4 The IKN Weekly, issue 392 — Nov 13, 2016
,
The IKN Weekly
Week 392, November 13th 2016
Contents
This Week: Last week’s game-changing news, In today’s issue, Regarding that “Expect
volatility” call, The past is past so what can we expect from the future? The IKN Weekly
Loonie/Greenback forex assumption is now 0.75/1, The IKN Weekly will be late next week.
Fundamental Analysis: Sandstorm Gold (SAND) (SSL.to) 3q16 financials, Avino Silver & Gold
(ASM) (ASM.v) 3q16 financials.
Stocks to Follow: Overview, Cordoba Minerals (CDB.v), Excellon Resources (EXN.to),
Wesdome Gold (WDO.to), Atico Mining (ATY.v), Tinka Resources (TK.v), Starcore Intl (SAM.to),
Riverside Resources (RRI.v), Regulus Resources (REG.v), Lara Exploration (LRA.v).
Copper Basket: Overview, Capstone Mining (CS.to), HudBay (HBM.to) (HBM), Amerigo
Resources (ARG.to), Copper Mountain (CUM.to), Nevada Copper (NCU.to), Copper Fox (CUU.v).
Low Cost Producer Basket: Overview, Detour (DGC.to), Buenaventura (BVN).
Regional Politics: Peru: HudBay gets back to work, Chile copper mining and “The year of
living dangerously”, Argentina: 2017 macro forecasts, Ecuador does Australia.
Market Watching: Minera IRL: Some extra information, On the gold/silver ratio.
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
Last week’s game-changing news
The week was dominated by one planet-level event and quite rightly, when the news broke the
whole world stopped. Even though we hoped it wouldn’t but feared it would, I’m certain that
deep in our heart of hearts we all knew it was going to happen. The air of inevitability was
palpable so when the shocked faces on hearing the news, quickly followed by tears and later
manifestations in the streets, were shown on every channel and every TV screen all I could do
was bury my head in my hands, knowing at a profound level that the world was now a worse
place than it was just minutes before, the future was darker for us all. Yes indeed ladies and
gentlemen, Leonard Cohen has passed away. And to wrap up our news digest of the last seven
days, Daniel Ortega and Donald Trump won the presidencies of their respective nations.
In today’s issue
• All predictions of a massive rush to gold in the event of a Trump win turned quickly to
dust. Today’s intro looks into what happened, why the permagoldbugs were plain
wrong (again), but also why this isn’t the end of the gold bull and what we can expect
from gold in the Trump era.
• We do 3q16 numbers from Sandstorm Gold (SAND) (SSL.to) and Avino Silver & Gold
(ASM) (ASM.v) in the main fundies section. They’re both good enough.
• Copper went bananas last week. We do that of course.
1
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Regarding that “Expect volatility” call
‘Don’t Panic’
Douglas Adams
IKN390 and IKN391 both carried the message “expect volatility” as regards the US election
period. Hoo boy I got that call right, just a pity I couldn’t capitalize on it so well.
The IKN Weekly is a publication focussed on a pretty specific segment of the world, your author
doesn’t and never will claim to be an expert on the wider macroeconomic matters that were in
play last week and we’re definitely not even going to go near the pure political implications of
the Trump victory, but at a few words on the type of wild market moves we saw last week are
required because we saw them directly affect our focus sector, that of (mostly) junior mining
companies in (mostly) Latin America.
In the crudest of terms, what the Trump victory news did last week was to unleash a veritable
mountain of dollars that had been
locked up in US Treasuries. Here’s a US Treasury bond yields, Labor Day to date
little chart I put together of the yield in 2.4
2.2
the one year to ten year papers, from
2
Labor Day to this weekend, and the 1.8
blip to the right is even evident in the 1.6
shorter dated bonds, while the five, 1.4
1.2
seven and ten just took off.
1
0.8
Perhaps this isolated chart of the price 0.6
0.4
of the Ten Year Bond (below right) is a
0.2
better visual. It shows how the price 0
was bouncing just under 130 before
the election, the initial shock of the
unexpected (by most, not all, adding
this in here to make sure I’m not trying
to make a political point because mine is
merely watching the data and probabilities)
saw it pop and then suddenly the concerted
dumpage began. Bonds prices dropped, their
yields popped (just the Ten Year moved up
0.32% to 2.15% from November 7th to
November 11th), the 10 Year TIPS yield has
doubled to 0.25% and as we know from
previous intros, when TIPS rises the gold price
falls. As most of us know as we were
watching, gold moved in a U$100+ range last
week, those are exceptionally rare occasions
for the safe haven metal and it closed down
mightily on the week.
2
61/6/9 61/8/9 61/21/9 61/41/90 61/61/90 61/02/90 61/22/90 61/62/90 61/82/90 61/03/90 61/4/01 61/6/01 61/11/01 61/31/01 61/71/01 61/91/01 61/12/01 61/52/01 61/72/01 61/13/01 61/2/11 61/4/11 61/8/11 61/01/11
%
1 yr 2 yr 3 yr 5 yr 7 yr 10 yr
source: US Dept of Treasury
,
In short, dollars came out of hiding. A lot of
dollars. And once they did, they had to find a
new place to lodge rather than the safe haven
vehicles. The first port of call was equities in the
USA and we had new All-Time highs in the Dow
and other main indices, so just for fun here’s a
screenshot of this CNBC page (1) (a website I
rarely visit, a TV channel I never watch) taken on
Saturday morning, because a picture paints a
thousand words and I can now shut up. A bit.
But as you see some commodities got a boost and
none more so than copper (left), which had the
wildest of rides. On the other hand, oil prices dropped
on the news of the Trump win, but that’s more for a
specific policy pledge of his to de-regularize the
hydrocarbons sector in the USA, make it easier and
cheaper to produce and also allow environmentally
sensitive projects the green light, such as the banner Keystone pipeline.
As the shockwaves rippled through the market, other losers began to show up to compare to
the winners. In the currency market, the Mexican Peso dropped 11.5% (or perhaps that should
be “another 11.5%”, it’s already massively down against the greenback since the start of its
decline in late 2014) and the Brazilian Real lost 6.9%. However other LatAm currencies held up
3
,
well against the dollar, such as the Chilean Peso and Peruvian Nuevo Sol that get strong
backing from the price of copper. Related to that and the above, I’ll wrap up this intro with just
one more chart, that of the Gold/Copper ratio, because this is the single most impressive chart
I’ve seen on the week that was:
Wow, the whole of the advantage gold gained against copper has been wiped out in one short
week. I’m glad I have a handful of base metals names in the portfolio to offset the losses in my
precious metals stocks last week. Helped the pain a little.
The past is past, what can we expect from the future?
Here comes the difficult bit. If you’re in a small boat out in a storm and getting tossed around
there’s no time for life’s details, you concentrate on making it back to shore. Survival ensured,
it’s only then that reflection can kicks in. Here are a few initial thoughts and this time, as much
as possible, I’m going to keep the focus at a practical level and on our preferred market sector.
• Volatile moments in the market are, by definition, short-lived. Anyone drawing a hard
conclusion about the future direction of gold, silver, anything in fact, from the financial
antics of the last few days is on shaky ground. I try to do exactly that with copper
today ☺.
• This is not the end of the bull market for gold and the precious metals. What we’ve
been through is extreme volatility
and that’s likely to continue for a GLD gold holdings, Brexit to date (metric tonnes)
while, but gold is still 14% up in 1000
2016, silver is still 25.5% up in 990
980
2016 and nearly all the major
970
precious metals miners are showing
960
positive beta returns to those gains 950
(except Goldcorp, now just 13.7% 940
up on the year). Again by 930
920
definition, as we stand today the
910
bull market is totally intact. There’s 900
also plenty of evidence that gold is
now oversold on fundies. Take this
for example, the GLD inventory
from Brexit to date.
4
61/32/6 61/92/6 61/6/7 61/21/7 61/81/7 61/22/7 61/82/7 61/3/8 61/9/8 61/51/8 61/91/8 61/52/8 61/13/8 61/7/9 61/31/9 61/91/9 61/32/9 61/92/9 61/5/01 61/11/01 61/71/01 61/12/01 61/72/01 61/2/11 61/8/11
mt
source: SPDR GLD data
,
• The day after the Brexit shock, gold holdings in GLD were 934.31 metric tonnes and the
gold price was U$1,315/oz. This weekend, gold holdings in GLD are 934.56 metric
tonnes, virtually the same as June 24th. The gold price is U$1,228/oz, some 6.6%
lower. That doesn’t compute well, which means we’re still out of kilter.
• Now for the Trump future influence question, which will take up a few bullet points.
The way I see it, we have a paradigm shift in the make-up of US politics and therefore
world politics (if you feel like denying the USA is the most important nation on earth
then go ahead, I prefer living in the real world). Not only do we have President Trump,
we have both houses of Congress with GOP majority, we have an upcoming Supreme
Court juge #9 choice that will make the legal direction of the country clearly right wing
too. This isn’t business as usual (hence the volatility), this a clear and obvious new
direction for The USA starting right now. We’d all better get used to the idea.
• But when we consider the policies that got Trump elected, which I’m going to lump
under his very own “Make America Great Again” banner, you and I can think what we
want about the immigration/illegals, environmental, foreign policy etc aspects but when
it comes to his economic plans for his nation (it’s the economy, stupid), I cannot for the
life of me see how things jive with the type of market reaction we’ve seen this week.
Once the euphoria wears off, the party atmosphere dies down, the aspirins are handed
out, in a few days’ time we’ll have a USA with higher implicit interest rates and a
stronger dollar than before. That is at odds with the Trump plans, I think.
• There are basic truths about dollar strength. It promotes a negative US trade balance
with the rest of the world, it dampens inflation in a net import nation such as the USA,
it’s US jobs negative on a macro level. I don’t think there’s a single mainstream
economist to the left or right of centre who’ll argue with us on those statements, but
what they will talk about is the benefits of currency strength at different points in the
economic cycle, hence the point below.
• If a nation’s economy is in a strong position these are minor factors, e.g. jobs losses
are small and often compensated by innovative growth in other areas, but we’ve just
watched Trump win by telling his voter base that America is not in a strong position,
America has become weak and that only he can “make America great again”. Is he
suddenly going to turn around and say out loud, or even imply via economic policy
measures, that his country is in good economic shape? I can’t see that happening, no
way José.....ah wait...no way Joseph.
• The central part of “Make America Great Again” version economics, is to create US jobs
and improve US infrastructure. Those will sometimes go hand in hand of course (e.g.
people contracted to repair bridges) but on the one hand infrastructure programs cost
money while on the other, as stated above, President-Elect Trump has the headwinds
of the strong dollar (and what he’ll call a weak economy) to contest. Now, unless he
really does have some sort of secret sauce or magic formula we haven’t come across
yet (and he doesn’t), the only way I know of to expand jobs under strengthening dollar
is to raise money via debt.
• Yes indeed, all the 20 Trillion (or whatever it is, I lose track) of debt emitted by The
USA isn’t going to get any better, folks, we’re going to see that either a) rise at the
same rate or b) accelerate in its rise. If Donald Trump wants to deliver on his campaign
promises, that’s what we’re going to see. We should also note that he’s chosen David
Malpass to head his economics transition team, a dedicated supply-sider. If you want to
know the policy direction of the USA in the next year (or four, or eight) I strongly
suggest a little background reading (2) on this gentleman. It includes the fact that
Malpass was chief economist at Bear Sterns in 2008 (that name and date mean
anything to you?).
5
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• Before wrapping (and this needs to be cut short, The IKN Weekly has other things to
do) there’s the whole conceptual dichotomy of the euphoric reaction from the markets
to the Trump win and the direction he’s pledged to take the country. He’s won the
presidency by attracting the Rust Belters, the disenfranchised, the people who’ve been
left behind by the American Dream and have finally found a rallying point. It’s going to
take way more than “cut taxes and let trickledown happen” for Trump to make good on
his core message to those people. Ultimately, (and this part is the 30,000 foot view),
Trump’s message is pro-MainSt, which means it runs against the wishes of WallSt. So
far, in these few short days, we’ve seen WallSt partying bigtime on the Trump win but I
can’t see that lasting, not unless the integrity of one side or the other is broken (and
that’s perfectly possible of course, this is politics after all).
The bottom line: I see no reason for the precious metals market or the mining sector as a
whole to fear a Trump presidency, in fact he’s probably PM-positive over time. This directly
implies that what we’ve seen this week is an overreaction, a gold price that dropped hard from
an initial liquidation of US bonds which caused interest rates to rise (the TIPS/gold correlation is
strong). But all indications, from the “conceptual” to the likely policy choices of the government
to come, are that Trump will enact policies that are dollar-weakening. Now, I’m not saying that
the current volatility is over, it could go on for a while longer for all I know and what’s also plain
is that the current level of gold (and bonds of course) has fully baked in that expected Fed rates
rise (might even be overbaked). What I am saying is that we’ve seen overbuying (copper) and
overselling (gold) that will calm and reajust, in fact the copper mini-bubble burst very quickly.
There’s no need to panic out of PM stocks, just because they took a big hit on the Trump win
news. There’s no need to liquidate gold holdings on the $100/oz (or so) move we’ve suffered.
This volatile week has changed the course of politics, the most important nation on earth has
taken a jump to the right and has set The United States of America on a new trend. In
economic terms the volatile effects will be shorter-lived, I expect calm to descend on the
markets very soon and when Trump and his team start rolling out concrete policies on the US
economy, gold’s going to start to look attractive again. The main message of the “What Gold
Is” piece in IKN391 hasn’t just disappeared into thin air after one week, it’ll be as true in the
Trump era as any other time in history. With that, I end a two thousand word plus intro that
Douglas Adams explained just as well with just two words. Don’t panic.
The IKN Weekly Loonie/Greenback forex assumption is now 0.75/1
I noted the issue a few weeks back in IKN388. Since then I’ve tried to ignore it, hoping that it
would go away, but the straw that broke the camel’s back came last week and as from today,
all forex assumptions here at The IKN Weekly use CAD$1 = U$ 0.75.
The IKN Weekly will be late next week
Due to my travel and engagements in Colombia next week (that start tonight, first flight out to
Lima this Sunday evening as soon as I’ve sent the Weekly), a reminder that next week’s edition
of The IKN Weekly, IKN393, will not be with you until Tuesday November 22nd at the earliest.
6
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Fundamental Analysis of Mining Stocks
Sandstorm Gold (SAND) (SSL.to) 3q16 financials
On time and on Wednesday, Sandstorm Gold (SAND) (SSL.to) delivered its 3q16 financials. The
TL:DR to what follows is “good quarter, in-line, the sector sell-off Thursday and Friday now
makes this stock look remarkably cheap”. Now for details:
Sales were pre-announced at 12,500oz gold equivalent (AuEq). That turned out to be 12,588 oz
AuEq which makes it the best number of the year
and the second best ever. As this chart shows, SAND: AuEq sales per qtr (plus 4q16 est)
I’m sticking with my best-guess estimate for 14000 12460 12901 12517 12588 12600
4q16 of 12,600oz AuEq, which if true would bring 12000 10424 10834 11381
the year in at just over 49,000 oz AuEq. That fits 10000 8951
in with the SAND revised guidance of between 8000
47k and 50k oz AuEq. Overall and if true, it 6000
would make it a good year for the company. 4000
2000
Here below is how revenues stack up, split 0
between gold and royalty revenues. Overall, total
revenues of U$16.815m beat the IKN house
estimate by nearly $200k, that’s the advantage
of the 588 extra ounces, offset by the a slightly lower average received price than expected of
U$1,336/oz. As for 4q16, I’m plugging in a best guess average of U$1,280/oz AuEq at this time
which assumes the post-election drop is a temporary spike that rebounds in a few days’ time.
U$m Sandstorm (SAND) (SSL.to): Revenues per quarter
18000 Royalty revs
16000 Au Sales
14000
12000
10000
8000
6000
4000
2000
0
4q14 1q15 2q15 3q15 4q15 1q16 2q16 3q16 4q16est
source: SSL filings, IKN ests for 4q16
Which brings us to the operations overview chart and in this, 3q16 compares very well.
U$m SAND: Operations overview
18 total revenues prod costs depletion gross profit
16
14
12
10
8
6
4
2
0
-2 4q14 1q15 2q15 3q15 4q15 1q16 2q16 3q16
Source: SAND filings
The nature of the SAND business model makes for low “operating” costs (red bars), then the
depletion came in largely in line and expectations (though we should remember that this
doesn’t detract from cash flow). Therefore gross profit of U$6.279m, which is good. Then
follows the GAAP-compliant stuff, such as operating earnings that were in fact higher than
7
41q4 51q1 51q2 51q3 51q4 61q1 61q2 61q3 tse61q4
AuEq Oz
source: company filings
,
gross profit at U$8.422m. That’s because SAND booked a gain on investment assets and that
mostly due to its Luna Gold/Aurizona investment
coming out of intensive care and getting more
value added which more than offset G&A and
other things. Equally, net profits of U$6.915m
were higher than gross, even after paying tax.
But as noted on other occasions here at the
Weekly in my opinion (and that of others) the
best straight line gauge of performance at SAND
is its “cash generation capacity”, in which we
take the revenues and subtract the things this
streamer/royalty company needs to pay in real
money, i.e. production costs and administration costs. Here’s that chart...
13 Cash generation capacity
12
11
10
9
8
7
6
5
4
3
2
1
0
8
41q1 41q2 41q3 41q4 51q1 51q2 51q3 51q4 61q1 61q2 61q3 tse61q4
source: SAND data, IKN calcs
erahs/stnec
...and that above looks impressive to little old me. The 3q16 number of U$12.354m is a new
best and though 4q16 won’t match that (due
largely to the drop in average gold prices we’re
anticipating) it’s still going to come in well. We
need to consider that SAND now has a higher
share count, at 150.393m as at end 3q16 and
right now 152.243m (we’ve seen some
derivatives exercised) which means the per
share cash generation (below) isn’t quite as
sparkling, merely very good. Just to wrap up,
as at end 3q16 there were 5.496m options
outstanding, plus 29.202m warrants (23m of
those in the money) and with just under 2m of
those now exercised, the F/D total is a tad over
185m. Just so you know.
Cash generation capacity per share
10
9
8
7
6
5
4
3
2
1
0
41q1 41q2 41q3 41q4 51q1 51q2 51q3 51q4 61q1 61q2 61q3 tse61q4
source: SAND data, IKN calcs
erahs/stnec
25 SAND: Op. Earnings
20
14.2 15
10 7.5 8.4
5 4.0 2.4 2.3 6 1.4
0
-5 -1.4
-10 -5.1
-15
-20
-25
-30 -28.8
And below comes the most interesting chart of the lot (I think), the one that takes into account
the big share price drop we saw last week and notes how the price/sales ratio is under 9X again
on next quarter’s forecast (it was over 11X as at 3q16 end). The technical anal ysts can look at
41q1 41q2 41q3 41q4 51q1 51q2 51q3 51q4 61q1 61q2 61q3
source: company filings
srallod
fo
snoillim
SAND: Shares Out
160
150
140
130
120
110
100
90
80
70
60
31q4 41q1 41q2 41q3 41q4 51q1 51q2 51q3 51q4 61q1 61q2 61q3 tse61q4
source: company filings/IKN ests
serahs
fo
snoillim
,
the SAND price chart and tell me it got heavily oversold on sector panic last week if they want,
all I need to do is look at this end of my spreadsheet and this generated chart to know that a
market cap of U$571m for a low execution risk cash generator is a dirt cheap equity.
14 SAND: Annualized price/sales ratio, per qtr
13
12
11
10
9
8
7
6
5
4
9
41q3 41q4 51q1 51q2 51q3 51q4 61q1 61q2 61q3 WON
source: company filings, IKN data
Over at the balance sheet we see the cash generation at SAND move to the treasury. Here’s
assets (up nicely overall, those fixed assets getting revalued) and here’s the treasury position.
With the revolving loan facility now paid down to zero thanks to 1) the equity placement and 2)
operating profits, SAND now has nothing else to do with the cash (until the next deal comes
along) so for the first time in quarters it gets to collect it in its current account bank balance.
SAND: Assets
600
550
500
450
400
350
300
250
200
150
100
50
0
As noted, liabilities look in great shape now. One of the reasons that I liked SAND at the very
beginning of the year when it traded under U$3 (though I didn’t buy then...rats) was the
forecast for it to pay down its hefty debt position. In fact it’s done even better than I expected
and paid it off (not just down) in very quick time. As the company points out in its literature, it
now has U$130m in liquidity to play with (revolver plus treasury) and that’s a lot of ammo for
its next streaming deal. I’m sure they have plans.
31q4 41q1 41q2 41q3 41q4 51q1 51q2 51q3 51q4 61q1 61q2 61q3 tse61q4
$m SAND: Cash treasury per qtr fixed
55 other current
cash 50
45
40
35
30
25
20
15
10
5
0
source: SAND filings
51q1 51q2 51q3 51q4 61q1 61q2 61q3 tse61q4
source: company filings/IKN ests
srallod
fo
snoillim
SAND: Liabilities Breakdown per qtr
120
110
100 90 80
70
60
50
40
30
20
10
0
31q4 41q1 41q2 41q3 41q4 51q1 51q2 51q3 51q4 61q1 61q2 61q3 tse61q4
source: company filings
srallod
fo
snoillim
U$m SAND: Long-term bank debt position
90 83.5
77
80 LT debt 70 current debt 60 59.5
50
40
30
20
10 0 0 0
0
3q15 4q15 1q16 2q16 3q16 4q16est
source: SAND filings, IKN ests for 4q16
,
Bottom line: Even though 4q16 is unlikely to be as good as 3q16, that due to the gold price
average and nothing else, to see SAND at under U$4 this weekend would beggar belief if we
hadn’t witnessed the sectorwide waterfall panic selling of the last two days in the market. This
stock is now significantly lower than when it was at the end of 2q16 (let alone 3q16), that
despite strong improvement in revenues and earnings, not to mention the near-total
transformation of its balance sheet position from rather weak (but improving) to impeccably
strong. Now that cash debt is zero, SAND can be relied upon to deliver at least $10m cash to
treasury from now and into the indefinite future in just the way that the bigger royalty plays
(FNV, SLW, RGLD) do while they’re rewarded with much higher price sales ratios. However,
SAND isn’t getting the respect it deserves. Yet.
As you are aware (said as much these
last few weeks) I’m not a bottomless
pit of money and I like to keep at least
some cash cushion in my trading
portfolios, so I haven’t hidden the fact
that I’m coming to the end of my
buying these days. If I had deeper
pockets (or if I treated you all like
children and pretended you are
bottomless pits of money like some
newsletter writers do) I’d be banging
on the table here, telling you to
buy/add SAND at these deep discount
levels, buy more tomorrow Monday
blah blah. As it is I’m not, but that’s
only for my personal circumstances
however be clear, SAND offers an excellent, low risk bargain at these current price levels and if
you have the cash, this is an opportunity to seize with both hands.
Good quarter, good outlook, cheap share price, obvious buy. That’s SAND this weekend.
Avino Silver & Gold (ASM) (ASM.v) 3q16 financials
NB: Please remember that Avino reports in Canadian Dollars, the default
currency in this analysis unless stated otherwise.
Now to our other reporting miner on the list this week, Avino Silver & Gold (ASM.v) (ASM). You
may or may not recall that this position started just a few weeks ago in IKN389 dated October
23rd and the idea then was simple enough: Take a foot-in-the-door position at what looked like
a good entry price (we were around U$2.00 then, I got mine at exactly that), see how the 3q16
financials came in, decide when they did if this company is a keeper or not. Well here we are
with the Q3 numbers now in hand, so today’s the day to make a decision.
Oz Ag/AgEq ASM: Ag and AgEq produced, per qtr OzAgEq ASM: AgEq production vs sales
900000 1000000
800000 Other AgEq prod 900000 Total AgEq prod
700000 Ag produced 800000 Total AgEq sold
600000 700000 626837 608795
600000
500000
500000
400000
400000 345300
300000 300420
300000 251754 244956 253194 241114
200000 200000 155507
100000
100000
0 0
3q14 4q14 1q15 2q15 3q15 4q15 1q16 2q16 3q16 3q14 4q14 1q15 2q15 3q15 4q15 1q16 2q16 3q16
source: company filings source: company filings, 3q16 sales est IKN
10
,
Let’s start with production numbers, the chart above left a reminder from IKN389 and the chart
above right also the same except for one thing, we now have the exact sales number for silver
and silver equivalents. Previously we best guessed production = sales, it turns out that sales
were 41,036 oz AgEq less at 608,795 oz AgEq.
That’s about $800k worth of metal and 18 ASM: Operations overview
just over half the reason I over- 16
guessed for my 3q16 revenues estimate 14
of $14.7m. The rest is made up of a) 12
over-stating the effect of converting US 10
Dollars into the Canadian Dollars in 8
which ASM reports and b) being stupid 6
about the company (or perhaps just 4
“being stupid” is enough). The real 2
revenues number turned out to be 0
$13.218m and that might have been a
problem for the overall story here, but
as things turned out the costs number
wasn’t just good, it was excellent. COGS came in at $7.255m and even though I said at the
time that my $9.2m guesstimate in IKN389 was being deliberately high for conservative
parameter reasons, that was a big difference. As the charts above show, ASM managed to
produce the same amount of silver and get better revenues while spending nearly $1.5m less
on operations, that’s the sign of a decent new mine (Avino) getting into gear and showing what
kind of margins it can really run.
One line item that came is hotter than expected was G&A at $1.826m, that needs to get under
more control because it bit into income and net earnings
(they blamed it on having two mines in commercial
operation, but that was also true for 2q16).
Here’s the below-the-line earnings data. Compensate for
the $0.5m extra in G&A and the rest came in line with
expectations, except for net earnings because ASM took
a large $2.37m tax charge on $3.39m of pre-tax
earnings. Why that is so I don’t know, but as tax tends to
smooth itself out over the quarters that may become a
credit in Q4.
$m ASM: Earnings
5
4.5 Income before other items
4 pre-tax earnings
3.5 net earnings
3
2.5
2
1.5
1
0.5
0
-0.5
-1
1q14 2q14 3q14 4q14 1q15 2q15 3q15 4q15 1q16 2q16 3q16
source: ASM filings, IKN ests 3q16.
Overall, a perfectly acceptable set of numbers, the best part being how ASM is getting costs
under control. What we really wanted from the company was confirmation that it’s a profitable
entity under current market conditions and its new life as a two mine operation. We got that.
Over at the balance sheet, this is starting to look like a very solid little mining company. We like
11
41q1 41q2 41q3 41q4 51q1 51q2 51q3 51q4 61q1 61q2 61q3
$m
revenues
Cost of Sales
Mine Op Income
source: ASM filings
2 ASM: G&A, per qtr
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
41q1 41q2 41q3 41q4 51q1 51q2 51q3 51q4 61q1 61q2 61q3
CAD$m
source: company filings
,
the way assets are moving and as the right-hand chart shows, the big difference is cold hard
cash.
ASM: Assets Breakdown per qtr
$m ASM: Cash & inventory
110 cash inventories 25
100 other current fixed
90 20
80
70 15
60
50 10
40
30 5
20
10 0
0
4q14 1q15 2q15 3q15 4q15 1q16 2q16 3q16
source: company filings
We saw some longer-term liability items move into the
current block, mostly the term loan ASM took out with
off-take purchaser Samsung and then amended this
year. We’ll see more of that term loan go onto the
current liabilities book in the next quarters but it looks
very much under control for payback (they need to
pay back $666,666 per month as from July 2017), but
working capital is beginning to fill up nicely, that sort
of payback is in easy reach (assuming silver doesn’t
cave in on us, of course).
As for shares out, above the confirmation of the new number, 45.239m. That gives ASM a
market cap this weekend of CAD$116.7m (U$86m)
and a book value $1.51/share (right).
If we therefore take this weekend’s CAD$2.58
share price as our marker, ASM current commands
a 1.7X Price/Book ratio, which is comfortable
enough for a profitable miner but it’s not a crazy
bargain either. We could also consider the
price/operating earnings ratio of around 9X, which
would be cheap for a larger established mining
company but as ASM is small and still on the rise,
doesn’t strike me as a massive bargain via that
metric, either. And at some point I start to bore
you with all these charts. Oh! What was that?...it started three pages ago? Okay, I’ll wrap up.
Bottom line
Avino Silver & Gold (ASM) put in a good quarter and did what we wanted it to do; return
12
41q4 51q1 51q2 51q3 51q4 61q1 61q2 61q3
$m
cash
inventory
Source: ATY filings
$m ASM: Liabilities Breakdown per qtr
40
35 LT liabilities
current liabilities
30
25
20
15
10
5
0
4q14 1q15 2q15 3q15 4q15 1q16 2q16 3q16
source: company filings/IKN ests
ASM: Working Capital per qtr
25
20
15
10
5
0
-5
4q14 1q15 2q15 3q15 4q15 1q16 2q16 3q16
source company filings
srallod
fo
snoillim
ASM: Shares Out
50
45
40
35
30
25
20
15
10
5
0
31q4 41q1 41q2 41q3 41q4 51q1 51q2 51q3 51q4 61q1 61q2 61q3
source: company filings
serahs
fo
snoillim
ASM: book value/share
1.6
1.55
1.5
1.45
1.4
1.35
1.3
1.25
1.2
1.15
1.1
1.05
1
41q4 51q1 51q2 51q3 51q4 61q1 61q2 61q3
source: company filings, TSX, IKN calcs
,
operating and net profits. As things stand today it doesn’t look wildly cheap, but on the other
hand it has two distinct advantages over 95% of silver producer plays out there:
• It doesn’t look expensive either, compared to like-sized silver or gold plays. It’s
valuation is reasonable and that makes it a lot cheaper than the types of multiples the
market is willing to pay for companies with “silver” in their corporate title.
• It’s a real growth story. The Avino mine has just come on line and the big thing to
like about this Q3 is how costs have dropped more than expected. That bodes very well
for the future (and, incidentally, it’s the metric that will make it an attractive buyout
morsel for one of the larger silver companies). We can expect more from ASM in 2017.
I could warble on and on, but it comes down to this: I prefer Excellon (EXN.to) as my main
silver play but ASM is a decent enough second-string silver position and as the silver market is
suddenly looking more attractive, I’m
happy about having two Ag stocks on
the books these days. As things stand
today it’s a small position and though my
cash reserves are by no means
unlimited, I have earmarked a few
shekels to make this foot in the door
slightly larger (leg in the door?). With
this quarter, Avino Silver & Gold (ASM)
(ASM.v) has earned its place on the IKN
Weekly ‘Stocks to Follow’ list and though
I’m unlikely to get the chance to add any
next week (definitely don’t like opening
online accounts on hotel wi-fi) I will add
modestly once travels are done (and
hopefully that nice Mr. Market gives me
the chance to average down when I do, too). I’m not putting a price target on this stock today
though, that can wait and as its price movements are highly leveraged to movements in the
price of silver, putting a target today is a bit like predicting bullion price. A solid little silver
producer, good quarter.
Stocks to Follow
I blame myself and the hubris of last week’s intro that talked about “...a freakin’ excellent week
for the portfolio...”. Of our fifteen stocks, two remained unchanged on the week (FCV.v, RRI.v)
and another three registered gains (TK.v, CDB.v, ATY.v) and to those I’ll dare to add the one
smaller loser, the 2c drop in Regulus (REG.v).
And then there was this:
• Sandstorm Gold (SAND) down 23.2%
• Rye Patch Gold (RPM.v) down 20.3%
• Lara Exploration (LRA.v) down 20.1%
• Avino Silver & Gold (ASM) down 19.1%
• Continental Gold (CNL.to) down 18.7%
• Excellon Resources (EXN.to) down 18.6%
• Starcore Intl (SAM.to) down 18.5%
• B2Gold (BTO.to) down 17.9%
• Wesdome Gold (WDO.to) down 17.7%
Total carnage in precious metals names. My thoughts on what’s to come are above in the intro,
but they don’t help what’s happened in the recent past and this weekend I find myself licking
13
,
my wounds. Oh well, not the first time, unlikely to be the last...
We currently have 15 open positions on the ‘Stocks to Follow’ list, our self-imposed maximum
number at any given time. Suddenly just eight stocks are in the green, and seven are in the red
thanks to last week’s fun. They’ll bounce back.
company Ticker this week Avg Price Reco date Current PPS Gain/Loss% Notes
TOP PICKS
B2Gold BTO.to STR buy C$2.11 12-sep-14 C$3.17 50.2% tgt $5.30 IKN375, good Q3
Regulus Res REG.v hold C$0.64 06-apr-15 C$1.38 115.6% LT exploreco top pick
Starcore Intl SAM.to STR buy C$0.61 10-jan-15 C$0.53 -13.1% $1.04 tgt, lagging field
Long positions (in current order of preference)
Sandstorm Gold SAND STR buy U$3.80 17-apr-16 U$3.75 -1.3% $7 tgt IKN378, now very cheap
Tinka Res TK.v buy C$0.195 19-apr-16 C$0.215 10.3% Top value under radar Zn play
Wesdome Gold WDO.to selling C$1.72 22-may-16 C$2.37 37.8% Will sell at $2.88
Cordoba Min. CDB.v buy C$0.73 15-sep-16 C$0.77 5.5% $1.50 tgt added IKN392
Excellon Res EXN.to buy C$1.71 09-oct-16 C$1.58 -7.6% New long IKN388/9, $3.13 tgt
Atico Mining ATY.v buy C$0.51 24-jul-16 C$0.81 58.8% tgt under revision, going higher
Rye Patch Gold RPM.v buy C$0.32 02-sep-16 C$0.255 -20.3% 75c tgt, added IKN388
Avino G & S ASM buy U$2.00 21-oct-16 U$1.90 -5.0% New IKN388, small starter
Riverside Res RRI.v buy C$0.39 27-jun-16 C$0.46 17.9% Added IKN380, 60c tgt
Continental Gold CNL.to buy C$2.68 22-may-16 C$3.27 22.0% permit 4q16/1q17, $4.80 tgt
Lara Expl. LRA.v hold C$1.15 08-apr-12 C$1.07 -7.0% solid biz model
Focus Ventures FCV.v spec buy C$0.23 01-jul-12 C$0.07 -69.6% refi news good
Short positions
None at present
Closed in 2016 closed close price
Phoscan Chem FOS.to jan16 C$0.28 29-mar-15 C$0.265 -5.4% Buyout trade, bot but poor deal
True Gold TGM.v jan16 C$0.18 23-aug-15 C$0.25 38.9% okay trade, sold on pol risk
McEwen Mining MUX jan16 U$1.09 25-jan-15 U$1.20 10.1% sold due to lack of value
Lake Shore Gold LSG.to feb-16 C$1.10 07-apr-15 C$1.69 53.6% bot out, sold early in process
Atacama Pacific ATM.v feb-16 C$0.19 26-apr-15 C$0.40 110.5% sold for a double on big pop
New Gold NGD feb-16 U$2.06 24-jan-16 U$2.96 43.7% closed good near-term trade
Sandspring Res SSP.v mar-16 C$0.195 18-oct-15 C$0.32 64.1% Hit tgt, took profit
Teranga Gold TGZ.to mar-16 C$0.54 15-feb-15 C$0.60 11.1% disappointing trade
B2Gold BTG mar-16 U$0.85 13-jan-16 U$1.30 52.9% Separate trade on B2, hit tgt
Dalradian Res DNA.to mar-16 C$0.67 27-oct-13 C$1.00 49.3% Hit target, sold, good win
HudBay Min. HBM may-16 U$4.10 03-apr-16 U$4.36 -6.3% Short trade, poor timing
Nevada Sunrise NEV.v may-16 C$0.185 28-feb-16 C$0.23 24.3% V. small, no big deal either way
Richmont RIC jun-16 U$7.60 01-may-16 U$9.30 22.4% near-term trade, profit taken
INV Metals INV.to jul-16 C$0.25 03-apr-16 C$0.95 280.0% Trade closed on time
HudBay Min. HBM aug16 U$4.98 09-jun-16 U$4.80 3.6% short trade covered, no big deal
Miranda Gold MAD.v oct-16 C$0.125 03-jul-16 C$0.10 -20.0% tiny spec trade, didn't work
2009, 2010, 2011, 2012, 2013, 2014 and 2015 closed positions in appendices below
Now for some notes on current basket stocks and I’m not going to wring my hands too much
over the Tide Out drops in most of the PM names here, because there was one overriding
factor in play in the large losses taken by stocks such as BTO.to, RPM.v, SAM.to, SAND, ASM.v,
CNL.to, WDO.to etc, and we’ve covered that issue in today’s intro (to a greater or lesser
extent). Here I’m going to restrict comments to things other than the big dump reason.
Cordoba Minerals (CDB.v): Added. As noted in the Flash update Wednesday (see Appendix
14
,
1) I added to my CDB position last week, just before it popped higher in fact and though I did
get some cheapies, most were at the
previous cost average of 73c and on
balance I didn’t average down enough to
warrant dropping my cost average, so
we stay at 73c.
In fundies news, CDB announced
Thursday (3) that its Friedland-owned
partner HPX had started phase three of
its JV deal with the company, stage two
was done and HPX was now 51% owner,
it’s now working on getting to 65%
ownership by movin San Matías to Pre-
Feas stage. Although expected new, it’s
also positive to get it confirmed.
We now await two things from CDB:
• Its pending drill results, currently being compiled by HPX
• Any good will and vibes from the site visit next week by some of the people attending
the Colombia Gold Symposium (I’m one of those...looking forward to it too).
Considering the NR-centric way that Friedland tends to drive his investments, it’s quite possible
that those two separate events are related in time.
Excellon Silver (EXN.to): Added. Even though travelling, it was impossible not to take a bite
at EXN on Friday at the sudden deep discount it offered. I didn’t get any of the cheapest, but
two bits in the $1.50s have brought the cost average down very nicely and this position is set
fair for my money now. Consider this my first-string silver play and a position for 2017.
Wesdome Gold (WDO.to): Still selling at $2.88. As noted in the Flash update Wednesday
(see Appendix 1), I still haven’t sold my WDO and as the price only dropped further as the
week wore on, that’s still true this weekend. Its price another victim of the wild post-election
ride, I’m just going to have to be a little more patient than I expected. I’ll comfort myself with
the thought that my instincts were right when WDO was at $3 a few short days ago, even if I
wasn’t smart enough to hit the sell button at the right time.
Atico Mining (ATY.v): As noted in the Flash update Wednesday (see Appendix 1) the sell call
is off ATY now, because with copper doing
what it’s been doing there’s every reason to
expect higher share prices for this stock. At the
moment I’m sticking “under review” for a target
other than 90c, that’s because 1) I’ll need time
that I haven’t had to consider the new situation
2) with the extreme volatility we’ve seen this
week there’s no point in trying to gauge this or
any other junior mining company on its fundies,
the market is way too skittish, plus 3) it’ll be
much easier once a little calm has descended
on the copper metal market.
ATY traded strangely last week and although
finally and eventually ending up in the win
column (by a single penny) it didn’t get the sort of bounce enjoyed by other copper plays like
ARG.to, CUM.to, NCU.to etc. It could be because ATY has already made a strong move, it could
be because others have more marginal economics and were getting the optionality bounce, but
15
,
as I watched the market in play it looked like it was getting lumped into “the precious metals
juniors” instead of its rightful place as a copper play (at least 85% of revenues come from
copper, which makes it as pure as even a Southern Copper or First Majestic). If copper doesn’t
fall any further it wouldn’t surprise me in the least to see ATY move higher or even much higher
in the days to come, there’s catch-up to be played.
Tinka Resources (TK.v): A pulse. First we got positive news from the company (4) that a first
tranche of CAD$8.9m of the current placement has closed and the final total will now be C$11m
instead of ten once a smaller, second tranche is done and dusted (soon). That’s a chunky
amount of cash confirmed to treasury and now TK can get on, write cheques and get the drill
program moving. All good.
Second, the stock showed definite signs of life as the
week wore on. Could it be that TK begins to react to
this move in zinc prices? We’re still not breaking out
above the 25c (or so) level that the chart seems to
suggest for an escape velocity move, but I was truly
encouraged that 1) TK didn’t get bogged down in the
panic sector selling and 2) volumes clicked up last
week, especially the near half million shares that
changed hands Monday.
It’s about time this thing made a move and with the
closure of the placement, there’s now less headwind.
Starcore (SAM.to): SAM got slapped around like all the others and it’s no fun at all to have a
Top Pick in the red. However, come the end of the week we did get some real news from the
company in the form of this NR (5) which informed that SAM had booted forward the payback
of the $4.5m debt it owed and was due to pay back on November 12th, the date now May 12th
2017. This is almost certainly due to the fact that the real estate deal they’d planned to have
closed by now isn’t going to be closed until December (minimum?) and this boot-forward gives
the finances reasonable breathing room. In all, the news Friday wasn’t good or bad, but one
small thing it shos is how SAM’s credit is good.
We should expect its quarterly production numbers soon, most likely in the week to come.
Riverside Resources (RRI.v): Another with
a pulse. RRI started the week very well and
traded above and around 50c until the
election result came along, all on decent
volumes too. But RRI couldn’t escape the
general sector liquidity suck and gave up all
gains (mostly) on Friday.
A bit of a pain to see the wind sucked out of
its momentum sails in such a way, unlucky
timing more than anything.
Regulus Resources (REG.v): Here’s another that put in a good performance early week, only
to give it all up on Friday, but the circumstancs were rather different. REG got a correct sized
boost from the big upmove in copper early week and traded as high as $1.60, but it’s still a
relatively thinly traded stock and we need to recognize that as a near-term weakness. In such
circumstances, all it takes is for buyer interest to dry up and then one person deciding that they
need/must/have to sell even a modest sized position in order to live through the weekend, and
16
,
things like this chart below happen:
Regulus is deserving of our best doses of long-term patience, ladies and gentlemen, Ultimately
the chart you see above is inconsequential for the health and plan of my investment here. REG
will go higher, as day follows night.
Lara Exploration (LRA.v): Down 20.1% on the week, LRA got a double whammy first from a
woefully poor sell call from Agora tipster Byron King (who may not be the sharpest nail in the
bag, but gets a lot of readers) and then from the subsequent sector sell-off that nipped its
recovery in the bud. Why “woefully poor”? Here’s what Byron King of the Agora Financial “Gold
Speculator” (Lord help us) wrote to his flock before the open on Wednesday, with Trump by
that time President-Elect:
There’s no doubt in my mind that, when U.S. and Canadian markets open today, share
prices will move up strongly for most gold-silver mining companies. Across the entire
sector, I expect that investors will scramble to scoop up mining shares. In a sense, it’s
going to be as if hundreds of precious metal companies all simultaneously receive
buyout offers, and everyone wants to own a piece of the action – we call these things
“monetizing events.”
Here’s what you need to understand, though. What goes up fast, can come down fast.
We’ll see a run-up in many share prices in the next day or two; then we’ll likely
experience a price pullback. So, let’s use this astonishing, once-in-a-lifetime
opportunity to book gains.
I want to sell several names into today’s buying strength.
I mean, apart from the gushing “astonishing once in a lifetime” prose, did you see buying
strength in LRA on Wednesday?
17
,
Or another one of Byron King’s sell calls that day, Mirasol (MRZ.v)?
MRZ went down over 40% in the first minute of trading on Wednesday and if you think that’s
selling into strength you don’t need lessons in finances, you need remedial lessons in the
English language. Here writ large is the problem with general, mass audience publications
pumping up thin-traded junior mining companies. The moves they induce, be they up when
gushing about their future or down when “taking profits” have nothing at all to do with the
company’s fundamental value. A fellow holder of LRA, Brent Cook, advised his subscribers to
use the crazy drops in LRA and MRZ as punctual buying opportunities. That’s a far smarter call.
The Copper Basket
After forty-five weeks of 2016, The Copper Basket shows a 107.06% gain to level stakes.
company ticker price 1/1/16 Shares out Market Cap current pps gain/loss%
1 Ivanhoe Mines IVN.to 0.61 778.96 1885.08 2.42 296.7%
2 HudBay Min. HBM.to 5.31 235.23 1823.03 7.75 46.0%
3 Reservoir Min. RMC.v 4.08 48.69 449.41 9.23 126.2%
4 Capstone Min. CS.to 0.44 382.04 336.20 0.88 100.0%
5 NGEx Resources NGQ.to 0.65 205.06 241.97 1.18 81.5%
6 Western Copper WRN.to 0.38 94.19 103.61 1.10 189.5%
7 Atico Mining ATY.v 0.28 97.59 79.05 0.81 189.3%
8 Copper Mtn CUM.to 0.445 118.8 80.78 0.68 52.8%
9 Cordoba Min. CDB.v 0.16 86.86 66.88 0.77 381.3%
10 Trilogy Metals TMQ.to 0.395 104.33 65.73 0.63 59.5%
11 Nevada Copper NCU.to 0.66 80.5 61.18 0.76 15.2%
12 Copper Fox CUU.v 0.125 417.64 60.56 0.145 16.0%
13 Amerigo Res ARG.to 0.205 173.61 45.14 0.26 26.8%
14 Hot Chili Ltd HCH.ax 0.09 445.723 17.38 0.039 -56.7%
15 Revelo Res. RVL.v 0.055 128.486 12.85 0.100 81.8%
NB: HCH.ax priced in AUD$, rest CAD$ Portfolio avg 107.06%
Oh wow. Copper the metal went bananas and
The Copper Basket 2016, weekly evolution
120%
these happy group of stocks went along for the
100%
ride, too. The basket average added 18.27% in
one single week, which I think is a record for 80%
the basket over all years (I tried to check back 60%
too, didn’t find a thing to beat it even in 2009). 40%
It wasn’t all positive either, because three 20%
stocks returned week-over-week losses (CS.to, 0%
NGQ.to, TMQ.to) and the bought out Reservoir -20%
remained unchanged of course, but the other
18
dr3naj ht71 ts13 ht41 ht82 ht31 ht72 ht01 ht42 ht8 dn22 ht5nuj ht91 dr3luj ht71 ts13 ht41 ht82 ht11 ht52 ht9 dr32 ht6von
source: IKN calcs
,
eleven all went up and some of the improvement are eye-poppers:
• Amerigo Resources (ARG.to) up 62.5%
• Copper Mountain (CUM.to) up 51.1%
• HudBay (HBM.to up 31.1%
• Copper Fox (CUU.v) up 26.1%
• Hot Chili (HCH.ax) up 25.8%
• Nevada Copper (NCU.to) up 22.6%
They make Ivanhoe’s (IVN.to) gain of 13.1% look rather puny, in fact. And the reason behind
these wild, wild gains? Look no further than this:
That’s a copper hourlies chart for the ages. It’s the metal I most closely watch and as per my
words in IKN391 last weekend...
“...the next big test is around the U$2.30/lb level. If that one drops, my wary-
moderate-bull stance on the metal would get sturdier and more optimistic.”
... I was already shifted to bullish by Tuesday. But that was the big election day and there was
reason to be cautious, so I didn’t send out the Flash update (see Appendix 1) until Wednesday
that was about adding CDB and now holding through on ATY, by which time the breakout move
had been confirmed in spades.
But it was only then that things went bananas. As sketched in today’s intro, the likely cause was
the flood of cash from the liquidation of US Treasuries that needed to find a new home. Some
of it went into the copper pit and the bull move was fed by that most potent of ingredients,
hard cash, at just the right time. The result, back to back days of the strongest single day
moves in copper since 2009. Then the party wore down, the hangover kicked in and the market
knew that U$2.70/lb prices were unsustainable. Prices collapsed to the $2.50/lb mark and
stayed there, but even that is one helluva price compared to this time last week.
So we need to separate the wheat from chaff in order to understand what went on last week.
The chaff is the crazy move, the double push that sent copper flying from $2.45 to $2.75. What
caused that is up for debate, but what’s clear is that the money was either dumb (very likely) or
it was for ulterior motives (very unlikely, but see the final musing below).
19
,
But as for the wheat, the move out of the $2.20/lb level that then busted through the 30s and
into the 40s is justified and I believe it’s fully sustainable. It’s the type of financial-led move that
first tests the water on a new price deck, then when it finds little (or tired) resistance the line in
the sand is broken and others see that the previous price had stagnated with no real reason.
Markets are not frictionless, they tend to move in fits and starts when friction build-up is
broken. Some moves are smaller scale, some larger. We just watched a larger one break.
So I made my own transition to clear bullish on Wednesday, got some cheap CDB shares and
I’m glad about all that. Meanwhile, it’s fun to read this Reuters piece published Monday (6) that
tells us copper is rallying due to Hillary’s favouritism for the vote, then this one (7), also from
Reuters but this time early Friday morning telling us that copper rallied hard thanks to the
Trump win. Bless ‘em. And now for that final, left-field musing. As mentioned above, I don’t
know what caused the big spike but because it’s out of the realms of the normal, when it all
went crazy I found myself thinking outside the box. So on the evening of Friday and after a
glass of malbec...okay, two glasses of malbec, I wrote this to a market friend of mine (in fact I
wrote a couple of similar mails to a couple of other people, just to gather opinions).
Copper was weirdness squared.
I think we can take as read that the move and the Trump win are connected in some way.
Copper may have been depressed and ready for a spec move out of the $2.20/lb range. The first
move up to $2.40 tested the water, let's say. Something around that or even the current $2.50
number is fundy-sustainable. But then that spec wackaloon show to $2.72 or so. Then immediate
retreat. All too weird, copper never does that (the two biggest single day moves in Cu since the
2009 rebound, back to back) and what's more, the big moves kick off in Asian trading, not US.
Copper is China's biggest net import metal. Natch. It's the one it can't control so well.
Theory: Trump was literally (not figuratively) sending a message to China: A shot across the
bows, as it were.
Is that possible? After all, in the “DONALD J. TRUMP CONTRACT WITH THE AMERICAN
VOTER”, the now President-Elect’s 100 day action plan to Make America Great Again, number
three of the seven points he intends to implement in order to protect American workers, coming
straight after the plans to repeal NAFTA and TPP, is (and I quote):
“I will direct my Secretary of the Treasury to label China a currency manipulator.”
So is it possible that either Trump or financial desks close to Trump decided to fire a warning
shot to China and show how expensive it could get for them if they don’t start playing forex ball
with the new administration? I honestly don’t know and this week has been weird enough
without me fuelling any conspiracy fires, but as I wrote that to my friend I’d already conjured
up the image of the New Sheriff In Town, using tangerine hair and copper bullets to get nasty
small foreign people in line and show ‘em who be da boss. Yeah, maybe it was the malbec...
Now for the regular weekly copper warehouse inventory bullets:
• Overall world copper inventory levels dropped again last week and the trend continued,
this time down 19,098 metric tonnes (mt) (-4.1%) to finish at 449,023mt. You can’t
point to this continued drop as the big factor behind the massive moves in the price of
copper, but the continuation of the inventory drops does at least add some minor
fundies logic to the mix.
• However SHFE stocks in Shanghai popped back over 100k, and quite sharply too.
Stocks rose 14,712mt (+15.0%), that’s a sharp reversal and brings the weekend total
to 112,551mt. Add another coin to the “expect volatility” bank I suppose, but the likely
real cause of this is arbitrage between warehouse systems in Asia.
• That’s because at the same time as the Shanghai stock pop, LME stocks dropped by a
hefty 34,150mt (-11.2%) finish the week at 270,850mt. See-saw.
• Comex stocks missed all the fun, rising by a slight 340mt and finishing at 65,622mt.
20
,
Now the Shanghai-only chart, which shows stocks churning around 100k still. Jury out.
Shanghai Futures Exchange Warehouse Stocks, 2014-2016
400000
350000
300000
250000
200000
150000
100000
50000
21
ht5naj ht61 ht03 ht11 dn22 dr3gua ht41 ht62 ht7ced ht81 ts1ram ht21 ht42 ht5luj ht61 ht72 ht8 ht02 ts13 ht31 ht42 ht5nuJ ht71 ht82 ht9
Mt Cu
source: Cochilco
Now for notes on a couple of the basket component stocks:
Capstone Mining (CS.to): After the close on
Wednesday, Capstone Mining announced it had
entered into a series of hedges (so called
“costless collars”) that cover around a third of
total company production, with the high bar of
the collar at at just over U$2.53/lb. As noted on
the blog that very evening (8) this was a
shareholder-unfriendly move that takes away
much of the blue-sky potential of the stock price
and sure enough, as this ten day price chart
shows it stopped the price improvement in its
tracks the next day, even while many other
copper stocks continued to move up due to the
parabolic rise in the price of copper the metal.
HudBay (HBM.to) (HBM), Amerigo Resources (ARG.to), Copper Mountain (CUM.to),
Nevada Copper (NCU.to), Copper Fox (CUU.v): These are the ones that went up like
rockets behind the copper move and although some of them corrected slightly on Friday, the
percentage gains were all highly impressive (of course there are other copper stocks out there
that did similar things). And the reason for all those outsized gains, which is, conversely, the
reason I didn’t enjoy the same type of percentage pop from my own copper exposure positions
in ATY.v, CDB.v, REG.v, is that they’re all “optionality plays” on their metal, copper.
In the cases of the producers (HBM ARG CUM) they’re all weighed down by debt on the balance
sheet and copper fiddling around between $2.05 and $2.25 was doing their financial health no
good at all. When the clock starts ticking loudly on principle repayments the equity price
suffers, so the copper move has brought a serious amount of relief to the CFOs of the
respective companies. So even though CUM.to and ARG.to reported lacklustre 3q16 financials
last week, the market bought them up because we’re now all forward-looking into a bright and
better tomorrow where the higher copper price should make them profitable entities (at long
last). In the case of the explorecos (CUU, NCU) their projects are economically marginal and
only work with copper at a much higher price (typically $3.00/lb). The move made in copper
puts them back in the game (theoretically at least, I don’t buy that argument at all) and the
market sees potential value in the company all of a sudden, in much the same way the total
dog gold stocks like Corvus, International Tower Hill, Exeter or Chesapeake came back from the
dead when gold moved form $1,100 to $1,300 per ounce earlier in the year.
You pays your money and you takes your choice on these optionality plays, but as you muct
have worked out by now (and with the odd exception), they’re not the way I prefer to play the
,
market. Not only is risk ultra-high, but the premise of “Ah well now these get built!” is almost
certainly pie-in-the-sky. My preference is for a producer such as ATY, a company that makes a
real profit at lower prices and is sustainable. Or explorecos such as REG and CDB with deposits
and projects that have a clear shot at being big and profitable mining operations in the future.
So if you’re not with me on that opinion I have no problem but at lest you know what kind of
direction the Weekly is going to go as we move into this new bullish phase on copper, you
won’t see me buying into Pumpkin Hollow, of that you can be 100% sure.
The Low Cost Producer Basket
After 45 weeks of 2016, the Producer Basket shows a gain of 64.73% to level stakes.
company ticker price 1/1/16 Shares out Mkt Cap (Bn) current pps gain/loss%
1 Barrick ABX 7.38 1165.33 17.29 14.84 101.1%
2 Newmont NEM 17.98 530.595 16.76 31.59 75.7%
3 Goldcorp GG 11.56 832.381 10.94 13.14 13.7%
4 Franco Nevada FNV 45.75 178.01 10.19 57.22 25.1%
5 Agnico Eagle AEM 26.28 223.475 9.44 42.24 60.7%
6 Ang/Ashanti AU 7.10 405.27 4.54 11.21 57.9%
7 Buenaventura BVN 4.28 254.19 3.06 12.02 180.8%
8 Detour Gold DGC.to 14.41 174.06 2.99 17.16 19.1%
9 Sibanye Gold SBGL 6.09 228.71 2.16 9.44 55.0%
10 New Gold NGD 2.32 512.8 1.88 3.67 58.2%
Prices in U$/NYSE tickers, except DGC.to (CAD$) Portfolio avg 64.73%
Holy Moley! The basket dropped 29.55% and on that kind of number, you’ll be unsurprised to
learn that all ten components lost on the week. Here’s a graphic, rather than a bunch of words,
on their relative performance:
Week-Over-Week losses in our ten components
0%
-2%
-4%
-6% -4.8%
-8%
-10%
-12%
-14% -11.6%
-16% -14.1% -15.1%
-18% -17.1% -16.4%
-20% -19.1% -18.8% -18.3%
-22%
-20.9%
22
UA LGBS XBA MEA CGD MEN VNF GG DGN NVB
source: NYSE/TSX
ssol
ylkeew
%
But even under that carnage our basket managed to perform better than the GDX benchmark.
The Low Cost Producer Basket: Weekly performance
200% and comparative to GDX control
180%
160%
140%
120%
100%
80%
60%
40%
20%
0%
-20%
dr3naj ht71 ts13 ht41 ht82 ht31 ht72 ht01 ht42 ht8 dn22 ht5nuj ht91 dr3luj ht71 ts13 ht41 ht82 ht11 ht52 ht9 dr32 ht6von
Low Cost Basket: Percentage difference between
basket and GDX control, 2016
5%
0% basket
gdx control -5%
-10%
-15%
-20%
-25%
-30%
source: Google, IKN calcs -35%
-40%
ht01 ht42 ht7bef ts12 ht6 ht02 dr3rpa ht71 s1yam ht51 ht92 ht21 ht62 ht01 ht42 ht7gua ts12 t4peS ht81 dn2tco ht61 ht03 ht31
source: ikn calcs, NYSE/Nasdaq data
,
Detour Gold (DGC.to): It hasn’t exactly been a walk in the park for the whole sector,
summarized in this chart by the Gold and Silver Index (XAU), but in just eight trading days the
former Canadian market darling Detour Gold (DGC.to) has lost 36% of its market cap.
Wowsers.
Buenaventura (BVN): How did BVN managed to do so much better than its large cap peers?
Possibly the news last week (9) that the company had come to an agreement with locals and
had applied to Peru’s Mining Ministry (MINEM) to make some minor design changes (mainly
location of mine infrastructure) to its planned San Gabriel mine in Moquegua, South Peru. After
hitting community relations problems around this time last year, it’s good to report that BVN
has made great strides and according to both official reports and anecdotals picked up by this
desk, the project is now set fair to happen.
Regional politics
Peru: HudBay gets back to work
On Friday, HudBay (HBM) (HBM.to) announced (10) that its Constancia mine was back in
operation after having been paralyzed by a protest from locals who had taken control of the
open pit and were demanding that the company make good on its previously signed deal with
them (back in 2013 and ignored ever since, according to the local protesters) (11) (12).
The agreement to suspend the protest came after locals met with HudBay officials and Peru’s
Vice-Minister of Mining, Guillermo Shinno, along with other high-ranking government
representatives, in an official meeting in the nearby town (13). However “suspend” is the key
word here, this dispute is not yet settled and the next meeting to try and reach a definitive
agreement happens on November 24th.
Argentina: 2017 macro forecasts
This report (14a) in Argentina’s newspaper of record La Nacion last week concentrated on the
2017 macroeconomic forecasts of econom-buffet LatinFocus, but offered up the range of
forecasts for the key criteria in the country in 2017 from several different offices and points of
view.
According to LatinFocus (one of the more reputable and reasonably unbiased houses by political
position) Argentina is set to register a decline in GDP of 1.8% for the current year, 2016, and
with inflation running at 39.2%. In their words (translated) “The economy is stuck in a deep
recession as a result of the government’s austerity measures, the decline in real wages and
weak demand for Argentine goods and services”. But for 2017 they are more optimistic and
point to a GDP rebound of +3.2%, inflation at 20.6%, the Peso forex with the dollar at
23
,
ArgP$17.99 (it’s currently ArgP$15.05) and investment to rise by 8.5% year-over-year. All those
are better of course, but they’d mean that by the end of 2017 and over the two years of the
Macri government the overall story is that of stagnation. This is going to be important come the
legislative mid-term elections for next year.
As for the range of opinions, here’s how the LatinFocus +3.2% GDP forecast compares with
other prognostications including that of the Macri government, the IMF and a range of other
local studios.
Argentina: Range of 2017 GDP forecasts
6%
5.1% 5.0% source: La Nación
5%
4.0%
3.8%
4% 3.5%
3.2%
2.7%
3%
1.8%
2%
1%
0%
LatinFocus Macri Nat. IMF Analytica Bein Santander Abeceb Capital
Govt y Ferreres Economics
And here’s the other one we need to care about, the forex forecasts:
Argentina: Range of end 2017 Peso/Dollar Forex forecasts
25
source: La Nación
19.98
19.20 19.00 19.00
20 17.99
14.60
15
10
5
0
LatinFocus Santander y Invecq LCG Elypisis BMI Research
Ferreres
Something for all tastes there, though it does stick out at me that only one of the studios willing
to voice an opinion is going for an end-2017 forex rate lower than that of the present day. This
fact alone is enough to make me even leerier than before about investing in today’s
Argentina...and I was already more than leery enough about that.
Chile copper mining and “The year of living dangerously”
The spectre of industrial unrest rears its ugly head, potential supply disruptions in the copper
market become possible, the spot market has its ear to the ground in Santiago. Yes indeed,
2017 is a big year for collective bargaining agreements between Chile’s union bosses and
copper mining company management teams.
In fact we’ve already seen a few in 2016 (and a couple of short strikes before deals were
reached, such as at Los Bronces (Anglo American)) but as this report out of Chile points out
(14), 2017 is high season for deals and no fewer than 16 negotiations on collective agreements
affecting around 12,000 key full-time workers at the biggest copper companies in the country
(and therefore the world), including Codelco, La Escondida and Collahuasi (with over half of the
workers at Codelco). But perhaps the most interesting bit about all these is that the last rounds
24
,
of agreements between management and unions at these big mines was in the 2012 and 2013
periods, when workers secured large pay increases and juicy bonuses. This time around
management are pleading poverty and say there’s little or nothing else left to give, but you can
be quite sure that the workers have seen the sudden move in copper prices just like the rest of
us and will be out for a better deal than the scraps they’re likely to be offered at first. According
to the report the biggest potential flashpoint for industrial unrest is the Codelco Chuquicamata
mine, at which bosses have already laid out the hardline and unions are talking up a “popular
war” against the (non) offer.
For all these reasons, the linked report mentions how companies and the government are
calling 2017 “The Year of Living Dangerously” for copper in Chile.
Ecuador does Australia
While you and I were watching the US election unfold, last week November 8th to 10th Ecuador’s
Mining Minister, Javier Córdova, was in Australia for the International Mining and Resources
Conference (IMARC) in Melbourne. The jaunt got more detailed coverage in the Ecaudor press
(15) but it still managed to make Bloomberg in English as well (16) and here’s how that piece
started:
BHP Billiton Ltd., the world’s largest miner, and billionaire Gina Rinehart’s Hancock
Prospecting Pty. are among commodity producers to have held talks over a potential
entry into mining and exploration projects in Ecuador, according to the nation’s
government.
Both producers had discussions with officials on the prospects of making investments
or securing exploration leases, Mining Minister Javier Cordova Unda said Tuesday in
an interview in Melbourne.
For what it’s worth, both that note and most of the Ecuador coverage mentioned Fortescue
Metals, the big Australian company that made its its in iron ore, as one of the parties interested
in Ecuador. I can add to that a little because I know that Fortescue is interested in the whole of
the Andean West side of South America, Chile, Argentina, Peru, Ecuador and even Colombia.
And the thing they most want is a decent porphyry copper project.
Market Watching
Minera IRL: Some extra information
I want to expand a little on the three posts regarding Minera IRL that appeared on the blog last
week (17) (18) (19). The first thing to explain is the circumstances of the meeting I had last
week with a group of people who I am going to refer to as “shareholders”, they want to remain
out of the limelight. The only thing I can say is that between them they hold many millions of
shares of IRL and they’re hopping mad about the way they’ve been treated up to now.
Before diving in, a confession. I admit to all here that even though I’d already downloaded my
copy of the IRL Management Information Circular (MIC), filed to SEDAR on November 3rd, in
which the company had published its AGM agenda I hadn’t read it very thoroughly. Now I have
(and more than once, too). So to my own shame I wasn’t planning to do anything on IRL until
receiving a message that later became a phone call last week. Shareholders were very
concerned about the contents and style of the AGM agenda and wanted to speak with me
urgently, so I went to Lima and met with them. We then went into a long meeting, with several
people at the table that lasted all day. Shareholders voiced their concerns and I started to see
where they were coming from.
• The directors had quietly filed the AGM details, without any sort of heads up to the
market or to shareholders, and were planning to hold the AGM less than a month from
the file date.
• They were looking to change the company statute in several very significant ways, all
25
,
with a view to make corporate control more lax and give them more autonomous
power.
• They stated clearly that they were leaving the London AIM market and due to the fact
that the Peru re-listing process was not mentioned, while the Canadian CSE market
listing was mentioned in many places, the inference that IRL was about to abandon the
Peru listing was clear and easy to conclude.
• The directors had set up not one but two agenda points, either one would give them
the power to emit 115m new shares without any further explanation. The purpose of
the share emission was dealt with in the vaguest terms possible in the MIC.
• The MIC also made clear that none of the directors owned a single share of the
company, zero skin in the game and no damage to their own back pockets if they
diluted the company share count to kingdom come.
Along with several other snippets and rumours that these experienced and relatively high
powered Peruvian market investors had picked up, it all smelled (and still smells) very fishy.
And I’ve made the point twice on the blog now but I’m going to make it again here; we the
shareholders would be complete idiots to trust the Minera IRL board of directors and take them
at face value after the way they treated us last year. We deserve far better disclosure and
transparency than trying to quietly sneak in an AGM at the last minute and hoping that nobody
notices the massive changes they are trying to push through, not to mention the risk of dilution
at an unknown price and to unknown third parties. They might think they can treat us in such
an arrogant and offhand manner, but they can’t.
Therefore the posts appeared on the blog last week and the reaction to them has been
interesting, to say the least.
Here’s one example: According to one trusted correspondent, who after reading the IKN posts
spoke with Derrick Weyrauch on Friday, Mr. Weyrauch is trying to make the case that IRL
needs to sell the 115m shares because it’s desperately short of cash. It’s just this kind of thing
that hoists my red flags about this guy because, according to any straightforward analysis of
the IRL financials, that’s almost certainly not true.
As at the last set of financials, 2q16, IRL had what looks like a mess on its balance sheet but
when you start taking it apart it becomes clear that as at June 30th 2016 the company was fine
for cash. On the balance sheet, cash and equivalents came to $8.474m so there’s lot of liquidity
there to begin with. Total current assets came to $12.753m. Meanwhile current liabilities were
at $74.297m which makes for a whopping looking negative working cash position, BUT
$67.004m of that current liability is the Cofide bridge loan position. As that’s not going to be
called in until the main $240m Cofide loan is closed, the “real life” liquidity negative of current
liabilities as at 2q16 is a mere $7.293m (all made up of typical working mining company trade &
payables). Therefore the “virtual” working cap is positive, at $5.46m.
Now Weyrauch is pleading corporate poverty, perhaps because since then the company hasn’t
made much money or perhaps because they need to pay the current drilling program at
Ollachea, but that doesn’t make sense either.
1) In its filings Minera IRL stated that the approximate cost of the current drill program,
now getting towards its end, is budgeted at $1.2m.
2) If Corihuarmi production fell off a cliff in 3q16 we might be able to assume the mine
made a loss, even though gold prices in 3q16 were better than in 2q16. But that’s not
true either, in fact Corihuarmi produced more gold in 3q16 than it did in 2q16. Here’s a
chart:
26
,
Minera IRL gold production at Corihuarmi, 2016 to date
oz Au
7000
6000 5769 5700 5904
5000
4000
3000
2000
1000
0
1q16 2q16 3q16
source: IRL, MEM
Yes, Corihuarmi produced over 5,900 oz of gold in 3q16 (if they sell that at $1,300/oz average
it’s $7.67m). Now let’s be clear here, it’s true they posted a net loss of $2.421m in 2q16 but
that was nearly all due to a non-cash item, the nominal financial expense of the Cofide bridge
loan interest and was an accounting line item, not money actually leaving the company.
Revenues from gold sales in Q2 were $7.126m, COGS on those $5.147m and G&A plus
exploration costs came to $1.815m. In other words, 2q16 IRL cash flow was positive thanks to
gold sales from Corihuarmi (in fact for minor adjustment reasons to those three figures, IRL
booked positive cash flow of $0.323m).
If Weyrauch, while knowing those figures, is trying to claim while on the phone to a
shareholder of Minera IRL that a company with nearly $5.5m in true liquidity as at 2q16 and
with a cash flow positive mine that almost certainly posted improved figures in 3q16 and covers
all the corporate G&A bill as well, cannot cover a $1.2m drilling bill, then I submit that he’s
either taking very strong medication or he’s trying to make shit up in order to push through an
unnecessary and highly dilutive share offering. For his own reasons, rather than for the best of
the company. And by the way directors, especially you Weyrauch (and I know you’re reading
this without paying me), we out here know how much gold you produced in 3q16 because it’s
on the Peru Mining website (20) so don’t start your stupid and totally false e-mail blame games
on how I got my information on you like you did last Friday morning (insert emoji of author
smiling sweetly).
However, there are a couple of other things that need to be stated at this point:
1) Due to way this whole AGM was announced late (and quietly) it’s going to be very difficult to
do anything except vote against the agenda. In order to have a functioning company after
November 30th it needs at least two directors and if they all get voted off, the directors will
have legal recourse to re-appoint people (almost certainly themselves) on an interim level. It
would however be very difficult for them do do anything so in effect, IRL goes into a deep
freeze. That wouldn’t be the case if there were a proxy slate alternative, but as things stand
and with just two weeks between us and the cut-off date, that’s an unlikely scenario. Not
impossible, just unlikely (without an AGM delay).
2) A non-functioning corporation helps nobody. Yes it can stop these people from riding
roughshod over us, that’s about all. Therefore we need to consider the practical side of things
as well and that got a boost with the news picked up Saturday (19) that IRL directors are
putting together a news release for publication in the next day or so. One shareholder wrote to
the company and (at last they’re replying) one of the directors wrote back on Saturday morning
to say that the company is putting together a press release that they hoped would be published
early this week (e.g. this Monday, or perhaps Tuesday). The director told the inquiring IRL
shareholder that the news release would clear up his doubts about what was going on at the
company and give him the information he required.
I’m encouraged by that. I’m not encouraged by the fact they ignored us all and tried to sneak
through the AGM agenda, but it’s good that they now realize they need to give us more and
better information about their plans. I do not know what the contents of the NR are going to be
27
,
and will find out the same day as you are. Therefore I’m going to reserve judgement but I
certainly hope they can give us the type of guarantees and commitment to fiduciary duty that
we deserve, instead of the arrogant mushroom politics of the last few days.
All it took was a few lines on a blog...☺.
So the final message here is, “Let’s see what they come up with first”. If they are upfront in
nest week’s NR, if they’re more open and can provide assurances (not just empty talk) that
they’re on our side, even after the awful way they’ve tried to treat us there’s a compromise
solution on the table. We shall wait and we shall see.
On the gold/silver ratio
I’ve chosen just about the simplest chart of the Gold/Silver Ratio (GSR) I could find because I
don’t want to throw sequins in anyone’s eyes, least my own.
That’s because if we leave very-late-week shenanigans in silver aside, I think the gold/silver
ratio is about to go lower which would of course be of advantage to silver mining companies. As
it happens I now own a couple of them, EXN.to and ASM, with EXN the bigger of the two. I’m
definitely not going to start crowing before time and I’m wary of my own bias confirmation, but
the way in which silver traded more strongly than gold in the wake of the Trump win and the
subsequent bonds-induced precious metals sell-off is straight out of the....errrr...silver linings
playbook. We’d expect the semi-industrial precious metal to get a boost from that side of its
make-up in the same way that copper, zinc etc ran well last week.
For a first step, let’s see the gold/silver ratio back under 70X this time next week.
Conclusion
IKN392 is done, we end with bullet points:
• A reminder that next week I’m in Colombia, first attending The Colombia Gold
Symposium and then on the two site visits, first Cordoba Minerals (CDB.v) and then
Red Eagle Mining (R.to). Looking forward to both those visits. The blog is likely to be
quiet and please remember that next week’s edition of the weekly, IKN393, is going to
be late arriving by at least a couple of days.
• Trump won, the markets went haywire, we got all the volatility we could handle and a
lot more besides. There are some real bargains out there now and thanks to its solid
3q16 financials, Sandstorm (SAND) (SSL.to) is one low risk high reward proposition
from here.
28
,
• Whatever other boo-scary stories you might have heard, gold isn’t about to see the
bottom drop out of its price. Especially when the reason for the gold drop last week is a
person who will enact gold-positive policies once sitting in the Oval Office.
• As as this weekend I’m trying my hardest to reserve judgement on the board of Minera
IRL and hope, sincerely and for all concerned, that they up their game and give us the
type of assurances that we deserve and require in the upcoming NR (and whatever else
they may publish). But the picture painted by ‘the shareholders’ in our meeting last
week was not good at all, I don’t want to go through the same stupidity as we had to
suffer through thanks to Team Hodges last year.
I thank you in advance for any feedback. Our Top Pick stocks are Regulus (REG.v), B2Gold
(BTG) (BTO.to) and Starcore Intl (SAM.to). Flash updates will be sent if required by events.
I wish you good trading fortune, ladies and gentlemen. Namaste.
Mark
Footnotes, appendices, references, disclaimer
(1) http://www.cnbc.com/2016/11/11/us-markets.html
(2) https://www.google.com.pe/?gfe_rd=cr&ei=CSUnWKn3Naew8we45rto#q=David+Malpass
(3) http://finance.yahoo.com/news/cordoba-minerals-hpx-initiate-phase-153707186.html
(4) http://finance.yahoo.com/news/tinka-announces-closing-first-tranche-165400636.html
(5) http://finance.yahoo.com/news/starcore-secures-extension-4-5-220000607.html
(6) http://af.reuters.com/article/metalsNews/idAFL4N1D834G
(7) http://www.reuters.com/article/us-global-metals-idUSKBN1360VP
(8) http://incakolanews.blogspot.pe/2016/11/capstone-mining-csto-and-zero-cost.html
(9)
http://www.portalminero.com/display/NOT/2016/11/08/Buenaventura+prepara+desarrollo+de+proyecto+San+Gabriel
(10) http://finance.yahoo.com/news/hudbay-announces-resumption-operations-constancia-144622755.html
(11) http://incakolanews.blogspot.pe/2016/11/hudbay-hbm-hbmto-isnt-telling-you.html
(12) http://incakolanews.blogspot.pe/2016/11/hudbay-hbm-hbmto.html
(13) http://diariocorreo.pe/edicion/cusco/operaciones-en-mina-de-hudbay-se-restablecen-tras-toma-de-instalaciones-
710674/
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(14) http://www.aminera.com/grandes-mineras-enfrentan-16-negociaciones-colectivas-2017-sindicatos-pelearan-
millonarios-bonos/
(14a) http://www.lanacion.com.ar/1955431-preven-que-en-2017-la-economia-crecera-el-32-una-inflacion-del-206-y-un-
dolar-en-18
(15) http://radiohuancavilca.com.ec/noticias/2016/11/08/ecuador-se-promociona-la-conferencia-internacional-mineria-
recursos-australia/
(16) http://www.bloomberg.com/news/articles/2016-11-08/ecuador-says-bhp-billionaire-rinehart-seek-to-join-metals-
chase
(17) http://incakolanews.blogspot.pe/2016/11/minera-irl-news-release-from-company-is.html
(18) http://incakolanews.blogspot.pe/2016/11/minera-irl-what-this-sneaky-board-is.html
(19) http://incakolanews.blogspot.pe/2016/11/minera-irl-news-release-from-company-is.html
(20) http://www.minem.gob.pe/_estadistica.php?idSector=1&idEstadistica=10589
Appendix 1: Flash update dated Wednesday November 9th, 2016
Good Wednesday morning, before midday on a warm, sunny day in the South.
Copper has been on a tear this week and though the move might consolidate and back-test prices in the $2.30s per Lb
range, this breakout is a serious one and I believe we've definitively moved away from the $2.08 - $2.20 range. For this
reason I'm altering a couple of plans:
1) I will add some more Cordoba Minerals (CDB.v) this week, looking to get the current price and not average up on the
personal position.
2) My plan to sell Atico Mining (ATY.v) at 90c is now scrapped. I will now hold through the position as I think it has every
chance of going a lot higher.
And while I'm here, a quick word to say that I haven't managed to sell my Wesdome Gold (WDO.to) yet. Price so far this
week have been too low and although the cash would be useful, I'm not desperate for it either. I'll sell at my price (which
will show up again for sure).
In other, more general and trivial, news, I am travelling on short notice tomorrow and Friday (work related), then next
week I'm attending the Colombia Gold Symposium and doing the Cordoba (CDB.v) and Red Eagle (R.to) site visits. Add
these two together plus the normal Weekly writing process this weekend, and the result is that the IKN Blog is likely to
be quiet from tomorrow until my return from Colombia, November 21st. Just a small heads up to prevent any minor
concern.
Enjoy your Wednesday, Mark.
Stocks To Follow Closed Positions 2015
Closed in 2015 closed close price
Argonaut Gold AR.to jan'15 C$1.47 14-dec-14 C$2.53 72.1% Big gain small time, profit taken
Amerigo Res ARG.to jan'15 C$0.405 20-jul-14 C$0.285 -29.6% Given up on weak Cu prices
Reservoir Min. RMC.v jan'15 C$6.05 18-jun-14 C$4.12 -31.9% sold on Cu downturn
Coro Mining COP.to jan'15 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
McEwen Mining MUX aug'15 U$0.695 21-jul-15 U$0.92 32.4% Closed nearterm flip for win
Midas Gold MAX.to sep'15 C$0.39 21-sep-15 C$0.35 -10.3% Sm. trade idea that didn't work
New Gold NGD oct'15 U$2.18 23-aug-15 U$3.05 39.9% trade closed, profit taken
Legend Gold LGN.v nov'15 C$0.085 01-mar-15 C$0.035 -58.8% tiny "land grab" idea, failed
Timmins Gold TGD nov'15 U$0.245 20-sep-15 U$0.15 -38.8% small near-term loser
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Stocks To Follow Closed Positions 2014
Closed in 2014 closed close price
Fortuna Silver FVI.to jan'14 C$2.80 23-dec-13 C$3.19 13.9% small ST trade closed
Rio Alto Mining RIO.to jan'14 C$2.06 07-jun-13 C$2.30 11.7% trading position finally closed
Network Expl. NET.v feb'14 C$0.01 22-jul-12 C$0.005 -50.0% position closed, did nothing
Tahoe Resources TAHO feb'14 U$13.10 08-apr-13 U$21.72 -65.8% short closed due to reality
Darwin Res DAR.v mar'14 C$0.10 14-jul-12 C$0.045 -55.0% tiny risk play dropped
B2Gold BTO.to mar'14 C$3.07 28-nov-12 C$3.35 9.1% closed to free up capital
Pretium Res PVG mar'14 U$5.38 22-nov-13 U$6.50 -20.8% short closed as port longer
Gold Res Corp GORO may'14 U$5.07 26-jan-14 U$4.12 16.7% took profit
Bear Creek Min BCM.v may'14 C$1.63 23-mar-14 C$2.05 25.8% Took profit, sm near-term win
Eco Oro Min. EOM.to aug'14 C$0.48 22-sep-13 C$0.26 -45.8% sold small loser to make room
True Gold TGM.v sep'14 C$0.395 02-feb-14 C$0.41 3.8% M&A won't happen, sold
Santacruz Silver SCZ.v sep'14 C$1.04 26-jan-14 C$0.86 -17.3% silver/M&A spec, rel. small
Timmins Gold TGD nov'14 U$1.38 09-apr-14 U$0.99 -28.3% failed trade, sell, raise cash
Kinross Gold KGC nov'14 U$2.90 20-oct-14 U$2.15 -25.9% V small trade, didn't work, chau
Salazar Res SRL.v hold C$0.28 02-mar-14 C$0.145 -48.2% lost China sponsor
Stocks To Follow Closed Positions 2013
Closed in 2013 closed close price
USA Graphite USGT feb'13 U$0.93 08-jan-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-jan-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-apr-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-apr-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-jan-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-apr-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
31
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Stocks To Follow Closed Positions, 2012
Closed in 2012 closed close PPS
Soltoro SOL.v jan'12 C$0.87 07-nov-11 C$0.94 8.0% cash moved to BCM.v
Gold-Ore Res GOZ.to feb'12 C$0.84 13-oct-10 C$0.98 16.7% trade closed on ELG.v offer
Minefinders MFN feb'12 U$11.68 17-nov-11 U$14.80 26.7% target made, trade closed
Iron Creek IRN.v mar'12 C$0.58 26-sep-10 C$0.31 -46.6% time up on small bad trade
U.S. Silver USA.to apr'12 C$2.18 15-mar-12 C$1.86 -14.7% ST trade no good, cut loss
Augusta Res. AZC.to may'12 C$3.10 29-jan-12 C$2.07 -33.2% bad mkt, bad trade cut loss
Bellhaven BHV.v may'12 C$0.50 22-sep-10 C$0.28 -44.0% new mgmt not impressive
Zincore Metals ZNC.to may'12 C$0.325 29-jul-11 C$0.17 -47.7% bad mkt, bad trade cut loss
Soltoro SOL.v may'12 C$0.70 18-mar-11 C$0.41 -41.4% bad mkt, bad trade cut loss
U.S. Silver USA.to aug'12 C$1.78 27-jul-12 C$1.36 -23.6% fail ST trade close pre split
Estrella Gold EST.v aug'12 C$0.91 27-mar-11 C$0.14 -84.6% Closed on port realignment
Fortuna Silver FVI.to sep'12 C$1.07 03-may-09 C$5.32 397.2% sell call $6.17/ Mar25
Strait Minerals SRD.v oct'12 C$0.125 09-dec-11 C$0.12 -4.0% closing coverage til FY13
Sunward Res SWD.to oct'12 C$1.47 13-mar-11 C$1.21 -17.7% sold, took loss
Gold Res Corp GORO oct'12 U$21.47 09-sep-12 U$17.40 19.0% Short trade closed
Yellowhead Min. YMI.to nov'12 C$1.00 01-apr-12 C$0.63 -37.0% sold, took loss
Primero Mining PPP nov'12 U$7.26 07-oct-12 U$6.73 7.3% Short trade closed
Bear Creek Min. BCM.v nov'12 C$3.38 07-nov-11 C$3.72 10.1% Took small profit
Vena Resources VEM.to dec'12 C$0.70 31-may-09 C$0.18 -74.3% Failed trade (caps F)
Galway Res GWY.v dec'12 C$2.19 24-nov-12 C$2.30 5.0% closed good ST arb trade
Stocks To Follow Closed Positions, 2011
Closed in 2011 closed close PPS
Sunward Res SWD.v jan'11 C$1.05 21-nov-10 C$1.63 55.2% target made, trade closed
Serengeti Res SIR.v mar'11 C$0.245 05-dec-10 C$0.285 16.3% sold pre-tgt, ST trade fail
Fronteer Gold FRG apr'11 U$2.37 03-may-09 U$15.24 543.0% buyout, trade closed
Minefinders MFN apr'11 U$9.09 07-nov-10 U$16.89 85.8% target made, trade closed
Metalline Min. MMG may'11 U$1.04 26-jan-11 U$0.89 -14.4% exit, resource disappointed
Peregrine Met PGM.to jul'11 C$0.87 06-mar-11 C$2.60 198.9% buyout offer, closed
Dynasty Metals DMM.to jul'11 C$4.20 03-may-09 C$2.85 -32.1% Sold. Fail. Move on.
Aura Silver AUU.v aug'11 C$0.22 13-oct-10 C$0.16 -36.4% Bad pick. Take loss
U.S. Silver USA.v aug'11 C$0.52 26-jan-11 C$0.71 36.5% closed to make room
B2Gold Corp BTO.to sep'11 C$2.80 12-may-11 C$4.27 52.5% target made, trade closed
Bear Creek Min. BCM.v sep'11 C$3.80 27-may-11 C$4.17 9.7% macro sell call victim
Minefinders MFN sep'11 U$14.70 10-aug-11 U$15.15 3.1% macro sell call victim
Great Panther GPR.to sep'11 C$3.03 22-aug-11 C$2.64 -12.9% macro sell call victim
Fortuna Silver FVI.to sep'11 C$1.07 03-may-09 C$5.36 400.9% sold 20%, macro sell call
Focus Ventures FCV.v nov'11 C$0.40 20-apr-10 C$0.20 -50.0% cut losses, bad trade
Regulus Res. REG.v dec'11 C$1.17 14-aug-11 C$0.52 -55.6% cut on news of poor 43-101
2009 and 2010 closed positions in appendices below
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Stocks To Follow Closed Positions, 2010
Closed in 2010 closed close PPS
B2Gold Corp BTO.to Jan'10 C$0.88 08-nov-09 C$1.49 68.2% target made, trade closed
Radius Gold RDU.v Jan'10 C$0.18 23-aug-09 C$0.40 122.2% target made, trade closed
MAG Silver MVG mar'10 U$5.60 23-nov-09 U$7.28 30.0% closed in pdac week
Riverside Res RRI.v mar'10 C$0.435 20-sep-09 C$0.60 37.9% closed in pdac week
Amarillo Gold AGC.v mar'10 C$0.81 31-may-09 C$0.70 -13.6% closed in pdac week
B2Gold Corp BTO.to apr'10 C$1.24 18-feb-10 C$1.50 21.0% target made, trade closed
Lumina Copper LCC.v apr'10 C$0.84 14-jun-09 C$1.55 51.2% total position now sold
Troy Resources TRY.to may'10 C$1.10 03-may-09 C$2.25 104.5% sold on negative results
AuEx Ventures XAU.to may'10 C$2.51 24-may-09 C$3.38 34.7% trade closed
Nevada Copper NCU.to jun'10 C$3.27 14-mar-10 C$2.03 -37.9% need to lower Cu exposure
Carpathian Gold CPN.to jun'10 C$0.39 14-mar-10 C$0.35 -10.3% too exposed to cap raising
Amerix PM Corp APM.v jun'10 C$0.065 08-nov-09 C$0.05 -23.1% victim of macro bear
Antares Minerals ANM.v jun'10 C$1.42 06-dec-09 C$2.10 47.9% sold half
Vena Resources VEM.to jun'10 C$0.37 31-may-09 C$0.23 -37.8% sold half
Minera Andes MAI.to sep'10 C$0.75 28-jul-10 C$0.95 26.7% ST trade closed
Gold-Ore Res GOZ.to sep'10 C$0.52 01-aug-10 C$0.75 44.2% target made, trade closed
B2Gold Corp BTO.to sep'10 C$1.45 25-may-10 C$2.01 34.5% target made, trade closed
Blue Sky Uran BSK.v oct'10 C$0.41 19-may-10 C$0.22 -46.3% v small v bad trade closed
Dia Bras Expl DIB.v oct'10 C$0.14 30-aug-09 C$0.35 150.0% target made, trade closed
S. Amer. Silver SAC.to nov'10 C$1.38 24-oct-10 C$1.60 -15.9% loss on short, small fail
Ventana Gold VEN.to nov'10 C$7.92 27-jun-10 C$13.51 70.6% trade closed on buyout
Lumina Copper LCC.v nov'10 C$1.42 11-aug-10 C$3.65 157.0% trade closed
Antares Minerals ANM.v dec'10 C$1.42 06-dec-09 C$8.40 491.5% trade closed
Rio Alto Mining RIO.v dec'10 C$0.69 23-mar-10 C$2.16 213.0% trade closed
Coro Mining COP.to dec'10 C$0.585 03-oct-10 C$1.24 112.0% target made, trade closed
Stocks To Follow Closed Positions, 2009
Closed positions closed closing PPS
Cardero Res CDY/CDU.to May'09 U$1.20 03-May-09 U$0.87 -27.5% sold on negative news
Eastmain Res. ER.to May'09 C$1.04 06-May-09 C$1.315 26.4% trade closed
Radius Gold RDU.v May'09 C$0.165 03-May-09 C$0.235 42.4% trade closed
Latin Amer Min. LAT.v May'09 C$0.12 03-May-09 C$0.158 29.2% trade closed
Aquiline Res. AQI.to July'09 C$2.03 16-Jun-09 C$1.68 -17.2% took loss, bad timing
Chariot Resources CHD.to Aug'09 C$0.20 12-Jul-09 C$0.415 107.5% trade closed
Castle Gold CSG.v Sep'09 C$0.64 02-Aug-09 C$0.60 -6.3% ST trade didn't work out
Guyana Goldfields GUY.to Sep'09 C$2.30 12-May-09 C$4.50 95.7% profit taken
Los Andes Copper LA.v Sep'09 C$0.09 21-Jun-09 C$0.09 0% trade closed
Pediment Gold PEZ.to Oct'09 C$0.80 09-Aug-09 C$1.00 25.0% trade closed
Minera Andes MAI.to Oct'09 C$0.68 03-May-09 C$0.71 4.4% too much bad news
Dynasty Metals DMM.to Nov'09 C$4.18 03-May-09 C$6.01 43.8% half sold
Rusoro Mining RML.v Nov'09 C$0.55 03-May-09 C$0.57 3.6% underperformed
Important Disclosure
The information and opinions contained within this report reflect the personal views of the author and therefore all
material within should not be construed as accurate or reliable or be utilized as advice for investment or business
purposes. Independent due diligence and discussions with ones own investment and business advisor is strongly
recommended. Accordingly, nothing in this report should be construed as offering a guarantee of the accuracy or
completeness of the information contained herein, as an offer or solicitation with respect to the purchase or sale of any
security or as an endorsement of any product or service. All opinions and estimates included in this report are subject to
change without notice. It is prohibited to copy or redistribute this report to any type of third party without the express
permission of the author.
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