The IKN Weekly issue 324, with NOBS update report on B2Gold (BTG) (BTO.to) — Jul 26, 2015
The IKN Weekly
Week 324, July 26th 2015
Contents
This Week: How mining companies will react to the new new normal, Gold and daggers (real
or otherwise), The Fed finds a new way to jawbone.
Fundamental Analysis: NOBS update report on B2Gold (BTO.to) (BTG).
Stocks to Follow: Overview, McEwen Mining (MUX) (MUX.to), NovaCopper (NCQ.to), Minera
IRL (IRL.to) (MIRL.L), B2Gold (BTG) (BTO.to), Teranga Gold (TGZ.to) (TGZ.ax), Lake Shore
Gold (LSG.to), Dalradian Resources (DNA.to), Atacama (ATM.v), Phoscan (FOS.to).
Copper Basket: Overview, Gold/Copper ratio, Capstone (CS.to)
Low Cost Producer Basket: Overview.
Regional Politics: Chile: an in-depth analysis of the country's copper mining competitivity,
Chile protest clashes, Unrest in Ecuador, Two from Tia Maria, Dominican Republic: Canada does
the hearts and minds thing, Argentina: Chubut in election mode, Nyrstar updates on the
situation at its Campo Morado mine, Guerrero, Mexico.
Market Watching: Tinka Resources (TK.v): Trip confirmed, Torex (TXG.to) trading action
continues to impress, New Oroperu (ORO.v): Headsup on a potential Land Grab play.
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
How mining companies will react to the new new normal
I've been sent three "stress testing the gold miners" fundamentals analyses published by
brokerages this week (the best was from RBC and for what it's worth, Tahoe Resources and
Semafo came out best) and I've read at least a dozen "gold miners in trouble at $1,100/oz
gold" articles that sometimes take a look, other times are akin to the guy with the "End Of The
World" sandwich board on the city street corner. And when those anal ysts have a theme,
they're sure to thrash it to death. It's called justifying paychecks. However, one thing I can
guarantee in the face of this very important and wholly objective scientific numbercrunching is
the reaction from the miners. We're about to hear from a whole bunch of mining executives
working at the larger and the medium-scale producers who are going to tell us that in fact
things have changed and they're perfectly profitable at U$1,100/oz gold these days, plus how
they're "stress tested" down to a thousand and all those suits in cubicles are being overly
pessimistic.
What then happens, given a level gold playing field, is that the lapdogs anal ysts writing their
pseudocritiques fall into line and start saying nice things about the miners (recall they care
more about the people running these mining companies than their brokerage clients), shares
recover at least some of the recent losses as bargain hunters move in to snap up the value.
That re-rate remains in place right up until they discover that the mining bosses were talking
about operating costs and not total costs, or total costs and not all-in sustaining costs, or All-In
costs and not all-in sustaining costs. Whichever way it is, the new buyers discover one or two
quarters down the line that the money made at the mine is having great difficulty in reaching
the bottom line of the P+L. All very strange and perplexing, I'm sure. Unless of course gold
1
recovers in the meantime and then we're all saved. Cynical opening riff complete, I'll now turn
the irony spigot towards other targets.
Gold and daggers (real or otherwise)
Is this a dagger which I see before me,
The handle toward my hand? Come, let me clutch thee.
I have thee not, and yet I see thee still.
Art thou not, fatal vision, sensible
To feeling as to sight? or art thou but
A dagger of the mind, a false creation,
Proceeding from the heat-oppressed brain?
M_cbeth, Bill Quill, over 400 years ago
I'm not saying that was a bottom on Friday, but bet money on hearing it called that from the
permabulls and chart charlatans* over the next few days. Your author has three things to get
off his proverbial chest:
One: The first lines of M_cbeth's soliloquy, spoken just before he offs Duncan King of Scotland
while a guest in his own home, are included to remind you that whatever choice you make or
deed you might do there's always a way of justifying actions and blaming others for the
consequences, up to and including hallucination of floating blades. "A ghostly dagger is what
made me do it, officer" sure beats voices in the head (sidebar: I know TA people have a saying
about knives that fall, pity there's not one for knives that float). The wonders of the human
mind. Newsletters and investment commentators are not innovators of human psyche, merely
carrying on long-held traditions.
Two: There will be finessing and elaboration of the bullish technicals argument but when it's all
said and done, it's because of this chart:
Textbook Technical Analysis TA101 (the type that even I understand) will tell you that for a
bottom, what you want is...
• A big sell-off day that dumps your market issue quickly, waterfall style. Check.
• Preferably that sell-off comes with a lot of market noise. Check.
• A dead-cat bounce after the big selling event to previous support. Check.
• Then in the days after, your market issue quietly re-tests the previous lows without
anywhere near as much volume involved and again, without making anywhere near as
2
much fuss in the trade papers or headlines. Check.
• Finally, a knee-jerk bounce away from the previous lows area on renewed buying (aka
bargain hunters). Check.
That gold chart checks all boxes and as a result, the TA brigade will be sharpening their pencils
this weekend in order to bring you their version of "Yeah well I may have been wrong before,
but the set-up for gold is now very bullish...and this time I'm serious". They may decide to add
a few exclamation marks into their pump pieces along the way, I can't stomach that much
parody in this text.
Three: However I am going to stick with my roadmap call for the current year, was made on
December 29th 2014 as the number one call in the "Ten Random Predictions for 2015" post
that day (a). It was this:
Gold to trend up gradually, with a rough U$1,400/oz target for some time at the end
of the year. For sure with the normal wobbly stuff along the way and I wouldn't bat an
eyelid to see it go under U$1,100/oz again at some point or other, but talk of its utter
demise (South of 1k) strikes this author as plain silly talk from people who don't get
the sector.
Among feedback from IKN323 last week and then the Flash Update on the MUX purchase (see
Appendix 1) a couple of you asked why I didn't seem so perturbed by the gold dump under
U$1,100/oz last Monday, or why I decided to go ahead with the MUX trade buy while all around
(including Goldman Sach, JP Morgan and all those intelligent people in suits) are talking sub-
$1k gold. The answer is above, sub-$1.1k gold was already factored and considered as a real
possibility. So be clear, I'll stand up and admit error if gold does indeed drop under the magic
$1k barrier in the weeks to come but for the time being we're still inside my own comfort zone
as far as gold prices go.
But hey, even if I get it wrong I can always blame Goldman Sachs. Or China. Or Janet Yellen.
Or "short interest". Because writing a newsletter is all of the fun, none of the responsibility.
*Gary T at Biiwii the notable exception.
The Fed finds a new way to jawbone
Oh how the world laughed when the Federal Reserves inadvertently included some of its staff's
economic projections in a published file, then levelled the playing field last week by telling us all
about the accidental error (1) just days before this week's FOMC meeting (which will conclude
Wednesday 29th with the standard communique release but no Yellen presser this time
around). To cut a long story short, here's how the contents of those staff projections were
shown on Bloomberg Friday morning...
*FED STAFF PROJECTIONS SHOW YEAR-END FED FUNDS OF 0.35% 2015
*FED STAFF PROJECTIONS SEE FED FUNDS AT 1.26% 4Q 2016
*FED STAFF PROJECTIONS SEE GDP 2.31% 2015, 2.38% 2016
...and the skinny is that we should now be prepared for the first Fed hike this year (though very
doubtful this week) and rates to reach one and a quarter by the end of 2016. On this subject,
IKN opinion hasn't changed since IKN308 dated April 15th which included...
"...keep it realworld and remember that the Fed will hike; It's not an if, the
only question is when"
...as part of its introduction section and for what it's worth, the main thrust of that intro was
about calling the US Dollar as toppy at 100, I notice as I look back for the quote this Saturday
afternoon over three months later...just sayin'.
3
It's been pointed out previous on these pages (and at far smarter Fedwatch sites) that The Fed
jawbone isn't "cheating" or "manipulation" or "unfair", it's just part of the toolkit they use. Yes
the whole accident thing last week was amusing and a novel twist (plus of course impressive
how they can lie like that with a straight face), but it's just part of the game. The bottom line is
that if 1) it's "when" and not "if" on a Fed rate hike and 2) we got the signal we got on Friday,
the rest falls into line pretty easily. The market doesn't like surprises, Janet&Co have decided
that it's in their best interests to be nice to Mr. Market and give plenty of advanced warning. It's
now being baked in.
Fundamental Analysis of Mining Stocks
This week we update on B2Gold (BTO.to) (BTG).
NOBS fundamental update report dated July 26th 2015
B2Gold Corp. (BTO.to) (BTG)
Company Overview
B2Gold Corp (Canada: BTO.to, USA: BTG, Frankfurt: 5BG.f) is a mid-tier gold mining company
operating in several countries worldwide. Its major producing assets are located in The
Philippines, Nicaragua and Namibia. It also owns exploration and development properties in
Mali, Colombia, Burkina Faso and Nicaragua. Current share structure is as follows:
Shares out: 925.077m
Options: 5.1m
Fully diluted shares: 930.087m
Current share price: U$1.16
Market Cap: U$1.073Bn
Approx cash per S/O: U$0.05
All prices are in United States Dollars unless stated. Forex U$0.80=CAD$1
NB: Same as in IKN314, even though I own B2Gold via its Canadian listing BTO.to, as
BTO reports in US Dollars and does its business via the world's reference currency,
today's analysis will make things simple and use the US listing BTG as benchmark.
Today’s update
We last looked at BTO in the NOBS update report of IKN314 dated May 17th, when the BTG
ticker stood at U$1.70 and we thought that was cheap as chips. Here's part of the conclusion
section from that IKN314 report:
I'm therefore basing the target on what we can expect in 4q15 and that 7c/share
operating revenues (before expenses and tax are taken out). On a straight line project
to an annual rate and then a reasonably modest 8X multiple, our generated target is a
simple U$2.24. That implies a 31.8% upside to this weekend's U$1.70 price for
BTG. For those of you in the Canadian stock (such as myself), that implies a
CAD$2.69 target price at this weekend's forex, which I'd round up to $2.70.
This isn't a massively high target price, but 30% or above is more than enough to be
getting along with and especially because it's on an established position that's about to
get larger. A Top Pick is one that needs all ducks in line and aside from the obvious
4
variable of the gold price, the one we cannot control, BTO has exactly that today. It's
the right stock in the right space at the right time, it's going higher and I want more of it.
I'll add some next week but not all the amount I'm aiming to get, as I'm still a little leery
about the state of this gold market. There may be a better entry into BTO a little down
the line, so on a personal level I'm looking to add some in the days ahead (I'll stick with
the Canadian listing, so from Tuesday onwards) and then top up at a later, undefined
date. Once I'm done it will be my biggest position by quite a distance.
IKN324 back and here a chart that shows how B2Gold (via its US BTG ticker) has fared since
the date of those words, comparing it to gold (GLD), the PMs (GDX) and the juniors (GDXJ), to
give an idea of just how bad my call on BTO has been so far.
1) It's been bad and it's cost me money. For another perspective on that, since IKN314 BTO
has lost almost exactly U$500m in market cap. It's been a very rough time to be long gold
stocks but BTG has been right up with the...errrr....best of them
2) The obvious now stated, the cause of the sector weakness has been the continued drop in
the gold price rather than issues inside BTG/BTO. After holding ground through June the
renewal of selling and the push under U$1,100/oz got a lot of speculators hitting their sell
buttons all at once on the stocks, we got the waterfall drop that's clearly visible.
3) Now company-specific and until very recently BTG hasn't performed any worse or better than
the rest. However it's taken an extra hit in the last few days and for the first time we see it
underperforming the peer lines. I doubt that's a big change in the company's fortunes, I think it's
connected to worries over its financial debt position. We'll look at that aspect below.
I could continue for another 500 words but it's probably better (for you and me) to wrap up the
intro and the review of the Top Pick call here. In brief, I'm annoyed about having bought BTO
where I did, because the stock is now mindbendingly cheap and if I'd exercised a little more
patience I could be swimming on top of a bunch of uber-discounted equities, rather than being
underwater on the stock I own. My timing sucked again, the main ongoing weakness in my
investment armoury (for me its root cause is the way I fall too regularly into Value Traps, that's
for another day). But all is not lost. The cause of the BTG drop is the cause of the sector drop,
that of lower gold (duh) and though my timing has sucked the investment thesis still stands:
Back in May I was an adder and Top Pick caller on BTO because of its potential to outperform
in the seond half of this year. Signals from its 2q15 production number NR last week (2) were
good and we now sit waiting to see if Libertad comes back on time, whether Otjikoto continues
its strong early growth as expected and whether Masbate can put in a couple of good ones. Yes
it's been a drag to be even longer BTO at the wrong time, but this is a company that's
fundamentally stronger than it's given credit for. That starts with its production schedule.
What we now do in this update report is straightforward:
• We check out the 2q15 production results, published last week, consider the impact of the
5
numbers and BTO's words on guidance, then take a stab at what we can expect from the
financials when they're reported on August 14th.
• We consider what's now being talked about as BTO's weak point, its financial debt and
liabilities position in the face of a weakening gold price.
• We wrap it up into a conclusion and recommendation.
NB: Please pay attention to the personal call here. Be clear I am not personally going to add
more BTO to my position, dirt cheap price or not. I'll freely admit that it's tempting and it would
be so very easy to call "add and average down" or "buy more" or "buy more!!!" with three
exclamations or "stink bid" or whatever other marketing BS you'd care to use. Sadly (and it is
rather sad) I'm not in that position; The letter is ultimately going to call what I do with my money,
it's not a perfect solution to the recommends issue but it's the way it happens round here. Today
and as stands, I own (more than) enough BTO and I must keep to some sort of portfolio
management discipline. Therefore I can like the new price compared to BTO's prospects until
the cows come home, I'm not adding.
The 2q15 production results
Last week saw BTO report its 2q15 production results and as usual it added in a few more
numbers than most of its peers. We don't have the financial results yet (those come pre-open
August 14th) but we have more than enough to make an educated guesstimate or two on how
things are going. Here's the main production tracker chart, the same one that turned up on the
blog last Thursday morning (3) except that here today we add in newly adjusted forecasts for
the next two quarters.
BTO: gold production by mine
160000
150000
140000
130000
120000
110000
100000
90000
80000
70000
60000
50000
40000
30000
20000
10000
0
6
21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 41q3 41q4 51q1 51q2 tse51q3 tse51q4
oz Au
Otjikoto prod
Masbate prod
Limon prod
Libertad prod
source: company filings, IKN ests
So 121,566 oz Au and a new quarterly record. Just. Now some breakdown on each BTO mine:
Otjikoto
In 2q15, BTO's new and ramping mine produced a very decent 36,963 oz, some 2k oz above its
own budget plan. In its notes BTO said
head grade is set to improve in the months BTO: 2015 Otjikoto gold production, per qtr
47000
ahead and the throughput upgrade (a 20% 50000
increase from run-of-mill 2.5m tonnes per 45000 36963 39000
40000
annum to run-of-mill 3.0m tonnes per 35000 31134
annum) is on schedule to kick in come 30000
4q15. In 2016, BTO expects Otjikoto to be 25000
a 200k oz per year machine. With those in 20000
mind, here's how we're modelling the next 15000
10000
two quarters.
5000
0
As for 2015 guidance, this chart sits BTO's
own low-end and high-end guidance
51q1 51q2 tse51q3 tse51q4
Oz Au
source: company filings, IKN ests
numbers for the year against the IKN house model. We think they beat (more below on that).
BTO: 2015 Otjikoto guidance and IKN forecast
Oz Au BTO low end guidance
170000 BTO high end guidance
IKN forecast
160000 154097
150000
150000
140000
140000
130000
120000
110000
100000
source: company filings, IKN ests Otjikoto 2015
Masbate
Masbate's 41,236 oz produced was slightly lower than I'd estimated for Q2 but it's still in line
with expectations. It's not an easy mine to
BTO: 2015 Masbate gold production, per qtr
forward estimate on a quarterly basis, being
as big as it is and with large tonnages of rock 50000 46241 43750 43750
45000 41236
moved from point A to point B, any slight
40000
variation in grade will move through the 35000
numbers to final production pretty clearly. For 30000
the rest of 2015 it's therefore a best-guess 25000
20000
best-fit 43,750oz per quarter.
15000
10000
5000
As for 2015 guidance, this chart sits BTO's 0
own low-end and high-end guidance numbers
for the year against the IKN house model.
Libertad
IKN had 30k oz pencilled in for Libertad in 2q15
so its 27,681 oz produced was a miss, both for
here and for the official BTO guidance. Also,
BTO seems to be guiding us slightly lower for
the 3q15 period than before by indicating in last
week's NR that its upgrading work is a month
behind schedule. However, BTO is still guiding
to the low end of its 2015 forecast, which
means 135,000 ounces and implies a big pick-
up in production rhythm in the second half of
this year.
7
51q1 51q2 tse51q3 tse51q4
Oz Au
source: company filings, IKN ests
BTO: 2015 Masbate guidance and IKN forecast
Oz Au
200000 BTO low end guidance
195000 BTO high end guidance
IKN forecast
190000
185000 180000
180000 174977
175000 170000
170000
165000
160000
155000
150000
source: company filings, IKN estsMasbate 2015
BTO: 2015 Libertad gold production, per qtr
50000 44000
45000
40000 36000
35000
27681
30000 25326
25000
20000
15000
10000
5000
0
51q1 51q2 tse51q3 tse51q4
Oz Au
source: company filings, IKN ests
As you can see from the chart below, our best guesses of 36k and 44k for the next two quarters
would mean BTO doesn't even get to the low end. I'm being conservative here, the estimates
are allowing for modest improvements. As for 2015 guidance, this chart sits BTO's own low-end
and high-end guidance numbers for the year against the IKN house model.
BTO: 2015 Libertad guidance and IKN forecast
Oz Au BTO low end guidance
170000 BTO high end guidance
IKN forecast
160000
150000 145000
140000 135000 133007
130000
120000
110000
100000
source: company filings, IKN estsLibertad 2015
El Limón
Finally BTO's smallest operation, but one that's
held up very well over the years. El Limón BTO: 2015 El Limón gold production, per qtr
came back from a year's worth of slack 20000
quarters in 2q15 and posted production of 18000 15686 15000 16000
16000
15,686 oz, thanks to mine capex spending in
14000 13158
mid/late-2014 that's now bearing fruit. This is 12000
another that could surprise to the upside in 10000
what's left of 2015, but for the moment we'll 8000
base our forecasts around the type of figure 6000
4000
just posted.
2000
0
As for 2015 guidance, this chart sits BTO's own
low-end and high-end guidance numbers for
the year against the IKN house model.
Putting it all together: A new consolidated production forecast for 2015 (and beyond)
Here's a chart with the same data as the first one in this production section above, except that
we include 2010 and 2011 numbers and that the information isn't segmented into mines. We
forecast 3q15 to come in at 133,750 oz production as Otjikoto continues to ramp production
(mainly via grade improvements and Libertad starts to come out of its build-out cycle drop. Then
things really start popping in 4q15 thanks to Libertad getting back into full stride and Otjikoto's
throughput upgrade coming online. For 4q15 we're expecting 150,750 oz produced in the
quarter and give BTO plenty of reason to trumpet its achievements.
8
51q1 51q2 tse51q3 tse51q4
Oz Au
source: company filings, IKN ests
BTO: 2015 El Limón guidance and IKN forecast
Oz Au BTO low end guidance
70000 BTO high end guidance
IKN forecast 65000
65000
59844
60000
55000
55000
50000
45000
40000
source: company filings, IKN ests Limon 2015
BTO: Gold produced, per qtr
160000
140000
120000
100000
80000
60000
40000
20000
0
9
01q1 01q2 01q3 01q4 11q1 11q2 11q3 11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 41q3 41q4 51q1 51q2 tse51q3 tse51q4
OzAu
source: company data
As for the mines in 2015, here's how we compare the newly adjusted IKN production forecasts
to the guidance lows and highs given by BTO.
BTO: 2015 guidances and IKN forecasts for each mine
Oz Au BTO low end guidance
200000 BTO high end guidance
175000 IKN forecast
150000
125000
100000
75000
50000
25000
0
Limon 2015 Libertad 2015 Otjikoto 2015 Masbate 2015
source: company filings, IKN ests
• At El Limón, full year is expected to come in mid-range and we're now pitching for a tiny
touch under 60k oz Au.
• At Libertad, due to its soft first half to 2015 and the signals that production upgrades are
going to be perhaps a month later than originally expected, we're now guiding to 133k oz
for the year which is below BTO's low end of 135k oz.
• At Otjikoto, we expect BTO's newest mine to beat upper end guidance and finish the year
at 154k oz Au. This mine has started very well and the vibes from the company couldn't be
more bullish.
• At Masbate we're guiding middle-range of BTO's numbers at 175k oz Au. However, we've
seen that this mine can suddenly hit a period of higher grading material than expected
from time to time (eg 4q14), so upside and pleasant surprises aren't out of the questtion.
We're not modelling them in though.
Widening the timeline, here's how BTO: annual production and estimates
we expect BTO's annual 1000
production to pan out in the years 900
ahead, with 2015 now slated at 800
522k oz, then as Otjikoto and 700
Libertad see organic growth on 600
schedule, 610k oz for 2016 and 500
2017. While BTO still says Fekola 400
will start production in late 2017 300
and then push the company's 200
production to over 900k oz in 100
2018, we'll continue to take the 0
cautious view for the time being
and add nothing from Fekola to
2017, then make the grand total
3102 4102 tse5102 tse6102 tse7102 tse8102
OzAu
Fekola
Otjikoto
Masbate
Limón
Libertad
source: BTO filings, IKN ests
860k oz for 2018.
Updated BTO revenues forecast for 2q15 (and beyond)
Revision necessary. At this point in IKN314 we used U$1,250/oz and U$1,300/oz price
projections for gold in the quarters of 2015
that weren't already posted. Those are
obviously too optimistic to use in today's
report, so in today's adjusted chart we're
using the reported U$1,193/oz for 2q15 (BTO
told us that on Thursday), then an average of
U$1,150/oz in 3q15 and U$1,200/oz for
4q15. You may complain about that and say
my gold average prices are still to optimistic
for the next two quarters. That's fine, I'll live
with it.
The upshot is that we expect U$136.5m in
revenues for the current quarter (also pre-
announced by BTO Thursday), then as production increases in the quarters to come so does
revenues to $154m in Q3 and $181m in Q4.
As for costs, we're taking our cue from the words in the NR last week that the company is still
on track to produce in 2015,"...at cash operating costs between $630 to $660 per ounce and all-
in sustaining costs between $950 and $1,025 per ounce", which is where we were before. We
then make a couple of slight adjustments, add in expectations for depreciation
/depletion/amortization and royalties, then stick the total COGS number derived from that next
to the revenues number and show you this chart:
BTO: operating revenues and costs
200
181.0
180
154.0
160
140 129.0 120.3 114.9 122.4 138.9 115.6 136.5 122.0 125.0 135.0
120 98.3 99.0 103.5
100 91.9
80
60 46.0
37.1
40 22.0 15.9 18.9 23.3 14.5 29.0
20
0
10
41q1 41q2 41q3 41q4 51q1 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
On our model, we expect this current 2q15 to be the tightest margins, with $14.5m in operating
revenues (pre expenses/tax). This improves to $29m and $46m in the next quarters, assuming
my gold price forecasts come in. For what
it's worth, to give an idea of a lower-ball
gold price take U$100/oz from the Q4
average price and revenues drop by
$15m, therefore operating revenues are
$31m instead of that $46m. Or put another
way, once the expected growth in
production comes through BTO is still
profitable at $1,100/oz (which may come
as a surprise to all those people selling
the stock down these last two weeks).
In per-share terms, operating revenues
looks like this (right):
31q1 31q2 31q3 31q4 41q1 41q2 41q3 41q4 51q1 tse51q2 tse51q3 tse51q4
U$m
source: company data, IKN ests for FY15
BTO: Operating Revenue per share, per qtr
0.06
0.05
0.04
0.03
0.02
0.01
0.00
41q1 41q2 41q3 41q4 51q1 tse51q2 tse51q3 tse51q4
$/share
source: company filings, IKN ests
At 1.6c/share BTO is nobody's idea of a licence to print money, but it is operating over free cash
flow breakeven (even after deprec/deplet/amorts are thrown in) and that's at the average
received price of U$1,193/oz in 2q15. I don't need to remind anyone reading these words what's
happened to gold since the end of 2q15, so the ballpark prospect is to deal with a BTO that's
producing 130k oz of gold and getting U$100/oz less for each one. That's U$13m in gross
revenues (1.4c/share) and that would all-
but wipes out Q2's operating revenues at
the company. And operating revenues
come before BTO charges maybe $15m
or $20m to its "expenses" line item.
However, we again note that 3q15 and
4q15 will be better equipped to take a
1.4c/share revenues drop.
When it comes to the P+L bottom line
(right) I'm expecting BTO to post a
modest net loss this 2q15 quarter. I'm
also expecting improvement back to
black for the two quarters to come.
Balance sheet items
These are worthy of closer inspection today, mostly because of the liabilities part of the balance
sheet because there have been a lot of nerves (real or imagined) relayed to this desk about
BTO's debt position in the last few weeks. So on with the show and we start with a look at the
overall assets evolution chart:
BTO: assets
3000
2500
2000
1500
1000
500
0
11
31q1 31q2 31q3 31q4 41q1 41q2 41q3 41q4 51q1 tse51q2 tse51q3 tse51q4
$m
fixed
other current
cash&ST
source: company filings, IKN ests for FY15
Fixed assets make up the lion's share of the things BTO owns, normal for a producing mine with
a growth aspect. We also see the jag down when BTO took its main lump of impairments in
4q14. Zooming in on the purple bits of the above chart to get a handle on treasury and general
corporate liquidity...
BTO: Cash treasury
200
180
160
140
120
100
80
60
40
20
0
41q1 41q2 41q3 41q4 51q1 tse51q2 tse51q3 tse51q4
BTO: Adjusted net earnings
40
30
20
10
0
-10
-20
-30
$m
source: company filings, IKN ests for FY15
...we're expecting cash to bottom out this quarter at $120m (the type of cool and confident
forecast that could miss by quite a bit once the financials are known, all it'd take is for BTO to
31q1 31q2 31q3 31q4 41q1 41q2 41q3 41q4 51q1 tse51q2 tse51q3 tse51q4
$m
source: company filings, IKN ests for FY15
withhold a payment to a supplier or write a large cheque for a fixed asset purchase just before
quarter's end, but we have to start somewhere) and then move back up towards $140m by
year's end on the back of the improved production and resulting operating profits. So even if
we're out by a bit, the news here is that BTO's liquidity is still in solid shape and there's no
problems on the immediate horizon.
Moving to liabilities, current stood at $91.8m and long-term at $509.4m as at 1q15. We're best-
guessing that remains close to the same place for the rest of 2015, but as we note below that
might not be the case.
BTO: Liabilities
800
700
600
500
400
300
200
100
0
12
31q1 31q2 31q3 31q4 41q1 41q2 41q3 41q4 51q1 tse51q2 tse51q3 tse51q4
$m LT debt
current debt
source: company filings, IKN ests for FY15
There's a decent amount of concern about the BTO debt position at the moment, which goes
something like, "$600m in debt---> $120m in cash ---> senior notes and a revolver ---> they'll
need to pay that back---> they're not making money at $1,100/oz gold--->
OhMyGodWeAllGonnaDie---> Sell Sell Selll!" and as you might gather from the tone of that, I'm
less worried and here's why:
1) BTO isn't in bad shape at U$1,100/oz gold. It's not much more than breakeven, but the mines
are positive free cash flow.
2) The growth now being baked in will make it modestly profitable again. And on top of that, the
Fekola project (see 'Stocks to Follow' today for a short section) will be a profitable operation at
lower gold prices and is a good way to spend $400m, not a bad way.
3) The make-up of the financial debt isn't bad. For that, this chart:
U$m BTO: Liabilities breakdown
650
600
550
500
450
l/t other
400
350
l/t senior notes
300
250
l/t revolver
200
150
100 other current
50
0 a/c payable
source: BTO filings As at 1q15
As at 1q15 accounts payable at just under $60m is 2/3rds of current liabilities and that's fine.
Then there's $13m of loan interest to service, then "other". We then move to the long-term
liabilities and $125m of that is the revolving loan which has just been expanded and renewed to
2019 to pay for Fekola (see below), then $230m is the senior convertible notes that were taken
out to pay for the (very profitable and good looking) Otjikoto, then comes "l/t other" (which
includes pensions, long-term tax liabilities etc). Of those, we should only actively care about the
$230m in senior debt, the other positions look tidy and not to be actively worrying about.
Case in point: Since the end of 1q15, on May 20th to be exact, BTO announced (4) a new
revolver loan deal that replaces the current $200m facility ($125m drawn as at 1q15) with a
$350m facility that can then go to $450m assuming terms are met (that's likely) and maturity in
2019. In effect, BTO added $325m to its financing power (450 - 125) and that's nearly all the
cash it needs to build Fekola ($395m including overrun). I haven't added any extra to the long-
debt debt bars for the quarters ahead yet,
because we don't know when BTO will draw on BTO: Working capital
250
the loan, but at some point there's adjustment
happening. I'll adjust at that time. 200
150
So to working capital which is like this (right)
and closely matches the cash position. Which is 100
good, another sign of liquidity and not of a
company about to go through a cash crunch 50
(share price actions these last two weeks
0
seems to suggest that, it looks like negative
overreaction from where I'm sitting).
A final balance sheet chart is book value per
share. We see the big drop in 4q14 when BTO
correctly took its write-downs on previous asset
values. We're also now at 925.07m shares out.
Since 4q14 BTO has been fluctuating around
the U$1.60 BV/share level, penny higher penny
lower. We expect that to continue into 2016.
Which brings up the point about current NAV-
based valuations; BTG closed this weekend at
U$1.16, a price/book of 0.725X. If debt were
less manageable or if the assets were non-
performing you could justify this new low level
but from what I see, the debt position is
certainly more robust than the recent round of fear-mongering would have us believe and BTO's
ability to make money at $1.1k gold (which will soon convert to making net profits come 2016
thanks to the production growth). Therefore BTO's been sold off on the highly negative
sentiment, not on its fundies. For sure people might want to sell now because they believe
gold's going to $1,000/oz or below, but when they do all in a rush like we've seen in the last two
weeks they bake in that lowered price into the stock's equity.
And there's the potential advantage to buying, owning or adding BTO today and what the last
3,432 words have been all about. Even setting aside the decent looking Fekola project (see
below) that's due to join the production mix in late 2017 or 2018, this is a fundamentally sound
company that's been oversold on negative gold sentiment. Sold is understandable, oversold
means there's a clear tilt of the risk/reward balance to our favour.
Conclusion and recommendation
B2Gold (BTG) (BTO.to) is still a Top Pick stock here at The IKN Weekly. I own a lot, I'm
underwater on the position, I'm happy to hold them because we're now moving into the end-
2015 period when BTO is going to shine against peers.
Of course we're still slaves and hostages to the price of gold on this investment, that goes
almost without saying and there's ample evidence to show what can go wrong with the whole
sector, not just BTO, when gold goes South and sentiment goes to the South Pole it's so bad.
As for a price target, I have three things to say:
1) When I called a target of U$2.24 on BTG (CAD$2.70 on BTO.to) back in IKN314, which was
off that weekend's price of U$1.70 and represented a potential upside of 31.8%, one mailer
berated me the next day by saying that he didn't buy juniors for such relatively meagre gains.
13
41q1 41q2 41q3 41q4 51q1 tse51q2 tse51q3 tse51q4
$m
source: company filings, IKN ests for FY15
BTO: Book value per share, per qtr
3.00
2.50
2.00
1.50
1.00
0.50
0.00
41q1 41q2 41q3 41q4 51q1 tse51q2 tse51q3 tse51q4
$
source: IKN calcs from BTO data, ests
Well neither do I. That U$2.24 target assumed a modest gold price and a low 8X multiple to
earnings and didn't try to wow you with special sauces, either. Believe me, it's very easy to rig a
target to whatever type of percentage upside you prefer. For example, assume a bullish case
for gold, assume a better multiple and whoosh, we're up at U$4.00 and a 150% potential gain.
It's amazingly easy to do and what's more, it's exactly the type of BS you can read in research
reports week-in-week-out. I lose count of the amount of reverse-engineered price reports I read
which seem* to start with somebody saying "OK, we want to get a price target of $X on this
stock" and it's then up to the suited person in the cubicle to find a way of justifying that
executive decision.
2) That target in IKN314 was based on BTO making an operating revenue of 7c/share in 4q15,
my benchmark quarter when BTO is due to get its growth act together and show the world what
it can do. That was based on higher gold prices than today's deck, so the new adjustments have
brought that op revs/share down to 5c. this in turn means that the target drops to U$1.60.
3) That happens to be almost exactly 1.0X NAV per share (which by 4q15 is forecast at $1.62).
And yes it's a coincidence, the number sets are different, but it's one that grabs my attention. It's
the type of share price BTG can logically command given a calming of the waters, which means
a gold price that levels out at $1,100/oz or so, stops dropping and soothes the nervy market.
Be clear, I think BTG is capable of much higher prices once gold begins it's recovery (another
subject for another day, but gold will rise again without a doubt) but as things stand we need to
take in current circumstances and make a reasonable estimate as to where B2Gold can
recover in the near-term with the gold price where it is. That for me is U$1.60, which
represents a 37.9% upside to Friday's close of U$1.16 on the stock. Once gold starts its
recovery we can give ourselves the luxury of assuming new prices and aiming higher. Today we
keep things realworld and reasonable. However, we also need to be aware that gold is the great
incognito and will lead the whole sector, so if I'm wrong and gold does drop a lot further BTO will
drop as well, no doubts. It could go a lot further. Be aware of that too.
As made clear above, I'm not adding to my BTG position due to practical, portfolio management
reasons. I own a lot butcould own some more if I really forced it, the new price is tempting but
on the whole I need to exercise discipline. But if you're new or small in BTO and like your author
think that gold isn't going much lower, I'd urge to to consider the stock. It's Top Pick here for a
good reason.
*Probably being generous there; it's not "seem to start", it's "start"
End of Report
14
Stocks to Follow
Of the 14 open positions on our Stocks to Follow list, or 13 if you don't count MUX twice, two
managed to stick in a weekly gain and swim against the gold riptide (MUX, LRA.v), then
another remained unchanged (DNA.to). That leaves ten losers and there's no need to list them
all, we'll just point your eyes to the worst losers in Legend Gold (LGN.v down 30.0%), Minera
IRL (IRL.to down 22.2%), Atacame Pacific (ATM.v down 13.9%), Starcore Intl (SAM.to down
13.0%) and B2Gold (BTO.to down 10.2%). Of that little lot, the only one that really hurt was
B2 (again...ugh), the other gold producers did okay (with a hat-tip to LSG only down 3c, which
felt like a win while doing the numbers Friday evening).
With the disposal of NovaCopper (managed to jettison it at last) and the addition of the
McEwen Mining flip-rebound-nearterm, which is being treated as a wholly separate trade right
up to and including a separate line in the table, we still have 14 open positions in our 'Stocks to
Follow' list, one less than our self-imposed maximum number. Four are in positive territory
overall, ten are in the red.
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$1.50 -30.9% 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$1.15 10.6% Will be bot out, bullish
Teranga Gold TGZ.to hold C$0.55 15-feb-15 C$0.54 -1.8% Good prod. 83c tgt
McEwen Mining MUX hold U$1.09 25-jan-15 U$0.789 -27.6% Brave/foolhardy trade buy
McEwen Mining MUX SPEC BUY U$0.695 25-jan-15 U$0.789 13.5% Separate nearterm flip
Starcore Intl SAM.to spec buy C$0.12 10-jan-15 C$0.10 -16.7% Also "land grab", tgt 19c
Land Grab Stocks (in current order of preference)
Phoscan Chem FOS.to hold C$0.28 29-mar-15 C$0.285 1.8% 36c/share of cash, can add
Atacama Pacific ATM.v spec buy C$0.19 26-apr-15 C$0.155 -18.4% Spec buy, cheap adv proj
Legend Gold LGN.v hold C$0.085 01-mar-15 C$0.035 -58.9% Spec buy but v small trade
Lara Expl. LRA.v spec buy C$1.15 08-apr-12 C$0.25 -78.3% 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$0.81 26.6% Nov'14 tgt $1.25, top Au expl
Minera IRL IRL.to hold C$0.21 22-jul-12 C$0.07 -66.6% Tgt jun'15 23c, avged down
Focus Ventures FCV.v spec buy C$0.23 01-jul-12 C$0.21 -8.6% tgt 50c, 3q15 PEA
Regulus Res REG.v spec buy C$0.30 06-apr-15 C$0.26 -13.3% 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
Timmins Gold TGD jun'15 U$0.60 19-apr-15 U$0.62 3.3% near-term trade, out of time
First Majestic AG jul'15 U$10.51 10-aug-14 U$4.55 56.7% horrible failed trade
NovaCopper NCQ.to jul'15 C$1.05 09-apr-14 C$0.50 -52.4% no more Cu exposure, sm sell
2009, 2010, 2011, 2012, 2013 and 2014 closed positions in appendices below
Now for some notes on current basket stocks.
McEwen Mining (MUX) (MUX.to): New separate trade open. As per last weekend's
15
analysis and the Flash update on Tuesday, the separate trade on MUX is now open and
running.
I feel the need to explain that 69.5c cost
average price on the new position, if only to
make a whingeing excuse for what looks like an
overly low purchase price compared to what
was on offer Tuesday. To cut a long story short,
after buying on Tuesday I decided to play it
way too cute and trade in and out of about half
the position, but for once in my life managed to
do it well by selling some at 73c on Wednesday
and then re-buying for a touch over 67c on
Thursday. So, less an entry price and more a
cost average.
Then on Friday MUX was one of the best to react to the late day rebound surge, which was a
good thing. Even though the final-final price of U$0.789 looks like tape painting (bizarrely MUX
was a weekly winner even after all we went through) the Friday afternoon surge was real
enough and the way it was among first-movers does a nice job in justifying the risk I've taken
on the extra shares bought.
So far so good at least, this one isn't over yet though. We're not even close to being out of the
woods so no backslapfest and no games. But Friday's action was a good thing to see in MUX,
an oasis of win in a vast and unforgiving desert of lose.
Final note: I was asked whether I have a puke price by one of you and it's a fair question, so I'll
answer here with the same thing I wrote to reader MM. The stop-loss won't be placed
automatically (in juniors I've seen those nice market people run through stops in false trades
too many times for that, especially when the markets are as nervous as they are today) but I
will be keeping a close eye on proceedings next week so it's virtually the same thing. Anyway,
enough blahblah, bottom line is that if I see 63c I'll sell, limit damage, take my loss and move
on. As for upside potential, I'm more about watching then guessing on that. No figure given,
though the outlined $1 of last week is by no means out of the question if gold rallies. Big if.
NovaCopper (NCQ.to): Sold. There came room to sell my smallish copper junior holding and
I did just that. It took a couple of returns and the sell average was in fact a couple of tenths
under 50c, but I'm going to round up for the table's purposes. This is the one I was going to
get rid of for the last few weeks and dallied around trying to wait for a better exit price that
never came. It's also the end of all clear copper exposure on the list, though you could make a
case for the copper projects held in JV by Lara Exploration.
No loss is fun to take, but this one is manageable on a psychological and a back-pocket level. In
a parallel universe it might have worked as a trade but the macro-caving of copper and the way
NCQ's main project is on a long, long timeline to construction means the underlying stock will
only ever move with the metal and its sentiment. I have nothing against the company and
could return if things improve in the metal but copper's in bad shape, we bail, end.
Minera IRL (IRL.to) (MIRL.L): We had news of the AGM agenda last week (5) and most
people's eyes were drawn to the proposed 10-for-1 rollback that will bring IRL's sharecount
down to a little over 23 million shares (the Rio Tinto share payment not yet factored in).
My eyes were drawn to something that wasn't in the ten-point agenda for the meeting on
August 6th: There's no vote planned for the ratification of Diego Benavides as CEO of the
company. That's just a little disturbing and something that we'll need to watch with a slightly
more attentive eye. Not only is Benavides the direct link to the strong and positive community
relations at Ollachea, but he's also the direct link to COFIDE and the financing deal. And like it
16
or not (personally I grunt a bit, shrug my shoulders, say "that's how it is" and get used to an
imperfect world) Peru is a country where personal relations and links matter a lot...as in A LOT.
I'm going to see what I can find out about this, there's a potential spanner in the works if
Interim CEO Benavides isn't fully on board the company, without dramatizing it's the type of
thing that can snatch defeat from the jaws of victory.
B2Gold (BTG) (BTO.to): This week's detailed analysis above, here we'll note the mayhem
suffered by the stock price and be done.
In other news, BTO published its 43-101 feas study to SEDAR on Friday evening (6), which is a
454 page monster that I simply haven't had time to read properly yet, but did go over the
executive summary section (longer in itself than several PEAs I've downloaded from other
companies) and to give an idea of the tone, here's a quote...
"The project has low sensitivity to capital, fuel, processing, mining, and labour costs.
The project is typically sensitive to gold prices, but maintains an IRR of 33% at a US$
1,250/ounce gold price and 19% at a US$ 1,000/oz gold price."
...from that about project economics. To back that up here's a table from the body 43-101
which outlines Fekola's sensitivity to the price of gold:
We need to take into account that's a pre-tax NPV in the table and as we chewed over this feas
17
a little yesterday Saturday, a respected analyst who also follows BTO closely pointed out that
BTO hasn't factored any interest payments on finance capital via this 43-101 (which is fair
enough I suppose, after all it's authored by third parties and not BTO itself), but at today's
U$1,100/oz gold they're still targeting a 25% IRR.
Seriously, what do you need from a no-bull company with a proven track record for building
profitable mining operations? Yes BTO overpaid for Fekola in the Papillon deal, but that fact was
baked into the share price (literally) years ago and few people doubted the quality of the asset
before this feas came out. What's more, I'd hazard a guess that there will be even fewer
doubters after this weekend. With capital costs at a manageable U$395m (incl contingency) and
funding available it's a no-brainer to build this, crappy market or not. I wrote in one of the
conversation mails Saturday, "My strategic takeaway: The market will stop bleating about BTO's
capital burn: this is $400m being well spent, not just spent". We like Fekola.
Teranga Gold (TGZ.to) (TGZ.ax): After "buying well" the way I did (it's not always the case,
this time it was and remains that way) I honestly didn't think I'd ever see the position back in
the red, which shows how little I know about the market.
TGZ did manage to come off its lows by the end of the week, but here we are at 54c and the
market's main worry is the one I've always had at the centre of my concerns over the trade,
that of operating margins. This table is an adapation of the one that's featured in the fundies
analysis work we've done on TGZ this year and it tells the story eloquently enough:
TGZ: Target sensitivity to gold price and P/E multiple
U$0.80 = CAD$1 implied P/E multiple
Gold price (U$/oz) 8X 9X 10X 11X 12X
1000 n/a n/a n/a n/a n/a
1050 n/a n/a n/a n/a n/a
1100 n/a n/a n/a n/a n/a
1150 n/a n/a n/a n/a n/a
1200 0.26 0.28 0.29 0.31 0.33
1250 0.47 0.51 0.56 0.6 0.65
1300 0.68 0.75 0.82 0.9 0.97
1400 1.1 1.23 1.35 1.48 1.6
1450 1.32 1.47 1.62 1.77 1.92
1500 1.53 1.71 1.88 2.06 2.24
source: IKN calcs
On a cash flow analysis basis alone, TGZ isn't worth anything at below U$1,200/oz gold
because it makes no money.
U$1,200/oz has always been our TGZ.to: Market cap versus book value
600
'tipping point' price for gold at TGZ,
550
gold goes below that and profits 500
become thin (which is what we're 450
400
expecting for 2q15, what with gold 350
averaging slightly under U$1,200/oz 300
for the quarter) so at U$1,100, TGZ 250
makes nothing. 200
150
100
Therefore, as valuing TGZ on its 50
profitmaking ability becomes illogical 0
at current gold prices we look to the
asset value it holds and to run a
concise thought today (we'll do more
next weekend), these charts of Book Value versus Market Cap and Price/Book Ratio show the
18
21q4 31q1 31q2 31q3 31q4 41q1 41q2 41q3 41q4 51q1 tse51q2 WON
$m
mkt cap at qtr end
book value
source: company filings, TSX data
kind of range in which TGZ has been trading when things are either good or bad.
TGZ.to: Price/Book ratio
0.6
0.55
0.5
0.45
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
19
31q2 31q3 31q4 41q1 41q2 41q3 41q4 51q1 tse51q2 WON
source: company data, TSX, IKN calcs
The bottom of the P/BV range came in 4q14 at just under 0.27X (TGZ is in need of a round of
impairments, we've said as much before) and if it goes there again, it would imply a CAD$0.41
share price at today's parameters. That's your likely downside as from today if things go badly,
therefore it's up to you to consider what sort of risk today's CAD$0.54 puts to your portfolio
compared to that.
With TGZ reported pre-open this Friday coming July 30th, plus its running the conference call
that morning (7), we're going to have a lot more to go on this time next weekend and I
propose a better and more detailed look then. As for this wild and whacky market, there are a
lot of nerves out there and your guess is as good as mine as to how gold's going to trade in the
next five days, but I'm good about holding TGZ through this week at the very least in order to
check out its 2q15 numbers and then make a more informed decision next weekend.
Finally, by way of a reminder we're looking for TGZ to produce around 56,000 oz Au in the
2q15 period and leave with a modest profit, perhaps $5m or $6m all done. What's likely to be
more important is the guidance for the rest of the year, so all ears on the ConfCall.
Dalradian Resources (DNA.to): We're away from the Loonie level and we're even trading
under Ross Beaty's 90c placement
price that had stuck as a very firm
floor level for months, but the silver
lining at DNA is noted on this ten day
chart.
Relatively heavy selling came and
knocked it right down to 75c for a
while, but buyers showed up as well
and DNA performed better than most
stocks in its peer group. The reaction
on Friday afternoon was good too,
DNA up with the first rank of movers
and in the end we were a little
unfortunate not to be able to register
a week-over-week gain. Still, that just
leaves room in the week to come.
Atacama Pacific (ATM.v): The very day after I opine that ATM is looking solid at its 18c
floor, it dives straight through it and spends the rest of the week at its new 15c level. Tempting
fate, blame me (and if it's any consolation fellow longs, I blame myself).
In other news, Friday saw ATM report its quarter and annual results (corporate year-end here is
March 31st). There was nothing untoward or unexpected in the numbers, which showed
treasury low before the recent $1.8m raising.
Overall cash burn for the financial year just gone was a shade under $3m. With the brake on
expenditures that's been implemented, plus the recent flipping out of the non-core property
that may generate a little cash flow, the $1.8m raised will probably be enough to see ATM
through this current year.
Phoscan Chemicals (FOS.to): Despite having a listing review slapped on itself by the TSX on
Thursday (8) (it has 120 days to do something, else face being demoted to the TSXV most
likely) FOS only lost half a cent during a week where many others were hit badly (you may
have noticed). That's not a surprise, because it's of minor importance where this company's
traded and there wouldn't be much kudos lost by getting an apparent demotion, the only
reason to hold FOS is for its cash treasury position and that's not going to change. Today's
stock is 28.5c, net cash per share is around 35c, that's all the backbone you need.
In the same NR the company did announce Cormark was on board as strategic advisor and
looking for a good deal for FOS, which is fair enough. And let's be honest, it may have been a
very frustrating ride for those in FOS for years watching it do nothing, but for those relatively
newly on board such as myself I'm good about CEO Case waiting until now for a deal to
appear; he's going to get better value for his
cash buck now than even just a few weeks
ago.
Lake Shore Gold (LSG.to): LSG again held
up better than its peers, losing just 3c on a
week that saw many others in double-figure
losses. The stock spent most of the week at-
or-around the same $1.15 price and when it
dropped lower (eg Friday morning on the big
nervy selling buyers invariably appeared to
support the price. All good signs that fit into
our investment thesis perfectly. Waiting for
Chuck to make his move.
The Copper Basket
After thirty weeks of 2015 The Copper Basket is showing a 27.98% loss to level stakes.
company ticker price 1/1/15 Shares out Market Cap current pps gain/loss%
1 Capstone Min. CS.to 2.03 381.95 378.13 0.99 -51.2%
2 Reservoir Min. RMC.v 3.96 47.55 191.63 4.03 1.8%
3 NGEx Resources NGQ.to 1.17 187.71 146.41 0.78 -33.3%
4 Nevada Copper NCU.to 1.65 80.5 92.58 1.15 -30.3%
5 Copper Fox CUU.v 0.135 402.96 64.47 0.16 18.5%
6 Amerigo Res ARG.to 0.27 173.65 46.89 0.27 0.0%
7 Western Copper WRN.to 0.68 93.68 44.03 0.47 -30.9%
8 Hot Chili Ltd HCH.ax 0.16 333.11 33.31 0.10 -37.5%
9 NovaCopper NCQ.to 0.58 60.15 31.28 0.52 -10.3%
10 Panoro Minerals PML.v 0.295 220.64 28.68 0.13 -55.9%
11 Regulus Res REG.v 0.35 56.39 14.66 0.26 -25.7%
12 Metminco MNC.ax 0.008 2410.5 9.64 0.004 -50.0%
13 AQM Copper AQM.v 0.06 141 7.76 0.055 -8.3%
14 Catalyst Copper CCY.v 0.305 31.41 4.71 0.15 -50.8%
15 Coro Mining COP.to 0.045 159.37 3.19 0.02 -55.6%
NB: HCH.ax & MNC.ax priced in AUD$, rest CAD$ Portfolio avg -27.98%
20
Against the odds and all expectations The Copper Basket managed to retun one weekly winner,
so a round of applause for NGEx Resources
(NGQ.to) up 2c since last Sunday. So, NGQ 5% The Copper Basket 2015, weekly evolution
only down 33.3% on the year, hoorah. There 0%
were also an UNCH stock in NovaCopper -5%
(NCQ.to), but that also means there were a -10%
full thirteen losers. We're not listing them all, -15%
just the double-figure percentage losers that -20%
are headed by Hot Chili (HCH.ax down -25%
20.0%) and Coro Mining (COP.to down -30%
20.0%), then followed by Amerigo (ARG.to -35%
down 18.2%), Nevada Copper (NCU.to down
17.9%), Catalyst Copper (CCY.v down
16.7%), Copper Fox (CUU down 15.8%), AQM
Copper (AQM.v down 15.4%), Capstone Mining
(CS.to down 11.6%) and Metminco (MNC.ax down
11.1%). I think that's all of them. In other words,
the copper world was every bit as horrible as we
expected this time last weekend.
Here right is the hourly chart for copper, showing
the damage done and how the metal settled the
weekend at under U$2.40/lb. From what I've seen,
it's now dawning on people that it's not coming
back anytime soon.
And to back that visual up, here below is the weekly
chart that takes in the last two years. For sure last
week's action may have been a spike down and
we're about to see an immediate rebound, nothing
impossible. But there's scant evidence of such a
pattern in previous moves.
We move to the regular inventory bullet points:
21
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 ht82 ht5luj ht21 ht91 ht62
source: IKN calcs
• Total world copper stocks dropped. Not by much it's true, only by 4,239 metric tonnes
(mt) (-0.9%) to finish the week at 478,662mt, but that's a change from the trend that
was setting up and may mark a little respite in the supply glut. Way too early to judge
and we're clear that the market mood is heavily bearish, but something to keep in the
back of the mind for next week.
• Stocks at the Shanghai Futures Exchange warehouses are the reason the total world
number moved down. they adjusted by 7,750mt (-7.1%) to finish at 101,251mt. See
below for more on that.
• LME warehouse moved up a little, by 2,925mt (+0.9%) to finish at 343,250mt.
• Comex warehouse stocks continued their small but percentage-wise significant climb,
this time up by 586mt (+1.7%) to finish the week at 34,161mt.
Here's the Shanghai-only chart, which shows the early stages of that flattening out of the
warehouse stocks line we've been semi-anticipating. However we need to be clear on matters,
stocks are now very much a secondary signal and the overriding call is to stay well away from
the copper space, price is the driver and price is dropping fast.
Shanghai Futures Exchange Warehouse Stocks, 2014/2015
260000
240000
220000
200000
180000
160000
140000
120000
100000
80000
60000
22
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 ht82 ht21 ht62
Mt Cu
source: Cochilco
The Gold/Copper ratio: A comment
Here's a chart of the gold/copper ratio over the last four years, on which I've blocked in the
upper range of the ratio that I now consider a clear target that could be reached, either this
year or next. For what it's worth I'd favour it being hit this year, as the heights tend to come as
spikes that deviate away from the mean pretty violently.
Today's Gold/Copper ratio of just under 460X derives from gold around U$1,100/oz and copper
around U$2.40/lb (those two are exactly 458.33X, that's your ballpark). To indicate what a
Gold/Copper ratio in that red zone would mean exactly for both metals prices is difficult, as one
always plays off another, but to give a reasonable best-fit idea a Gold/Copper ratio of 510X can
come from gold at U$1,200/oz and copper at U$2.35/oz. Or another would be gold at
U$1,122/oz and copper at U$2.20/lb.
Scenarios like those and variations thereof envisage a gold price that either sticks where it is
right now or improves, while copper prices weaken either a litte more or a lot more. In my
personal opinion those scenarios are logical and easily justifiable at the moment.
Capstone Mining (CS.to)
Back in IKN319, one short month ago, I wrote this...
"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
begin to appear 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 are now
being priced out.
...and it's a sentiment I returned to on the blog on Friday (9) while commenting on Vale's
(VALE) iron ore production numbers. What we're seeing in the copper price reflects this call to a
tee. If my scenario plays out, we're not just going to see a few stocks come under share price
pressure, we're going to see companies with weak balance sheets get overrun by their debt
positions and call for bankruptcy protection and from the state the 1q15 balance out of
Capstone (CS.to), this company is a candidate for such a fate.
The problem CS has is with its Senior Secured debt, which stood at $298m as at 1q15.
According to the terms of the financing deal, CS has to keep ratio of debt-minus-pledged-cash
to rolling EBITDA to 3:1. In real terms, CS has to show rolling EBITDA of over $50m or so (debt
minus cash at 3 to 1) over its quarters in order to be in good stead, and as it has some decent
quarters in the bag (in EBITDA terms at least) it's currently in compliance. But as the last
quarter's EBITDA was negative $11m, it's not going to take many more of those to drag the
ratio over 3:1, at which point CS is in non-compliance with its covenant and could be called into
receivership by its creditors. For more, see what happened to Allied Nevada earlier this year.
The Low Cost Producer Basket
After 30 weeks, the 2015 Low Cost Producer Basket is showing a 24.23% loss to level stakes.
company ticker price 1/1/15 Shares out Mkt Cap (Bn) current pps gain/loss%
1 Goldcorp GG 18.52 830 11.02 13.28 -28.3%
2 Newmont NEM 18.90 528.08 9.40 17.80 -5.8%
3 Barrick ABX 10.75 1164.67 8.46 7.26 -32.5%
4 Franco Nevada FNV 49.19 156.5 6.38 40.79 -17.1%
5 Silver Wheaton SLW 20.33 403.75 5.21 12.91 -36.5%
6 Agnico Eagle AEM 24.89 214.12 5.11 23.88 -4.1%
7 Buenaventura BVN 9.56 254.19 1.95 7.68 -19.7%
8 Kinross KGC 2.82 1146.2 1.94 1.69 -40.1%
9 B2Gold BTG 1.62 921.27 1.07 1.16 -28.4%
10 Pan American PAAS 9.20 151.64 0.98 6.44 -30.0%
all prices in U$, using NYSE ticker prices Portfolio avg -24.23%
23
For the second week running, all ten of our Basket stocks showed big losses on the week.
For the second week running, we have large scale wipe-out losses in the major producers.
For the second week running, we run the "look how much they lost on the week" chart, with
Barrick and Newmont errr.... "leading" the pack.
Week-Over-Week losses in our ten basket components
0%
-2%
-4%
-6% -5.7% -5.1% -5.1%
-8%
-10%
-9.6% -9.4%
-12% -10.3%
-11.1%
-14% -12.5%
-16% -14.1%
-18%
-17.4%
-20%
ABX NEM PAAS KGC BVN GG BTG SLW FNV AEM
source: NYSE
24
ssol
ylkeew
%
But for the first time this year, all ten of our stocks, right up to and including the previously
high-flying Agnico Eagle (AEM), are in negative territory for the year.
The Low Cost Producer Basket: Weekly performance
30% and comparative to GDX control
20%
10%
0%
-10%
-20%
-30%
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 ht82 ht5luj ht21 ht91 ht62
basket
gdx control
source: Google Finance, IKN calcs
Also, we note our basket is now down compared to our GDX benchmark, which has been the
exception throughout the year. The difference both to the upside in previous weeks and the
downside today seems to be Barrick.
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 ht82 ht5luj ht21 ht91 ht62
|
source: ikn calcs, NYSE/Nasdaq data
No company specific notes today, I'll leave you insteasd with this chart that shows the two
weeks of drops in our ten stocks (plus GDX). Worst of them all is ABX, least worst FNV at "just"
10% lost.
Regional politics
Chile: an in-depth analysis of the country's copper mining competitivity
Last Monday saw the publication of a Cochilco analysis on the comparative state of Chile's
copper mining industry that was a source of debate in the country about where its copper
sector is headed, coming as it did at the same time as the deepening drop in copper market
prices. There's 39 pages of information and though largely focussed on the specific Chilean
copper sector, with the advantages it enjoys and the challenges it faces, it's also decent
comparative source material for the wider sector and as numbers tend to translate very easily,
don't be put off from downloading your own copy of the PDF (10) if copper's your thing. This
table from the report for example compares the C3 cash costs (roughly equivalant to the all-in
sustaining costs) for copper cathode in the main copper producing countries in 2013 and 2014:
(for some reason the 20145 number disappeared for Indonesia, it's a low 62c and the percentage change is -74%).
Chile at U$2.23/lb is expensive to peers, with plenty of countries producing at or under U$2/lb
25
last year. As for the Cochilco report, I'll give a flavour of its contents by translating the main
conclusion paragraph at the end.
"In conclusion, Chile on average is situated in the top five positions among the
benchmark countries, with significative advantages in geological potential, legal and
regulatory matters, political stability, and tax system. However, it's evident there are
disadvantages with regard to costs of production, where's it's found in the mid-table. In
this context the sector has challenges in generating business models to increase
productivity and compensate for the higher cost of labour and the ongoing deterioration
in operating laws for mining. But there are also challenges of a structural type such as
the availability of water, which have forced companies to operate using seawater, a
strategy that implies the incorporation of new systems of water capture and
conduction, which raises project capex."
And on the subject of labour costs in Chile...
Chile protest clashes
At Codelco's El Salvador mine last week there was a strike, protest and roadblock by employees
who work under third party contracts instead of directly with the State-run company. It's not
the first time they've complained about their inferior pay and conditions compared to Codelco
direct employees but this time the protests got violent when, according to the police on duty
Thursday evening, a group of strikers stopped police from breaking up their roadblock by
driving a front-loader at them. By the time the police officers had reacted, there was one man
shot dead and another shot and in serious condition. There was also a police officer shot in the
head who's now in a serious condition in hospital. Other protesters were injured or arrested, or
both (11).
Unrest in Ecuador
This is a story I've been watching with one eye because up to this point there hasn't been much
to report on these pages, firstly because it's not really related to mining and secondly because
it's been an internal political thing that's been noisy at times but not a real threat to stability.
However and more to cover bases than anything urgent, a word or two may be necessary now.
A little over two months ago, President Rafael Correa tried to introduce a suite of legal reforms,
one of which being a pretty hefty inheritence tax on property and land. The pushback from the
monied and middle class to this law proposal (made under the auspices of Correa's 'Citizen's
Revolution' and straight from a hard left wing playbook) was pretty strong from the getgo and
there have been any number of marches and protests against the project, with the centre of
resistance the coastal coty of Guayaquil (known for its opposition to Correa) and its mayor, one
Jaime Nebot. Overall the protesters are in a minority in the country but they're noisy, militant
and they have the backing of both money and media (most newspapers and TV stations are
opposed to Correa and have been having a field day over this issue).
That's the potted story, apart for the call to a national strike on this August 13th coming, and
what I've been monitoring so far without mentioning anything, however this weekend Correa
made some pretty heavy references to the ongoing and unceasing marches and protests.
During his weekly Saturday TV/Radio program, he said (12) (13), "this has been the most
dificult political crisis" and likened it to the disturbances of September 2010 which escalated into
a near-coup d'etat (with Ecuador and the world only realizing afterwards that it had been close-
run thing). Correa went on to say that he believes there's a right-wing conspiracy to remove
him before the 2017 elections come around and that foreign influences, opposed to any sort of
left-wing social progressive government, are behind the unrest. During his show Correa also
noted that the protests were having an effect on public opinion, as in his own words his
approval ratings have dropped from around 70% to todya's 59%, with the negative view of his
work moving up from 29% to 42%.
Now for sure a lot of Correa's words this weekend are political grandstanding and what's more,
I think he's realized he's on a political loser if he tries to push through his inheritance tax
26
reforms. But it was interesting to see him address the unrest directly and he obviously
considers it a threat on some level, even though it's unlikely to be as dramatic as he makes out.
Two from Tia Maria
First, as of last week the 60 day 'State of Emergency' edict that allowed the government to
send in the troops into the Tambo Valley area of South coastal Peru, location of Southern
Copper's (SCCO) Tia Maria project, came to its calendar end and was not renewed by the
govenrment, which means the emergency laws are now defunct (14) and things are supposedly
back to normal. However, the approx 1,000 extra police officers and army personnel who were
drafted into the area have been told to stay there until August 21st minimum, so not that much
has changed in real terms yet.
Second, the anti-mining protesters have decided on a more peaceful method to try and stop the
mine from happening and after filing suit, a ranking courtroom last week decided that SCCO
and the government does have a case to answer in the way that the Environmental Impact
Permit (EIA) was awarded, as the locals claim foul and have pointed to several irregularities in
the process that got SCCO its official pieces of paper. The case will now go to trial in the
Peruvian courts (15).
Locals are still strongly opposed to the project, but at least the charged atmosphere has calmed
down and there are no more confrontations to report. With SCCO having already decided to
"indefinitely delay" the project construction while negotations with Tambo Valley locals take
place (and kicking a can leaking poison a long way down the road in the process). What with
the state of the copper market, it suits SCCO in more than one way to keep this issue out of the
headlines. Unless there's a quick resolution in the Peru courts, I expect this will die down in
much the same way Conga doesn't get talked about much these days.
Dominican Republic: Canada does the hearts and minds thing
Last Thursday Canada's Ambassador to The Dominican Republic, one Aladin Lagault d’Auteuil
(don't know about you, but I'd take a wild guess at Quebec) presented in the country the
"Informative Manual on Mining in the Dominican Republic" (16), which is a manual and a series
of five booklets sponsored by several Canadian bodies (including PDAC) that explains the
benefits of mining to the comunities and inhabitants who live around a mining operation.
According to the ambassador, it's the same initiative implemented by Canada ten years ago in
other countries such as Canada itself, Chile, Peru, Mexico and Guyana (though he might have
left out a country or two where they've tried the move and it didn't work so well). The new
document is tailored specifically for Dom Rep and takes into account the national laws on
communities, environment, taxes, royalties etc. Aside from the main manual, the five booklets
each cover a specific stage of mining development, from initial exploration to production and
mine closure.
Argentina: Chubut in election mode
I'll just directly translate the top of this news report out of Chubut dated July 23rd (17) to give
you an idea of how the election's going to affect the discourse on mining for the next three
months or so:
"The president of Chubut's Chamber of Mining Suppliers, Gerardo Cladera,
said that in the next two or three years the province could enjoy an income
from mining of around U$2Bn, that sum only made up from the construction
of mining projects".
This of course mainly points at Pan American Silver's (PAA.to) (PAAS) Navidad project in the
central zone of Chubut, though may involve other project's such as Yamana's (YRI.to) (AUY)
Suyai project (ex-Esquel). However, Señor Cladera "forgets" to mention that even with all
permits granted there isn't a hope in hell of Navidad moving forward until metals prices improve
significantly. Yes, it's election season.
27
Nyrstar updates on the situation at its Campo Morado mine, Guerrero, Mexico
Here's what Nyrstar, owners of the Campo Morado zinc/polymetal mine in Guerrero State
Mexico, had to say about the ongoing problems at its asset during its 2015 Half Year Report,
out on Thursday (18):
Campo Morado
Production at the Campo Morado operation has been suspended since 5 January
2015. Originally due to an illegal blockade of the mine entrance by non-affiliated union
activists and later due to contractors and unionised mine workers being subjected to
systematic intimidation.
Nyrstar is continuing to work closely with senior Mexican government officials, State
and Federal police forces, community and private security consultants to devise a
restart plan which enables the operation of the mine in a safe and secure environment.
Progress has been made and the work is on-going. Given the uncertainty with regard
to the restart of the mine due to the continued unstable security situation in the
Mexican State of Guerrero, the bulk of the employees at Campo Morado were made
redundant in Q2 2015 with a total of approximately 70 staff remaining on site for
administration, security, mine development and maintenance.
During this period of suspension Nyrstar is continuing to work on advancing the
Mineral Resource block model and the ensuing mine plan, metallurgical testing,
engineering and design for the planned mill upgrade and environmental safeguards.
That 70 head of care and maintenance staff compares to around 800 when the mine was fully
operational. Guerrero's not an easy place, best to remember that.
Market Watching
Tinka Resources (TK.v): Trip confirmed
Expect a full report on the weekend of Sunday August 9th (or maybe Monday August 10th, it's
going to be a tight squeeze timewise that weekend) on the Tinka Resources (TK.v) Ayawilca
property, because my trip up there is now confirmed.
So far at least it's turned out to be the right call to say "I'm interested but I'm not a buyer yet",
mainly because of the way Zn the metal has traded. Or if you prefer, I've managed to waste my
money buying other losers instead of TK.v at 20c or 25c in 2015. But that doesn't take the
shine away from the prospectivity of the Ayawilca property, we know there's a lot of high-
grading mineralization there and TK.v is now looking to join the dots and find some more. It's
also worth mentioning that it's one ofcthe very, few junior explorecos (outside of Athabasca,
which has its own rules) that's running a full-scale exploration drilling program in this drudgiest
of years. For that alone we should at least acknowledge its get-up-and-go as a company.
The property itself is a blind target, so I'm not expecting the most photogenic of rocks but that
part of the trip will be getting a handle on scale, topography and (hopefully) some feel of the
relationship TK.v is building with the local community (up to now the anecdotals have been
pretty positive on that score). Meanwhile, another part of the trip will be the coreshack, so I'll
be taking photos for the geols in the audience when that comes around.
Torex (TXG.to) trading action continues to impress
I've voiced my renewed interest a couple of times in TXG and last week picked it out as one of
the stocks that could show a rebound trading gain. It again traded solidly last week (ten day
chart here to prove it (below).
For the skinny on how it is, here's what I wrote to A.N. Other last Tuesday morning July 21st
when the subject of TXG came up (again).
Now the regional elections have passed and TXG has swamped the locality
28
with police (extra pay on days off and the narcos aren't stupid, they're staying
away) it's looking solid.
Still have serious doubts longer term, but the trade on the re-rating looks as
though it's sitting up and begging at me.
It's that last line that has me seriously considering a trade. First pour is now slated for 4q15,
commercial production in 2q16. I think
the 4q15 date is the one to consider
for the re-rating trade so there's no
big rush to get in right now (plus the
way the gold market is, anything
could happen in three months and
probably will). As for a ballpark on
where it could go, something back
towards the $1.50 levels of early
January (pre-kidnapping drama) is
wholly reasonable as a target. One
I'm seriously considering as a trade,
gold price permitting.
New Oroperu (ORO.v): Headsup on a potential Land Grab play
After the shellacking taken in the market, are you ready to hear about a small junior exploreco
with a gold project in Peru? No, I didn't think so either.
But all the same, while checking on the financing filings last week (19) I came across an
interesting snippet about New Oroperu (ORO.v) that's worth passing on, if only for reference
sake for later down the line. Last week ORO.v filed the paperwork on its recent placement and
it turns out that Pan American Silver (PAAS) (PAA.to) is keeping them afloat by buying another
900,000 units at 10c each (unit = 1 share plus 1/2 warrant at 15c), which adds to PAA's
previous holding of 3.5m shares of ORO.v and brings its total up to 4.4m, or 21.8% of shares
outstanding.
The main asset at ORO.v is the Tres Cruces property which sits close to the Lagunas Norte
mine of Barrick (ABX). Tres Cruces is subject to back-in right by ABX as well, which can elect to
develop the property and if so, ORO.v gets a free ride on 30%. If not, it's 100% ORO.v.
Tres Cruces is quite interesting, being in the same belt as many producing mines (Lagunas
Norte of course, but also San Simon, La
Arena etc) and has a 43-101 resource of
around 1.2m oz gold at a 0.6 g/t cut off.
Admittedly that 43-101 is a bit long in the
tooth now and used $1,500/oz gold price
for its benchmark, but there's certainly
gold in those rocks.
At a market cap of $2.02m and with a
new round of tickover cash now in the
coffers, ORO.v is cheap and it has its
hands on a real resource in the right type
of address. I found it interesting to see
PAAS's continued sponsorship of the junior
and on balance, there must be worse
Land Grab candidates for me to consider than this one.
29
Conclusion
IKN324 is done, we end with bullet points:
• B2Gold (BTO.to) (BTG) is going to be just fine. The market is over-stressing its
liabilities burden, as of end 2015 it's going to be profitable at current gold price levels
and Fekola is going to be money well spent. Top Pick material.
• The MUX trading purchase has started okay, but it's going to need constant watching.
Gold is our lead, that's all there is to it.
• That's all today. A lot is going to depend on intraday action next week.
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. Quite likely, that.
I wish you good trading fortune, ladies and gentlemen.
Otto
Footnotes, appendices, references, disclaimer
(a) http://incakolanews.blogspot.com/2014/12/ten-ikn-random-predictions-for-2015.html
(1) http://www.federalreserve.gov/newsevents/press/monetary/20150724a.htm
(2) http://finance.yahoo.com/news/b2gold-corp-achieves-record-second-073000651.html
(3) http://incakolanews.blogspot.com/2015/07/b2gold-btoto-btg-2q15-production.html
(4) http://finance.yahoo.com/news/b2gold-secures-us-350-million-074816933.html
(5) http://finance.yahoo.com/news/posting-circular-notice-agm-proposed-060000031.html
(6) http://finance.yahoo.com/news/b2gold-announces-filing-technical-report-232252789.html
(7) http://finance.yahoo.com/news/teranga-gold-second-quarter-2015-211230373.html
(8) http://finance.yahoo.com/news/phoscan-provides-strategic-review-process-110000328.html
(9) http://incakolanews.blogspot.com/2015/07/vales-second-quarter-iron-ore.html
(10)
http://www.cochilco.cl/Archivos/destacados/20150720113313_Informe%20Competitividad%20de%20la%20mineria%20
chilena%20del%20cobre.pdf
(11) http://www.portalminero.com/pages/viewpage.action?pageId=99718773
(12) http://www.pagina12.com.ar/diario/ultimas/20-277907-2015-07-25.html
(13) http://www.elcomercio.com/actualidad/correa-denuncia-espionaje-asambleistas-oposicion.html
(14) http://www.snmpe.org.pe/prensa-y-multimedia-snmpe/sintesis-de-noticias/mineria/las-ff-aa-hasta-el-21-de-agosto-
en-islay.html
(15) http://larepublica.pe/impresa/politica/17655-interponen-demanda-judicial-contra-eia-del-proyecto-de-southern
(16) http://diariodigital.com.do/2015/07/24/manual-explica-a-comunidades-como-beneficiarse-de-la-explotacion-minera/
(17) http://www.portalminero.com/pages/viewpage.action?pageId=99718628
(18) http://www.nyrstar.com/investors/en/Nyr_Documents/H1-2015%20Results%20EN.PDF
(19) http://www.bcsc.bc.ca/ViewDocument.aspx?DocNum=Y7W5B6Y5J7N3T7BEP6M6H7QBQ7J3
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Appendix 1: Flash update dated Tuesday July 21st
Good Tuesday morning, 07:15am on a cool crisp and sunny winter's morning, an hour and fifteen before the open.
This is NOT one of those handing-holding mails from commentator to subscribers. If you want one of those go subscribe
to Casey Research.
You won't be surprised to learn I did no trading at all yesterday, preferring to watch (and watch closely) the market
action. As overnights opened last night and there was no further selling of gold in the style of Sunday night/Monday, I
slated a mental decision to go forward with the plan as set out in IKN323 today and buy that sidebet trading position in
McEwen Mining (MUX) as long as things were reasonably calm in The Americas today. That seems to be the case, so
as long as things don't go crazy again in the next couple of hours, I'll open that fliptrade.
A few observations, trying to keep them concise.
Gold market
The large-scale dumpage of gold that took it down to U$1,080/oz on the spike Sunday night (Americas time) was clearly
from China. I'm no expert on that country and its financial sector but I know what a distressed/forced sale looks like, and
that was one. Somebody large had to cover somewhere else with cash immediately, it sold gold. That's logical in the
face of the losses in the country's stock market (or even other markets such as copper) recently. It was unpleasant, but
at least it's understandable.
TA targets on gold price
We now have all the chart players wheeling out their preferred downside targets for gold, you can choose to believe any
or all of them, that's up to you. The fact that I'm (almost certainly) buying MUX today is my own call on gold's price
potential. I do not discount further downside in the metal and go into trades with both sides of the risk/reward clear in
mind. However, gold sticking at U$1,100/oz for a day or three will be more than enough for my purposes.
Gary T at Biiwii a shining exception (his letter this weekend was a great read yesterday, it was one of his best ever),
more generally I continue to wonder at the ability of so many chartists and proponents of technical analysis who just by
looking at thie charts can tell you understand exactly what has just happened and have rock solid explanations for
everything that occurred in the past, but can only ever talk in terms of maybes and possibles for their future calls.
Interesting stocks yesterday
There were a handful of decent performing stocks that held up better than the pack during an intense trading day but
then dumped hard right at the end of the session. McEwen Mining (MUX) was on of them, relatively speaking, and I
consider that a good signal for its rebound potential in the hours and days to come. Another that fits is Lake shore Gold
(LSG), which had the temerity to show green on strong volumes nearly all day yesterday, only to dump at the close. You
know my bullish attitude towards that stock. Yet another was Torex (TXG), which dumped very hard at the bell after
holding up relatively well and we now have double news from the stock this morning. The news on both its main
properties looks pretty positive on a first pass and people who follow the stock closely have already commented to me
that they like what they see.
The trade
There are others besides those mentioned in the previous paragraph. The point is to show there are other options than
just my chosen vehicle of MUX for a rebound trade (and you may prefer the obvious fundy value offered by B2Gold at
this impressively low price...frankly I ow enough of those already). As I look around "the morning after" there are literally
dozens of new price decks that are interesting...all assuming gold settles down and gives no more big bumps.
I'm going for MUX as my vehicle (one of the aspects of writing the Weekly I enjoy is the discpline it brings me at times
like these...I get to be tempted by TXG's price, but the weekend has already set my formal course). You may prefer
another stock. Equally valid is having a more bearish view of gold this week and waiting longer before buying. I'm telling
you want I'm doing here, no more no less, like I say you get no wet hand-holding nonsense from this mail.
As stated on Sunday, if the market (i.e. gold's price) suddenly goes against me I'll sell the MUX that I'm about to buy
without a second's hesistation or regret and take any small trading loss on the chin. This trade is wholly separate from
the shares already held.
Enjoy your Tuesday and well done Zach Johnson.
Best, O
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
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Stocks To Follow Closed Positions 2013
Closed in 2013 closed close price
USA Graphite USGT feb'13 U$0.93 08-ene-13 U$0.17 81.7% short tgt made/trade closed
Lachlan Star LSA.to feb'13 C$1.50 30-sep-12 C$0.95 -36.7% sold to reduce port risk
United Silver USC.to mar'13 C$0.21 28-oct-12 C$0.095 -54.8% small Ag sector trade, failed
Aurcana Corp AUN.v apr'13 C$1.07 11-nov-12 C$0.55 -48.6% closed on poor YE results
Gold Res Corp GORO apr'13 U$14.11 25-ene-13 U$9.38 33.5% short tgt made/trade closed
Marlin Gold MLN.v apr'13 C$0.075 10-feb-13 C$0.065 -13.3% closed trade
Bear Creek BCM.v may'13 C$2.58 01-abr-13 C$2.40 -7.0% near-term, time ran out
Lupaka Gold LPK.to may'13 C$1.12 23-oct-11 C$0.32 -71.4% towel thrown in
Tahoe Resources TAHO may'13 U$18.62 08-abr-13 U$14.70 21.1% took profit on ST short
OceanaGold OGC.to jun'13 C$3.03 16-sep-12 C$1.18 -61.1% sold on gold drop
IMPACT Silver IPT.v jun'13 C$1.14 13-ene-13 C$0.62 -45.6% sold on silver drop
Duran Ventures DRV.v jun'13 C$0.045 10-may-13 C$0.025 -44.4% ST trade never worked
Plata Latina PLA.v jun'13 C$0.79 10-abr-12 C$0.13 -83.5% closed
Bellhaven BHV.v jun'13 C$0.065 03-jun-13 C$0.12 84.6% closed ST trade
B2Gold BTO.to aug'13 C$3.07 28-nov-12 C$3.44 12.1% sold 1/2 to raise cash
Colossus Min. CSI.to aug'13 C$0.72 24-jul-13 C$0.79 9.7% closed thru nerves on future
Pretium Res PVG.to aug'13 C$8.20 11-jun-13 C$10.14 23.7% closed to raise cash
Bear Creek BCM.v sep'13 C$2.06 30-may-13 C$2.20 6.8% sold on pol risk decision
MAG Silver MVG oct'13 U$7.00 12-sep-13 U$5.62 19.6% near-term short
Gold Res Corp GORO oct'13 U$9.52 03-may-13 U$4.98 47.7% short tgt made, covered
AQM Copper AQM.v oct'13 C$0.31 16-oct-11 C$0.125 -59.7% closed failed trade
First Majestic AG nov'13 U$11.51 07-nov-13 U$10.50 8.8% v near term short, closed
Fortuna Silver FSM nov'13 U$4.00 07-nov-13 U$3.68 8.0% v near term short, closed
Primero PPP nov'13 U$5.70 07-nov-13 U$5.75 -0.9% v near term short, closed
Starcore Intl SAM.to nov'13 C$0.235 08-sep-13 C$0.17 -27.7% ST trade didn't work, sm loss
B2Gold BTO.to dec'13 C$2.22 28-nov-12 C$2.16 -2.7% closed ST trade to raise cash
Stocks To Follow Closed Positions, 2012
Closed in 2012 closed close PPS
Soltoro SOL.v jan'12 C$0.87 07-nov-11 C$0.94 8.0% cash moved to BCM.v
Gold-Ore Res GOZ.to feb'12 C$0.84 13-oct-10 C$0.98 16.7% trade closed on ELG.v offer
Minefinders MFN feb'12 U$11.68 17-nov-11 U$14.80 26.7% target made, trade closed
Iron Creek IRN.v mar'12 C$0.58 26-sep-10 C$0.31 -46.6% time up on small bad trade
U.S. Silver USA.to apr'12 C$2.18 15-mar-12 C$1.86 -14.7% ST trade no good, cut loss
Augusta Res. AZC.to may'12 C$3.10 29-jan-12 C$2.07 -33.2% bad mkt, bad trade cut loss
Bellhaven BHV.v may'12 C$0.50 22-sep-10 C$0.28 -44.0% new mgmt not impressive
Zincore Metals ZNC.to may'12 C$0.325 29-jul-11 C$0.17 -47.7% bad mkt, bad trade cut loss
Soltoro SOL.v may'12 C$0.70 18-mar-11 C$0.41 -41.4% bad mkt, bad trade cut loss
U.S. Silver USA.to aug'12 C$1.78 27-jul-12 C$1.36 -23.6% fail ST trade close pre split
Estrella Gold EST.v aug'12 C$0.91 27-mar-11 C$0.14 -84.6% Closed on port realignment
Fortuna Silver FVI.to sep'12 C$1.07 03-may-09 C$5.32 397.2% sell call $6.17/ Mar25
Strait Minerals SRD.v oct'12 C$0.125 09-dec-11 C$0.12 -4.0% closing coverage til FY13
Sunward Res SWD.to oct'12 C$1.47 13-mar-11 C$1.21 -17.7% sold, took loss
Gold Res Corp GORO oct'12 U$21.47 09-sep-12 U$17.40 19.0% Short trade closed
Yellowhead Min. YMI.to nov'12 C$1.00 01-apr-12 C$0.63 -37.0% sold, took loss
Primero Mining PPP nov'12 U$7.26 07-oct-12 U$6.73 7.3% Short trade closed
Bear Creek Min. BCM.v nov'12 C$3.38 07-nov-11 C$3.72 10.1% Took small profit
Vena Resources VEM.to dec'12 C$0.70 31-may-09 C$0.18 -74.3% Failed trade (caps F)
Galway Res GWY.v dec'12 C$2.19 24-nov-12 C$2.30 5.0% closed good ST arb trade
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Stocks To Follow Closed Positions, 2011
Closed in 2011 closed close PPS
Sunward Res SWD.v jan'11 C$1.05 21-nov-10 C$1.63 55.2% target made, trade closed
Serengeti Res SIR.v mar'11 C$0.245 05-dec-10 C$0.285 16.3% sold pre-tgt, ST trade fail
Fronteer Gold FRG apr'11 U$2.37 03-may-09 U$15.24 543.0% buyout, trade closed
Minefinders MFN apr'11 U$9.09 07-nov-10 U$16.89 85.8% target made, trade closed
Metalline Min. MMG may'11 U$1.04 26-jan-11 U$0.89 -14.4% exit, resource disappointed
Peregrine Met PGM.to jul'11 C$0.87 06-mar-11 C$2.60 198.9% buyout offer, closed
Dynasty Metals DMM.to jul'11 C$4.20 03-may-09 C$2.85 -32.1% Sold. Fail. Move on.
Aura Silver AUU.v aug'11 C$0.22 13-oct-10 C$0.16 -36.4% Bad pick. Take loss
U.S. Silver USA.v aug'11 C$0.52 26-jan-11 C$0.71 36.5% closed to make room
B2Gold Corp BTO.to sep'11 C$2.80 12-may-11 C$4.27 52.5% target made, trade closed
Bear Creek Min. BCM.v sep'11 C$3.80 27-may-11 C$4.17 9.7% macro sell call victim
Minefinders MFN sep'11 U$14.70 10-aug-11 U$15.15 3.1% macro sell call victim
Great Panther GPR.to sep'11 C$3.03 22-aug-11 C$2.64 -12.9% macro sell call victim
Fortuna Silver FVI.to sep'11 C$1.07 03-may-09 C$5.36 400.9% sold 20%, macro sell call
Focus Ventures FCV.v nov'11 C$0.40 20-apr-10 C$0.20 -50.0% cut losses, bad trade
Regulus Res. REG.v dec'11 C$1.17 14-aug-11 C$0.52 -55.6% cut on news of poor 43-101
2009 and 2010 closed positions in appendices below
Stocks To Follow Closed Positions, 2010
Closed in 2010 closed close PPS
B2Gold Corp BTO.to Jan'10 C$0.88 08-nov-09 C$1.49 68.2% target made, trade closed
Radius Gold RDU.v Jan'10 C$0.18 23-aug-09 C$0.40 122.2% target made, trade closed
MAG Silver MVG mar'10 U$5.60 23-nov-09 U$7.28 30.0% closed in pdac week
Riverside Res RRI.v mar'10 C$0.435 20-sep-09 C$0.60 37.9% closed in pdac week
Amarillo Gold AGC.v mar'10 C$0.81 31-may-09 C$0.70 -13.6% closed in pdac week
B2Gold Corp BTO.to apr'10 C$1.24 18-feb-10 C$1.50 21.0% target made, trade closed
Lumina Copper LCC.v apr'10 C$0.84 14-jun-09 C$1.55 51.2% total position now sold
Troy Resources TRY.to may'10 C$1.10 03-may-09 C$2.25 104.5% sold on negative results
AuEx Ventures XAU.to may'10 C$2.51 24-may-09 C$3.38 34.7% trade closed
Nevada Copper NCU.to jun'10 C$3.27 14-mar-10 C$2.03 -37.9% need to lower Cu exposure
Carpathian Gold CPN.to jun'10 C$0.39 14-mar-10 C$0.35 -10.3% too exposed to cap raising
Amerix PM Corp APM.v jun'10 C$0.065 08-nov-09 C$0.05 -23.1% victim of macro bear
Antares Minerals ANM.v jun'10 C$1.42 06-dec-09 C$2.10 47.9% sold half
Vena Resources VEM.to jun'10 C$0.37 31-may-09 C$0.23 -37.8% sold half
Minera Andes MAI.to sep'10 C$0.75 28-jul-10 C$0.95 26.7% ST trade closed
Gold-Ore Res GOZ.to sep'10 C$0.52 01-aug-10 C$0.75 44.2% target made, trade closed
B2Gold Corp BTO.to sep'10 C$1.45 25-may-10 C$2.01 34.5% target made, trade closed
Blue Sky Uran BSK.v oct'10 C$0.41 19-may-10 C$0.22 -46.3% v small v bad trade closed
Dia Bras Expl DIB.v oct'10 C$0.14 30-aug-09 C$0.35 150.0% target made, trade closed
S. Amer. Silver SAC.to nov'10 C$1.38 24-oct-10 C$1.60 -15.9% loss on short, small fail
Ventana Gold VEN.to nov'10 C$7.92 27-jun-10 C$13.51 70.6% trade closed on buyout
Lumina Copper LCC.v nov'10 C$1.42 11-aug-10 C$3.65 157.0% trade closed
Antares Minerals ANM.v dec'10 C$1.42 06-dec-09 C$8.40 491.5% trade closed
Rio Alto Mining RIO.v dec'10 C$0.69 23-mar-10 C$2.16 213.0% trade closed
Coro Mining COP.to dec'10 C$0.585 03-oct-10 C$1.24 112.0% target made, trade closed
33
Stocks To Follow Closed Positions, 2009
Closed positions closed closing PPS
Cardero Res CDY/CDU.to May'09 U$1.20 03-May-09 U$0.87 -27.5% sold on negative news
Eastmain Res. ER.to May'09 C$1.04 06-May-09 C$1.315 26.4% trade closed
Radius Gold RDU.v May'09 C$0.165 03-May-09 C$0.235 42.4% trade closed
Latin Amer Min. LAT.v May'09 C$0.12 03-May-09 C$0.158 29.2% trade closed
Aquiline Res. AQI.to July'09 C$2.03 16-Jun-09 C$1.68 -17.2% took loss, bad timing
Chariot Resources CHD.to Aug'09 C$0.20 12-Jul-09 C$0.415 107.5% trade closed
Castle Gold CSG.v Sep'09 C$0.64 02-Aug-09 C$0.60 -6.3% ST trade didn't work out
Guyana Goldfields GUY.to Sep'09 C$2.30 12-May-09 C$4.50 95.7% profit taken
Los Andes Copper LA.v Sep'09 C$0.09 21-Jun-09 C$0.09 0% trade closed
Pediment Gold PEZ.to Oct'09 C$0.80 09-Aug-09 C$1.00 25.0% trade closed
Minera Andes MAI.to Oct'09 C$0.68 03-May-09 C$0.71 4.4% too much bad news
Dynasty Metals DMM.to Nov'09 C$4.18 03-May-09 C$6.01 43.8% half sold
Rusoro Mining RML.v Nov'09 C$0.55 03-May-09 C$0.57 3.6% underperformed
Important Disclosure
The information and opinions contained within this report reflect the personal views of the author and therefore all
material within should not be construed as accurate or reliable or be utilized as advice for investment or business
purposes. Independent due diligence and discussions with ones own investment and business advisor is strongly
recommended. Accordingly, nothing in this report should be construed as offering a guarantee of the accuracy or
completeness of the information contained herein, as an offer or solicitation with respect to the purchase or sale of any
security or as an endorsement of any product or service. All opinions and estimates included in this report are subject to
change without notice. It is prohibited to copy or redistribute this report to any type of third party without the express
permission of the author.
34