie, plus the debt deal for mining plant and
equipment (scoops, trucks etc). In 1q13 (the quarter of the deadly gold drop) it stood at nearly
$80m and the next quarter, just about all the debt moved to the near-term column as it was due
paid off by that time next year. Gulp. TGZ renegotiated with Macquarie, booting the final
principle payment out to end 2q15, and bought time. Then in 2014 and the stream opportunity, it
elected to pay off a big chunk of the debt, a policy which continued on a modest scale in 2q14
and 3q14. With the bumper production
and sales quarter just gone in 4q14 (plus TGZ: Borrowings (i.e. financial debt)
some leeway seemingly given to TGZ by
90
FNV, as it deferred delivery of those 1,875
80
oz) TGZ managed to completely pay off all 70
it owed to both creditors. Financial debt is 60
now at zero, which means a big weight off 50
40
the mind and the financials of this mining
30
company. We like this a lot.
20
10
At the same time we must consider what’s 0
replaced the Macquarie debt on the
books. In January 2104 TGZ agreed on a
stream deal with Franco Nevada (FNV) in
which FNV provided TGZ with $135m in
cash, while TGZ committed to deliver 22,500 oz per year of gold at a price of 20% spot per year
for the first six years of the deal, and then 6% of its annual production at 20% spot. Here’s how
the new stream is annotated by TGZ, as “deferred revenue” in both current and non-current
liabilities. The current may fluctuate a little depending on the gold price, but the nature of the
delivery to FNV means it’s always going to have around $23m worth of gold to send in the year
to come on a rolling basis.
21q4 31q1 31q2 31q3 31q4 41q1 41q2 41q3 tse41q4 tse51q1
$m
non-current
total current borrowings
source: company filings

Booking the stream: How the Franco Nevada (FNV)
liability sits in the TGZ books
140
120
100
80
60
40
20
0
11
31q4 41q1 41q2 41q3 tse41q4 tse51q1 tse51q2
U$m
deferred revenue (l/t)
deferred revenue (n/t)
source: TGZ filings, IKN ests
The lion’s share of the debt is kept in the non-current liabilities and what we see is how near-
term liabilities remain and will remain steady, while long term liability from this position chunks
down by around $5.7m per quarter on average, as long as the 22,500 oz delivery rhythm is kept
of course. This values the delivered ounces at just over U$1,000/oz. But overall this stream is
not an onerous one for TGZ, as it comprises of roughly 10% of production for the next five
years, than 6% ongoing. Yes for sure it cuts into the blue sky potential but not by much, as if
gold went $1,400/oz the world would quickly forget its gripes that TGZ is being “held back” by
that “greedy royalty company”. The way I’ve treated the stream for the target price generation is
to separate revenue and not worry about the ounces it will sell cheaply, rather consider them in
the same way I’d consider a by-product kicker (e.g. when a gold mining company gets say 10%
of its revenues from sales of silver). In effect, instead of TGZ being a 220k oz per year producer
it’s a 200k oz producer. The bottom line is that this stream deal is a good one, it’s a win-win and
if gold starts moving up it’s not going to crimp the share price action.
I’m now going to double back and look at a couple of other current liability items, because one
of the things that concerned me at first with TGZ was whether it could suffer a liquidity crunch.
As it happens that’s unlikely and here come a couple of the reasons why, First up, here’s a
chart that isn’t the prettiest or most elegant ever created (formatting issues) but it made the cut
because along with the chart under it, shows what to care about with the TGZ liabilities and
what’s less important. This chart stacks up (in lurid colour form) all the current liabilities held at
TGZ as at its last reported quarter, 3q14. The pile adds up to $96-and-bits million (key on right).
$m TGZ current liabilities as at 3q14
100
provisions
90
80 deferred revenue (n/t)
70 Equip finance liab
60
loan facility
50
A/cs payable to
40 Senegal
Govt royalties
30
20 sundry creditors
10 trade payables
0
source: company filings 3q14
By breaking down the line items we get a better idea of what TGZ has to service on an ongoing
basis and what’s not important. At nearly $100m it looks like quite a pile for a company with
$35m in the treasury, but it’s really not that bad because:
a) The loan facility is now fully paid off
b) Equipment finance is also fully paid off

c) Deferred revenue is the near-term part of the FNV stream and that’s serviced by
delivering the gold as agreed.
d) Provisions are nearly all pensions, not a worry.
This below is a better chart. It also filters out the ones that are unimportant to the ongoing health
of the company and shows what TGZ has to cover, either now-ish (e.g. trade payables) or
before 12 months is up (e.g. govt royalties, a/cs payable to Senegal). The reality is that TGZ
has to typically find $50m from cash flow to fund its ongoing bills. As it produces and sells over
50k oz of gold a quarter, that’s more than reasonable.
TGZ: Trade and other payables
(i.e. near-term run-of-mine financial liabilities)
70
60
50
40
30
20
10
0
12
21q4 31q1 31q2 31q3 31q4 41q1 41q2 41q3 tse41q4
$m
A/cs payable to Senegal
Govt royalties
sundry creditors
trade payables
source: TGZ filings, IKN ests for 4q14
I do have one concern here on trade payables. Under normal circumstances you’’d like to see a
going concern mining company have a reasonable balance between trade receivables (thing
owed to mining company) and trade payables (miner owes a thing, usually cash) but that’s not
the case with TGZ. Now I’d assume that with
fuel being around 30% of operating costs at
TGZ, the way in which it buys its fuel on credit
will account for at least some of the difference
you see here (right), but all the same it’s not
the look of a particularly healthy balance with
suppliers and buyers. It’s not an urgent thing
(unless it does indeed write a cheque that
bounces, but with $35m in the treasury that’s
extremely unlikely) and I certainly appreciate
the way TGZ has concentrated on getting its
financial debt to Macquarie and its equipment
leasors paid off, because that’s saving on
servicing of debt all the time. But as we go
through 2015 a narrowing of this gap would be
a positive sign that all is well and liquidity good at Teranga.
Enough, I’m going on too long, let’s move to the assets section. Here’s the main assets chart
and it’s one of those companies that has the vast weight of its corporate net worth tied up in
non-current items.
TGZ.to: Assets
800
700
600
500
400
300
200
100
0
11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 41q3 tse41q4 tse51q1 tse51q2
TGZ: Trade receivables vs payables
25
20
15
10
5
0
$m
fixed
other current
cash & eq
source: TGZ filings
So to get a better handle on the apparent dollar value of TGZ, here’s a breakdown of non-
21q4 31q1 31q2 31q3 31q4 41q1 41q2 41q3 tse41q4
$m
trade receivables
trade payables
source: company filings, IKN ests for 4q14

current items:
$m TZG: Non-current assets
700 other non-current assets
goodwill
600 l/t ore stockpile
500
400
300
200
100
0
4q12 1q13 2q13 3q13 4q13 1q14 2q14 3q14
source: company filings
The big one is “other” which is mostly mine assets, both operating and exploration. Then comes
~$55m of goodwill that TGZ booked on the full takeover
or OJVG this time last year. That kind of goodwill value
is always a bit vague (to the point of debatable) but it’s
unlikely to change for the moment, plus of course the
deposits it bought are now coming on line and justifying
the purchase. The other item is the long-term ore
stockpile, which is the ~$80m of low grading material
that was stripped during operations but set aside for
eventual processing in a dump leach or heap leach. In
fact as this chart shows, TGZ likes its inventory and
accounts for nearly 20% of its overall $709m asset
value via these items. These inventory and goodwill
items are the kind of asset stuffers that get me thinking
“Yeah well, this is why the thing doesn’t trade at book”. And in fact today TGZ trades at a low
0.3X BV, which is partly due to this kind of capitalization which adds passive assets to make
things look bigger than perhaps they are.
TGZ.to: Market cap versus book value
600
500
400
300
200
100
0
13
21q4 31q1 31q2 31q3 31q4 41q1 41q2 41q3 tse41q4 won
TZG: Total inventory
$m
160 l/t ore stockpile
140 other (fuel/supplies/etc)
total gold inventory
120
100
80
60
40
20
0
4q12 1q13 2q13 3q13 4q13 1q14 2q14 3q14
source: TGZ filings
$m
mkt cap at qtr end
book value
source: company filings, TSX data
TGZ.to: Price/Book ratio
To the upside, this does of course mean there’s 1.6
plenty of upside potential if TGZ gets into gear 1.4
and starts turning meaningful profits. Hold that 1.2
thought. 1
0.8
0.6
0.4
0.2
0
21q4 31q1 31q2 31q3 31q4 41q1 41q2 41q3 tse41q4 WON
source: company data, TSX, IKN calcs

As for current assets, these next charts show how things were good, then they were bad and
now they’re getting better. Here’s an overview chart
TGZ: Current asset breakdown
$m
other current
300
other inventory (fuel/supplies/etc)
gold inventory (bullion, in circuit, n/t stockpile)
250 cash & eq
200
150
100
50
0
4q12 1q13 2q13 3q13 4q13 1q14 2q14 3q14
source: company filings
And one thing apparent is just how much of its so-called liquid asset worth has been tied up in
ongoing-concern type inventories. Cash and
equivalents, down there at the bottom, has
been looking pretty thin up to 3q14, but here
comes the good news. The combination in 4q14
of a good operating quarter and the paying off
debt means that Cash&Eq has moved away
from being a big concern. This chart (right) that
isolates treasury and then projects forward into
FY15 shows that the profits expected from
operations have boosted available cash, but
another big fillip is that thanks to the paying off
of the loans, $15m which was held as restricted
cash (collateral) has now been freed up and is
part of the usable treasury. With cash now at
~$35m TGZ has got through the hard times, its
financial prudence in paying down debt has paid dividends.
From there we move to working capital, which has now moved from negative/flat and for the first
time in a long time is healthy. It’s likely to stay healthy this time too, because upcoming financial
obligations are now minor, barring the servicing of the FNV stream via gold deliveries.
100 TGZ.to: Working Capital per qtr
90
80
70
60
50
40
30
20
10
0
-10
-20
-30
14
21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 41q3 tse41q4 tse51q1 tse51q2
source company filings/IKN ests
srallod
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TGZ.to: Cash treasury per qtr
60
55
50
45
40
35
30
25
20
15
10
5
0
Finally, we get to shares out and there’s not that much to note here, aside from expecting the
count to stay roughly where it is at the moment, 353m S/O.
11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 41q3 tse41q4 tse51q1 tse51q2
source: company filings/IKN ests
srallod
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snoillim

TGZ.to: Shares Out
400
350
300
250
200
150
100
50
0
15
11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 41q3 41q4 tse51q1
source: company filings/IKN ests
serahs
fo
snoillim
Valuing Teranga Gold
To begin couple of readers have berated me about the way the last couple of NOBS reports
have come without a formal valuation or price target and to be honest that’s fair enough, a
decent critique so it’s getting addressed today. Here for example is something reader MZ (fwiw,
bizarrely there are two readers with the same MZ initials with whom I regularly correspond, and
there aren’t so many Zs in this world either) wrote last week, part of his mail:
“I have to say, I'm a bit concerned that your last few reports on larger cap names
(MUX and BTO) didn't include "spreadsheets" or "fundies", respectively. Are you
getting lazy, and buying loosely on excitement and the residual high from the
Argonaut win? ;-)”
By the way, MZ is a smart humourous guy and we both get the thinking behind good-natured
ribbing. So here’s my reply to him on that subject:
“There is an underlying reason and it's not laziness. It's more disillusion in the way
fundies targets are generated and how at this time they'll all change at a moment's
notice if gold does +1 or -1. Today's market, as it tries to make a bottom, isn't
"logical" (i'm forced to use speech marks there, annoying as they are) and it's all about
momentum and optics and relative values and catch-ups and rotations. On more than
one occasion recently I've done the target generation as standard, left it overnight,
gone back to it and just kinda laughed at myself for the reverse engineering, the way
I’d subtlely (or not so) managed to get juuuuuuust the right number out of my model.
Now I don't mind estimating the strength of bullshit smell in the air, but I've been
baulking at having to quantify the number of free radicals that make up the stench. “
And that’s where I stand at the moment on the subject. It’s easy enough to generate targets, in
fact the spreadsheet does them automatically on page three if I plug in numbers on page one.
The whole idea of getting cold and mathematical on likeable stocks (e.g. MUX right now)
knowing full well that they’re going to move on newsflow, sentiment and whether good news
comes on the day a $10 pop in gold occurs is the problem. It’s a level of conceit to stand up and
proclaim “Stock XYZ is going to climb by 57% because my Casio says so” when i know that a) it
won’t depend on the math and b) I, like any other anal yst, am perfectly capable of reverse-
engineering a price target that fits my present gut feeling on the market. When markets are
more logical and reasonable (i.e. totally unlike the miners today, 1q15) there’s no excuse not to
run logical and reasonable targets. Today, it’s less obvious.
However, today’s report on TGZ is getting a target price generated for it. Firstly because unlike
others I’ve considered recently it is a far more mathematical model, its 2015 really will depend
on the numbers and less on sentiment. Secondly because there’s a point to make afterwards.
I’m basing the target price today on what we can expect from this year, 2015. The base case
uses U$1,250/oz gold and also makes the following assumptions:
• TGZ sells 197,500oz gold on the open market and delivers 24,375 oz gold to FNV. This
puts production inside its guidance for 2015 (200k to 230k), but edging to the upper

end..
• Cash costs of $210m for the year, including depreciation but excluding Senegalese
royalty payments. This is slightly lower than guidance and takes into account expected
fuel and forex savings.
• Royalties at 5% of mine gate value, as per the Senegal law.
• G&A at $3.5m, in line with previous numbers and guidance.
• Tax at 25% to be paid as from May 2015 (the fact that TGZ won’t write a cheque until
2016 is beside the point, it’ll still end up in the financials).
• CAD$1 = U$0.80
• Othe minor matters.
As well as the baseline U$1,250/oz gold price, the criteria are applied to three other average
prices for the year. Here’s how things work out:
TGZ.to: estimated 2015 financial forecasts at differing gold prices
Au prices Au $1,150 Au $1,250 Au $1,300 Au $1,400
Sales (U$m) 242.9 253.0 263.1 283.3
COGS (incl deprec) 210.0 210.0 210.0 210.0
SGA 14.0 14.0 14.0 14.0
Royalties 12.1 12.6 13.2 14.2
Op income 6.7 16.3 25.9 45.2
Interest 0.0 0.0 0.0 0.0
Tax 1.3 3.1 4.9 8.6
Net income 5.4 13.2 21.0 36.6
Shares out 353 353 353 353
EPS 0.02 0.04 0.06 0.10
Source: IKN estimates
And from that, here’s a price target:
Sales and earnings Target price & valuation data for various gold prices
at Au price $1.2k $1.25k $1.3k $1.4k
Sales ($m) 231 240 250 269 12-month target C$0.56 (based on 10x $1,250/oz
Sales growth 4% 4% 8% Upside to target -2% gold 2015 + cash)
EPS 0.02 0.04 0.06 0.10 Mkt cap (C$m) $201 Enterprise value C$371
Cash flow 0.16 0.18 0.20 0.25 P/sales ($1.2k) 0.84 EV/sales ($1.2k) 1.54
P/E ($1.2k) 37.0 EV/EBITDA ($1.2k) 6.4
P/E ($1.25k) 15.2 EV/EBITDA ($1.25k) 5.5
P/E ($1.3k) 9.6 EV/EBITDA ($1.3k) 4.8
By using a 10X PE ratio, justified by the fact that we’re considering this year’s financials, plus
the expected 2015 exit cash position, we derive a CAD$0.56 target price, representing -2%
upside to Friday’s close.
And yeah, you’re not very impressed with that are you? Well folks neither am I, but the above is
not why TGZ is an interesting investment proposition at the moment. The reason why I’m going
to buy TGZ next week is contained in this next chart which is the single most important visual in
today’s note:
16

TGZ: Target sensitivity to gold price and P/E multiple
U$0.80 = CAD$1 implied P/E multiple
Gold price (U$/oz) 8X 9X 10X 11X 12X
1200 0.26 0.28 0.29 0.31 0.33
1250 0.47 0.51 0.56 0.60 0.65
1300 0.68 0.75 0.82 0.9 0.97
1400 1.10 1.23 1.35 1.48 1.6
1450 1.32 1.47 1.62 1.77 1.92
1500 1.53 1.71 1.88 2.06 2.24
source: IKN calcs
What we like about TGZ today is its price sensitivity to gold. The best guess model today, one
that used reasonable, middle-of-the-road assumptions on production, costs and so forth comes
up with nothing more or less than a justification of today’s share price. However, if you think
gold’s on the way up, TGZ today offers not just good leverage and upside, but great upside.
Study that chart for a minute and you’ll see that by adding just U$50/oz to our gold price
average and taking it to $1,300/oz, the target jumps by nearly 44% to 82c. And if you think
gold’s going to $1,400/oz, even by assuming the same 10X PE and not factoring in extra bullish
feeling in the marketplace TGZ is targeted at $1.35, an upside of 137%.
Now for sure the cash flow model points to downside and if gold goes under $1,200/oz TGZ
isn’t going to return much in the way of profit this year. Strictly speaking that points the model
target downwards, but as TGZ has done the corporate structural work and is now in the position
where it’s not going to come under severe financial pressure into a downturn, taking the cash
flow model at face value isn’t the way it’ll turn out. This company has solid assets and a long
mine life to support a new downturn in the market and it’s not in danger from just one or two
mildly loss-making quarters, if they were to show up. Back in 2013 that was not the case.
Conclusion and recommendation
I’m going to buy Teranga Gold (TGZ.to) (TGZ.ax) next week and make it part of The IKN
Weekly ‘Stocks to Follow’ list, because it offers the right combination of elements at this time:
1) A newly strengthened financial situation that will protect the stock from downside if gold
goes weak on us again.
2) Reasonable operational and political risk
3) Plenty of upside potential from a rise in the price of gold, even if that rise is modest.
4) A company that’s still flying under most people’s radars.
Its 4q14 results are going to be good and catch headlines, but as they’ve been largely
telegraphed by TGZ disclosure in January they’re not so likely to make a splash with the share
price. Then 1q15 may look soft from the outside, but as long as it turns a profit I’ll be happy
enough. It’s what it can achieve in the future as a growth story in what I expect will be a rising
gold price environment that grabs the attention.
As far as my pocket goes, it’s not going to be a big position to begin with, neither will it be
tinysmall. It’s the one that I add to the portfolio that a little riskier than the other producers (BTO,
MUX) but has the potential for outsized rewards that more than offsets the extra risk. To begin,
we’re going to set a 12 month price target of 82c on TGZ, representing a 44% upside to
Friday’s close. As you can see, that target’s future and that of this investment will depend more
on the fortunes of the gold price than that of TGZ, but saying that the company will still have to
deliver on its promises. If things go well in the first half of 2015, we can start looking further out
into TGZ’s future and take into account its plans for expansion in 2016 and beyond. Until then,
eyes are fixed on this year’s operations.
17

Stocks to Follow
Of our twelve open positions, eight were weekly winners (RIO.to, DNA.to, FCV.v, AG, NCQ.to,
LRA.v, FSM short, GQC.v) and four were losers (MUX, BTO.to, SAM.to, IRL.to) and as gold
bullion was down on the week (proxy GLD -0.56% since last Sunday) I’ll take that result, thank
you kindly.
Worst loser was Minera IRL (IRL.to down 29.4%) as it lost the exact same 2.5c it put on the
week before last, though the ride was even more of a rollercoaster than the weekly prints
show. Double figure percentage wins came from Rio Alto (RIO.to up 15.9%), GoldQuest (GQC.v
up 12.0%), Lara (LRA.v up 10.8%) and Focus Ventures (FCV.v up 10.5%) and while three of
those four weren’t much more than tinycaps bouncing round their trading range, one is the
headline number of a big win and good news.
We currently have 12 open positions on our our ‘Stocks to Follow’ list, three less than our self-
imposed maximum. Three are in the green, nine are in the red.
Current
company Ticker this week Avg Price Reco date PPS Gain/Loss% Notes
Top Picks
Rio Alto Mining RIO.to hold C$2.30 07-apr-11 C$3.80 65.2% Top Pick, Best PM Jr, M&A tgt
Recommended long positions (in current order of preference)
McEwen Mining MUX STR buy U$1.16 25-jan-15 U$1.10 -5.2% New position, excellent value
Dalradian Res DNA.to buy C$0.64 27-oct-13 C$1.06 65.6% Nov'14 tgt $1.25, top Au expl
B2Gold BTO.to hold C$2.32 12-sep-14 C$2.13 -8.2% Dependent on Au price moves
Starcore Intl SAM.to buy C$0.12 10-jan-15 C$0.135 12.5% Small Pos., added, tgt 19c
Focus Ventures FCV.v hold C$0.23 01-jul-12 C$0.21 -8.7% tgt 50c, due Feb'15 financing
First Majestic AG spec buy U$10.51 10-aug-14 U$6.08 -42.2% Now in pair trade with FSM
Minera IRL IRL.to hold C$0.27 22-jul-12 C$0.06 -77.8% Waiting for financing news
NovaCopper NCQ.to hold C$1.05 09-apr-14 C$0.68 -35.2% small Cu play low vols, hold
Lara Expl. LRA.v hold C$1.15 08-apr-12 C$0.41 -64.3% solid biz model, LT hold
Recommended short positions
Fortuna Silver FSM SHORT U$4.12 10-nov-14 U$4.56 -10.7% In pair trade with AG
Smaller/Riskier
GoldQuest Min. GQC.v hold C$0.26 27-oct-13 C$0.14 -46.2% may sell soon
Closed in 2015 closed close price
Argonaut Gold AR.to jan'14 C$1.47 14-dec-14 C$2.53 72.1% Big gain small time, profit taken
Amerigo Res ARG.to jan'14 C$0.405 20-jul-14 C$0.285 -29.6% Given up on weak Cu prices
Reservoir Min. RMC.v jan'14 C$6.05 18-jun-14 C$4.12 -31.9% sold on Cu downturn
Coro Mining COP.to jan'14 C$0.075 26-jan-14 C$0.035 -53.3% sm, sold on Cu downturn
2009, 2010, 2011, 2012, 2013 and 2014 closed positions in appendices below
Now for some notes on current basket stocks.
McEwen Mining (MUX) (MUX.to): Here’s a five day chart of MUX, pictures painting a
thousand words and all that:
18

It traded very softly and started threatening the U$1.00 level, which wasn’t pleasant to witness
(for the record and due mainly to the Rio Alto/Tahoe Resources news, I kept a very close eye
on the tape last week) but then MUX came back, ignored the gold drop to ~U$1,220/oz and
finally on Friday afternoon caught a few bids, which as the size of that last hourly bar wasn’t a
case of tape-painting but rather real buying. In the end the week was basically a wash for my
new and fairly large position, it could have been worse.
A reminder: This one is all about the improvement expected in company fundies once its
financials and other start flowing through and for what it’s worth, I have the following dates
scribbled on the “This Is Why You’re Long MUX, Dummy” Post-It that’s stuck on my wall next to
the computer screen:
1) PDAC early March, at which Rob McEwen is bound to talk up his vehicle.
2) Year-End and 4q14 financial results, expected mid-March. On this I’m expecting to
this a marked improvement on the P+L (it’s due to return a quarterly net profit for the
first time) and the balance sheet. See IKN296 for the whole analysis.
3) 1q15 production numbers, out early to mid-April (usually synchronized with those of
Hochschild (HOC.L), so exact timing difficult to give). Here we’ll be looking for
acceptable production numbers (recall Q1 is traditionally the softest at the 49% owned
San José in Argentina), but any soft or hard guidance on lower costs could provide a
catalyst.
4) 1q15 financial results, out mid-May and if I’ve got the strategic call on MUX right
(which is of course why I’m long the stock) we’ll get a second successive quarter of net
profits and a world that wakes up the the fact that MUX 2015 is not the same as the
MUX of previous years.
In other words February is the lull before the storm, because from March 1st we hit the 12 week
window in which the news will flow. As it happens I’m now in and with a slightly larger position
than I’d planned on taking, which is perfectly OK but does mean I’m not adding any more. That
stated, if you’re semi-long and considering an add or zero-long and considering a first buy,
that’s my idea of your time window.
Starcore International (SAM.to): We didn’t get the production numbers from the SAM.to
quarter ended January 31st last week, which means we’ll probably get them this week. In
trading the stock was weak for the first time in 2015, whihc meant it closed the week down
0.5c but we also saw 13.5c traded on low volumes when just a week previously the world was
happy to pay 15c.
19

Same message as last week, I’m afraid: When we have the quarterly numbers we’ll know more
about its profitmaking potential in the new price/cost environment for gold miners. Until then,
it’s still a decent little spec play.
Fortuna Silver (FSM) (FVI.to) and First Majestic (FR.to) (AG) Pair Trade: First our pair
trade tracker chart, starting from the launch of the equal-weighted pair trade (AG long, FSM
short) as at November 16th 2014.
First Majestic (AG) is up ~19%, Fortuna
Silver (FSM) is down ~1%, our pair is
~20% to the good. That’s a slightly wider
gap than this time last week, but truth be
told it’s been a fairly steady situation since
the first week of the year and we’re not
going to sweat the smallstuff moves either
way.
AG reports in eight days’ time, which
means if I don’t want to be long through
the year-end financials I’ll need to close
this position by Friday February 20th. Right now I’d say “possible” but I’m still not sure, so the
way any call comes will be via a Flash update if necessary during the week.
Minera IRL (IRL.to): The 2015 year-to-date chart of IRL is another that does better than a
thousand words.
We’ve seen improvement in the IRL share price
since the beginning of the year on thin then
not-so-thin volumes (though we must keep in
perspective that any sub-10c stock, IRL or a
host of other names, can see plenty of volume
for relatively little cash) and then suddenly, last
week, the whole edifice is shaken by two days
of 3m+ volumes and large dumpage.
And again, a whole bunch of mails from you
people with “IRL” in the title line (which is
perfectly reasonable by the way, don’t think
twice about repeats as they’re always welcome) that were a mix of thoughts on WTF is going
20

on, theories of WTF is going on and of course questions asking me WTF is going on.
The central point of IRL the company at the moment is of course the ongoing (interminable)
negotiations to get a deal done for the Ollachea project funding and the latest from the
company is that...yes, they’re ongoing and they hope to wrap things up soon. In other words,
the same message and a corporate entity playing the same straight bat (if you’re wondering it’s
an expression from cricket) as in the months before. From that comes speculation and mails
that turn up (this one a repeated theme, therefore I paraphrase) with ideas such as “...looks
like 1) somebody heard a deal is close and then piled on, then 2) heard details of the deal and
they’re not shareholder friendly so 3) quickly dumped their shares...”.
Maybe. That’s all I have to say here, maybe. But the best guess is that things really aren’t that
complicated and there’s less extra-special-inside-info going round on this than our fertile
imaginations might like. For one thing, 6m or 7m shares picked up or dumped in large chunks
may look like a lot and in fact it is a lot compared to the dribs and drabs IRL traded for most of
2014, but in absolute dollar terms it isn’t that much. Well again, context required, as I
personally have just looked round this office and confirmed that I don’t have half a million
hanging round in bundles of notes, but for somebody with deeper pockets looking for a high-
risk-high-reward speculative long in the gold space it’s the amount that stock markets can
ingest, chew and swallow easily. Plus, let’s not lose sight of the way in which the London
MIRL.L ticker traditionally runs far better volumes than the Toronto IRL.to. That’s not the case
right now, but we saw bunches of 2m shares going through MIRL.L in mid-January so there
may just be a speculator running a quick flip arb here. Or it may be more than one person with
different agendas, as good off-record intel from more than one source tells your author that
there’s been a persistent buyer hitting the button at Canaccord for weeks and was the person
ready and willing to buy last week’s dumpage volumes. If one person’s looking to dump a long-
term loser and another looking for a bargain, then...
To quote Yul Brynner, et cetera et cetera et cetera. Therefore I’m back to being boring and
pointing to the same message after this heavy dump that I espoused as the stock rose through
January and the first week of February. Here, by way of reminder, are a few quotes from recent
editions re- IRL.to, all while we watched it climb:
IKN297: “...it’s a hold, an official, standard not adding any more hold
until material news arrives (block typed and underlined for a reason).”
IKN298: “My trading reco has not changed since last week, nor will it until a
deal is done on Ollachea. Hold.”
IKN299: “It’s still clearly highly speculative and the lack of news is the issue.
We wait.”
IKN300: “This doesn’t change a thing here, we hold until real news shows.”
I was not BSsing you in those editions. Yes it went up from extreme lows (which doesn’t allay
the fact I’m still seriously underwater on this position) but on the way up it’s been called as a
spec move, a fragile move and one that could continue or reverse for simple market trading
reasons. As it happens we got a reversal last week which has taken most of the 2015 paper
gains away but the company hasn’t changed, nor has my call. Percentage-wise the moves are
wild and whacky, agreed 100%, but in money terms they are a few cents and they’ve been
pushed around by a relatively modest amount of money (in gold mining terms) too. And folks
remember, this is tinycap exploreco junior mining and wild/whacky comes with the territory.
Therefore, once again, the message is clear. IRL is a hold until we get solid, official and
actionable news on the Ollachea financing. Once we have that we get to make informed
decisions. Trying to second-guess the next price move of something this small and easy to push
around is impossible.
21

Focus Ventures (FCV.v): Now confirmed, I’ll be taking a second trip up to Bayovar 12 in mid-
March to see how things have been progressing on site. And for what it’s worth, I like the
sound of that confirmed trip’s calendar because it makes plain the the company will be in
control of their property, and that means the option will be paid. In trading things remained
very light and although we saw trades every day, no day saw more than 50k shares change
hands. Strong suspicion that the world is doing the same as I; waiting for news.
Rio Alto Mining (RIOM) (RIO.to): Down in ‘Market Watching’ there’s a longer note on Rio
Alto and its news of last week. It’s not that long though, i just thought an occasion such as a
buyout warrants a bit of pomp and circumstance via a separate article.
GoldQuest (GQC.v): This put in a 12% rise, but I’m still unimpressed by its trading action.
Mentally I’m stuck somewhere between wanting to take the loss and waiting a while longer to
see if it catches a bid, because this type of light volume can see a tinycap move higher if one
(or a few) determined bidders suddenly show up. The call is still to hold, but only because I’m
not in a rush on this one. Not a trade I’m proud of, has to be stated clearly.
Dalradian Resources (DNA.to): Last week saw the confirmation and closure of the Ross
Beaty buy-in of this stock, next week (probably Friday) we’ll likely hear about the exercise of
warrants due February 19th and how much that successful 90c base operation nets for the DNA
treasury. As noted previously, I’m currently assuming 100% take-up of those warrants and a
DNA with 163m shares outstanding once the dust has settled. We can compare my theory to
the reality come the time.
To the DNA trading week and this ten
day chart makes the same point as the
one in IKN300; this is a stock with clear
support at the Loonie level
The Friday close of $1.06 on low end-
week volumes may have been a bit
fakey, but compared to the Steady Eddie
support seen in DNA these days it’s a
minor side issue. The other thing I’ve
noticed recently got an oblique mention
on the blog 10 days ago (6) and I was
going to note it here last week but forgot
(I was all TGZ-stressed); if you take a
tour of the market soothsayers and commentators, they’re all suddenly lining up to tell us how
they have reco’d and tipped DNA for greatness. Now I don’t know exactly when or at what price
most of those got on because back when this was a hot new vehicle it was typically a $2 stock
and even with the recent strong run is no more than UNCH from this time last year (and hey,
call my cynical but such people tend to conveniently forget recos at higher prices, suddenly
preferring to devote all their attention to a more recent and cheaper “refresh buy” or whatever
they call them) but the amount of toldyaso out there in chatterworld around DNA is interesting.
If this gets suddenly popular and the go-to exploreco between now and PDAC, the chances of
my seeing and taking the house $1.25 target price get that much higher. For more, refer to the
section in IKN299, everything there stands.
The Copper Basket
After seven weeks of 2015 The Copper Basket is showing a 6.73% loss to level stakes.
22

company ticker price 1/1/15 Shares out Market Cap current pps gain/loss%
1 Capstone Min. CS.to 2.03 381.95 538.55 1.41 -30.5%
2 Reservoir Min. RMC.v 3.96 47.55 206.37 4.34 9.6%
3 NGEx Resources NGQ.to 1.17 187.71 200.85 1.07 -8.5%
4 Nevada Copper NCU.to 1.65 80.5 122.36 1.52 -7.9%
5 Western Copper WRN.to 0.68 93.68 61.83 0.66 -2.9%
6 Copper Fox CUU.v 0.135 402.96 54.40 0.135 0.0%
7 Amerigo Res ARG.to 0.27 173.65 45.15 0.26 -3.7%
8 Panoro Minerals PML.v 0.295 220.25 41.85 0.19 -35.6%
9 NovaCopper NCQ.to 0.58 60.15 40.90 0.68 17.2%
10 Hot Chili Ltd HCH.ax 0.16 333.11 39.97 0.12 -25.0%
11 Regulus Res REG.v 0.35 56.39 19.74 0.35 0.0%
12 Metminco MNC.ax 0.008 1822.6 14.58 0.008 0.0%
13 AQM Copper AQM.v 0.06 139.24 10.44 0.075 25.0%
14 Catalyst Copper CCY.v 0.305 31.39 8.00 0.255 -16.4%
15 Coro Mining* COP.to 0.045 159.37 5.58 0.035 -22.2%
NB: HCH.ax & MNC.ax priced in AUD$, rest CAD$ Portfolio avg -6.73%
The overall basket average improved by a touch over 2%, thanks to the score of eight weekly
winners (CS.to, NGQ.to, NCU.to, WRN.to,
NCQ.to, MNC.ax, AQM.v, COP.to), two stocks The Copper Basket 2015, weekly evolution
4%
unchanged (REG.v, ARG.to) and five losers
2%
(RMC.v, PML.v, CUU.v, HCH.ax, CCY.v). Most of
0%
the bigger percentage moves came as the
-2%
microcap end of the scale, with a penny or a
-4%
fraction here and there making a big relative
-6%
splash. Double figure percentage moves were
-8%
seen in Coro Mining (COP.to up 16.7%), AQM
-10%
Copper (AQM.v up 15.4%), Metminco (MNC.ax
up 14.3%) and Western Copper & Gold
(WRN.to up 10.0%), while the biggest
downmoves came from Hot Chili (HCH.ax down
14.3%) and Catalyst Copper (CCY.v down 10.5%).
To the nervy and pugnacious copper market in which the smartest and most fleet of foot
traders at LME are probably making fortunes at the moment. Following on from last week, the
U$2.53-55 level is beginning to show itself as a new floor and a price that finds buyers moving
in quickly. The metal finished the week as near at U$2.60/lb as dammit is to swearing, so if it
keeps bouncing from the $2.55/lb level it’s just a matter of time before it goes higher. However,
that’s a whole bunch of “ifs” and I for one just don’t know enough to say more than “staying
neutral” for the time being. The plan is to watch, wait and see what happens post-Chinese New
Year. After that, there may be a lower risk call to be made. As they say round these parts,
vamos a ver...
We move to our regular inventories tracking and the bullet points:
• Overall world levels rose yet again, this time by 25,677 metric tonnes (mt) (+5.8%) to
bring the world total to 467,838mt.
• The Shanghai Futures Exchange moved up sharply (see the chart below), with
16,306mt (+11.7%) added to bring stocks to 155,702mt. There was a late week surge
in the numbers as China brought the curtain down on the pre-New Year period. We can
expect little change for a week or two as the nation enjoys its festivities, late February
will see things come back to life and at that point we’ll know whether the world’s
biggest copper consumer is looking to stock up and take advantage of these lower
market prices.
23
ht4naj ht11 ht81 ht52 ts1bef ht8 ht51
source: IKN calcs

• Over at the LME warehouses stocks also moved up, in this case by 10,850mt (+3.8%)
to close Friday at 295,300mt, which wasn’t as big as the massive 36kt move of the
previous week but certainly keeps the clear trend intact and yes, it’s another three year
high to report as LME creeps back towards 300kt under roof.
• Comex inventories keeps on bucking the trend in its small way. Last week its stocks
dropped by 1,479mt (-8.1%) to finish the week at 16,836mt.
Our tracking chart of the key Shanghai warehouse shows the spike up last week and if we look
to a year ago, we also see how stocks climbed during and after the Chinese New Year period,
reaching a peak in mid-March before the big plummet began. As the saying goes, history may
not repeat but it often rhymes so that’s a pattern to keep in the back of the mind in the weeks
to come. In other words, yes I’d like to be bullish again if given the chance but right now
there’s just too much unknown for my taste.
Shanghai Futures Exchange Warehouse Stocks, 2014/2015
220000
200000
180000
160000
140000
120000
100000
80000
60000
24
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 ht41 ts12 ht82 ht5tco ht21 ht91 ht62 dn2von ht9 ht61 dr32 ht03 ht7ced ht41 ts12 ht82 ht4naj ht11 ht81 ht52 ts1bef ht8 ht51
Mt Cu
source: Cochilco
No dedicated basket stock coverage this week, as aside from the tinycaps and their big moves
on small money, there really wasn’t much to report. We ran the necessary analysis on the
Nevada Copper (NCU.to) news release on the blog (7) and the upshot is that it’s still on track
for a mid to late March completion of its tunnel.
I’m kind of interested in the way Metminco (MNC.ax) can move up 14.3% on a price change of
just a single one-thousandth of a penny, which gets me thinking about ways I could play
trading ranges for fun and profit. But that’s all, it’s no biggie so far and at current copper prices,
its low grade Los Calatos deposit makes little appeal. Just out of interest, “Calato” in local slang
means “Butt naked”. Maybe there’s a hidden warning there...
And of course still no news from Panoro Minerals (PML.v) (8) on its mysteriously non-existent
PEAs for either Cotabambas or Antillas. But you knew that already ☺.
The Low Cost Producer Basket
After 7 weeks, the new Low Cost Producer Basket is showing a 16.25% gain to level stakes.

company ticker price 1/1/15 Shares out Mkt Cap (Bn) current pps gain/loss%
1 Goldcorp GG 18.52 812 19.11 23.54 27.1%
2 Barrick ABX 10.75 1164.67 14.14 12.14 12.9%
3 Newmont NEM 18.90 499 12.37 24.78 31.1%
4 Franco Nevada FNV 49.19 156.08 8.17 52.32 6.4%
5 Silver Wheaton SLW 20.33 357.39 8.13 22.76 12.0%
6 Agnico Eagle AEM 24.89 173.43 5.66 32.61 31.0%
7 Kinross KGC 2.82 1114.5 3.13 2.81 -0.4%
8 Buenaventura BVN 9.56 254.19 2.76 10.86 13.6%
9 Pan American PAAS 9.20 151.41 1.79 11.85 28.8%
10 B2Gold BTG 1.62 948.9 1.60 1.69 4.3%
all prices in U$, using NYSE ticker prices Portfolio avg 16.25%
An interesting week which had a bit of a wheat-from-chaff look about it. Six of our basket
stocks moved up (GG, NEM, SLW, AEM,
BVN, PAAS), four moved down (ABX,
The Low Cost Producer Basket: Weekly performance
FNV, KGC, BTG) and despite the six-to-
and comparative to GDX control
four numerical advantage the overall 25%
basket average lost nearly a full 20%
percentage point. That was largely due
15%
to the beating taken by Kinross (KGC
10%
down 13.3%) on the back of its Q4 and
yearly numbers, though the chunky loss 5%
in B2Gold (BTG down 6.1%) didn’t help 0%
matters either. Notably, KGC is now
showing negative on 2015 year to date,
with BTG just about holding its head
above water. January seems a long
time ago.
The gap between our basket and the GDX
control benchmark has shrunk further as
well, our basket now holding a slim 0.58%
advantage. Again there’s the effect of
having smaller names equally weighted to
the larger ones. That’s neither a good
thing nor a bad thing by the way, it’s just
a thing.
Kinross Gold (KGC) (K.to): Why did Kinross get whacked so hard after reporting its 4q14
and year-end numbers on Tuesday evening (9)? Common consensus had its Q4 and year-end
numbers were more or less as expected and though 4q14 came in at a 1c loss, operationally it’s
profitable (op cash flow +17c/share) and the operation loss was more about the company
taking a sizable depreciation cost this quarter (to the point of kitchen sink, thereby lightening
the 2015 load). The headline net loss was all about the impairment and write down taken to the
tune of $1.1Bn that surprised nobody, as K had flagged on that for weeks beforehand.
No, the problem is guidance for 2015 and for my taste there were three weak points:
1) Lower production. The guidance for 2.4m oz AuEq to 2.6m oz AuEq compares to 2.73m
oz AuEq produced in 2014 and 2.63m oz AuEq in 2013. There may be good, solid and
logical reasons for the lower production this year, but the optics are horrid.
2) No cost reductions. The world now wants its miners to be lean mean moneymaking
25
ts13ceD ht4naj ht11 ht81 ht52 ts1bef ht8 ht51
basket
gdx control
source: Google Finance, IKN calcs
Low Cost Basket: Percentage difference between
basket and GDX control, 2014
0.50%
0.00%
-0.50%
-1.00%
-1.50%
-2.00%
-2.50%
-3.00%
ts13ceD ht4naj ht11 ht81 ht52 ts1bef ht8 ht51
source: ikn calcs, NYSE/Nasdaq data

machines, the latest fashion (and though I’d love to see the idea stick around, i fear it
may only last until gold takes off again) and touchstone of the lovable company.
Kinross guided its all-in sustaining costs (AISC) at $1,000-$1,100/oz in 2015, which
compares to the $973/oz AISC in 2014 and doesn’t even include the capex budgeted
for Tasiast in 2015 (see below). Again, there’s little to love about that number.
3) Company specific confusion about the future of Tasiast. The announcement that K was
putting the big and expensive growth project at Tasiast on ice for the time being was
both expected and welcomed, but then came the kicker that Kinross would be spending
$155m on capex there, a combo of project wrap-up, sustaining and early and
apparently necessary early stage development of pre-strip. Tasiast and the expansion
there is the biggest legacy from the Tye Burt days and a veritable yoke around this
company’s neck, as last week showed because the conflicting message of “we’re not
going ahead yet due to the gold price but we’re sinking serious cash there anyway” was
confusing and brought images of the type of situation Barrick (ABX) at Pascua Lama
finds itself in today. For what it’s worth, $155m in capex would add just over $60/oz to
the 2015 cost guidance if K wasn’t capitalizing this item.
The result of the negatives can be seen in this five day chart that compares KGC against the
gold bullion ETF (GLD) as well as our basket benchmark GDX:
That was pretty nasty and being out of KGC and currently on the sidelines, I’m in no rush to try
and strand in front of that particular steamroller as it may have further to drop. But on closer
examination of the K guidance, such as this part of the NR that sets out its cost assumption
parameters...
26

...as well as the way it assumes the worst effects of the current drought in Brazil (which, by the
way, is one of the reasons people calling gloom and doom over Bolivia in 2015 are wrong
because its gas sales will be just fine, thanks) all point to a company that’s baking in a bad case
situation, therefore leaving plenty of room to beat expectations later. If you look above only the
silver price is unfavourable to K’s assumption right now and others, such as the Ruble and and
oil, give K plenty of wriggle room. Also, those longs (or sellsiders looking for commish) making
the case for KGC last week were quick to jump on its strong balance sheet position, with
$1.9Bn working capital, basically a billion of that in cash and a long-term finanical debt position
of $2Bn that’s perfectly manageable and modest (compared to many) and they were right to do
so, even though it was all a bit like King Canute against the tide of sellers (yeah, that image
again, sorry I’m not very original).
Kinross isn’t one I’m champing at the bit to go back to, but it’s one to keep an eye on especially
if gold starts to perk up. Chances are it’s going to lag from here, but it would only take a future
quarter or two of estimate beats to get it back in favour. And the way in which it’s assumed its
2015, that’s quite likely.
Market Watching
Rio Alto Mining (RIO.to) (RIOM) to be bought by Tahoe Resources (TAHO) (THO.to)
The news last Monday (10) that Tahoe Resources (THO.to) (TAHO) had entered into a friendly
deal to buy out Rio Alto Mining (RIO.to) (RIOM) was good news for our Top Pick stock and as
stated in the Flash update of that morning (see appendix 1), the call of “Hold Your Shares” still
stands (that’s because there was no change to the call via another Flash). So first some
commentary on how I saw the market action last week (I had to watch the ticker carefully last
week, there’s decent cash in play) and then what I plan to do with my position.
What we saw from the market last week was a healthy reaction to the deal news. When I read
the NR Monday morning the best guess was “TAHO drops to 16, RIO.to pops to $3.70” and
neither of those were out by more than a few pennies. Then, as this “take-out-the-Monday-
open-pop” comparative chart indicates, once the immediate sellers of both TAHO (mainly) and
RIO had done their selling we saw good action in both stocks; the way in which volumes
accelerated and the asks were taken is indicative of a deal that’s getting applause from the
larger money and new positions taken by companies that want to be part of a new ~$3Bn
precious metals growth story.
27

You’ll also note that once the immediate Monday morning action was done, both RIO and TAHO
traded in near lockstep all last week. That’s not what you’d see if the market thought there
were an elevated chance of a third party moving in and making a counteroffer (almost certainly
for RIO.to, as TAHO has a big lump of shares held by Goldcorp (GG) protecting it from all-
comers).
So the market doesn’t think there’s much chance of a counter-offer coming in or a bidding war
developing. On balance I agree, but I’d put the chances at something above the near-zero that
seems to be baked in now. The murky world of M&A runs on rumours and if a similar sized
medium scale mining company to TAHO like New Gold (NGD), or even something bigger but
not strictly Tier 1, such as Agnico Eagle (AEM), were to think about making a run at RIO.to
they’d need to take on third party advice beforehand, such as a brokerage or lawyer. Though
they'd be under a confidentiality agreement you can stick that firmly in inverted commas
because that's when the leaks would come and those would immediately show up in the price
prints of the companies. Meanwhile, a true Tier 1 major such as Barrick (ABX) or Newmont
(NEM) would be able to make a 100% in-house decision without getting independent opinions,
so the chances of leakage before a counter are less. We can say, here a week after the deal
announcement, that there's been little in the way of real rumours which suggests no counters
coming from the peer group. And as the market assumes that majors have more than enough
to worry about as it is right now, we're seeing little pricing in of a 3rd party bid.
But it's not impossible. I will say that that it’s not likely and I’d add that if nothing happens from
now to the other side of PDAC the deal is set fair. But right now, put me at a 15% chance of
something unexpected happening and TAHO not getting it all their own way. That might be as
a straight third party interloper and resulting bidding war, or it might come from the rise of an
activist section of RIO.to shareholders (maybe a large insto holding) that pushes for a
sweetened bid before it pledges its shares.
As for market action from here, apart from the insto buying that did a good job of propping up
the quasi-joint entity RioTahoe what we’re going to see is RioTahoe as A.N. Other company
that will be moved by price action in gold and silver. That’s one change for me as a RIO.to
holder of course, my preference for holding gold equities over silver equities is well-stated so
this new exposure to the wilder vagaries of silver is something I’ll have to get used to. But as it
happens it’s not going to be for very long in my case, so it’s one I’m OK about.
And that’s because I’m not going to be a shareholder in the new RioTahoe company. It’s been a
fun stock to hold and for me personally a didactic study of how markets sell down quality as
well as buy it up afterwards, all while the core company just gets on and does its own thing. I
also think TAHO is paying a slightly lowball but still reasonable price for the stock as my own
most recent $3.55 price target on RIO would indicate (and for the record, when I stuck a $3.30
28

on the stock and reaffirmed its Top Pick status in June last year I took some abuse, what with it
being at $2.17 at the time) but what I’m not going to do is be part of a ~$3Bn market cap
company that had 2/3rds of its net worth exposed to Guatemala, it’s as simple as that.
Which means I’m going to walk away. The plan as stands today is to wait around a while, at
least until after PDAC, just to see whether the unlikely-but-possible third party turns up to push
the deal price higher. I think a one in eight chance is worth hanging around for, at least for
three weeks. Also, that time is also a bit of a roll-the-dice on improvement in the gold and silver
price, because if they go up so will RioTahoe, therefore so will RIO. But if things remain quiet
and the chances of further M&A action are reduced to extremely unlikely, it will be time to sell
up. I will, of course, tell you before I sell in a weekend edition or a Flash update.
To wrap up, I know just by checking back at my mailbox this week and putting “RIO” into the
search engine that there were quite a few of you looking for a big deep analysis in this edition
of the Weekly. You didn’t get one and that’s because my work is done on RIO.to. The single
constant message that’s come from The IKN Weekly for way too long is that Rio Alto Mining is a
Top Pick stock. As things have turned out, that view has been vindicated by the decision of
TAHO to pay a premium to buy out the company and that premium coming on top of a share
price that was already leading its peers:
The work here isn’t to decide whether TAHO is paying too much or too little, it’s to recognize
that RIO.to has entered into a friendly buyout and respect that fact. The work isn’t to whoop or
highfive the news, neither is it to grouch and complain about a cheap ticket price or what-
might-have-been. Neither is the work about TAHO, because I don’t cover it and have never
been particularly tempted to own it, with or without its obviously fantastic rocks.
The work came before IKN301. It was, for example, in IKN240 in December 2013 when the
stock was at $1.37. That day I wrote a five page note on why the thing was so darned cheap
that it hurts and then finished the edition with this bullet point:
It’s difficult for me to bang on the table about Rio Alto (RIO.to) (RIOM) at this
point, because it’s boy-who-cried-wolf material. But shameless I am and the
numbers compel me to state that we are faced with one of those rare buying
opportunities in a stock. I’m going to hold fire until the end of the month
comes around, but it’s nearly time for the reserve money to be dusted off and
put into play.
Or the work was in IKN265 when I went on an uninvited visit to Shahuindo, did a photo-
reportage on what I’d discovered and finished that edition with this bullet point:
29

Rio Alto Mining (RIO.to) (RIOM) is back at Top Pick, as I’ve assuaged my
doubts over the risk community and political factors after visiting the place,
seeing the sights and hearing what there was to be heard.
If you listened then, I’m happy and you’re wealthier. But I’m not going to start trying to work
out whether there’s the chance of a 5% arb in play today. There are only two things you need
to do in the stock market to become rich. The first one is to buy low, the second is to sell high.
On Rio Alto Mining (RIO.to) (RIOM), by far my biggest position, I’ve done the first. It’s time for
the second part.
Conclusion
IKN301 is done, we end with bullet points:
• I’m a buyer of Teranga (TGZ.to) next week.
• The Rio Alto news was great news. It also means that I’m going to have a lot of cash at
my disposal soon, so expect me to use it as 2015 develops.
• My next job is to decide whether to hold First Majestic (AG) (FR.to) through its earnings
report or to sell it. If I go for the sale, you’ll get a Flash update.
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
30

Footnotes, appendices, references, disclaimer
(1) http://incakolanews.blogspot.com/2015/02/ive-watched-rebound-rally-in-santacruz.html
(2) http://www.terangagold.com/files/doc_presentations/2015/02-03-15-Teranga-Gold-Q1-Investor-Deck-
Final_v001_j68s68.pdf
(3) http://www.itsafricastime.org/stories/season-2/teranga-gold
(4) http://www.rewmi.com/exploitation-de-la-mine-dor-de-gora-apres-les-resultats-probants-de-lenquete-publique-le-crd-
de-kedougou-delivre-le-quitus-tgo.html
(5) http://finance.yahoo.com/news/teranga-golds-fourth-quarter-marks-220500837.html
(6) http://incakolanews.blogspot.com/2015/02/why-dalradian-dnato-is-being-pumped-by.html
(7) http://incakolanews.blogspot.com/2015/02/nevada-copper-ncuto-updates.html
(8) http://incakolanews.blogspot.com/2015/02/big-news-from-panoro-minerals-pmlv.html
(9) http://finance.yahoo.com/news/kinross-reports-2014-fourth-quarter-220000779.html
(10) http://finance.yahoo.com/news/tahoe-resources-rio-alto-mining-120000122.html
Appendix 1: Flash update dated Monday February 9th
Good Monday morning, just before 8am local time, an hour and a half before the Monday opening bell.
The news...
http://finance.yahoo.com/news/tahoe-resources-rio-alto-mining-120000122.html
... is that Tahoe Resources (TAHO) (THO.to) and our Top Pick stock Rio Alto (RIOM) (RIO.to) are to combine in an all
share deal, with THO paying a 22% premium and a theoretical ticket price of $4.
Here's the corp presentation on the deal:
http://www.rioaltomining.com/_resources/presentations/Project_Big_Wave-Investor_Presentation-FINAL.pdf
Here's the confcall details, which starts in just over 30 minutes:
Tahoe and Rio Alto will host a joint conference call on Monday, February 9, 2015 at 8:30 a.m. Eastern Time, or 5:30
a.m. Pacific, for members of the investment community to discuss the business combination. The call-in details are as
follows:
Canada & USA toll-free: 1-800-319-4610
Outside of Canada & USA: 1-604-638-5340
And here's the first opinion of the deal: HOLD ALL YOUR RIO ALTO SHARES. Do not sell any at the moment. Firstly
because we need to listen to the CC, but most importantly because a nominal $4 price for RIO.to isn't prohibitive to
other offers and neither is the $57.6m break fee.
If I have anything different from "hold", you'll get a Flash update today or in the days ahead. But the wise decision at this
point is not to make any hasty sale into the pop today.
Stocks To Follow Closed Positions 2014
Closed in 2014 closed close price
Fortuna Silver FVI.to jan'14 C$2.80 23-dic-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-abr-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-ene-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
Santacruz Silver SCZ.v sep'14 C$1.04 26-ene-14 C$0.86 -17.3% silver/M&A spec, rel. small
Timmins Gold TGD nov'14 U$1.38 09-abr-14 U$0.99 -28.3% failed trade, sell, raise cash
Kinross Gold KGC nov'14 U$2.90 20-oct-14 U$2.15 -25.9% V small trade, didn't work, chau
Salazar Res SRL.v hold C$0.28 02-mar-14 C$0.145 -48.2% lost China sponsor
31

Stocks To Follow Closed Positions 2013
Closed in 2013 closed close price
USA Graphite USGT feb'13 U$0.93 08-ene-13 U$0.17 81.7% short tgt made/trade closed
Lachlan Star LSA.to feb'13 C$1.50 30-sep-12 C$0.95 -36.7% sold to reduce port risk
United Silver USC.to mar'13 C$0.21 28-oct-12 C$0.095 -54.8% small Ag sector trade, failed
Aurcana Corp AUN.v apr'13 C$1.07 11-nov-12 C$0.55 -48.6% closed on poor YE results
Gold Res Corp GORO apr'13 U$14.11 25-ene-13 U$9.38 33.5% short tgt made/trade closed
Marlin Gold MLN.v apr'13 C$0.075 10-feb-13 C$0.065 -13.3% closed trade
Bear Creek BCM.v may'13 C$2.58 01-abr-13 C$2.40 -7.0% near-term, time ran out
Lupaka Gold LPK.to may'13 C$1.12 23-oct-11 C$0.32 -71.4% towel thrown in
Tahoe Resources TAHO may'13 U$18.62 08-abr-13 U$14.70 21.1% took profit on ST short
OceanaGold OGC.to jun'13 C$3.03 16-sep-12 C$1.18 -61.1% sold on gold drop
IMPACT Silver IPT.v jun'13 C$1.14 13-ene-13 C$0.62 -45.6% sold on silver drop
Duran Ventures DRV.v jun'13 C$0.045 10-may-13 C$0.025 -44.4% ST trade never worked
Plata Latina PLA.v jun'13 C$0.79 10-abr-12 C$0.13 -83.5% closed
Bellhaven BHV.v jun'13 C$0.065 03-jun-13 C$0.12 84.6% closed ST trade
B2Gold BTO.to aug'13 C$3.07 28-nov-12 C$3.44 12.1% sold 1/2 to raise cash
Colossus Min. CSI.to aug'13 C$0.72 24-jul-13 C$0.79 9.7% closed thru nerves on future
Pretium Res PVG.to aug'13 C$8.20 11-jun-13 C$10.14 23.7% closed to raise cash
Bear Creek BCM.v sep'13 C$2.06 30-may-13 C$2.20 6.8% sold on pol risk decision
MAG Silver MVG oct'13 U$7.00 12-sep-13 U$5.62 19.6% near-term short
Gold Res Corp GORO oct'13 U$9.52 03-may-13 U$4.98 47.7% short tgt made, covered
AQM Copper AQM.v oct'13 C$0.31 16-oct-11 C$0.125 -59.7% closed failed trade
First Majestic AG nov'13 U$11.51 07-nov-13 U$10.50 8.8% v near term short, closed
Fortuna Silver FSM nov'13 U$4.00 07-nov-13 U$3.68 8.0% v near term short, closed
Primero PPP nov'13 U$5.70 07-nov-13 U$5.75 -0.9% v near term short, closed
Starcore Intl SAM.to nov'13 C$0.235 08-sep-13 C$0.17 -27.7% ST trade didn't work, sm loss
B2Gold BTO.to dec'13 C$2.22 28-nov-12 C$2.16 -2.7% closed ST trade to raise cash
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
32

Stocks To Follow Closed Positions, 2011
Closed in 2011 closed close PPS
Sunward Res SWD.v jan'11 C$1.05 21-nov-10 C$1.63 55.2% target made, trade closed
Serengeti Res SIR.v mar'11 C$0.245 05-dec-10 C$0.285 16.3% sold pre-tgt, ST trade fail
Fronteer Gold FRG apr'11 U$2.37 03-may-09 U$15.24 543.0% buyout, trade closed
Minefinders MFN apr'11 U$9.09 07-nov-10 U$16.89 85.8% target made, trade closed
Metalline Min. MMG may'11 U$1.04 26-jan-11 U$0.89 -14.4% exit, resource disappointed
Peregrine Met PGM.to jul'11 C$0.87 06-mar-11 C$2.60 198.9% buyout offer, closed
Dynasty Metals DMM.to jul'11 C$4.20 03-may-09 C$2.85 -32.1% Sold. Fail. Move on.
Aura Silver AUU.v aug'11 C$0.22 13-oct-10 C$0.16 -36.4% Bad pick. Take loss
U.S. Silver USA.v aug'11 C$0.52 26-jan-11 C$0.71 36.5% closed to make room
B2Gold Corp BTO.to sep'11 C$2.80 12-may-11 C$4.27 52.5% target made, trade closed
Bear Creek Min. BCM.v sep'11 C$3.80 27-may-11 C$4.17 9.7% macro sell call victim
Minefinders MFN sep'11 U$14.70 10-aug-11 U$15.15 3.1% macro sell call victim
Great Panther GPR.to sep'11 C$3.03 22-aug-11 C$2.64 -12.9% macro sell call victim
Fortuna Silver FVI.to sep'11 C$1.07 03-may-09 C$5.36 400.9% sold 20%, macro sell call
Focus Ventures FCV.v nov'11 C$0.40 20-apr-10 C$0.20 -50.0% cut losses, bad trade
Regulus Res. REG.v dec'11 C$1.17 14-aug-11 C$0.52 -55.6% cut on news of poor 43-101
2009 and 2010 closed positions in appendices below
Stocks To Follow Closed Positions, 2010
Closed in 2010 closed close PPS
B2Gold Corp BTO.to Jan'10 C$0.88 08-nov-09 C$1.49 68.2% target made, trade closed
Radius Gold RDU.v Jan'10 C$0.18 23-aug-09 C$0.40 122.2% target made, trade closed
MAG Silver MVG mar'10 U$5.60 23-nov-09 U$7.28 30.0% closed in pdac week
Riverside Res RRI.v mar'10 C$0.435 20-sep-09 C$0.60 37.9% closed in pdac week
Amarillo Gold AGC.v mar'10 C$0.81 31-may-09 C$0.70 -13.6% closed in pdac week
B2Gold Corp BTO.to apr'10 C$1.24 18-feb-10 C$1.50 21.0% target made, trade closed
Lumina Copper LCC.v apr'10 C$0.84 14-jun-09 C$1.55 51.2% total position now sold
Troy Resources TRY.to may'10 C$1.10 03-may-09 C$2.25 104.5% sold on negative results
AuEx Ventures XAU.to may'10 C$2.51 24-may-09 C$3.38 34.7% trade closed
Nevada Copper NCU.to jun'10 C$3.27 14-mar-10 C$2.03 -37.9% need to lower Cu exposure
Carpathian Gold CPN.to jun'10 C$0.39 14-mar-10 C$0.35 -10.3% too exposed to cap raising
Amerix PM Corp APM.v jun'10 C$0.065 08-nov-09 C$0.05 -23.1% victim of macro bear
Antares Minerals ANM.v jun'10 C$1.42 06-dec-09 C$2.10 47.9% sold half
Vena Resources VEM.to jun'10 C$0.37 31-may-09 C$0.23 -37.8% sold half
Minera Andes MAI.to sep'10 C$0.75 28-jul-10 C$0.95 26.7% ST trade closed
Gold-Ore Res GOZ.to sep'10 C$0.52 01-aug-10 C$0.75 44.2% target made, trade closed
B2Gold Corp BTO.to sep'10 C$1.45 25-may-10 C$2.01 34.5% target made, trade closed
Blue Sky Uran BSK.v oct'10 C$0.41 19-may-10 C$0.22 -46.3% v small v bad trade closed
Dia Bras Expl DIB.v oct'10 C$0.14 30-aug-09 C$0.35 150.0% target made, trade closed
S. Amer. Silver SAC.to nov'10 C$1.38 24-oct-10 C$1.60 -15.9% loss on short, small fail
Ventana Gold VEN.to nov'10 C$7.92 27-jun-10 C$13.51 70.6% trade closed on buyout
Lumina Copper LCC.v nov'10 C$1.42 11-aug-10 C$3.65 157.0% trade closed
Antares Minerals ANM.v dec'10 C$1.42 06-dec-09 C$8.40 491.5% trade closed
Rio Alto Mining RIO.v dec'10 C$0.69 23-mar-10 C$2.16 213.0% trade closed
Coro Mining COP.to dec'10 C$0.585 03-oct-10 C$1.24 112.0% target made, trade closed
33

Stocks To Follow Closed Positions, 2009
Closed positions closed closing PPS
Cardero Res CDY/CDU.to May'09 U$1.20 03-May-09 U$0.87 -27.5% sold on negative news
Eastmain Res. ER.to May'09 C$1.04 06-May-09 C$1.315 26.4% trade closed
Radius Gold RDU.v May'09 C$0.165 03-May-09 C$0.235 42.4% trade closed
Latin Amer Min. LAT.v May'09 C$0.12 03-May-09 C$0.158 29.2% trade closed
Aquiline Res. AQI.to July'09 C$2.03 16-Jun-09 C$1.68 -17.2% took loss, bad timing
Chariot Resources CHD.to Aug'09 C$0.20 12-Jul-09 C$0.415 107.5% trade closed
Castle Gold CSG.v Sep'09 C$0.64 02-Aug-09 C$0.60 -6.3% ST trade didn't work out
Guyana Goldfields GUY.to Sep'09 C$2.30 12-May-09 C$4.50 95.7% profit taken
Los Andes Copper LA.v Sep'09 C$0.09 21-Jun-09 C$0.09 0% trade closed
Pediment Gold PEZ.to Oct'09 C$0.80 09-Aug-09 C$1.00 25.0% trade closed
Minera Andes MAI.to Oct'09 C$0.68 03-May-09 C$0.71 4.4% too much bad news
Dynasty Metals DMM.to Nov'09 C$4.18 03-May-09 C$6.01 43.8% half sold
Rusoro Mining RML.v Nov'09 C$0.55 03-May-09 C$0.57 3.6% underperformed
Important Disclosure
The information and opinions contained within this report reflect the personal views of the author and therefore all
material within should not be construed as accurate or reliable or be utilized as advice for investment or business
purposes. Independent due diligence and discussions with ones own investment and business advisor is strongly
recommended. Accordingly, nothing in this report should be construed as offering a guarantee of the accuracy or
completeness of the information contained herein, as an offer or solicitation with respect to the purchase or sale of any
security or as an endorsement of any product or service. All opinions and estimates included in this report are subject to
change without notice. It is prohibited to copy or redistribute this report to any type of third party without the express
permission of the author.
34