re-send IKN319 — Jun 21, 2015
The IKN Weekly
Week 319, June 21st 2015
Contents
This Week: Sales and purchases, Regarding albatrosses and necks.
Fundamental Analysis: Picking from the list.
Stocks to Follow: Overview, Timmins Gold (TMM.to) (TGD), NovaCopper (NCQ.to), Minera
IRL (IRL.to) (MIRL.L), Teranga Gold (TGZ.to) (TGZ.ax), B2Gold (BTG) (BTO.to), Lake Shore
Gold (LSG.to), Atacama Pacific (ATM.v), McEwen Mining (MUX) (MUX.to), Phoscan Chem
(FOS.to), Starcore Intl (SAM.to), Regulus Resources (REG.v).
Copper Basket: Overview, Western Copper & Gold (WRN.to), Capstone Mining (CS.to),
Copper Fox (CUU.v).
Low Cost Producer Basket: Overview, Goldcorp (GG).
Regional Politics: Regional Risk Review next week, Peru Tia Maria: The 60 day pause that
refreshes, Peru: Better communication needed say mining bosses, Chile: Water and Energy,
critical for the mining industry, Peru and Nicaragua to work for a bilateral Free Trade
Agreement.
Market Watching: First Mining Finance (FF.v): Big pump in the offing, Bear Creek (BCM.v):
Risk rising at Corani, The True Gold (TGM.v) events of last week, Lundin Gold (LUG.to): Three
things and a date for your investment diary.
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
Sales and purchases
The purchases part is simple, but I thought I'd mention it here as well as below. Although I got
a few Minera IRL (IRL.to) last week at 11.5c I'm looking to add more at a better value 11c. If I
get the chance next week I'll do just that. So an addition, rather than a new buy.
As for sales, this header is to note that I'm selling my near-term trade in Timmins Gold (TGD)
(TMM.to) next week, as selling before the end of June was always the plan and I'm going to
stick with that. TGD will go down as a small winnder in both money and percentage terms. I'm
also looking to sell my NovaCopper (NCQ.to), which will go down as a small loser in money
terms but a bigger percentage loss (good to have those stare at me and keep the ego in
check), due to the decision to lose all exposure to copper. Worth noting that I'm not in a
massive hurry to sell NCQ.to because it tends to be thinly traded and not easy to move in and
out of, a bit of patience may help for a smooth exit and if it takes a couple of weeks rather than
a couple of days, so be it. I'll sell my off-portfolio small trade in Western Copper & Gold
(WRN.to) next week too, for the same reason.
All on all, the sales represent a little cash raising that's aorund the edges of the portfolio. In a
way I'm looking on it as more symbolic than anything else, my clear stepping back away from
the copper cliff before the sector tumbles over. Copper's looking very bearish to me, see The
Copper Basket for more thoughts on that.
1
Regarding albatrosses and necks
Down dropt the breeze, the sails dropt down,
'Twas sad as sad could be;
And we did speak only to break
The silence of the sea!
All in a hot and copper sky,
The bloody Sun, at noon,
Right up above the mast did stand,
No bigger than the Moon.
Day after day, day after day,
We stuck, nor breath nor motion;
As idle as a painted ship
Upon a painted ocean.
Water, water, everywhere,
And all the boards did shrink;
Water, water, everywhere,
Nor any drop to drink.
The Rime of the Ancient Mariner
Samuel Taylor Coleridge
There's this ongoing line of complete bullshit commentary in the metals and mining world that's
so pervasive it'll even suck me in on occasion. It's sellside crap to the Nth degree.
• If times are good buy stocks, they're going up.
• If times are bad buy stocks because the cycle will come around.
• If times are neutral and nothing is happening buy stocks, it's a coiled spring out there.
And for sure no, that doesn't just apply to the mining industry and its motley crew of assorted
parasites, but as this whole sector smacks of the desperation of wanting SOMETHING to
HAPPEN because if not, the blood wil stop flowing and the parasites will have nothing left to
feed upon, I'm finding it all a bit too brazen to bear easily.
We're down to promoting a "selective bull", peddling expertise in the bifurcating market,
promising riches by choosing the best and forgetting the ones that will have to die. "Stick with
me, I'm the smart connected writer, and for a modest monthly sum I'll lead you through the
minefield of moose-pasture peddlers and show you the real deal miners". We're down to
cheering any minor move made by silver against gold and ignoring in finest "LahLahLah I Can't
Hear You" manner any macro market news that doesn't fit the narrative. We're down to
pushing conferences "headlined" by the same abject idiots who predicted imminent
hyperinflation five years ago and who'll just say the same things to their dwindling band of True
Believers in this conference season, and charge them hundreds of fiat dollars for the privilege
to boot. We're down to the sellside brokerages running half million dollar brokered private
placements. We're down to minor exploreco pumps, to promotional BS games that are turning
incestuous (witness the fun and games between the smarter and the dumber promoters around
Lion Gold (LIO.v) for a good example of how the smartest ones will survive by eating the
neophytes if necessary). I could continue, but the real message I want to get across is this:
A) Nothing is going to happen in the metals market until gold takes off.
B) Gold may do something in 2015, but it's unlikely to happen before the end of the
Northern summer. That's post-Labor Day, that's 3q15, that's going to feel like a
loooong time from today in late June.
C) Don't waste your money on mining sector commentary. Let us waste our own time,
no need to join us, there's so much more out there that's better to read (for example
my own muse at this time, Infinite Jest by David Foster Wallace).
So do yourself a favour and sell a few stocks, or lighten a few positions, take some cash off the
table and go play with it somewhere else or save it for when things get fun again because
believe me, this is not fun. Watching the desperation in freeloaders' eyes is not fun. Trying and
2
failing to explain to junior mining company officers that the party isn't just over but it's OVER
FOREVER is no fun. While you're at it, why not unsubscribe from this publication and any other
that's managed to get you to part you from some of your hard-earned cash? That's moeny you
could better spend on your spouse, your kin, your car, whatever you like that gies some
pleasure. If you feel like coming back later in the year you'll be very welcome here (and I'd
vouchsafe that's true for anywhere else you unsub this week) but I see no reason why you
should read and keep so fixated on a sector that's showing all signs of going precisely nowhere
for the time being. Meanwhile I'm going to keep ploughing on, pounding on numbers, looking
at the sector, trying to find a decent trade or three, but I also know that for the time being I'm
unlikely to deploy wholesale the cash that's still sidelined, any sales such as the ones
announced today are moving details around the edges. My personal plans include:
1) Selling what little copper exposure I have left
2) Perhaps selling First Majestic (AG) if a slightly higher out price shows up in the next couple
of weeks.
3) Definitely buying some more Minera IRL, perhaps adding to the gold producers.
4) Investigating a couple of interesting explorecos on my radar.
5) Watching the market for any move that proves my assumption of sector inertia wrong.
6) Reading non-business literature and classic novels I've wanted to catch up on.
7) Other things too.
So stick around if you like. After all, it's your money not mine. But if you unsub yourself from
this and other publications, I'd bet you'd save yourself both time and money.
Fundamental Analysis of Mining Stocks
Picking from the list
This week, a short piece that responds to a handful of reader feedbacks over the last two or
three weeks and lays out how I see the chances of the current crop of open positions in The
IKN Weekly 'Stocks to Follow' list.
First a straight league table of the stocks in order of personal preference, from the one I most
like at the moment to the one I least like. Therefore 16 names that stack like this:
1) B2Gold (BTG): Simply a Top Pick, excellent quality at a discount that won't last long.
2) Lake Shore Gold (LSG.to): Really has its mojo working at the moment.
3) Teranga Gold (TGZ.to): Could pop and make my target in minutes, good near-termer.
4) Dalradian Resources (DNA.to): The best pure exploration play out there, buy on any dip.
5) Minera IRL (IRL.to): Would have been lower a couple of weeks ago, now set to become
one of the few smallcap stocks with news-driven momentum in 2015.
6) Atacama Pacific (ATM.v): Best value 'Land Grab' play I've bought, could pop anytime.
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
7) McEwen Mining (MUX): Stuck in a low trading range. Needs to re-wow mkt.
8) Starcore Intl (SAM.to): Also bouncing around in a range, needs a breakthrough quarter.
9) Timmins Gold (TGD): Though selling this week anyway.
10) Focus Ventures (FCV.v): Could take off at anytime on a deal, but presently quiet.
11) First Majestic (AG): My worst mistake of 2014, if you like Ag in FY15 it's a fair choice.
12) Phoscan Chem. (FOS.to): A good entry point, now to see if the strategic review is good.
13) Regulus Resources (REG.v): Massive potential if community risk comes right. If.
14) Lara Exploration (LRA.v): Unloved and ignored by market, not going anywhere yet.
15) NovaCopper (NCQ.to): Now selling, but ignored by market and set to remain that way.
16) Legend Gold (LGN.v): Tinysmall and un-noticed. Land Grab play.
Second, a comment on the above. Of the 16 I'm relaxed enough about holding them all (we
3
can argue about the two I've now called as sellers, NCQ.to and TGD, but they're going for their
own specific reasons that aren't directly connected to the quality of the company itself) but as
things stand today I'm most enthusiastic about the top six, namely BTG, LSG, TGZ,
DNA, IRL and ATM. That's why there's a line of XXes there separating them.
• The one I'd most like you to own is B2Gold because it ticks all the boxes you'd want ticked
in today's market: It's the right size and market recognition, it's profitable, it's gold, it's
growing organically, it's even a takeover target though that's further down the line.
• Then come Lake Shore Gold and Teranga, again profitable gold producers. They're both
obvious M&A targets as well, though having bought TGZ as a specifically targeted trade it's
one I'll still sell at my right price. LSG could be snapped up (by GG) at any time.
• Dalradian is the exploration stock that ticks the boxes. Right metal (again gold), excellent
political risk profile (locals and national government approve), lots of exploration upside
and there's already a robust economic report in place. High grade too, which always helps.
• Number five of the best six is Minera IRL and the thing to like here is that the market
hasn't woken up to the fact that Ollachea's going to be built on shareholder-friendly terms,
not yet at least. Both those factors are important, as is the window of opportunity that
currently presents itself because once the main senior debt deal is tied down (and it will
be), 11c will be a thing of the past.
• Finally, the outsider of the bunch is Atacama Pacific (ATM.v) because of all the 'Land Grab'
plays recent collated, it's the one that's been the standout best performer and the one that
promises a quick upside if things start to go well. It may tread water for a while yet,
there's not guarantee on timing, but if gold starts moving up it's location, metal and price
combo is going to make it look very cheap next to lesser quality peers.
Third and last, a different way of considering the names that was inspired by reader 'M' who
recently mailed in with this (extract from mail):
If gold were to do well as we enter 2016, lets say gold were to trade for $1400
sometime in 2016 (yes, it impossible to imagine but lets pretend), could stocks
like IRL (280mm shares fully diluted) or FCV (80 mm shares) trade near $1 CAD?
Yes, like I said, its a silly question but I'm a bit of a dreamer and if the junior ever
enter a mini-bull mode, perhaps $1 isn't that crazy for these types of assets?
And here's how I answered M:
First up, it's not a stupid question. Not at all. I'm not into the tinycaps for 30%
or 50% wins, I want multibagger results from the smallest and riskiest ones as
well.
But that said, the hunt for the elusive ten-bagger...it's always "a thing".
Because of just that, it's not something I usually worry myself about. I don't
normally consider 'ten bagger potential' for a stock because i'll 1) look at a
company 2) if i like it enough buy some, but always set myself an attainable
target that takes into account present market circumstances 3) if/when it gets
there, reconsider the stock in light of any changes in circumstances.
This means in real terms that at stage 3) I may up the target, or I may sell and
take profits. Therefore it's easy enough to imagine a best-case scenario in
which (for example) gold starts running higher and i keep upping the target on
something I own. That happens enough times and i get my ten-bagger without
ever setting out for one.
So anyway, that's a quick line on my normal attitude, but your question is still
a good one so what I've just done is cast my eyes down the stocks I own to
4
consider which has the best ten-bagger potential from here. I'm assuming of
course that a lot of things go right for each stock, including metals prices,
project development etc. Here's my top three potential ten-baggers as they
stand today:
1) Regulus 2) Atacama Pacific 3) Starcore Intl
I can't stress enough that a lot of things would have to go right for the stocks,
ten baggers are rare birds. But given a good run, those three could easily
make it. As for IRL I think it would need U$1,600/oz in 2018, more than $1.4k
next year. For what it's worth i think that's very possible, but if IRL becomes a
ten bagger a lot of other tinycaps would get there first. IRL will have a mine at
Ollachea and (yes you're right to read between the lines) I really like it from
here. But in real world optimism terms, i'd like it to 40c.
IKN319 back and so yes, if you really want the risk shots, my top three are Regulus, Atacama
and Starcore. If the market turns around and people start buying up stocks for their latent
asset values, the corporate structures at ATM.v and SAM.to will see them liked immediately.
Meanwhile the big hold-up at REG.v is the community risk profile, so if John Black and his team
can unplug that bottleneck and get things rolling with everybody onside, it wouldn't take much
more than a little exploration luck with the 2016 drill campaign plus a revival of copper (even
gold) to see REG.v move higher very rapidly and emulate the type of performance we saw from
Antares a few years ago.
Stocks to Follow
Last week we had seven uppers (BTO.to, AG, FOS.to, LRA.v, IRL.to, FCV.v, REG.v), four
unchanged (LSG.to, ATM.v, LGN.v, DNA.to) and five downers (TGZ.to MUX, TGD, SAM.to,
NCQ.to) from the 16 open positions. The best moves came from Regulus (REG.v up 17.7%)
and First Majestic (AG up 9.0%) as both bounced from recent lows. No big downers. Overall I
come away with that treading water feel about the list, not for the first time in recent weeks
either.
We currently have 16 open positions, that will change by this time next week and drop down at
least one notch, perhaps two. Of the 16, six are in positive territory overall, two are unchanged
and eight are in the red.
5
company Ticker this week Avg Price Reco date Current PPS Gain/Loss% Notes
TOP PICK
B2Gold BTO.to STR BUY C$2.17 12-sep-14 C$2.01 -7.4% Top Pick, 1st tgt $2.70
Metals Producers (in current order of preference)
Lake Shore Gold LSG.to buy C$1.04 07-apr-15 C$1.27 22.1% Will be bot out soon, bullish
Teranga Gold TGZ.to hold C$0.55 15-feb-15 C$0.74 34.5% Good prod. 83c tgt
McEwen Mining MUX str buy U$1.09 25-jan-15 U$0.95 -13.8% Leverage value, cheap now
Timmins Gold TGD Selling U$0.60 19-apr-15 U$0.65 8.3% time to sell Nearterm trade
Starcore Intl SAM.to spec buy C$0.12 10-jan-15 C$0.12 0.0% Also "land grab", tgt 19c
First Majestic AG hold/sell? U$10.51 10-aug-14 U$5.19 50.6% may sell into rally
Land Grab Stocks (in current order of preference)
Phoscan Chem FOS.to hold C$0.28 29-mar-15 C$0.305 8.9% 36c/share of cash, add -30c?
Atacama Pacific ATM.v spec buy C$0.19 26-apr-15 C$0.18 -5.3% Spec buy, cheap adv proj
Legend Gold LGN.v hold C$0.085 01-mar-15 C$0.045 -47.1% Spec buy, v small trade
NovaCopper NCQ.to selling C$1.05 09-apr-14 C$0.64 -39.0% Cu sector bad, may sell
Lara Expl. LRA.v spec buy C$1.15 08-apr-12 C$0.26 -77.8% solid biz model, LT hold
Other Recommended Stocks (in current order of preference)
Dalradian Res DNA.to buy C$0.64 27-oct-13 C$1.00 56.3% Nov'14 tgt $1.25, top Au expl
Minera IRL IRL.to adding C$0.25 22-jul-12 C$0.115 -54.0% New tgt jun'15 23c, adding
Focus Ventures FCV.v spec buy C$0.23 01-jul-12 C$0.23 0.0% tgt 50c, 3q15 PEA
Regulus Res REG.v spec buy C$0.30 06-apr-15 C$0.365 21.7% Bet on 2016 drill prog.
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
Fortuna Silver FSM mar'15 U$4.12 10-nov-14 U$3.75 9.0% Short used as hedge
GoldQuest Min. GQC.v mar'15 C$0.26 27-oct-13 C$0.085 -67.3% given up ghost
Rio Alto Mining RIO.to apr'15 C$2.30 07-apr-11 C$3.57 55.2% Top pick, bot out, big win
2009, 2010, 2011, 2012, 2013 and 2014 closed positions in appendices below
Now for some notes on current basket stocks.
Timmins Gold (TGD) (TMM.to): Selling. It's time to sell this near-term position, stick to my
word and get rid before the end of June comes around. It's turned out to be a disappointing
trade, up a bit for sure thanks to good timing on the purchase, but there's a distinct lack of
upside push in the stock and nobody seems to want to own it.
The whole idea was a to run a near-term trade in a position of a company that I'm not at all
enamoured about but could have provided a flip. Its time is up and I won't miss it, if I want
more gold exposure I'll be more than happy about adding to my B2Gold position down the line.
NovaCopper (NCQ.to): Looking to sell. This one's going to be played by ear, but overall I
see little reason to hold exposure in small copper plays for the moment (see Copper Basket
below). It's a losing position that I've been pretty patient with and still have no need to dump
at the first opportunity, this is a headsup that I'll look to sell if a reasonable exit price comes
along. We may get that in the days to come or the weeks to come thanks to the news last week
that the merger between NCQ and Sunward (Ex-SWD) has now closed and is an official done
deal. This may mean a bit of marketing in the newar future and with a thinly traded stock such
as this, it doesn't take much to get the price to rise quite sharply (we've seen spikes on low
volumes happen a couple of times this year already).
6
Minera IRL (IRL.to): Still Adding. I got some last week, but not many because I'm sure
there's going to be cheaper stock than the generally available 11.5c of last week and I'm not in
a hurry to grab at the first bunch of offered shares. So the cost average clicked down just two
pennies, but once I'm done buying I think it might get down as far at 21c (or 22). That means
that yes, I'm looking to add plenty more still and at the right price. 11c would get me buying
more, 10c would see me filling up.
Teranga Gold (TGZ.to) (TGZ.ax): Will still sell at 83c if offered. TGZ traded in okay style
all week aside from the late Friday fade (quite a few of those, B2 and LSG among those held on
these pages) but never threatened the IKN sell price of 83c in the way of the week before last.
So be it. I'm still a seller at 83 though and much will depend on the action in gold if we're going
to see it, I'd safely say.
B2Gold (BTG) (BTO.to): The truth, Top Pïck or not I was very impressed with the way B2
traded last week and may end up adding a few more once cash is freed up from sales in the
next few days. Depends on the availabel entry price. That's all for this week on B2.
Lake Shore Gold (LSG.to): Its worst price all week was late Friday, but before then between
Wednesday afternoon and Friday morning LSG threatened to really slip its field and move up.
We got a new 52 week high along the way, too. People accumulating.
Atacama Pacific (ATM.v): ATM announced the second closing of its current placement, a
small sliver that added to the previously announced $1.7m or so. The trading was rock solid at
18c, that'll do for the moment.
McEwen Mining (MUX) (MUX.to): On Thursday MUX picked up plenty of trade headlines
and a temporary price bounce from its announcement that (1) it planned to pay an annual
dividend of 1c to shareholders as of this year, with the payment coming in 6 monthly doses of
1/2c each. However I quickly decided that the news was a wash, neither good nor bad and the
eventual lack of market reaction to the news doesn't come as much surprise. Strip away the
Rob McEwen hoopla and the obvious aside (as made on the blog that day (2)) that it benefits a
25% shareholder such as McEwen more than anyone else so it's a little self-serving, and what
you're left with is a decision by a $260m market cap company to deploy $3m of its capital per
year; it changes very little. Yes it's shareholder friendly I suppose, but as noted above I'm
not into the smallcaps for percentage-level gains I'm here because I want these things to
double and triple on me if possible and if they can't, at least stick 30% or 40% on a trade in a
short period of time. If MUX announced a 5c dividend I'd be pretty sure it would move many
dials but then again it can't do that, it only has $16m at bank. Until it makes use of that shelf
filing and raises "up to $200m", anyway.
Bottom line: Not a bad thing from MUX last week, but it won't make much of a difference as
things stand. This company needs to deliver profitable quarters more than penny divis.
Starcore Intl (SAM.to): Not a good
SAM.to: Gold produced vs gold sold, per qtr
week for SAM and while it's still an easy
7000
one to hold for its Land Grab appeal it's 6500
6000
now slipped down my list for immediate 5500
5000
additions, for the time being at least. SAM
4500
brought its April 2015 quarter results to 4000
3500
market on Monday evening (with the NR 3000
2500
early Tuesday (3)) and the big downer
2000
was the low production of just 4,429 oz 1500
1000
Au Eq (4.1k gold, the rest silver). As this 500
0
chart shows, that's plenty down on recent
quarters and not a good thing.
7
31.rpa 31.yluj 31.tco 41.naj 41.rpa 41.yluj 41.tco 51.naj 51.rpa
Oz Au
gold prod
gold sold
source: company filings, IKN ests for gold sold Apr'15
However, the drop in total costs to $ helped soften the blow of lower revenues (SAM.to made
special mention of its cost cutting efforts in the NR and the MD&A)
SAM.to: Operations overview
11
10
9
8
7
6
5
4
3
2
1
0
8
21.yluj 21.tco 31.naj 31.rpa 31.yluj 31.tco 41.naj 41.rpa 41.yluj 41.tco 51.naj 51.rpa
$m revenues
COGS
mine op earnings
source: SAM filings, IKN ests
and the financials weren't too bad overall, with the net loss of under $0.5k...
SAM.to: Earnings
8
7
6
5
4
3
2
1
0
-1
-2
-3
11.rpa 11.yluj 11.tco 21.naj 21.rpa 21.yluj 21.tco 31.naj 31.rpa 31.yluj 31.tco 41.naj 41.rpa 41.yluj 41.tco 51.naj 51.rpa
$m
pre-tax earnings
net earnings
source: SAM filings, IKN ests
...bearable by the structure and things such as working capital holding up well:
14 SAM.to: Working Capital per qtr
12
10
8
6
4
2
0
-2
-4
-6
-8
-10
-12
11.yluj 11.tco 21.naj 21.rpa 21.yluj 21.tco 31.naj 31.rpa 31.yluj 31.tco 41.naj 41.rpa 41.yluj 41.tco 51.naj 51.rpa
source company filings/IKN ests
srallod
fo
snoillim
That $10.2m working cap was $200k higher than the IKN estimate and we had the company
coming in with a flat breakeven quarter. The company has managed to lighten its debt load a
little, which made the difference.
Then on Wednesday we had a second NR from SAM (4) that announced it was loaning its soon-
to-be incorporated purchase Cortez Gold (CUT.v) $250k in order that it get on and buys the
plant it needs to go into production. With this, CUT.v will become one of those toll miller
companies that are in fashion (we've gone through its biog previously) and it's a decent enough
business model.
SAM is turning into more of an asset play and less of a gold producer with assets. It's now in
my mind at least more Land Grab than cheap producer, but it did pay a correct penalty for a
soft production quarter last week (esp as rumours were about that grades had popped at
during April, but at 1.98 g/t Au average that's hardly the case). I'm good about holding
through, it's strong value but it's still smallfry companred to the ones more likely to make first
moves, such as LSG and BTO.
Regulus Resources (REG.v): A nice percentage pop, but all on low volumes and it doesn't
mean much. In other news, I picked up on this report (5) of a 48 hour strike in the region early
this month where Antakori lies by locals protesting mainly against the Gold Fields
Tantahautay/Coimolache operation but that will also indirectly affect its next door neighbours
such as Antakori. It was a 48 hour blockade that has a real party political look to it rather than
anything deeply nefarious (we're in the run-up to the 2016 elections now, it matters in the
outlying areas earlier too) but still it's not a good sign for community relations with the miners.
Phoscan Chemical Corp (FOS.to): All good and anything at 30c is now being bought up.
The Copper Basket
After twenty-five weeks of 2015 The Copper Basket is showing a 8.06% loss to level stakes.
company ticker price 1/1/15 Shares out Market Cap current pps gain/loss%
1 Capstone Min. CS.to 2.03 381.95 488.90 1.28 -36.9%
2 Reservoir Min. RMC.v 3.96 47.55 207.79 4.37 10.4%
3 NGEx Resources NGQ.to 1.17 187.71 163.31 0.87 -25.6%
4 Nevada Copper NCU.to 1.65 80.5 127.19 1.58 -4.2%
5 Copper Fox CUU.v 0.135 402.96 88.65 0.22 63.0%
6 Amerigo Res ARG.to 0.27 173.65 76.41 0.44 63.0%
7 Western Copper WRN.to 0.68 93.68 56.21 0.60 -11.8%
8 NovaCopper NCQ.to 0.58 60.15 38.50 0.64 10.3%
9 Panoro Minerals PML.v 0.295 220.64 35.30 0.16 -45.8%
10 Hot Chili Ltd HCH.ax 0.16 333.11 34.98 0.105 -34.4%
11 Regulus Res REG.v 0.35 56.39 20.58 0.365 4.3%
12 Metminco MNC.ax 0.008 2410.5 12.05 0.005 -37.5%
13 AQM Copper AQM.v 0.06 141 8.46 0.06 0.0%
14 Catalyst Copper CCY.v 0.305 31.41 6.60 0.21 -31.1%
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 -8.06%
The overall basket average improved by a whopping 4.68% last week thanks to the coincidental
moves of several bullshit juniors being peddled
to the naive. The straight count is six stocks up 4% The Copper Basket 2015, weekly evolution
(CS.to, PML.v, WRN.to, CUU.v, REG.v, CCY.v), 2%
just four down (NGQ.to, RMC.v, NCU.to, 0%
NCQ.to) and five that stayed unchanged on the -2%
week (ARG.to, HCH.ax, MNC.ax, AQM.v, -4%
-6%
COP.to), with the big weekly wins coming from
-8%
Copper Fox (CUU.v up 46.7%), Regulus (REG.v
-10%
up 17.7%) and Panoro (PML.v up 10.3%). -12%
-14%
I'll let REG.v and its 17.7% pop pass, and not
just because I own a small chunk of it :-).
That's a rebound on its usual low volume and
it's still not out of its regular trading range. But the move made by Panoro (1.5c up on nothing
volume) was of zero consequence and the zip by Copper Fox on big volumes was just another
9
ht4naj ht11 ht81 ht52 ts1bef ht8 ht51 dn22 ts1ram ht8 ht51 dr32 ht92 ht5rpa ht21 ht91 ht62 r3yam ht01 ht71 ht42 ts13 ht7nuj ht41 ts12
source: IKN calcs
one of those efforts that stock makes to separate its naive bunch of true believers from a little
of their (probably no so) hard-earned wedge.
Time to get out of copper
Moving on, we get to the copper price action on world markets and that wasn't pretty at all,
another reason not to trust the low volume shenanigans in
the tinycap Cu explorecos we cover. It was another wholly
nasty week for those of you wanting higher prices for your
copper that was capped off by a mini-collapse Friday as the
dollar did better than most heavy things (except for gold,
interestingly).
My exposure to copper the metal has been minimal for
quite a while, but it's about to get smaller. Even though I
have nothing against the stock and company I'm going to
sell my small position in NovaCopper (NCQ.to), as well as
dump the small "off-portfolio" trade in Western Copper &
Gold (WRN.to). The reason is simple: I believe the copper
market's going the way of iron ore and there's no reason to
hold even the minimal exposure that I have in the metal at
the moment.
What we've seen in the iron ore space is the small players squeezed out by the big. Rio Tinto,
BHP and Vale have been happy to oversupply the market and dump the price down, which has
been the death (quite literally) of many of the smaller and medium-sized players in the iron ore
space, not to mention the crushing of any company looking to develop an iron ore project as a
junior explorer. We're now seeing the same type of market conditions appearing in the copper
space, with the big players happy to run their big mines at full speed because they're still highly
profitable at the current copper prices, but the small players, the medium-sized and those left
holding exploration projects now being priced out.
This report out of Reuters last week (6) shone a light on some of the underlying weaknesses in
the copper space today, with this quoted trader person summing it all up nicely:
"There is no shortage of copper, it is just a perception being created by lower exchange stocks,
said Christoph Eibl, chief executive officer at Tiberius Asset Management.
Copper demand growth in top consumer China, accounting for about 50 percent of global
consumption, has slowed alongside economic growth and real estate investment.
"We are at the end of the industrialization cycle in China, saturation has kicked in," Eibl said.
"Copper is one of the few commodities which still has high producer margins. To see pain in
copper production you need to see prices fall to $5,000 or below."
The price crush will affect big companies that are highly leveraged to debt such as HudBay, it
will affect the marginal producers such at Copper Mountain and Capstone, and it's going to hurt
the explorecos the same way as those iron ore juniors that were killed. So much as I like the
look of the high-grading property held by NovaCopper (NCQ.to) in the longer term, or much as
I like the way that Western Copper (WRN.to) has been careful with its budgeting and protected
its treasury position for the longer-term haul, there's going to be plenty of further discounting
to come with copper now moving to new lows. And let's be clear, this quote below from the
BHP Billiton CEO Andrew Mackenzie that we featured in IKN317 two weeks ago set the tone for
the copper market (once you're done with this, re-read that Christoph Eibl quote above and see
how BHP's boss has set the narrative tone):
"As China works to rebalance its economy from investment toward consumption,
growth and demand for commodities have slowed to more normal levels. In many
markets, recently installed low cost supply can now be stretched to meet growing
demand. So incremental supply, induced during periods of higher prices, will take
10
longer to absorb and this means over-supply may persist for some time."
That isn't going away. And also be clear that BHP, FreePort, Codelco, Anglo, Antofagasta and all
the other big players with their big mines aren't about to slow down on their production rates at
their profitable massive mines, because they can afford to keep the pipes fully opened at
$2.00/lb copper and make money. The smaller guys, the new boys, those under debt
constraint, they're all going away if copper hits new lows.
We get to the regular weekly inventory bits, starting with the bullet points:
• Total world copper stocks continued the downward trend but this time only due to
Shanghai, as LME has finally reversed. Overall stocks dropped by a small 4,910 metric
tonnes (mt) (-1.0%) to finish the week at 466,051mt.
• Shanghai Futures Exchange stocks took its now traditional 10k drop, down this time by
9,625mt (-7.1%) to finish Friday at 125,191mt.
• LME warehouses stocks rose and countered the continued Shanghai drawdown.
Tonnages were 3,675mt (+1.2%) to finish at 317,700mt. Another ominous signal for
bulls.
• Comex warehouse stocks also moved up slightly by 1,040mt (+4.7%) to finish at
23,160mt. Smallstuff as usual on the worldwide scale.
Here's the Shanghai-only inventories chart.
Shanghai Futures Exchange Warehouse Stocks, 2014/2015
260000
240000
220000
200000
180000
160000
140000
120000
100000
80000
60000
11
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 dn22 ht5rpa ht91 dr3yam ht71 ts13 ht41
Mt Cu
source: Cochilco
We know that inventories have not shown any sort of positive correlation to the price moves in
copper, something that Mr Christoph Eibl among many others have identified correctly, not just
us. However, that doesn't invalidate the close study of the inventories market, we're not here
joining the dots on a weekly basis with some binary conclusion mechanism of "oh look
inventories up therefore copper price down" ready to be activated at any given moment. It's
one piece in the puzzle, that's all, and if copper price (the ultimate judge) doesn't act in the way
that suits the inventory data, it's our job to apply neurons, to puzzle and wonder over it.
Now for notes on a couple of basket stocks:
Western Copper & Gold (WRN.to): A brief note
to add to last week's brief note and confirm I'm
looking to sell my WRN.to before the slated in 70c
price comes around. Between cash and copper
exposure of any type, it's time to take the money
and run.
Capstone Mining (CS.to): Here's the five day chart
for CS and the big uptick at the end of Friday trading
is clear, which turned a losing week into a winning
one for the stock. That's no tape-paint either, it's a fat 10m+ share block trade that made the
move.
What it was I do not know, at this point it's left in the mystery column but I will add that there
were several large volume last minute trades dotted around the junior metals and mining scene
last Friday afternoon, with GPL another and BCM another.
Copper Fox (CUU.v): The centrepiece of last week's action in CUU was the quarterly results
that came out on Wednesday and were the
usual flat guff and nothingness from this
company. But that didn't stop the price from
being ramped hard into the release, perhaps
by somebody spreading one of them there
rumours again about how Teck's just about to
make an offer and this time we're not joking.
It dropped back to a typical 19.5c and 20c
once the mouthbreather elements finally
twigged on that they'd been had, but the final
late Friday tape-painting managed to put extra
icing on this style-over-substance performance
and close the stock at 22c. It won't last.
I sigh. Perhaps I'm doing this market thing all wrong after all, perhaps I should just take the
not-so-subtle hints from the purveyors of constant nonsense and buy my quiet chunks of 12c
and 14c Copper Fox during the company's inevitable off seasons, as I know there's always
going to be a sucker lined up for the next time around by these people
The Low Cost Producer Basket
After 25 weeks, the 2015 Low Cost Producer Basket is showing a 3.40% gain to level stakes.
company ticker price 1/1/15 Shares out Mkt Cap (Bn) current pps gain/loss%
1 Goldcorp GG 18.52 830 13.67 16.47 -11.1%
2 Barrick ABX 10.75 1164.67 13.37 11.48 6.8%
3 Newmont NEM 18.90 528.08 13.02 24.65 30.4%
4 Franco Nevada FNV 49.19 156.5 7.66 48.95 -0.5%
5 Silver Wheaton SLW 20.33 403.75 7.35 18.20 -10.5%
6 Agnico Eagle AEM 24.89 214.12 6.63 30.95 24.1%
7 Buenaventura BVN 9.56 254.19 2.66 10.47 12.4%
8 Kinross KGC 2.82 1146.2 2.60 2.27 -19.5%
9 B2Gold BTG 1.62 921.27 1.53 1.66 2.5%
10 Pan American PAAS 9.20 151.64 1.42 9.38 2.0%
all prices in U$, using NYSE ticker prices Portfolio avg 3.40%
The overall basket stopped the recent rot and managed a weekly gain, a modest 0.67% but it's
still welcome. Unusually the winners and losers were split roughtly down the middle (so much
for tides that wax and wane) with six winners (ABX, NEM, FNV, AEM, PAAS, BTG) and four
losers (GG, SLW, KGC, BVN). Best moves came from Newmont (NEM up 4.7%) and Pan
American (PAAS up 4.6%), the downers were modest in size. So overall a refreshing change to
the last few weeks and as we can see on the comparative chart to GDX, the direction has
shifted away from what seemed like an inexorable decline back to the zero level.
12
The Low Cost Producer Basket: Weekly performance
and comparative to GDX control
25%
20%
15%
10%
5%
0%
-5%
13
ts13ceD ht4naj ht11 ht81 ht52 ts1bef ht8 ht51 dr42 ts1ram ht8 ht51 dr32 ht92 ht5rpa ht21 ht91 ht62 dr3yam ht01 ht71 ht42 ts13 ht7nuj ht41 ts12
basket
gdx control
source: Google Finance, IKN calcs
Low Cost Basket: Percentage difference between
3.0% basket and GDX control, 2014
2.0%
1.0%
0.0%
-1.0%
-2.0%
-3.0%
-4.0%
ts13ceD ht4naj ht11 ht81 ht52 ts1bef ht8 ht51 dr42 ts1ram ht8 ht51 dr32 ht92 ht5rpa ht21 ht91 ht62 dr3yam ht01 ht71 ht42 ts13 ht7nuj ht41 ts12
|
source: ikn calcs, NYSE/Nasdaq data
I'd call that a pretty solidly positive development and a sign that these gold stocks can put in a
rally in the next few weeks.
Goldcorp (GG) (G.to): It's notable that the lower this goes, the more the sellside brokerages
get on and reco it as the next big gold pop play.
Normally I'd be cyncical but in actual fact i agree that
GG looks like a strong risk/reward play at current
prices. Maybe the retraction is due to the market
wondering what it's about ot buy (and if it's Detour
(DGC), which will be too big a bite for many's taste at
the moment). As I think it's going to be Lake Shore
(LSG.to), chances are a stock deal would see a doubel
benefit for LSG holders (like me).
That's me dreaming and in a better mood than when
writing this weekend's opener, by the way.
Regional politics
Regional Risk Review next week
It'll be time for the quarterly round-up of the LatAm country risk for mining companies next
weekend, the edition that will mark the end of Q2 2015 (give or take two days).
As for this week, quite a lot of Peru things to report. Less from other areas.
Peru Tia Maria: The 60 day pause that refreshes
This Reuters report this weekend (7) has Peru's Minister of Energy and Mining, Rosa María
Ortiz, saying that the current 60 day pause at the Southern Copper (SCCO) Tia Maria project
may be extended for a longer period in order to gain the approval of the local population. Two
comments on that:
1) No surprise there. This whole "60 Day Pause" thing is a public relations invention,
SCCO can't move an inch forward without any type of agreement with the locals, it's
going to take the time required and there's no way machinery gets fired up on day 61
as things stand.
2) However, the PR exercise has been useful so far. Since the mining company and
government combo got a better grip on what to do during a pause, i.e. nothing, the
polemic has died and it's now off the front pages of national news (without even
mentioning the international, which took notice for about a day). No news is most
definitely good news in these casesm but it's going to take longer than some self-
imposed short time limit.
However it's no all good because in her interview last week, Minister Ortiz said that Tia Maria
was in a better position than Conga, the other controversial large mining project in Peru. She
said (translated), "I think that Tia Maria isn't at the (negative) level of Conga because Conga
meant the draining of lakes, the closure of lagoons to make reservoirs. This created a lot of fear
in the local population and the (perceived environmental) impact is much greater". Which is of
course bullshit and goes to show that either the Peru government still fails to understand what
it's up against or it's still trying to BS its way out of a corner (or both, which is equally as likely).
For one thing, Tia Maria is just as worrisome for its locals on an environmental level as Conga
is, the fewer numbers of people directly affected by Tia Maria hasn't stopped it from making the
front covers so far, either. But secondly and more importantly it's that dirty open secret once
again: At current metals prices Conga is not economic, period. As things stand today, even if
the whole of the Cajamarca region begged on bended knee Newmont/Buenaventura would not
give a green light to a build decision on Conga, it's too expensive for a low grade project.
However the oxide copper at Tia Maria is still enimently economic to dig and process and that's
the root cause of the whole fight.
As things stand, it doesn't suit SCCO to throw in the towel on Tia Maria, but by the same token
and at this down-point in the metals cycle, there's no big rush to build out the next large scale
copper mine either. Therefore slow and steady will do just fine, to the point where I'd now take
wagers on Tia Maria not budging an inch before the end of the current Humala government.
Peru: Better communication needed, say mining bosses
There was a big mining convention in Gijon Spain last week and I kept a close eye on it
because it wasn't getting any coverage in the English language press and there were plenty of
big names in the LatAm mining scene in attendance (after all Asturias is a beautiful part of the
world in June, who can blame them for wanting the freebie beano there). Thing is there really
wasn't much to come out of the conference, star names or not, aside from the two things noted
below (and one of them isn't that serious).
1) Host region Asturias was promoting itself and the whole Northern region of Spain as a fine
and progressive place to do mining business. I wonder what Astur Gold (AST.v) or Edgewater
Exploration (EDW.v) think of that sentiment after the way they were encouraged to invest and
then later flatly denied permits when it suited the local governments' political ends.
2) More seriously, the one interesting moment came from a round-table discussion that
comprised of Buenaventura (BVN) president and head Roque Benavides, Orvana Minerals
president Daniella Dimitrov, general director of Yanacocha SA and Newmont Peru Javier Velarde
and Chief of Exploration for Grupo Mexico (i.e. Southern Copper in Peru) Alfonso Martínez (8)
with the main subject of conversation the risks of operating in Latam and specifically Peru.
That's a pretty high-powered bunch of mining people (their companies employ a total of over
100,000 people in LatAm) and what they had to say suggests that it's finally getting through to
the big money that they've been doing things badly and will have to try a lot harder if they
14
want to continue mining in Peru successfully. The comments from Roque Benavides and Javier
Velarde are fair to select as representative of the round table sentiment.
Roque Benavides: "The future is in responsible mining which cares for and
respects the environment, respects laws and integrates itself with local
communities. For this it's vital that the national States participate with us in
order to achieve this".
Javier Velarde: "Mining companies are good at making mines, but bad in the
area of communication and we have a lot to learn. Those groups opposed to
mining have a lot more credibility than the mining companies and we must be
doing something badly (in that respect), especially in this world in which news
travels in seconds all around the world."
That's not a bad place to start.
Chile: Water and Energy, critical for the mining industry
Dated June 16th (i.e. last Tuesday), the Cochilco presentation on this link (9) entitled "Water
and Energy, Critical Supplies for the Mining Industry" is a Spanish language presentation on the
state of those two critical supply items to the Chilean mining industry and it's a pretty good job
of backwards and forwards looking on the subject (and for what it's worth, readable even with
basic level Spanish so don't be shy). Here are the bullet points at the end of the presentation
translated, to give a decent feel of the content:
• Mining faces challenges in the change of its produciton mix, specifically Cathode versus
Concentrates (ottonote: more copper cathode is being added to the production mix)
• Consumption growth of fresh water has been relatively flat or trending lower despite the
increase of processed minerals, due to the use of seawater and to a lesser extent the
increase in water recycling.
• Zones with less water availability (Antofagasta and Atacama) now use around 25% sea
water in their processes.
• Overall energy use continues to grow
• Higher consumption per unit in the case of concentrates and extraction of mine material,
due to lower mineral grades and greater transport distances (in-mine)
• Energy consumption is main in hydrocarbon fuels in open pit mining and electricity in
processing plants.
The bottom line is that amongst the stats offered by Chile's Cochilco are three main messages.
Firstly the country is planning for the future, which is normal for one of the best organized
mining countries in the world. Second, water is less of a problem than it's often made out to be,
with consumption flattening out and more seawater infrastructure now being baked into plans.
Third, energy supply in the forma of electricity and hydrocarbons is the most pressing issue and
biggets potential bottlenecck to the Chilean mining industry.
Peru and Nicaragua to work for a bilateral Free Trade Agreement
Just a few years ago it would have sounded like the most bizarre thing, but these days it gets
hardly an eyebrow raised, such are the modern times in which we live. On Wednesday
President Daniel Ortega of Nicaragua announced (10) that his country and Peru would open
negotiations for a free trade agreement (FTA), during the ceremony to accept the credentials of
the new foreign ambassadors from Peru, Ecuador, Panama and Honduras. At the ceremony, the
new Peruvian ambassador to Nicaragua (one Alfredo Castro) added that the two countries'
technical teams would "soon re-start the negotiaiton rounds", which suggests there have
15
already been some exploratory talks.
This event gets mention here because of the mining connection, of course (I wouldn't have
bothered you with it otherwise). They're already setting up a Nica-Peru chamber of commerce
and both sides emphasized how Peru could bring mining expertise into the Central American
state, something it lacks on a private sector and institutional level. President Ortega has been a
big proponent of the mining industry during his presidency and as long-term readers of The IKN
Weekly will know, he's managed to turn Nicaragua into the best political jurisdiction for mining
in Central America. Bringing Peruvian know-how in will only help that and I can think of several
Peruvian based companies that would champ at the bit to get preferencial treatment on sector
entry there, starting with Fortuna Silver.
Market Watching
First Mining Finance (FF.v): Big pump in the offing
News reaches your author that as from tomorrow Monday morning there's going to be some
sort of big promotional pump effort made on First Mining Finance (FF.v), the new Keith
Neumeyer "mineral bank" vehicle.
Make of this what you will and I for one will not be trading or investing in the name at all, but
those of you who follow the momentum trades in juniors may want to keep an eye on how it
develops. From what I understand, first we'll get a wave of purely marketing type promo, then
comes a second round of solid news from the company. As far as the 'solid news' goes be clear
that I do not know and must only assume, but I'd guess that would be a deal of the type we've
already seen FF.v make, e.g. the Coastal Gold (COD.v) all-paper deal.
Bear Creek (BCM.v): Risk rising at Corani
I've watched as Bear Creek Mining (BCM.v) dropped to a sub-C$1 level on the back of a less-
than impressive feasibility update for its main Corani project (NR out June 2nd) (11) and
without putting too fine a point on it, those results came as little surprise. Corani is your actual
big-low-grade-silver deposit, which hit the spot when silver was flying high a few years ago but
these days is about as popular as a pork pie at a barmitzvah.
But BCM gets a mention this week for two reasons, firstly because it's been bought back up to
over the $1 mark with some extra strong volume coming for the stock on Friday. That's always
something that's worthy of note, because renewed interest in a dropped stock can offer a trade
opportunity if things are in the right place. Therefore, due to the rising price from the floor
levels and that bif volume trade day, my interest is piqued.
16
Secondly because whoever bought that near-3m share block is making a mistake in my
considered opinion. On Tuesday June 16th reports came from the Corani region (12) that after
a public meeting, locals decided to visit the country's capital Lima in order to push for a
renegotiated deal with the government and with BCM over the community agreement for
Corani. At this time there's a firm agreement in place with the locals of the nearest and most
directly influenced area, centred on the town of Corani itself, but those in areas located further
out from the mine also want a deal struck with the company, as they argue they are also in an
area of diretc influence of the mine. The call for a new deal that includes more locals is headed
by the local politician and congressional representative Hernan Vilca Soncco, who's been at
loggerheads with the mayoral authorities of Corani over this subject for a number of years.
The heart of the matter is the always thorny problem of where to draw boundary lines. For the
company and the people of the town of Corani, it suits them to keep things the way they are
with a deal that has the most local of locals happy and sponsored in various development
activities. But this doesn't go down well with people a little further out as these deals cause
resentment and jealousy to appear, which is then capitalized upon by opportunistic politicos
such as Señor Vilca Loncco. What it adds up to is a situation that can quickly get out of hand
and in the case of BCM at Corani, the continued delays to the project development that are
likely to continue indefinitely as long as the price of silver doesn't pick up are no help at all and
further irrritate the have-nots, who watch as the "haves" included in the private agreement
between company and town continue to benefit from community relations deals.
In sum, today's BCM is three items:
1) The Santa Ana litigation is going nowhere for the time being and any decision has already
been pushed out to after the end current Humala government in 2016. What's more, as we've
pointed out before there's no guarantee BCM will get anything from the judgment when it
comes and Peru's legal team has shown itself very capable of getting favourable results from
CIADI/ICSID.
2) Corani is stifled by the ongoing low prices for silver. The feas study tried to paint things in
the best light possible but as commented on the blog at the time (13) via this annoted table
from the NR...
...choosing U$20/oz as your "base case" for silver when the metal hasn't seen that level since
August 2014 is an exercise is delusion, self or otherwise.
3) We now have rising community relations risk at Corani, due to the inertia and envy of those
outside the "inner circle" of locals that benefit from the company's ongoing relations programs.
17
Don't underestimate this, because it was the "non-local locals" that put a halt to the Santa Ana
project so successfully in the Southern Aymara area of Puno region.
Bottom line: Avoid BCM.v, simple as that.
The True Gold (TGM.v) events of last week
We've followed this story quite closely over the last six months due to its potential for a trade.
Today's update is about the most recently developments and it's again pointing to the
heightened risk that's being concealed by the company. So here follows another 700 words that
finish by saying "no trade" which you can easily ignore.
Early last week (and as covered on the blog a little (14)) an agreement was signed between
TGM, government and the local Imam religious leader in charge of the nearby mosque (the
"Chiek", officially known as Cheick Aboubacar Maïga II de Ramatoulaye) which also happens to
be Burkina Faso's most sacred site for followers of Islam.
My problem with the development, and the reason why I see no real trade for my money, is
that TGM is obviously blowing some quantity or other of smoke in our eyes and into our nether
orificies. On the one hand we have True Gold (TGM.v) telling us the following about the re-start
and progress made at Karma (15)::
The site is buzzing with energy and excitement of being back at work and I want to
thank our team for their dedication and diligence in getting Karma back on track. The
local communities, suppliers, and the government, have been extremely supportive of
the return to work
And
The Company, Government of Burkina Faso and representatives of the community of
Ramatoulaye recently reached an accord in support of the mine. The tripartite
agreement assures the operation of the mine in a peaceful climate and benefits all
stakeholders. The parties are committed to ensuring the security of properties, people,
and ongoing dialogue supporting the construction of the mine.
However, check around the Burkina Faso reports and it doesn't take long at all before you read
headlines (16) such as...
"A Fragile Three-Handed Agreement is Signed"
...in the serious business publications. The problem isn't with the government or the company,
both keen to see Karma move forward of course. The problem is with the third party, the Chiek
who committed in the agreement to (your author translates*), "...provide credibility to the
18
continuing business activity and to promote dialogue that will provide solutions to any problems
that might arise." That's little more than "Religious person promises to ask people not to hit
each other", the type of thing you sign onto when entering the formal Islamic clerical orders in
the first place. But it's also nothing that hasn't been promised in previous years between the
Chiek and True Gold, which did nothing to stop the riots of January that stopped the mine
development or those in May which were conveniently ignored by True Gold in all news releases
to its shareholders and the market. Then there's this at the end of the same report which has a
local community leader Soumaïla Sawadogo saying (translated) "...all business activities that
are to take place at the mine must be subject to negotiation and agreement with the
neighbouring communities" which doesn't sound much like a closed agreement to me, more like
the start of negotiations albeit with ostensible good intentions on either side.
The bottom line is that you have the company telling you that we have an agreement that
"assures" the operation of Karma and those that know Burkina Faso telling the citizens of
Burkina Faso the very same agreement is "fragile". Aside from the potential for problems in the
upcoming elections and the talk of changes to the mining laws, this juxtaposition is enough to
keep me away. There may be enough for you to consider TGM as a reasonable risk/reward
opportunity and I'd agree that the stock will almost certainly improve if we get a free run to
production and first pour in the first quarter of 2016 as scheduled. But for me there's an awful
lot that can go wrong between now and then, all in a region that I don't understand well and at
a project that's already hit significant roadbumps this year after the company had assured us in
2014 that everything was good (the previous CEO getting pinkslipped one of the results of
that).
PS: a Rumour picked up from a decent source this weekend says True Gold is about to
announce its new COO, perhaps as early as tomorrow Monday morning. It changes nothing.
*To provide necessary bonafides to a business audience on a subject that hasn't come up often before: My French
used to be very good, mainly due to having lived in France for a couple of years back in the 1990s. Since that time it's
gone quite rusty, my spoken French now less than fluent and I'd need a few months in a French-speaking environment
to get it back up to scratch, but there's still more than enough left to read French and be able to translate accurately
into English. End of bonafides.
Lundin Gold (LUG.to): Three things and a date for your investment diary
First the quick background: Lundin Gold (LUG.to) is of course the company set up by the Lundin
family (or group, or tribe) to develop the Fruta Del Norte (FDN) project in Ecuador which it
bought from Kinross for a relative song (especially compared to the price K paid to buy out
Aurelian way back when). LUG as a company was set up and running a little before the end of
2014 mostly via 1) the transaction 2) a raise at $4/share and 3) the IPO. Since then it's been
"working diligently" (to use the classic
phrase) in order to move the project
forward without setting the market or
world on fire.
Second the IKN position and I've been
following the company since before its
inception but it's not one that's been of
much interest to date. For one thing
Ecuador isn't an easy place to do
business, for another I thought the IPO
price of $4 wasn't much of a bargain
and that we wouldn't see much upside
in the early stages (so far that's been
the right call as this 2015 YTD chart
shows, but to be fair it's not collapsed
away from the $4 level, either...all basically UNCH).
19
Third, the news and the date for your diary. Last Tuesday June 16th saw the start of the formal
negotiations between LUG.to and the government of Ecuador on the operations contract for the
mine (in Ecuador, each mine is supposed to negotiate a separate tax and overall burdens
agreement with the State). According to reports out last week (17) these talks are supposed to
run until January with a deal struck and announced by then. If all goes to plan, the two sides
will then sign their formal agreement, the mine gets the green light for construction, the build-
out begins almost immediately and the mine will be in commecial production by 2018. As simple
as that, what could possibly go wrong?
Well obvious a hundred things could go wrong, this is Ecuador after all and not a serious mining
country. But what we do have now is a nice clear date to slate into our diaries for solid news to
appear. If it does and it's company-friendly, it may be time to take a close look at LUG.to as an
investment opportunity. On the other hand if things drag on after January and the timeline
starts to slip, it wouldn't be the first time that a delay signifies problems for a miner in this
country.
Bottom line: I know a lot of you are interested in this name and this project, perhaps due to its
impressive grade, perhaps its already chequered history, perhaps because having a name like
Lundin behind it now gives it more chance to become a winner, or perhaps because if this
economically very robust project can't make a go iof it in Ecuador, none of them can. So what
we have now, thanks to this formal negotiation process and the expected timeline, is a nice
clear indicator of just how well (or badly) the key country risk factor plays out as well as a
decent window at which we can make a more educated investment decision if the opportunity
arises. To be continued January 2016...probably.
Conclusion
IKN319 is done, we end with bullet points:
• I seem to spend more time searching out and finding reasons not to invest in stock X,
rather than finding reasons to invest. But that's normal, that's the way it is with juniors,
you need to find the reasons to ignore the smooth sales pitch and everything gonna be
all right message, because there are only ever going to be a minority of winners.
• Want my advice? Own B2Gold, add some more IRL, go fishing and come back in
September. And quit worrying about this market, it'll live or die without you and I.
• It's time to get rid of my last dregs of copper exposure. Don't be caught owning
leverage to this metal, because a move down towards $2 isn't out of the question now.
• Gold's the place to be, it's where the junior sector can still exercise advantage and
allow real speculation.
• Next week Regional Risk review and there's an awful lot to catch up on.
I thank you in advance for any feedback. Our Top Pick stock is B2Gold (BTG) (BTO.to). Flash
updates will be sent if required by events.
I wish you good trading fortune, ladies and gentlemen.
Otto
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Footnotes, appendices, references, disclaimer
(1) http://finance.yahoo.com/news/mcewen-mining-initiates-dividend-distribution-110100893.html
(2) http://www.incakolanews.blogspot.com/2015/06/rob-mcewen-starts-paying-himself-at.html
(3) http://finance.yahoo.com/news/starcore-reports-third-quarter-2015-130000041.html
(4) http://finance.yahoo.com/news/starcore-advances-funds-cortez-gold-203000338.html
(5) http://cunarcperu.org/index.php?option=com_content&view=article&id=869:exitosa-huelga-en-huelgayoc-contra-las-
empresas-mineras-gold-fields-tantahuatay&catid=1:latest-news&Itemid=1
(6) http://www.reuters.com/article/2015/06/20/us-copper-inventories-prices-idUSKBN0P001H20150620
(7) http://www.eleconomistaamerica.pe/empresas-eAm-mexico/noticias/6808594/06/15/Peru-Southern-Copper-podria-
ampliar-la-pausa-en-el-proyecto-minero-Tia-Maria-para-convencer-a-la-poblacion.html#.Kku81jLH3y6oQvn
(8) http://aminera.com/index.php/mineria-internacional/item/11879-per%C3%BA-las-compa%C3%B1%C3%ADas-
mineras-creen-que-su-mayor-reto-es-superar-una-imagen-p%C3%BAblica-negativa.html
(9)
http://www.cochilco.cl/Archivos/destacados/20150617121921_Insumos%20cr%C3%ADticos%20de%20la%20miner%C
3%ADa%20agua%20y%20energ%C3%ADa.pdf
(10) https://es.finance.yahoo.com/noticias/ortega-nicaragua-preparada-acuerdo-libre-comercio-per%C3%BA-
012149252--sector.html
(11) http://finance.yahoo.com/news/bear-creek-mining-announces-results-120000837.html
(12) http://www.pachamamaradio.org/16-06-2015/poblacion-de-corani-busca-segundo-convenio-con-bear-creek.html
(13) http://incakolanews.blogspot.com/2015/06/the-bear-creek-mining-bcmv-corani.html
(14) http://incakolanews.blogspot.com/2015/06/theres-reasonable-chance-that-true-gold.html
(15) http://finance.yahoo.com/news/true-gold-provides-progress-karma-103000601.html
(16) http://bayiri.com/economie/industrie/mines-carrieres/the-true-gold-populations-de-namissiguima-etat-un-fragile-
accord-tripartite-est-signe.html
(17) http://www.telegrafo.com.ec/economia/item/el-proyecto-fruta-del-norte-operaria-en-2018.html
21
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
22
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
23
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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