The IKN Weekly, issue 305 — Mar 15, 2015
The IKN Weekly
Week 305, March 15th 2015
Contents
This Week: Site visit and no weekly next Sunday (should be out Monday), On copper
inventories and price, FOMC next week.
Fundamental Analysis: B2Gold (BTG) (BTO.to) 4q14 financials and 2015 guidance.
Stocks to Follow: Overview, Legend Gold (LGN.v), First Majestic (AG) (FR.to), Fortuna Silver
(FVI.to) (FSM), Rio Alto Mining (RIOM) (RIO.to), Dalradian Resources (DNA.to), McEwen Mining
(MUX) (MUX.to), Teranga Gold (TGZ.to) (TGZ.ax), Starcore Intl (SAM.to), Focus Ventures
(FCV.v), GoldQuest Mining (GQC.v).
Copper Basket: Overview, Regarding the copper price and its relationship to inventory data,
Reservoir Minerals (RMC.v), Copper Fox (CUU.v).
Low Cost Producer Basket: Overview,
Regional Politics: Peru: Permitting gets (a little) easier, Morelos Mexico: Anti-mining activists
pointing to the Cerro Jumil project again, Argentina: 2015 Presidential election update, Chile:
Copper subsidized at U$2.90/lb for small producers, Chile: The country's water shortage now
has a direct effect on copper production.
Market Watching: Fortuna Silver (FSM) (FVI.to) 4q14, Argonaut Gold (AR.to) reports
tomorrow Monday, Lake Shore Gold (LSG.to): Back on the active shopping list.
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
Site visit and no weekly next Sunday (should be out Monday)
Next week your author is visiting the Focus Ventures (FCV.v) Bayovar 12 project up in the
northern reaches of Peru. It'll be the second visit there (the first was in March 2014, see
IKN253 for the report on that) so it's going to be good to check on the progress made as well
as get all the dirty on the recent deal FCV announced (see below for more).
The only wrinkle to the normal show is that the site visit is happening Thursday through
Sunday, which means it cramps The IKN Weekly style and I won't be able to get the Weekly out
on the normal Sunday evening next weekend. I hope to get IKN306 to you Monday March 23rd
evening, depends on how the write-up goes. Cut me some slack until Tuesday if necessary,
please? The blog is likely to be quiet for those few days, too.
On copper inventories and price
I've wanted to get something off my chest about copper's price action and its relationship to
inventories for about a month. A note I read last week provided the catalyst and got me to
write it down. See 'The Copper Basket' for more.
FOMC next week
The standard heads-up on the Fed's meeting next week. As we noted in IKN304 last weekend
the world wants to know whether the Fed has patience, or has run out of patience, or needs
new patients or something. Anyway, expect the Fedwatchers to do their thing.
1
The two day meeting starts Tuesday and we get the communique Wednesday 2pm EDT which
will get its every word pored over as is the way of these things. This edition comes with a
Yellen press conference at 2:30pm. And of course the standard rules apply for gold:
• Fed dovish -> US Economy stronger than expected -> Bad for gold
• Fed hawkish -> Fed sees inflation soon -> Bad for gold
• Fed acts as expected -> Bull market given official seal of approval -> Bad for gold
• Fed surprises -> Opportunity for profits in stocks -> Bad for gold
Beats me why people consider me cynical. Anyway, Bill McBride at Calculated Risk said today
Sunday (1) that he expects The P Word to be removed from the statement and he knows a
thousand times more about these things than I.
Fundamental Analysis of Mining Stocks
B2Gold (BTO.to) (BTG) 4q14 financials and 2015 forecast
NB: As BTO reports in US Dollars, consider that the default currency in today's piece unless specified.
Last week saw BTO report its 4q14 (2), give lots of background on its both its operational and
corporate financial plans, plus guide for 2015 (and beyond). Today we distill the information,
try to avoid cookie-cutter analysis as much as possible because you can get that from any one
of the dozen or so brokerages that follow the high profile BTO, offer up opinions on the style
and the substance of today's BTO and at the end of the process put together a reasonable price
target for the company as stands today. To that end:
• First some comments on last week's NR and the contents of the filings
• Second some charts on the 4q14 numbers and how we see 2015
• Third a target price for the next 12 months generated
Five comments on the 4q14 filings last week
1) Operations. As quite a few of the more important line items had already been disclosed by
BTO in its (more comprehensive that most company's) production report in January, there were
less surprises good or bad expected or found in the operations numbers. The main drag on that
side was a small adjusted loss of around $8.4m once impairments and write downs had been
backed out, which was more than I'd expected (the IKN model pointed to roughly breakeven).
The reason was higher than expected operating costs, which came in at $103.544 (your author
was estimating $95m). Here's
one example of the higher $m B2Gold (BTG) (BTO.to): Quarterly G&A
booked costs, as G&A at nearly 14 13.094
$10m was higher than the $7m
12
average (bar those Q2 quarters 10.509 9.957
10
when BTO management take
the biggest slice of their non- 8 6.78 6.656 7.924 7.322 7.604
cash share based payments, 6
mostly incentive options). My 4.353 4.726 4.013 4.518
4
mistake here was quite possibly
2
not taking into account that
Otjikoto was ramping up and 0
going into operation in Q4, 1q12 2q12 3q12 4q12 1q13 2q13 3q13 4q13 1q14 2q14 3q14 4q14
thereby adding to expenses (of source: company filings
which G&A is just one):
2
2) The impairments. Although largely expected, the impairments and write downs taken by
BTO in its 2014 year-end financials were big. As a result bottom line financials were hit (net
earnings of negative 39c/share) and on that, plenty of financial newswire reports on the
company's numbers had their automatic headline and subject matter. The main hit was taken
on the Masbate mine carrying value, written down by $436m, an accounting item that got
mitigation from another accounting item in a $109.6m income tax recovery. After other minor
impairment and non-cash adjustments, the weight on the bottom line was around $365m.
As for the Masbate impairment, it makes perfect sense and I totally approve of BTO taking the
asset hit. In fact I would have been far more suspicious had BTO not taken this drop in carrying
value. There are several ways to consider this, but a simple one is as follows:
• On September 19th 2012 BTO and CGA Mining, then owners of Masbate, agreed on their
merger deal (3). It was an all-share deal. At that time BTO.to shares were worth
CAD$3.79 and the deal meant BTO was paying a ticket price of CAD$3.18 for CGA Mining
shares. The nominal value placed on the deal in dollar terms was CAD$1.1Bn. In other
words and to repeat, important to comprehend, BTO didn't pay a dollar for Masbate. It
paid in shares at a rate that the market deemed fair at that time. Once the whole deal was
done and dusted BTO's share count had moved from approx 392m shares to approx 650m
shares so some 258m shares had been added (between 4q12 and 2q13). Bottom line: BTO
swapped 258m newly created shares for a mine.
• Notably, BTO shares have gone down by a roughly 50% since the day that deal was
struck. That's not unusual in the sector either (as we well know) and a pretty typical fate
for many of BTO's peers, not just BTO. What the market is saying to us, loud and clear, is
that the real value of all these miners out there is less than people thought it was back in
late 2012 due to gold price, copper price, earnings power, cost creep or whatever other
reason you care to give.
• So, it stands to reason that if BTO paid around $1Bn or $1.1Bn for a mine in shares that
have dropped by a half since that time, it's not a fair reflection on the mine's true asset
value to keep it on the books at the same dollar value as before. Shares are shares, dollars
are dollars.
• Therefore once calculations are done, the company estimates the asset's true value, the
depletion since then, the forex changes are considered between the CAD and the USD, etc
etc and a thumb is stuck in the air, Masbate was carried at U$858.87m at the end of 2013,
it's now carried at U$414.02m.
Bottom line on the 4q14 impairment charges: This is what companies do to their books to
be honest about things. We can chew over whether paying 100% paper for Masbate at $1Bn or
so in 2013 was a strategically good or bad idea (personally in this case I think the effects of the
Masbate deal are a wash while Fekola was the dilutive "deal too far"), but circumstances
change and when they do, the reasonable mining company adjusts its intrinsic valuation to
reflect those changes. They're saying to the world, "We have this thing. A year ago we looked
around, compared it to other things out there and decided it was worth X. Now things are
different and it's only worth X-minus-1. We've changed the asset value in our books to reflect
that." No more and no less.
3) 2015 Guidance. A couple of days before the 4q14 numbers BTO softened up the world by
announcing (3a) that Otjikoto in Namibia had achieved commercial production sightly ahead of
schedule. With that in place we were ready for the 2015 guidance numbers, which can be
covered in general terms by quoting this bit of the MD&A:
The Company is projecting another record year of gold production in 2015.
Company-wide production in 2015 from the newly constructed Otjikoto Mine,
3
and the Masbate, La Libertad and Limon Mines is expected to be in the range
of 500,000 to 540,000 ounces of gold, an increase of approximately 35% over
2014 production. Consolidated cash operating costs are expected to be in the
range of $630 to $660 per ounce. The substantial increase in the Company’s
consolidated gold production and the reduction in consolidated cash operating
costs per ounce reflect the positive impact of new production from the
Company’s low-cost Otjikoto Mine which reached commercial production on
February 28, 2015.
Those corporate wide production numbers are very much in-line with previous assumptions
from the company. However some mines will do better than other on cash cost, as the $750/oz
total cash cost guidance for Masbate in 2015 shows. That was the small bucket of cold water
that came with the 2015 guidance numbers, with another smallish one from the 140,000oz
guidance for Libertad. Previous company assumptions that the Jabali high grading zone would
add a decent slug of extra production to that mine in 2015 seem to have fallen by the wayside.
4) Liquidity. A subject that was addressed all through the filings and declarations from BTO
last week, including specific comments in the MD&A and the conference call. With a current
working cap of around $175m, other lines of untapped credit that bring total liquidity up to
perhaps $230m, then cash flow projections for the year ahead that put 2015 profitability at (an
IKN estimated) $60m or so, BTO doesn't have the necessary cash with which to build its Fekola
mine with a build-out capex earmarked at around $425m. Also in the mix is the $125m
revolving credit facility which matures in 2017. That's still a couple of years down the line, but
it's fair to assume that they'll need either to roll that over or retire it and find a new source of
capital before Fekola comes on line in approx 2018.
It all points one way, to the potential for a large and dilutive equity financing at current prices.
The interesting bit to report here are the strong statements from BTO, via print and executive
comment, that the company expects to secure the necessary lines of debt financing soon (by
end 2q15 in fact) and that talks are already advanced. Here's an example of the company line,
from the MD&A:
Regarding financing for Fekola construction, discussions with the Company’s
lenders are ongoing and the Company expects to complete an updated and
increased revolving credit facility in the second quarter. Coupled with our
substantial operating cash flows, we expect that the updated facility will be
sufficient to fund the Company’s budgeted expenditures over the next two
years including the Fekola construction costs, based on current assumptions.
If so (and frankly on matters such as this BTO can be trusted, as they have a top reputation in
the corporate moving/shaking world) the removal of the latent threat of equity dilution should
be considered a clear positive for the stock. The devil as always is in the details of such
financing deals so come the time, the terms of the credit line will be important. However, the
strength of CEO Johnson et al comments caught my attention and came away impressed from
what I heard. For me, a dilutive equity financing is now one less thing to worry about.
5) The most interesting comment in the filings. That came buried down at the bottom of
the YE 2014 MD&A and is short enough to reproduce here completely.
"Over the past several years B2Gold’s successful mine construction and
strong mine operating performance has at times been reflected in the
Company’s market valuation, allowing B2Gold to complete accretive
acquisitions utilizing the currency of its shares."
Let's parse that:
"Over the past several years B2Gold’s successful mine construction and
strong mine operating performance..."
4
No problems with that statement, because it's true.
"...has at times been reflected in the Company’s market valuation..."
And by implication, has at times not been reflected. Which is the company's way of complaining
that it's getting a raw deal from the market at the moment, I'd say.
"...allowing B2Gold to complete accretive acquisitions utilizing the
currency of its shares."
And at times letting it overpay in all-paper deals at the back end of the market top, with the
best example being the dilutive price it paid for Fekola which was the next subject mentioned in
that MD&A paragraph, so there's some sort of defence of previous corporate decisions going on
here too. Overall I found that statement above bizarre enough to read over again because it
sounded like a child's whining or the moaning of Mr Toad of Toad Hall (Kenneth Grahame)
when one of his brilliant plans doesn't quite work out the way it was supposed to do. BTO
seems to be telling us that it's getting a raw deal at the moment, it just isn't jolly well fair,
nobody seems to recognize the executives' business acumen and genius at mining any longer
and for some reason the market doesn't want to pay a premium for their obvious collective
brilliance. That's perhaps my own subjective interpretation of the passage, but more obviously
it's telling us that because the share price has gone flat compared to current asset value and its
growth potential, there won't be any more M&A moves from the company for a while. And
that's a good thing.
Financial overview on 4q14 and 2105
With the blah blah done, time for more numbers, more chart visuals and less words. Let's start
with a review of production numbers and this is the quarterly chart showing the first influences
of Otjikoto in 4q14 and how it's going to really change to produciton mix in the quarters to
come. BTO is guiding between 500k and 540k oz gold on consolidated production in FY15 while
we at IKN are going to plump for 515k as our happy guess for the year ahead, leaving upside.
BTO: gold production by mine
150000
140000
130000
120000
110000
100000
90000
80000
70000
60000
50000
40000
30000
20000
10000
0
5
21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 41q3 41q4 tse51q1 tse51q2 tse51q3 tse51q4
oz Au
Otjikoto prod
Masbate prod
Limon prod
Libertad prod
source: company filings
Here below is the annual production chart plus guidance for the next four years. The big
change here is in 2017, because we'd previously assumed Fekola would be up and working by
the end of that year. According to the latest guidance, BTO is moving that timeline out a bit
further and it's not dififcult to read between the lines and state that 2018 is now the year. For
what it's worth, BTO targets 900k oz in FY18, we're going for 850k.
BTO: annual production and estimates
1000
900
800
700
600
500
400
300
200
100
0
6
0102 1102 2102 3102 4102 tse5102 tse6102 tse7102 tse8102
OzAu
Fekola
Otjikoto
Masbate
Limón
Libertad
source: BTO filings, IKN ests
We move to the balance sheet charts, starting with assets. These are simple enough to report,
with most of the company's asset value
($2.118Bn) in fixed assets ($1.859Bn) and BTO: assets
most fixed asset value in mining property 3000
interests ($1.79Bn). We also see the chunk 2500
lost as at 4q14 due mostly to the Masbate
2000
impairment.
1500
As for liabilities, most of that is long term 1000
and either senior debt ($230m) or the 500
revolving credit that's still tucked away in the
0
long-term liability column. If BTO is as good
as its word and manages to strike a
refinancing deal, we can expect that to be
booted at least a little further into the future
and not become a burden on current
liabililities for a few more years.
Here (below right) is working capital, which
stood at $175m as at 4q14. We're factoring
in the modest exploration program ($32m)
for FY2015, that Fekola gets financed from a
new debt line and that operations stay
modestly profitable during 2015 with gold
estimated at U$1,200/oz. The result is a
gentle recovery in working cap in the next 12
months and a company that leaves 2015
with $215m in working cap, according to the
model. I'm open for adjustment on this
number as the year progresses as it's
obviously little more than a reasonable and
educated guess. The terms of financing deals
will affect this, but on the whole liquidity at
BTO shouldn't be a problem as long as
Fekola gets its capex cash from a friendly
financing source.
Below is the shares out chart, with the new
round of paper printing from the Papillon
acquisition now fully factored in. BTO
finished the year with 917.652m shares out
01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 41q3 41q4 tse51q1 tse51q2 tse51q3 tse51q4
$m
fixed
other current
cash&ST
source: company filings, IKN ests for FY15
BTO: Liabilities
800
700
600
500
400
300
200
100
0
01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 41q3 41q4 tse51q1 tse51q2 tse51q3 tse51q4
$m
LT debt
current debt
source: company filings, IKN ests for FY15
BTO: Working capital
350
300
250
200
150
100
50
0
01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 41q3 41q4 tse51q1 tse51q2 tse51q3 tse51q4
$m
source: company filings, IKN ests for FY15
and as at last week, BTO reported shares out at 921.27m. For valuation purposes (below) IKN
sets its bar at 922m S/O.
BTO: Shares outstanding
1000
900
800
700
600
500
400
300
200
100
0
7
70q3 70q4 80q1 80q2 80q3 80q4 90q1 90q2 90q3 90q4 01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 41q3 41q4 tse51q1 tse51q2 tse51q3 tse51q4
m S/O
source: company filings/IKN ests
Now we move to more direct commentary on operations, featuring a selection of the 'usual
suspect' charts derived from the P+L sheets.
Revenues were pre-announced for 4q14 and
are now officially booked at $122.42m. No
surprises there, but with this chart the more
interesting thing is the way in which we
expect revenues to climb quarter over quarter,
largely due to the influence of the newly
commercial Otjikoto mine (and slightly
influenced by other factors, such as the
incremental production expected from
Libertad). All this uses a flat U$1,200/oz gold
price assumption for 2015.
This next chart adds in costs next to the same
revenues dataset and the gives us the resulting operaitng revenue (BTO includes
depletion/depreciation and royalties in its COGS number):
BTO: operating revenues and costs
200
180
160
140
120
100
80
60
40
20
0
21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 41q3 41q4 tse51q1 tse51q2 tse51q3 tse51q4
BTO: Quarterly revenues
200
180
160
140
120
100
80
60
40
20
0
$m
revenues COGS Op. Rev
source: company filings, IKN ests for FY15
All this still at $1,200/oz gold and though we
expect costs to rise on a quarter over quarter
basis, the effect of the cheap cash cost ounces
from Otjikoto means that margins will improve
and operating revenues grow. This next chart
shows that on a per-share basis (922m S/O
assumption for FY15).
That looks pretty healthy, the world loves a
growth story for sure. Although we need to
consider that at an IKN estimated 17.6c,
01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 41q3 41q4 tse51q1 tse51q2 tse51q3 tse51q4
U$m
source: company data, IKN ests for FY15
BTO: Operating Revenue per share, per qtr
0.10
0.09
0.08
0.07
0.06
0.05
0.04
0.03
0.02
0.01
0.00
11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 41q3 41q4 tse51q1 tse51q2 tse51q3 tse51q4
$/share
source: company filings, IKN ests
operating revenue per share for 2015 (that comes before fianncial expenses and before tax) is
at 8.2X and that looks a little on the expensive side. On the other hand, the reason to own BTO
isn't for its 2015 revenue and profit-making ability in the next four quarters, it's where the
company will be four years from now.
Assuming of course they don't dilute that
share count any further with more
acquisitions.
The final P+L chart is adjusted net earnings
(right), as there's no point in showing you a
true net earnings chart that features the
skewed out losses from the last two quarters.
Here on the 4q14 bar you see that somewhat
lacklustre $8.4m adjusted loss, but again we
see how Otjikoto kicking in means we expect
the bottom line to leave behind the losses of
2014 and start posting incremental gains. By
the time we exit 2015 the forecast $25m net is 2.7c/share and that's on the way to a
reasonable forward P/E ratio. It goes without saying that any improvement in the gold price
above our $1,200/oz flat price for this analysis will improve things no end; when you're a 500k
oz producer, $100/oz dumps an extra $50m on the EBIT line nigh-on automatically.
To round off this week's main chart attack, here's the book value (aka equity, i.e. assets minus
liabilities) per share. We see how BV/Share fell off a cliff in 4q14 and is now down at U$1.66.
This means BTO (directly via its U$ denominated BTG ticker) is running a 1.14 price/book ratio
and that's down from the heady days in 2013 when the book stood at U$2.50/share and BTG
could command 1.5X of that.
BTO: Book value per share, per qtr
3.00
2.50
2.00
1.50
1.00
0.50
0.00
8
21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 41q3 41q4 tse51q1 tse51q2 tse51q3 tse51q4
BTO: Adjusted net earnings
40
30
20
10
0
-10
-20
-30
$
source: IKN calcs from BTO data, ests
But we feature this chart last, before moving onto our valuation section, for two good reasons.
First for the path chosen to value the comapny (see below) and second because due to the
impairment of Masbate and the other bits and pieces written down by BTO in 4q14, the
company now has a more realistic asset value to show the world. Until just a few days ago
BTO's price/book was down close to 0.5X; in other words it wasn't fooling anyone, not least Mr.
Market who'd assumed a long time ago that the company's assets were officially overvalued
compared to the changed sector circumstances. Things are now more in line with reality.
Adjusting our target for current gold price
I've never made much secret of my disdain for NAV-based price targets for mining stocks. Yes I
know of their undoubted popularity, I'm aware that they're fashionable and understand the
advantages as an "all-inclusive" way of getting a "true value" on any given resource company. I
know know how easy it is to Make Shit Up (MSU) using the method and get the number that
suits you/your boss/your paying client/the company you're covering so that you all live happily
ever after. To be blunt, an easier way of inventing a price target has yet to be created by
number people. I tend to shy away, preferring to get to targets via cash flow analyses as for
31q1 31q2 31q3 31q4 41q1 41q2 41q3 41q4 tse51q1 tse51q2 tse51q3 tse51q4
$m
source: company filings, IKN ests for FY15
one thing it's easier to spot when you're trying to BS yourself, for another it's not as easy to
cover your tracks when you're trying to BS others. The sport!
But there are times when cash flow analyses do little to shed light and this is one of those
occasions. BTO is a producer of course, but it's really a growth story that has as its long-term
objective the idea of expanding itself into the next million ounce producer, selling paper and
taking on debt to do so, all aiming for that day down the line when it's churning out free cash
flow at such a clip that it pays down its debt and becomes an irrestistible target for a major
miner, who then pays a premium to buy it out. Right now today and in 2015, BTO is still only
part the way down that road (for me 2019 looks about right, if the gold price plays along) so
there's no point in looking at the size of this company and trying to place a reasonable price
target for the next 12 months on earnings alone in a gold price environment that's still in the
process of bottoming out.
The way forward for a reasonable valuation of B2Gold is a sum-of-parts asset value calculation,
in much the same way as we did way back in IKN194 and then IKN208 (April 2013) Since those
heady days the playing field has changed significantly, not least because in IKN194 we had the
luxury of using a U$1,700/oz gold base case price.
First let's consider how BTO currently values the main asset items for the year ahead, according
to the 2014 YE financials
• Libertad: U$168.4m, or 18.3c/share (assuming 922m shares out)
• Limon: U$79.91m, or 8.7c/share
• Masbate: U$414.02m, or 44.9c/share (incl. undeveloped mineral interest value)
• Otjikoto: U$430.67m, or 46.7c/share
• Fekola: U$514.97m, or 55.9c/share
To those main assets we add a couple of extra line items, also from the company sheets:
• "Other" assets (the catch-all of non-advanced properties): U$182.78, or 19.8c/share
• Working capital minus 2015 exploration budget: U$142.9m or 15.5c/share
BTO assumed tota value: U$2.098c per share, or CAD$2.52. At this point it's worth
noting that for its asset valuations, BTO uses a long-term gold price assumption of U$1,300/oz.
Valuing the sum of parts at BTO, IKN style
On that subject, it's time to consider our price tag estimates on each part of BTO version 2015.
To begin, in this we consider valuations for the Canadian ticker stock BTO.to based on:
• A U$1,200/oz gold base case price (though others are offered in the main table below):
• 922 m shares outstanding.
• A forex of U$0.80 = CAD$1.00 (ignore for valuations of BTG ticker)
• Then in much the same way as above, we consider its four operating mines, (Libertad,
Limon, Masbate, Otjikoto) as separate entities, then add in a current NAV value for Fekola,
add an "other" estimate for its lesser projects plus interests in JVs (mainly Gramalote in
Colombia), then consider the net effect of working capital (current assets minus current
liabilties minus the budgeted $32m for exploration in 2015).
When it comes to the working mines it's fair to take them as separate entities, consider their
earnings power and then come up with a per-share valuation on their 2015 potential taking
each case separately and applying different multiples to each one. The mature mines at
Libertad, Limon and Masbate work well this way, Otjikoto being new may not, but we have a
shot at it anyway. On top of that we then take a reading from the non-productive assets and
estimate a per-share value. Once that's all done we can put the numbers together and come up
with a price target.
9
As we prefer U$1,200/oz for our target in 2015, that's going to be the baseline. But it's a fairly
simple step to change the gold price and see how it affects things as well, so the final price
target you see here gets presented in a table with alternative targets that assume different
average gold prices. It's also useful to get a feel for the type of leverage to the underlying
metal that BTO is likely to display in the year ahead.
B2Gold (BTO.to): Current asset-based valuation (all in US Dollars except target totals in Canadian Dollars)
operations Pipe project Wrk cap cash Target
Au/oz Libertad Limon Masbate Otjikoto Total Prod Fekola +other total C$
1000 0.12 0.04 0.11 0.40 0.67 0.30 0.25 1.46
1050 0.15 0.05 0.11 0.42 0.73 0.33 0.25 1.57
1100 0.21 0.06 0.13 0.45 0.85 0.35 0.25 1.74
1150 0.26 0.07 0.22 0.47 1.02 0.37 0.25 1.97
1200 0.32 0.08 0.31 0.50 1.21 0.40 0.25 2.23
1250 0.38 0.10 0.40 0.55 1.43 0.45 0.25 2.56
1300 0.44 0.13 0.50 0.58 1.65 0.50 0.25 2.88
source: BTO data, IKN ests/calcs U$0.80 = CAD$1
Result: IKN puts a CAD$2.23 price target on BTO.to in 2015, which assumes an average
U$1,200/oz gold price and the other assumptions as stated. Here comes a brief explanation of
the parts, with a simplified line or three on how I got there.
• Libertad: The 32c value is derived from an assumption of 140,000 oz produced in FY15
at a total cash cost of $635/oz. Once other items are discounted (depreciation, G&A, etc)
we apply a 10X PE to the result. This part of our target is substantially higher than the
straight per-share asset value of Libertad as carried by BTO.
• Limon: The 8c value is derived from an assumption of 60,000 oz produced in FY15 at a
total cash cost of $700/oz. Once other items are discounted (depreciation, G&A, etc) we
apply a 10X PE to the result. This part of our target is roughly equivalent to the straight
per-share asset value of Libertad as carried by BTO.
• Masbate: The 31c value comes from an estimated production of 180k oz in 2015 at an
IKN estimated $750/oz total cash cost (we're assuming the higher end of the company's
cost range for the moment), after other deductions we award Masbate a 12X multiple to
earnings thanks to its large size, established position as an operating mine and long mine
life. Another 10c/share is added to account for exploration asset value at the mine. This
part of our target is substantially less than the straight per-share asset value of Libertad as
carried by BTO. We should expect Masbate to be less of a price driver this year than last
and at current gold prices, its going to offer a lower gross margin thanks to its higher than
corporate average cash cost.
• Otjikoto: the 50c/share value comes from an estimated production of 145k oz in 2015
at an IKN estimated $5250/oz total cash cost, parameters based on BTO's own guidance.
Then other normal deductions, then a 11X multiple to earnings. That's quite high a
multiple for a first year operation but the sensation given is that this is going to be the
main flagship story at the company in the year ahead and all eyes will be upon it. If it
performs up to scratch, expect it to reap the rewards.
• Fekola: We assume a 40c/share valuation for this, the main exploration and
development project on BTO's books. The current carrying value of $515m for this new
asset looks rich, as from the start when the deal was announced in early June 2014 it
looked expensive. The original all-share deal valued Papillon (i.e. the Fekola project) at
$570m (4) and once the dust settled and BTO's price had found its new level, the deal was
framed at a value of $490m or so. That was when gold was trading at around $1,250 to
$1,300/oz and it was also a time when Fekola was assumed to be good to go for all of
10
2017 as an operating mine (these days we're assuming first pour on January 1st 2018).
At U$1,200/oz gold we're assuming an impairment of $146.2m or 28% from the overly
expensive ticket price (the "deal too far" in Clive Johnson's grand expansion program for
BTO) and pricing the asset at 40c/share today. For sure one of these days it's going to
make a great mine, capable of 300k oz/annum at a competitive cash cost. But until such
time and in today's market conditions, this asset needs its price marked down.
• Working capital: The 15c/share value is a straight copy of the book value of the
liquidity position in BTO. We round down half a cent because it makes sense to be a little
conservative.
• "Other": The 10c valuation on this item is a full 50% lower than BTO's carrying value
for this basket of assets. BTO assumes roughly 1/3 of the value here in the 49% it holds in
the Gramalote JV (Colombia), 1/3 in the Kiaka project (Burkina Faso) and the other 1/3 in
the range of smaller scale assets held. As BTO freely admits in its own literature that both
Kiaka and Gramalote are not viable projects in their current state and at current gold
prices, they're not going to have much influence on the share price in the next 12 months
unless gold shoots a lot higher (and if gold does that, you'll have far more to think about
than the value of these two minor assets). The whole package is worthy of some value,
but nothing like as much as BTO would have us think in the near-term. Maybe five years
down the line this little package is worth a buck or two, for the time being we shoot low.
Conclusion
Last week's B2Gold (BTO.to) (BTG) 4q14 numbers and guidance for the year ahead was a little
soft. We see today a company that's less aggressive and scaling back on its expansion plans
that had the look of Total World Domination as a corporate target a couple of years ago. That's
a good thing and it means the new BTO is eminently sustainable in the new $1,200/oz-or-
thereabouts gold price environment in which we found ourselves today.
Our price target ambitions for BTO are suitably scaled back as well, but the CAD$2.23 12 month
target as seen today still repesents a 19.9% upside to Friday's close and as it assumes a flat
and drab 2015 with no outside catalysts, it's something that the company can achieve fairly
easily all on its own. If gold starts moving up so will BTO, of that there is no doubt at all.
This company is a solid part of the portfolio and deserves its place. We've wound down the to-
da-moon target assumptions form a couple of years ago by necessity but we need to keep the
eyes on the real prize here. Yes that's a 12 month target of CAD$2.23, but the reason to own
BTO is more about what this company will be and how much it will be worth three or five years
down the line. A very easy company to hold, with a decent entry point available for sector
bargain hunters who take the longview.
11
Stocks to Follow
The IKN Weekly's Stocks to Follow list stared unmoving at a screaming Banshee selloff in
juniors, held ground bravely and gave as good as it got, ending the week battered but
unbroken, ready to live and fight another week. That melodramatic enough for you?
Of our 14 open positions, four registered gains on the week (FCV.v, NCQ.to, LRA.v, FSM short).
The other ten lost ground, including two double figure percentage losses taken by Legend Gold
(LGN.v down 22.2%) and Dalradian Resources (DNA.to down 14.8%). The first of those drops
gave me a chance to add a few cheaper shares; as for the second, it's just a fleshwound. Many
of the other losers on the week give reasons to be cheerful by coming off their lows as the
week drew in.
We currently have 14 open positions in our Stocks to Follow list, one less than our self-imposed
maximum. Six are in the green, eight are in the red.
Current
company Ticker this week Avg Price Reco date PPS Gain/Loss% Notes
Top Picks
Rio Alto Mining RIO.to selling soon C$2.30 07-apr-11 C$3.40 47.8% Top Pick, Best PM Jr, M&A tgt
Recommended long positions (in current order of preference)
McEwen Mining MUX STR buy U$1.09 25-jan-15 U$1.00 -8.3% Added Mar'15, top value
Dalradian Res DNA.to buy C$0.64 27-oct-13 C$0.92 43.8% Nov'14 tgt $1.25, top Au expl
B2Gold BTO.to buy C$2.32 12-sep-14 C$1.86 -19.8% Dependent on Au price moves
Teranga Gold TGZ.to buy C$0.55 15-feb-15 C$0.57 3.6% New position, 83c tgt
Starcore Intl SAM.to buy C$0.12 10-jan-15 C$0.145 20.8% Small Pos., added, tgt 19c
Focus Ventures FCV.v hold C$0.23 01-jul-12 C$0.27 17.4% tgt 50c, good finance news
First Majestic AG hold U$10.51 10-aug-14 U$5.21 -50.5% Now in pair trade with FSM
Minera IRL IRL.to hold C$0.27 22-jul-12 C$0.065 -75.9% Waiting for financing news
NovaCopper NCQ.to hold C$1.05 09-apr-14 C$0.90 -14.3% small Cu play low vols, hold
Lara Expl. LRA.v hold C$1.15 08-apr-12 C$0.42 -63.5% solid biz model, LT hold
Recommended short positions
Fortuna Silver FSM SHORT U$4.12 10-nov-14 U$3.71 10.0% In pair trade with AG
Smaller/Riskier
GoldQuest Min. GQC.v hold C$0.26 27-oct-13 C$0.10 -61.5% may sell soon
Legend Gold LGN.v spec buy C$0.085 01-mar-15 C$0.07 -17.6% new spec buy, v small trade
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.
Legend Gold (LGN.v): Position added. I took a few of the cheaper shares last week and
averaged down a bit, but didn't get any of the 7c on Friday. I stress, this is still a very small
position and it will stay that way, as I'm done buying for the time being. Let's see what sort of
deal LGN can conjure up on its land before committing any further. My cost average isn't
exactly 8.5c, but that's close enough.
12
Fortuna Silver (FSM) (FVI.to) and First Majestic (FR.to) (AG) Pair Trade: As usual, first
the tracker chart starting from the
November 16th pair trade kick-off
date:
Last week AG dropped 5.3%, FSM
dropped 5.1%, we'll call this one a
tie and the gap's still 20% to our
favour give or take.
There's a little about the FVI 4q14
numbers in 'Market Watching' below,
but I haven't gone crazy about the
coverage because I'm still trying to
decide what to do about it. The likely
decision will be to cover the short at
some point in the near future, but
that also means I need to decide whether to keep the FR.to long in place as well. As things
stand this weekend I'm really not in a good frame of mind to make selling decisions, but I'm
sorely tempted to sell both these and wave goodbye to significant silver exposure once and for
all. Damned silly metal.
Rio Alto Mining (RIOM) (RIO.to): I have a semi-finalized plan to meet up with Alex Black of
RIO.to at some point during the travels of next week, which will depend largely on whether the
seemingly always-travelling CEO is in Lima as scheduled next week. His plans can change at the
drop of a hat.
In trading last week, RIOM was pulled down on the tide of metals selling that affected TAHO
and therefore our long position is a very direct manner. But come the end of the week things
did get better as bargain hunters moved in (RIO.to was under CAD$3.30 for a while, and that's
way way cheap) so there's some reason for optimism. Next week's action in the de facto
RioTahoe will be centred around what a bunch of people sitting round a meeting table decide to
say about the US economy, so those who plan to trade should take that into consideration first
and foremost. As for my own planned sale, I see no reason to rush in and dump at any old
price, there's still plenty of time window to pick a reasonable spot.
Dalradian Resources (DNA.to): DNA gave up its $1+ price tag on Thursday with quite a
bump, as what looks like a single seller
dumped around 800k shares all at once on
an unsuspecting market.
What potentially spooked our seller was
DNA's filing (obligatory on the London AIM
market where it now trades, ticker DALR)
on Thursday morning Americas time (5)
that on March 10th the company was
notified that, "...Sprott Asset Management
LP has decreased its holding in the
Company and now holds 18,563,593
common shares representing 11.4% of the
issued share capital of the Company, as of
27 February 2015"...and that "...Front
Street Capital LP has decreased its
holding in the Company and now holds 9,412,059 common shares representing 5.8% of the
issued share capital of the Company, as of 31 January 2015." For what it's worth, as per its July
2014 Sprott Asset Mgmt held 19.952m shares of DNA which was roughly 13% of total S/O at
the time. As for Front Street, they held 9.946m shares as at November 30th, which was 7.1% of
S/O at that moment. So between them they've cut their exposure by an aggregate of 1.922m
13
shares.
Let's call it 2m to round things out, so 2m shares of a total of 162.2m shares out disposed by
two funds that still hold something like 17.2% of the total. If this is the reason our seller sold on
Thursday afternoon then the person in question spooks way too easily to hold juniors.
McEwen Mining (MUX) (MUX.to): By way of a reminder, here's how I rounded off the PDF
analysis of the MUX 4q14 financials in the Flash update Monday evening (see Appendix 1):
Bottom line to tonight’s numbers from MUX: The overall operating loss was
disappointing, the impairments were hefty (and that net loss number will stick in the
eye of people who only ever scan bottom line numbers for their investment ideas). San
José continues to underperform as an asset and unless gold improves, it’s break-even
at best this year.
BUT, El Gallo was good and promises to be a strong mine operationally in 2015, plus
the balance sheet looks strong enough these days (far stronger than many juniors in
the same price bracket and in the medium to long term, taking the big hit impairments
this quarter makes a lot of sense as MUX will now look leaner and meaner to all.
At its current U$1.01 share price, downside is minimal (and I’d dare say virtually zero),
upside potential is strong and will get stronger with every $50 added to the price of
gold. I bought last week and added at just over a buck, if tomorrow brings early day
sellers it may go under the one dollar barrier. If it does it’s a a steal. If gold re-takes
U$1,200/oz, seeing this at U$1.50 soon wouldn’t surprise me in the slightest.
Let's check the five day chart to see how things turned out:
Notes:
1) It did indeed go under a buck. In fact Tuesday first saw selling to U$0.95
or so (which didn't surprise me) and then to U$0.90 (which did) before a bit
of tape painting at the end of the day.
2) Wednesday early saw the same cheap prices (anything under 95c had
pointing at the screen repeating "bargain look bargain" mantra style) then
buyers turned up and it closed above $1.
3) Thursday and Friday saw the stock fiddling between $1 and $0.95, with the
eventual U$1.00 Friday finish surprising nobody.
Overall I didn't call MUX's very-near-term movements perfectly and the depth of the drop to
90c, plus the length of time it stay under $1 (I thought maybe four hours, it was four days)
were the two big things I didn't get right. But the rest of that Flash update note looks fairly
tight with reality so I'll award myself a score of 8/10. OK, 7/10.
The past is past, what of the future? MUX has shown its resilience at this level, it's not going to
14
take much more than a modest recovery in the gold price from here to see it head higher. My
ambitions for gold are modest but optimistic, calling it to regain U$1,200/oz first step, then we'll
see how it goes. At U$1.2k/oz I have little doubt that the red blob next to my U$1.09 cost
average price will be a green blob.
Teranga Gold (TGZ.to) (TGZ.ax): Far softer than I'd have liked to see and at one point it
even went under my own pruchase price, which I thought was the knockdown bargain lucky
timing of the season when snaffling all the 55c I wanted back in February. Volumes stayed
decent all week (1m+ every day) so no worries about inertia at least. I'd like to see it reclaim
60c and I make no bones about that. The U$1,150/oz gold price has dragged it down the same
as all others and as I'm basing my 83c target on U$1,250/oz, I can at least see the sense in the
selling.
Starcore International (SAM.to): Volume was either thin or patchy, but it didn't drop under
14c at any point, which probably underscores the bargain both I and Eric Sprott have holding
12c shares.
Focus Ventures (FCV.v): Up 45.9% on the week and all on solidly better traded volumes, it's
fair to say FCV had a good week.
However I'm not going to go into the terms
and conditions of this deal this week,
because as luck would have it (!!) the site
visit hosted by company president Davis Cass
happens next week and by the time that's
done The IKN Weekly will be able to offer up
a more complete and detailed overview of
everything FCV.v has today. What I will say
at this point is that for my money (which is
literally true here) the terms of the new
revised deal are good, the Sprott financing
facility is a fair one and even before the
share price move had started last week I was
sending "good deal" mails to the players involved. It has the hallmarks of a classic win-win-win
situation and unlike many junior exploreco deals, come the financiers and retail shareholders
were not left out. The price move last week was fully justified, I expect more to come.
Meanwhile and to round off I'm going to assume that all longs of FCV reading these words have
already read the very informative and candid shareholder letter that came out just after the
news last week, but if you haven't you can find it on this link (6) below. Written by FCV director
and VP Corp Dev, Ralph Rushton, it's an object lesson in corporate transparency and lets
everyone in on what went on and is going on behind the scenes as regards this deal, the
thinking and structure behind it, the whole nine yards. If only all juniors did the same...
Until next week on FCV, expect a long note with photos and everything.
GoldQuest Mining (GQC.v): Still the most likely to give way if I need a space for something
better. Frankly, the only reason I'm hanging on here is to see if the first holes of the current
drill program that started late January (7) hit something interesting. However, be clear that I'm
now at the point of giving up and realizing my loss on this position, which isn't going to be life-
changing at all but having bought twice and averaged down (badly), it does have some sting in
it and will be remembered unfondly. Losses in this sector happen, it's part of the territory but
on considering all the moving parts here, GQC isn't my finest hour as a speculator by any
means. The spec reasons to enter made sense, but I wilfully ignored what was clearly in
hindsight a junior exploreco dragging its heels on releasing its news, which is a classic red flag.
Not recognizing the signal was one big error, averaging down before the stock had had its
chance to fully drop was the other strategic faux pas.
15
The Copper Basket
After eleven weeks of 2015 The Copper Basket is showing a 5.17% loss to level stakes.
company ticker price 1/1/15 Shares out Market Cap current pps gain/loss%
1 Capstone Min. CS.to 2.03 381.95 435.42 1.14 -43.8%
2 Reservoir Min. RMC.v 3.96 47.55 204.47 4.30 8.6%
3 NGEx Resources NGQ.to 1.17 187.71 191.46 1.02 -12.8%
4 Nevada Copper NCU.to 1.65 80.5 132.83 1.65 0.0%
5 Copper Fox CUU.v 0.135 402.96 78.58 0.195 44.4%
6 Western Copper WRN.to 0.68 93.68 62.77 0.67 -1.5%
7 Amerigo Res ARG.to 0.27 173.65 59.04 0.34 25.9%
8 NovaCopper NCQ.to 0.58 60.15 54.14 0.90 55.2%
9 Hot Chili Ltd HCH.ax 0.16 333.11 39.97 0.12 -21.9%
10 Panoro Minerals PML.v 0.295 220.25 37.44 0.17 -42.4%
11 Regulus Res REG.v 0.35 56.39 16.92 0.30 -14.3%
12 AQM Copper AQM.v 0.06 139.24 9.75 0.07 16.7%
13 Metminco MNC.ax 0.008 1822.6 9.11 0.005 -37.5%
14 Catalyst Copper CCY.v 0.305 31.39 8.95 0.285 -6.6%
15 Coro Mining COP.to 0.045 159.37 3.98 0.025 -44.4%
NB: HCH.ax & MNC.ax priced in AUD$, rest CAD$ Portfolio avg -5.17%
The overall basket average improved over the course of last week by 0.77%, which was a
pretty decent effort under the circumstances.
Five stocks made gains (RMC.v, CUU.v, NCQ.to, 4% The Copper Basket 2015, weekly evolution
AQM.v, CCY.v), two were unchanged (WRN.to, 2%
COP.to) and eight showed losses on the week 0%
(not listing them all). -2%
-4%
The average was propped up by the strong
-6%
percentage gain in Copper Fox (CUU.v up
-8%
34.5%) and ably assisted by Reservoir Minerals
-10%
(RMC.v up 10.2%). Biggest losers were Panoro
(PML.v down 15.0%), Regulus (REG.v down
11.8%) and Capstone (CS.to down 10.9%)
Copper metal prices fiddled around the $2.60/lb to
$2.70/lb range, a continuation of the previous
week's action as the nice Mr. Market continues to
try and make up his bullish or bearish mind. On a
personal level it's an interesting tug'o'war, but
until the resolution comes I'm content with my
wholly neutral, watching brief position. So rather
than show you the previous week's chart, here's
the dailies that goes back into 2014 and shows the
January waterfall as well as the tentative recovery
that's setting in. We have the drift up from
$2.45/to to $2.70, we have the higher lows along
the way to keep the chartists pleased, but we still
don't have a decisive move to the bull side that
would show copper ready to reclaim the 3-handle
we'd got so very used to in previous years.
More on the subject below but before expanding
16
ht4naj ht11 ht81 ht52 ts1bef ht8 ht51 dn22 ts1ram ht8 ht51
source: IKN calcs
we need to take in the inventories data. Here are the bullet points, data from the reliable
Cochilco (8):
• Another big move for world copper stocks, with the aggregate up 32,069 metric tonnes
(mt) (+5.7%), this weekend we're at 565,092mt, so much for the expected drawdown.
• The Shanghai Futures Exchange broke the 240k line, up 17,276mt (+7.7%) to
241,616mt. A new all-time record high for stocks in this system.
• LME warehouses stocks continued their own upmove, adding 10,525mt (+3.3%) to
finish the week at 333,575mt.
• And this time the smaller Comex warehouses joined in the stock additions, with the
number her moving 4,268mt or a big percentage 24.1% finish the week at 21,970mt.
I may need to change the Y-axis scale on the Shanghai warehouse tracker chart soon.
Shanghai Futures Exchange Warehouse Stocks, 2014/2015
260000
240000
220000
200000
180000
160000
140000
120000
100000
80000
60000
17
31'13ceD ht21 ht62 ht9 dr32 ht9 dr32 ht6rpa ht02 ht4yam ht81 ts1enuj ht51 ht92 ht31 ht72 ht01 ht42 ht7 ts12 ht5tco ht91 dn2von ht61 ht03 ht41 ht82 ht11 ht52 ht8 dn22 ht8
Mt Cu
source: Cochilco
More on copper price and its relationship to inventory data
A recommended read on the subject is Andy Home's weekly column over at Reuters (9) which
takes on the latest copper inventory moves and considers them in the light of the recent price
action. It's slightly unfair to excerpt just one bit and I urge you to go read it all, but this section
gives a fair flavour of the argument put forward:
SURGING SURPLUS...
This year's build in copper inventory appears to play to all the bear arguments for
further price weakness ahead. This was always supposed to be a year of supply
surplus thanks to a mini boom in copper mining which is now feeding through into
rising refined copper output. National refined metal production in China, for instance,
grew by 16 percent in the first two months of this year. These figures suffer a serious
credibility problem but the trend is the more reliable indicator and it is rising at an
accelerating pace. Copper's supply-side strength is now complemented by demand-
side softness, particularly in China and particularly in China's construction sector, a key
end-use market for copper products. Sharply rising visible inventory in China, in other
words, is exactly what might have been expected under such conditions. And with
Chinese import activity remaining slow over the first two months of the year, rising LME
inventories are also a logical development. Seen this way, stocks are surging because
the market's surplus is surging.
...OR IS IT THAT SIMPLE?
Markets, however, are rarely so simple. And never that simple when it comes to
copper. There are other factors at work in this inventory build. The first is seasonal,
reflecting the double year-end holiday effect on manufacturing activity in the world
outside China and in China itself. Even during recent times of supply famine, it was not
unusual for copper stocks to rise over the November-March period of any year. This
year's seasonal build has been accentuated by buyer behaviour, again particularly in
China. Chinese buyers are thought to have gone light on annual term supply contracts
this year, having baulked at committing to producer premiums significantly higher than
spot premiums. Right now, set against a backdrop of expectations for lower prices and
poor order-book visibility after the Chinese new year, this is translating into reduced
spot market activity. Such buyer reticence almost always carries a bullish flip side if
prices either fail to conform to expectations and/or end-use demand picks up, forcing
buyers to lift spot purchases.
It's a very good piece, which is more than I can say about the next featured chunk of
commentary on copper inventories. On February 15th, reader SL forwarded me a link to
something written on the subject by newsletter writer Steve Saville. It annoyed me to the
extent that I haven't been able to get it out of my head since. Here's part of the note:
"The lack of a consistent relationship between the LME copper inventory and the
copper price is evident on the following chart. The sharp price decline of the past few
months has gone with a rising inventory, but note that the inventory level had plunged
over the preceding 12 months and was at a 5-year low prior to the start of the sharp
price decline. Anyone who took the unusually low level of the reported inventory in mid-
2014 as a reason to make a bullish bet on the copper price would have been as wrong
as they could be."
We were then given these two charts...
..., the five year trackers of price and inventory, which are all the proof Saville apparently needs
to support his case that following copper inventories are tantamount to a waste of time. I could
say many things about this and if it were open blog material I probably would, but here in the
Weekly I'm going to stick with the word 'facile' for his opinions and that maybe he thinks the
80/20 rule works in all situations in life.
The way the subject copper inventories are approached this particular section of The IKN
Weekly, the "copper macro" commentary if you like, has never been as an immediate indicator
that the price of copper is going to rise and fall. Because they aren't, even if the main ambition
on the list of things anyone would like to predict. What this section is about in one word is
observation; we watch, watch and watch again to note the interaction (if any) between stocks
the prices. Sometimes the relationship is direct, sometimes it's null, it can even be the opposite
of what's prima facie logical in strict economic supply/demand terms.
Here's an example that riffs right off Saville's dismissive nature. If we take a second look at
those five year charts above, the one thing that sticks out like a sore thumb is the inventory
spike of 2013 which was nearly all due to the massive influx into LME copper warehouses. At
that time we also watched this dataset here at The IKN Weekly but also at that time kept a
close eye on the cancelled warrants situation and also the reports of the manipulative moves
being made by the big copper players (at that time Goldman Sachs, JP Morgan, Glencore,
Trafigura and a few others) who were attracting metal in but not letting it back out by using the
rules to their collective favour, thereby collecting big rental charges.
In short: For sure you can look at one chart, look at the other, consider the way in which
inventories jumped hard while prices continued to slide, remember what they told you in
Economics 101 about Adam Smith and supply/demand, mutter Mr. Spock's "But that's illogical
captain" and form your well-rounded and irrefutable opinion about the lack of relationship
18
between copper inventories and copper prices, but you'd be horribly wrong on several counts.
Andy Home finished his piece last week with this phrase:
"...much is also going to hang on that most ambivalent and problematic
of market indicators, exchange stocks."
And that's right. Hopefully you see what Home is saying in those two short lines:
1) You can't read these numbers "straight"
2) You absolutely need to read these numbers to have an idea about the copper market.
Those who take the squiggly lines on the price and inventory charts for copper and after ten
seconds of considered opinion decide there's nothing to be gained from their relationship are
not worth listening to about copper. And maybe, just maybe it's a window into other strong
opinions they might have on metals. That's for another day, but in this just like everything else
connected to the market, there are no easy answers.
Now for some updates on a couple of basket stocks
Reservoir Minerals (RMC.v): More on RMC this weekend, because it's one of the very few
mining exploreco companies out there, copper or any other metal, that managed to deliver
wholly positive news to the market last week. That's because on Thursday RMC announced (10)
the finalized and agreed development budget with Freeport McMoRan (FCX) for the Timok JV.
the stock did what you can see in this ten day chart as a result, getting back every cent and
more or the chronic selling of the
previous week and a half. Although I
held for a long while and sold at roughly
the same price levels recently (due to
the desire to exit copper exposure) the
reaction put in by RMC is making me
regret not being long now. We'll see if it
can follow through in the next five days.
The bones of the deal are good too. The
main point is that FCX and RMC have
agreed on the details of the earn-in,
which means FCX funds the Timok
project to feasibility study stage not later
than May 2025 in return for its extra
20% of ownership, which will bring the
JV to its originally expected 75% FCX, 25% RMC split. From where I sit FCX and RMC seem to
have have hammered out a deal that works for both sides (in some of these "fund to feas"
deals the bigger company can purposely drag its heels and see the deal lapse, in this case it
has every look of a fair and transparent agreement). It also earmarks $18.7m to be spent this
year, so it's obvious that FCX isn't going to hang around and that 2025 maximum date is
unlikely to be troubled.
It's up to FCX to decide what it puts into its feasibility study, whether it will concentrate on the
high-grade discovery part of Timok (Cukaru Peku) or whether the plan will expand if a
discovery of a big porphyry next to the high grading stuff alters things (the 2km+ drill hole we
mentioned last week may provide clues on that soon). But as pointed out in reports I've read
this week written by people who are watching this project very closely (therefore I claim
plagiarism, not originality) perhaps the biggest advantage to RMC.v is that its 25% ownership is
apparently unfettered by any deal to FCX. This will give RMC the option of dealing freely with
any third party on the portion it owns, rather than being tied to FCX. The obvious advantage to
this is that the 25% ownership is more valuable if you can sell it or do deals on parts of it with
19
other people. It might even get FCX sufficiently buzzed to buy out its smaller partner at an
earlier stage, too.
Question: Do I want to own RMC.v again?
Answer: 1) It's tempting. 2) I have no problem about re-treading old paths and if necessary
buying back at a higher price than my sale. 3) I want to get a more bullish vibe from copper
first, because the fight over price currently in play could go either way and if that way turns out
to be down, even arguably the best copper discovery and project in the world right now will see
its near-term valuation decline. 4) I'm going to wait and watch a while longer so call me a
stupid whussy coward fence-sitter if you so desire. But yes I'm interested, you'd be daft not to
be at this point.
Copper Fox (CUU.v): Last week CUU surprised me and a lot of other people by getting cash
money back from the government of British Columbia. The deal stems from exploration work
done during FY12, which was eligible for an approx 30% tax refund under BC law. The
exploration work done was booked by CUU at $12.756m, the company claimed $4.225m at the
time, that rose over time to a $4.4m claim, the BC people last week agreed to refund $3.63m of
the cash which CUU accepted (11) (they still have some sort of claim running on the balance, I
have no idea if it's valid or whether it'll be paid). Still $3.63m is nothing to be sniffed at in this
market and CUU now says it will be able to do all the (low level) things it wants to do in its
FY15 (which ends October 31st) from these funds. No more dilution of this heavily diluted stock
is a good thing and the price reacted favourably as a result.
I decided to keep CUU.v as part of The Copper Basket this year not because of its awful Schaft
Creek thing, but because these promo pump experts with their long-suffering band of retail
True Believers were shifting their focus to a new project, the Van Dyke project in the USA which
is framed as a potential in-situ leach mine (pump in dilute sulphuric acid, collect the pregnant
solution, copper extracted without moving large lumps of rock). That call came in IKN 293, then
in IKN294 we framed it this way:
There does seem to be some momentum starting around its latest project (pump?)
Van Dyke and as we know these people are past masters at the Canadian mining BS-
factor, it’ll be worth watching to see how far it can be taken here. To be honest for me
it already looks priced to the hilt at $60m market cap (Schaft Creek is worth zero) but
that’s never stopped them before.
The change: It's now an $80m market cap company not a $60m. It also has enough cash to do
its 2015 things, but that's a nearer-term advantage and won't last. Momentum does strange
things to explorecos, as does a story that gains traction (no matter of it has logic and substance
to back it up or not). CUU.v isn't for me, way too much BS and too many fundmental red flags
for my liking. I don't think it's worth anywhere near its current market cap, but my opinion
wouldn't stop it from going higher if traction and paid pumpers get on the scene.
The Low Cost Producer Basket
After 11 weeks, the 2015 Low Cost Producer Basket is showing a 0.29% gain to level stakes.
20
company ticker price 1/1/15 Shares out Mkt Cap (Bn) current pps gain/loss%
1 Goldcorp GG 18.52 812 15.31 18.86 1.8%
2 Barrick ABX 10.75 1164.67 12.35 10.60 -1.4%
3 Newmont NEM 18.90 499 11.13 22.30 18.0%
4 Franco Nevada FNV 49.19 156.08 7.41 47.47 -3.5%
5 Silver Wheaton SLW 20.33 357.39 6.74 18.85 -7.3%
6 Agnico Eagle AEM 24.89 173.43 4.92 28.36 13.9%
7 Buenaventura BVN 9.56 254.19 2.68 10.54 10.3%
8 Kinross KGC 2.82 1114.5 2.61 2.34 -17.0%
9 B2Gold BTG 1.62 948.9 1.39 1.46 -2.1%
10 Pan American PAAS 9.20 151.41 1.36 9.01 -9.9%
all prices in U$, using NYSE ticker prices Portfolio avg 0.29%
By the skin of its teeth, our basket of lower cost producers managed to hold onto its green ink
overall average at the close on Friday (though the GDX control is now negative for the year).
Two of the stocks turned in weekly wins despite the headwinds (SLW, BVN), while the other
eight headed South. Worst losers were Kinross (KGC down 6.8%), Barrick (ABX down 6.5%)
and B2Gold (BTG down 5.8%). My idea of the crazy cheap and illogically sold down Goldcorp
(GG) last week, well that dropped U$0.19 or 1.0%...there's time for that one.
The Low Cost Producer Basket: Weekly performance
and comparative to GDX control
25%
20%
15%
10%
5%
0%
-5%
21
ts13ceD ht4naj ht11 ht81 ht52 ts1bef ht8 ht51 dr42 ts1ram ht8 ht51
basket
gdx control
source: Google Finance, IKN calcs
Low Cost Basket: Percentage difference between
basket and GDX control, 2014
1.00%
0.50%
0.00%
-0.50%
-1.00%
-1.50%
-2.00%
-2.50%
-3.00%
ts13ceD ht4naj ht11 ht81 ht52 ts1bef ht8 ht51 dr42 ts1ram ht8 ht51
source: ikn calcs, NYSE/Nasdaq data
Regional Politics
Peru: Permitting gets (a little) easier
Peru's government has been strong on the promises for a more streamlined permitting process
for mining companies, but when it comes to action things have improved at a snail's pace.
However, another small step forward was taken last Friday when the country announced (12)
new standardized rules for the larger-scale permits, known as "detailed" and semi-detailed"
permits which are needed for large-scale exploration or development projects. There are still
plenty of rules to follow and permits won't be automatically granted, but what the country now
offers is a standard that, if followed correctly, should speed up the permitting process. I was in
conversation with one CEO last week who will need to submit a "semi-detailed" permit
application soon for a large-scale exploration program set to kick off in 2016, he said they
realistically need up to 9 months for the process at the moment. That's a long time for a simple
exploration program, multiple pads or not, so with a little fortune that timeline now gets to
condensed to a quarter, or two maximum.
This is the type of news that doesn't move markets or the prices of companies working in Peru.
It's the type of news that makes Peru a little more friendly to mining shows its willing to help
the sector (even if progress has been slower than expected) and adds to its credentials as
miner-friendly. A small step forward in the longer-term story.
Morelos Mexico: Anti-mining activists pointing to the Cerro Jumil project again
Back when it was owned by Esperanza Resources (ex-EPZ), the Cerro Jumil (aka 'Esperanza')
project was stopped in its tracks by anti-mining activists who successfully argued against the
development of the open pit mining project due to water concerns as well as environmental
issues regarding dust and the threat the mine posed to a historic cultural area nearby.
These days it belongs to Alamos Gold (AGI.to) after the big company bought out the little
company, but it seems AGI is looking to move forward again because the anti-mining people
have re-started their campaign against development in the last few days (13) by petitioning
local authorities and asking them to confirm the zone (as well as the larger Morelos state) as
one free from open pit mining activity.
As always in Mexico (and often in other places around the globe), knowing the micro-regional
political risk is more important than knowing the national government's attitude towards the
industry. It's not just Guerrero that's bad, unfortunately.
Argentina: 2015 Presidential election update
As promised, we'll be keeping a very close eye on the Argentina 2015 Presidential election this
year and today marks the first of the year's coverage notes (apart from a note in IKN296 that
was more about Chubut than the election). This is a most important election not just for
Argentina but for the whole South American and wider LatAm which could tip the regional
balance towards the right or left wing. It's no exaggeration to call it the most important and
potentially influential election around these parts for many years.
The central vote to decide who succeeds Cristina Fernandez de Kirchner CFK as President of
Argentina doesn't happen until October 25th, and even then a 2nd round run-off in November
seems a near certainty, but the shadow of the vote is already looming large over Argentina.
This week I noticed for the first time (by semi-accident, looking for something else) that the
Spanish language Wikipedia page (14) is doing a good job of collating the opinion and voter
intention polls for the election and it's worth both checking and bookmarking for the next six
months' worth of reference purposes. Here's a screenshot of the more recent numbers:
22
There are other potential candidates in some of the party ranks (e.g. Scioli faces a reasonably
serious challenge from Randazzo) and the Presidential candidate from each camp will only be
officially chosen in August, but as this survey of survey shows (from the top June 2014, to the
bottom this month of March 2015) the three main candidates...
• Sergio Massa (in rough terms, centre-right Peronist that CFK-haters support)
• Mauricio Macri (right wing candidate and current mayor of Buenos Aires city)
• Daniel Scioli (most likely to win the candidacy from the Kirchnerist party ranks)
...have this fight between them now. Depending on which polling company you ask you get a
different frontrunner, and that means it's all way too close to call at this point. In fact it's
beginning to look like a game of musical chairs, with three candidates with serious chances and
only two that will make it to an eventual November run-off.
Where we the foreign investor comes in is the general political risk profile of the country of
Argentina in the next seven or eight months. Even at the best of times the country's a bit of a
basket case, this year isn't going to be the best of times. Quite literally anything could happen
this year, nothing at all would surprise me about the country's political scene. From the outside,
you're going to have to be very careful about buying into some-or-other person's wishful
thinking about a change of government, because we're going to see a lot of editorial support
for both Macri and Massa against the "Cristina candidate" (most likely Scioli) which could easily
spill over into a blank assumption that the country's about to change for the better in all the
ways the Very Serious Countries would applaud. To that I'd say that Scioli (i.e. the rough
23
continuation of Kirchnerism) has a favourite's chance at the moment, plus even if either Massa
or Macri win it might turn out to be one of those "be careful what you wish for" situations.
Personally, I have Scioli as slight favourite at this time but only because he has a very firm and
logical chance of making the run-off. He'll get backing from the loyal CFK supporters who may
well complain about their candidate (he has a little of that Groucho Marx "Those are my
principles, and if you don't like them... well, I have others" about him) but when push comes to
shove they'll fall in line at the lady's behest. This means he's likely to get one of the two slots
for the run-off, while the centre-right Massa and right wing Macri fight it out for the other spot.
From that point, when the real fun begins and the run-off election campaign to decide who gets
the big job starts, I don't have a clue right now. Way too early to call.
Chile: Copper subsidized at U$2.90/lb for small producers
Last week the Chilean government announced (15) that the base price safety net for small scale
producers of copper (an initiative started in 2011 under the previous government of Sebastian
Piñera) would be re-set at U$2.90/lb, with a 30c range. What this means in effect is that Chile's
government now subsidizes small miners of copper (defined as 2,000 tonne per month
throughput, or 300 tonne per month concentrate producers, or 100 t/m pure copper producers)
by paying them the difference between spot price and U$2.90/lb to a minimum of U$2.60/lb
(and for example after that, if spot copper is $2.50 the small miner gets $2.80, at $2.40 they
get $2.70, etc). As the minister of mining Aurora Williams pointed out when announcing the
move, that's a pretty high price because it's above even Cochilco's adjusted estimate for the
2015 average price, currently $2.85/lb.
Chile: The country's water shortage now has a direct effect on copper production
The subsidization of small copper producers in Chile will guarantee jobs but isn't going to affect
the larger equation of world supply and demand for the metal, as the aggregate supply from
Chile's small-scale players isn't great. On the other hand, this story could.
According to La Tercera this weekend (16) Anglo American's big 'Los Bronces' copper mine is
now cutting back on production due to lack of water. The problem has been flagged several
time already this year, including by company CEO Mark Cutifani who warned of the potential for
problems in February, but we're now seeing the direct consequences. Here's a translated
excerpt from the report:
In 2014 the production at Anglo American Sur, of which Los Bronces is the
main operation, saw a production drop of 30% due to water supply problem
and for this year forecast for copper production
"It's expected that due to the drought, Los Bronces will see an impact in its
production capacity this year, which will in part be compensated by better
mineral grades", said Chilean office staff of the company.
But the most critical situation is happening now, according to a union leader
at Los Bronces. Since last December the company has paralyzed the Los
Bronces mill, one of the key areas for mineral processing, and is only
operating its La Confluencia mill which began operations in 2011.
However a few days ago the company took a drastic decision in reducing the
daily capacity of La Confluencia by 43%. The plant has an operating capacity
of between 160,000 and 180,000 tonnes of mineral per day and it now only
takes between 90,000 and 110,000 tonnes per day, according to the union
representative.
To compensate for this, the report says that Los Bronces is currently high-grading its mine and
delivering grade of above 1% copper to the processing facility, which compares to the 0.65%
Cu grade averaged in 2014.
24
The problem in the North desert region of Chile isn't new but it's getting worse all the time.
Various solutions have been proposed, from the large-scale and longer term such as the
U$3.5Bn desalination plant now under construction to supply the BHP controlled La Escondida
mine, or shipping water in from the Argentine side of the Andean Cordillera via pipeline, to
smaller and quicker to implement plans such as more efficient uses of water, permits for deeper
underground wells, to better water sharing deals between large mining operations. There's a
whole list.
What Chile's government people will tell you is that mining in the Northern regions uses around
5% of the region's water, but it's far from the whole story because the mines re-use an average
of 74% of their supply. It's a bit of statistical trickery and akin to the canard thrown by those
who'll tell you that "Apple's cash treasury is 10% of the GDP of Country X". Apple may have
"amount X" in its coffers, but comparing it against the amount of money generated on an
annual basis, whihc will generated again and again, makes no sense. Stock is not flow. Cash
flow is not balance sheet. But back to our cause and because regional miners are pretty
efficient in their use of water already, with decontamination and re-use of water being the
norm, they are in fact using just 5% of the region's water per year (the stock), but they still
have to be supplied (the flow) with around 20% of the water available in the region. That's a
lot and it's why any crimping of supply represents a serious problem for the industry.
Market Watching
Fortuna Silver (FSM) (FVI.to) 4q14
Apart from the way FVI decided that its assets don't need any sort of revaluation at the
moment (17), the thing that struck me about the company numbers was the solidity of the
balance sheet and how FVI is will now spend the next six quarters turning its production into
fixed mining assets.
This is the 2015 guidance for the company
And this is its costs guidance
The interesting part is the large amount set aside for sustaining capital expenditures. That's
investment in the future of the company and a solid thing, but I can't help but note the free
pass FVI seems to be getting from the market compared to other companeis doing exactly the
25
same thing right now, for example the subject of our main pirce today, B2Gold (BTO.to) (BTG).
• Both companies are making little or no net profit
• Both companies are in growth mode and building out for the future
• Both companies have a long term plan to become real cash cows
• Both companies are very good at mining and developing mines.
But one get's a 1.1X price to book ratio (BTO.to) in US dollar terms, while the other gets 1.45X
(FVI.to). So either BTO is under alued by 30% or FVI is overvalued by 30%, or maybe it's a
little of each.
I don't think I'm going to carry this short position much longer, because the market isn't
showing much sign of falling out of love with its favoured silver play at the moment. FVI didn't
write down any of its asset value (bar a small provision for metal held in inventory) and looks
set to keep things valued the way they are for another year. Balance sheets get ignored by the
day-to-day market, it's only when the blow-ups on the Allied Nevada (ANV) scale happen that
people begin to care.
Argonaut Gold (AR.to) reports tomorrow Monday
Down another 19.1% last week, it must be hellish to own this stock on a long-term basis. And
take a look at the three month chart on the stock...
...a 110% up and down ride to unchanged.
As it happens AR.to didn't report its 4q14 late Friday as I'd kind of hoped, which means we're
due the numbers tomorrow Monday morning, pre-bell. If I think there's a trade to be had you'll
get a Flash update, if not no.
Lake Shore Gold (LSG.to): Back on the active shopping list
In IKN296 dated January 11th we took a close look at Lake Shore Gold (LSG.to) via a NOBS
fundies report. At the time the stock stood at 90c, I liked what I saw in the company but didn't
call buy on it at the time (more fool me, frankly). To cut a long story short (and if you want the
long story, check out that IKN296 NOBS report again) after windling through the numbers I
came to this conclusion on that date:
Overall and today I’m not a buyer of Lake Shore Gold (LSG.to). The two reasons
are:
1) Rio Alto is a better company and a better investment today. I see no
reason to buy a new position in LSG at current prices, instead of an
addition to RIO.to.
2) It looks as though the current quarter will be a softer one. My opinion on
that may change once we get next week’s costs NR for Q4 (and I reserve
26
the right to be totally hypocritical at all times) but my best guess today is
that LSG could provide a better entry point a little further into 2015, if I still
want to buy more gold exposure at that time.
However, and on balance I like what I see here. No company or stock is perfect,
it’s always a case of balancing the good versus the not-so-good. LSG has
improved enormously in the space of six or so quarters and its management
deserve applause for sticking with the task and delivering well. Don’t be at all
surprised if a Flash update comes out of the blue at some point a few weeks or
months down the line that tells you I’m buying into this company.
What's happened since then ? Here's a list of things:
• I didn't send that Flash update because haven't bought the stock, then to now.
• Starting the day after that report (but it wasn't the catalyst, I hasten to add) LSG shot up
and kept on shooting, reaching a high of $1.19 (see the chart below) and trading for
around two months in a steady range $1.05 to $1.15.
• The weekend after the original NOBS report, in IKN297 we ran an update to note that
preliminary costs were apparently some CAD$3m better than my somewhat conservative
estimates for Q4, but even then the financials for the quarter weren't likely to sparkle
• The recent reversal in gold and the change of mood for the mining sector has seen LSG.to
dragged back down. This weekend it stands at a 95c share price.
• We have exploration results from the 144 zone held by LSG that look very promising.
These weren't part of my valuation criteria in IKN296
However, we still await the 4q14 financials and now know (18) that LSG will report its Q4 and
year pre-open on Thursday March 26th, eleven days from now. In the same vein as AR.to (that
reports tomorrow, see above) the day of the numbers may be the day which offers a good
buying opportunity, or at least enough information to make a better risk/reward call on the
stock. However, unlike AR.to we also know that LSG is in fashion, as a company it's liked out
there in market-land right now and would almost certainly bounce back if gold improves, we
wouldn't need to wait for its numbers. The weekend of IKN296, gold bullion stood at
U$1,218/oz. This weekend we're around 5% lower at U$1,158/oz and that above all has given
a second opportunity to buy LSG at a sub-$1 price (I for one was wondering if I'd lost that
window forever).
The thing with LSG is that the whole valuation depends not on the US Dollar but the Canadian
Dollar. As LSG operates in Canada, pays it people in Canadian Dollars, is quoted on its only
official ticker in Canadian Dollars and even reports its financials in Loonies (unlike many other
TSX gold producers, this is one of those situations where we the influence of the Greenback is
27
less about reality of fundies and more on the psychology of owning a precious metals mining
stock. This weekend gold in US Dollar terms is indeed down 5% from when we looked at
LSG.to, but in Loonies it's up $30 to this weekend's CAD$1,481/oz. That puts LSG's projected
price to gross earning ratio (our preferred metric this time, which gives a better straight line on
previous and future quarters) of 5.5X, and that still looks cheap.
To sum up, I'm actively interested once again in potentially owning LSG. The price and the
window has opened. Here are two scenarios in which I'm a buyer
1) Gold pops before March 26th. In this case, if gold re-takes U$1,200/oz the chances are that
the better viewed juniors such as LSG won't hang around at their new lower prices, but reverse
and go higher. I'm going to try to avoid catching that metphorical falling knife on this one
though. Playing cute with timing isn't usually my thing, but in this current market (and FOMC's
on my mind here too),
Conclusion
IKN305 is done, we end with bullet points:
• B2Gold (BTO.to) (BTG) looks decent value today for those of you who look to the long-
distance for trades. It's modestly undervalued if you consider it against U$1,200/oz
gold and the reasonably quiet year it has ahead of itself in 2015, it's plain cheap if you
consider what it can achieve in the next few years. I'm good about holding this and if
gold starts moving up it's the place you can go for a near-term trading win too. But
overall this one is a real investment.
• Copper inventories have their story to tell, but it's not like reading a children's story
either. It's not the solution, but one of the moving parts you need to understand in
order to move towards the solution.
• I care more about the potential for new trades in the current environment than
avoiding them. That's why the 'Market Watching' section is forward-looking and cares
about the chances in AR.to and LSG.to more than anything else.
• That's also true for Reservoir Minerals (RMC.v), which is back high on the potential
shopping list after last week's news. At this point I do prefer the idea of gold exposure
to copper, but if that should change this is the one I'll add first.
• Travelling next week, including a rare day or two outside the office over the weekend.
Therefore IKN306 will not be with you on Sunday March 22nd. With luck and a
following wind, I'll get to send it open Monday 23rd March. If not, the Tuesday.
• To explain the "started a joke" comment from this time last week. There were the titles
of 27 Faith No More songs scattered around last week's edition. For what it's worth, my
fave was in the RMC section and "... If there were a faster disco very process on RMC it
would be good...". That song, Faster Disco.
I thank you in advance for any feedback. Flash updates will be sent promptly from the edge of
the world if required by events.
I wish you good trading fortune, ladies and gentlemen.
Otto
28
Footnotes, appendices, references, disclaimer
(1) http://www.calculatedriskblog.com/2015/03/fomc-preview-remove-patient.html
(2) http://finance.yahoo.com/news/b2gold-corp-achieved-record-2014-073000487.html
(3) http://www.marketwired.com/press-release/b2gold-corp-cga-mining-limited-sign-merger-implementation-agreement-
business-combination-tsx-bto-1703139.htm
(3a) http://finance.yahoo.com/news/b2gold-corp-announces-commercial-gold-174443265.html
(4) http://www.bloomberg.com/news/articles/2014-06-03/b2gold-agrees-to-buy-papillon-resources-for-570-million
(5) http://www.dalradian.com/news-and-events/news-releases/news-releases-details/2015/Change-in-Significant-
Shareholding/default.aspx
(6) http://www.focusventuresltd.com/i/pdf/March-2015-shareholder-update.pdf
(7) http://finance.yahoo.com/news/goldquest-commences-5-000-metre-113100803.html
(8) http://www.cochilco.cl/Archivos/destacados/20150313122259_MERC%202015%2003%2013.pdf
(9) http://www.reuters.com/article/2015/03/13/copper-market-ahome-idUSL5N0WF21Q20150313
(10) http://finance.yahoo.com/news/reservoir-minerals-executes-joint-venture-100000479.html
(11) http://finance.yahoo.com/news/copper-fox-receives-3-63-100000030.html
(12) http://www.minem.gob.pe/_detallenoticia.php?idSector=1&idTitular=6671
(13) http://www.jornada.unam.mx/ultimas/2015/03/13/advierten-a-municipios-morelenses-por-posible-expansion-de-
minera-alamos-gold-8524.html
(14) http://es.wikipedia.org/wiki/Elecciones_presidenciales_de_Argentina_de_2015
(15) http://www.aminera.com/index.php/component/k2/item/10286-ministra-aurora-williams-anuncia-el-nuevo-precio-de-
sustentaci%C3%B3n-del-cobre.html
(16) http://www.aminera.com/index.php/mineria-nacional/item/10288-la-sequ%C3%ADa-llega-a-los-bronces.html
(17) http://incakolanews.blogspot.com/2015/03/fortuna-silver-fvito-fsm-4q14-financials.html
(18) http://finance.yahoo.com/news/lake-shore-gold-announces-details-211500530.html
Appendix 1: Flash update dated Monday March 9th
Good Monday evening, gone 9pm local time and the kids are in bed already.
McEwen Mining (MUX) reported this evening...
http://finance.yahoo.com/news/mcewen-mining-2014-operating-financial-221257909.html
...and rather than write a long Flash update mail and then try to fiddle charts into it, I've put together a brief report in
PDF on the numbers. Please find that attached.
Bottom line: I'm good with the numbers filed by MUX and I'm a holder. If you see cheap (e.g. sub-U$1) prices tomorrow
morning, consider them a fine bargain.
MUX holds its conference call tomorrow afternoon.
All feedback welcomed.
Best O
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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
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
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Stocks To Follow Closed Positions, 2012
Closed in 2012 closed close PPS
Soltoro SOL.v jan'12 C$0.87 07-nov-11 C$0.94 8.0% cash moved to BCM.v
Gold-Ore Res GOZ.to feb'12 C$0.84 13-oct-10 C$0.98 16.7% trade closed on ELG.v offer
Minefinders MFN feb'12 U$11.68 17-nov-11 U$14.80 26.7% target made, trade closed
Iron Creek IRN.v mar'12 C$0.58 26-sep-10 C$0.31 -46.6% time up on small bad trade
U.S. Silver USA.to apr'12 C$2.18 15-mar-12 C$1.86 -14.7% ST trade no good, cut loss
Augusta Res. AZC.to may'12 C$3.10 29-jan-12 C$2.07 -33.2% bad mkt, bad trade cut loss
Bellhaven BHV.v may'12 C$0.50 22-sep-10 C$0.28 -44.0% new mgmt not impressive
Zincore Metals ZNC.to may'12 C$0.325 29-jul-11 C$0.17 -47.7% bad mkt, bad trade cut loss
Soltoro SOL.v may'12 C$0.70 18-mar-11 C$0.41 -41.4% bad mkt, bad trade cut loss
U.S. Silver USA.to aug'12 C$1.78 27-jul-12 C$1.36 -23.6% fail ST trade close pre split
Estrella Gold EST.v aug'12 C$0.91 27-mar-11 C$0.14 -84.6% Closed on port realignment
Fortuna Silver FVI.to sep'12 C$1.07 03-may-09 C$5.32 397.2% sell call $6.17/ Mar25
Strait Minerals SRD.v oct'12 C$0.125 09-dec-11 C$0.12 -4.0% closing coverage til FY13
Sunward Res SWD.to oct'12 C$1.47 13-mar-11 C$1.21 -17.7% sold, took loss
Gold Res Corp GORO oct'12 U$21.47 09-sep-12 U$17.40 19.0% Short trade closed
Yellowhead Min. YMI.to nov'12 C$1.00 01-apr-12 C$0.63 -37.0% sold, took loss
Primero Mining PPP nov'12 U$7.26 07-oct-12 U$6.73 7.3% Short trade closed
Bear Creek Min. BCM.v nov'12 C$3.38 07-nov-11 C$3.72 10.1% Took small profit
Vena Resources VEM.to dec'12 C$0.70 31-may-09 C$0.18 -74.3% Failed trade (caps F)
Galway Res GWY.v dec'12 C$2.19 24-nov-12 C$2.30 5.0% closed good ST arb trade
Stocks To Follow Closed Positions, 2011
Closed in 2011 closed close PPS
Sunward Res SWD.v jan'11 C$1.05 21-nov-10 C$1.63 55.2% target made, trade closed
Serengeti Res SIR.v mar'11 C$0.245 05-dec-10 C$0.285 16.3% sold pre-tgt, ST trade fail
Fronteer Gold FRG apr'11 U$2.37 03-may-09 U$15.24 543.0% buyout, trade closed
Minefinders MFN apr'11 U$9.09 07-nov-10 U$16.89 85.8% target made, trade closed
Metalline Min. MMG may'11 U$1.04 26-jan-11 U$0.89 -14.4% exit, resource disappointed
Peregrine Met PGM.to jul'11 C$0.87 06-mar-11 C$2.60 198.9% buyout offer, closed
Dynasty Metals DMM.to jul'11 C$4.20 03-may-09 C$2.85 -32.1% Sold. Fail. Move on.
Aura Silver AUU.v aug'11 C$0.22 13-oct-10 C$0.16 -36.4% Bad pick. Take loss
U.S. Silver USA.v aug'11 C$0.52 26-jan-11 C$0.71 36.5% closed to make room
B2Gold Corp BTO.to sep'11 C$2.80 12-may-11 C$4.27 52.5% target made, trade closed
Bear Creek Min. BCM.v sep'11 C$3.80 27-may-11 C$4.17 9.7% macro sell call victim
Minefinders MFN sep'11 U$14.70 10-aug-11 U$15.15 3.1% macro sell call victim
Great Panther GPR.to sep'11 C$3.03 22-aug-11 C$2.64 -12.9% macro sell call victim
Fortuna Silver FVI.to sep'11 C$1.07 03-may-09 C$5.36 400.9% sold 20%, macro sell call
Focus Ventures FCV.v nov'11 C$0.40 20-apr-10 C$0.20 -50.0% cut losses, bad trade
Regulus Res. REG.v dec'11 C$1.17 14-aug-11 C$0.52 -55.6% cut on news of poor 43-101
2009 and 2010 closed positions in appendices below
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Stocks To Follow Closed Positions, 2010
Closed in 2010 closed close PPS
B2Gold Corp BTO.to Jan'10 C$0.88 08-nov-09 C$1.49 68.2% target made, trade closed
Radius Gold RDU.v Jan'10 C$0.18 23-aug-09 C$0.40 122.2% target made, trade closed
MAG Silver MVG mar'10 U$5.60 23-nov-09 U$7.28 30.0% closed in pdac week
Riverside Res RRI.v mar'10 C$0.435 20-sep-09 C$0.60 37.9% closed in pdac week
Amarillo Gold AGC.v mar'10 C$0.81 31-may-09 C$0.70 -13.6% closed in pdac week
B2Gold Corp BTO.to apr'10 C$1.24 18-feb-10 C$1.50 21.0% target made, trade closed
Lumina Copper LCC.v apr'10 C$0.84 14-jun-09 C$1.55 51.2% total position now sold
Troy Resources TRY.to may'10 C$1.10 03-may-09 C$2.25 104.5% sold on negative results
AuEx Ventures XAU.to may'10 C$2.51 24-may-09 C$3.38 34.7% trade closed
Nevada Copper NCU.to jun'10 C$3.27 14-mar-10 C$2.03 -37.9% need to lower Cu exposure
Carpathian Gold CPN.to jun'10 C$0.39 14-mar-10 C$0.35 -10.3% too exposed to cap raising
Amerix PM Corp APM.v jun'10 C$0.065 08-nov-09 C$0.05 -23.1% victim of macro bear
Antares Minerals ANM.v jun'10 C$1.42 06-dec-09 C$2.10 47.9% sold half
Vena Resources VEM.to jun'10 C$0.37 31-may-09 C$0.23 -37.8% sold half
Minera Andes MAI.to sep'10 C$0.75 28-jul-10 C$0.95 26.7% ST trade closed
Gold-Ore Res GOZ.to sep'10 C$0.52 01-aug-10 C$0.75 44.2% target made, trade closed
B2Gold Corp BTO.to sep'10 C$1.45 25-may-10 C$2.01 34.5% target made, trade closed
Blue Sky Uran BSK.v oct'10 C$0.41 19-may-10 C$0.22 -46.3% v small v bad trade closed
Dia Bras Expl DIB.v oct'10 C$0.14 30-aug-09 C$0.35 150.0% target made, trade closed
S. Amer. Silver SAC.to nov'10 C$1.38 24-oct-10 C$1.60 -15.9% loss on short, small fail
Ventana Gold VEN.to nov'10 C$7.92 27-jun-10 C$13.51 70.6% trade closed on buyout
Lumina Copper LCC.v nov'10 C$1.42 11-aug-10 C$3.65 157.0% trade closed
Antares Minerals ANM.v dec'10 C$1.42 06-dec-09 C$8.40 491.5% trade closed
Rio Alto Mining RIO.v dec'10 C$0.69 23-mar-10 C$2.16 213.0% trade closed
Coro Mining COP.to dec'10 C$0.585 03-oct-10 C$1.24 112.0% target made, trade closed
Stocks To Follow Closed Positions, 2009
Closed positions closed closing PPS
Cardero Res CDY/CDU.to May'09 U$1.20 03-May-09 U$0.87 -27.5% sold on negative news
Eastmain Res. ER.to May'09 C$1.04 06-May-09 C$1.315 26.4% trade closed
Radius Gold RDU.v May'09 C$0.165 03-May-09 C$0.235 42.4% trade closed
Latin Amer Min. LAT.v May'09 C$0.12 03-May-09 C$0.158 29.2% trade closed
Aquiline Res. AQI.to July'09 C$2.03 16-Jun-09 C$1.68 -17.2% took loss, bad timing
Chariot Resources CHD.to Aug'09 C$0.20 12-Jul-09 C$0.415 107.5% trade closed
Castle Gold CSG.v Sep'09 C$0.64 02-Aug-09 C$0.60 -6.3% ST trade didn't work out
Guyana Goldfields GUY.to Sep'09 C$2.30 12-May-09 C$4.50 95.7% profit taken
Los Andes Copper LA.v Sep'09 C$0.09 21-Jun-09 C$0.09 0% trade closed
Pediment Gold PEZ.to Oct'09 C$0.80 09-Aug-09 C$1.00 25.0% trade closed
Minera Andes MAI.to Oct'09 C$0.68 03-May-09 C$0.71 4.4% too much bad news
Dynasty Metals DMM.to Nov'09 C$4.18 03-May-09 C$6.01 43.8% half sold
Rusoro Mining RML.v Nov'09 C$0.55 03-May-09 C$0.57 3.6% underperformed
Important Disclosure
The information and opinions contained within this report reflect the personal views of the author and therefore all
material within should not be construed as accurate or reliable or be utilized as advice for investment or business
purposes. Independent due diligence and discussions with ones own investment and business advisor is strongly
recommended. Accordingly, nothing in this report should be construed as offering a guarantee of the accuracy or
completeness of the information contained herein, as an offer or solicitation with respect to the purchase or sale of any
security or as an endorsement of any product or service. All opinions and estimates included in this report are subject to
change without notice. It is prohibited to copy or redistribute this report to any type of third party without the express
permission of the author.
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