6 The IKN Weekly issue 685 — Jul 04, 2022
The IKN Weekly
Week 685, July 3rd 2022
Contents
This Week: Trade heads-up, In Today’s edition, Gold is telling its own story, Risk management
in juniors means being wrong about the market.
Fundamental Analysis: Reviewing copper exposure in the portfolio, Selling Element 29
Resources (ECU.v), Aldebaran Resources (ALDE.v) on the potential sales list, QC Copper & Gold
(QCCU.v): Deep value at the bottom of a bear market, Amerigo Resources (ARG.to):
Considering the model under lower copper prices.
Stocks to Follow: Element 29 (ECU.v), Rio2 Ltd (RIO.v), Newcore Gold (NCAU.v).
Copper Basket: Overview, Nevada Copper (NCU.to), Copper Mountain (CMMC.to), Oroco
Resources (OCO.v).
Producer Basket: Overview, Kinross Gold (KGC), Alamos Gold (AGI).
TinyCaps Basket: Overview, Golden Pursuit (GDP.v).
Regional Politics: Chile’s new tax laws and mining, Peace breaks out in Ecuador (for now),
Colombia accommodates Gustavo Petro, Peru: President Castillo’s institutional position weakens
further, Argentina: More pro-mining politics and a new round of instability.
Market Watching: Chile: The flipside to miner-friendly also offers trades.
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
Trade heads-up
Real world situations overrule personal opinion. I plan to sell my position in Element 29 (ECU.v)
in the days to come, with the reasons explained in today’s main Fundamentals section.
In Today’s Edition
In today’s main fundies section, we tackle the horns of the dilemma and consider our
current exposure to copper in light of the continued selling in the metal. For the TL:DR
(and the QCCU note is rather long, sorry) the decision is to sell Element 29 (ECU.v), put
Aldebaran (ALDE.v) on the potential sales list and wait until we see what happens with
the potentially market-moving hole 221, then hold QC Copper & Gold (QCCU.v) and
also hold the largest trade position of the four by some distance, Amerigo Resources
(ARG.to). The real world of markets dictates portfolio and risk management.
There’s also plenty in today’s Regional Politics section, even while deferring any long
comment about the potential change in Chile’s pro-mining stance until next weekend
once we know the Rio2 Ltd (RIO.v) EIA permit result. Argentina continues to make
welcoming noises for our sector and the opposition to Pedro Castillo is Peru is starting
to gear up for its move (that would also improve the prospects its mining scene no
end), but Colombia and Ecuador continue to be difficult places for our sector of focus.
With the deferral of the key EIA meeting for Rio2 Ltd’s (RIO.v) EIA until this Tuesday
(i.e. in two days’ time), we’re left on tenterhooks this weekend. A little extra briefing on
1
that in today’s ‘Market Watching’ section, plus a thought in ‘Market Watching’ on how
there’s always a trade, even if things go badly. I don’t expect a bad result, however.
It’s the end of another quarter and the half-year, which means we review the
development of our Copper Basket and Producer Basket components, among other
jollities. The reversal of fortune seen by both lists in 2q22 is impressive, just not in a
good way.
For the US subscribers, enjoy your July 4th festivities tomorrow. For others, a reminder
that US markets are closed until Tuesday.
Gold is telling its own story
We do a lot on copper in other places today, so the rest of today’s intro is mostly about the
metal that is hanging on in there. The sell-off among metals continues and even gold, the
notable exception that again refused to buckle last week the sellers arrive en masse, is down on
its prices of a couple of weeks ago. Here’s a “metals sampler” chart featuring gold (GLD proxy)
for the PMs, silver (SLV proxy) in its Jekyll/Hyde role between the PMs and the BMs, then the
good Doctor herself (HG00 continuous copper contract) and another base metal contract, that
of zinc (to make the copper chart look less worse? No, to show how the bottlenecked Zn market
has been unstopped and how its paper price is now returning to real world levels)
As a minor detail, I chose SLV to lead the chart because it shows how volume spiked hard into
Friday’s sell-off, the type of trading we need if a bottom is forming. That’s because while
Canada’s markets were closed for Canada Day
(hope you had a good time, Canada people)
and The USA geared up for its July 4th long
weekend (hope you have a good time, USA
people), silver dumped under U$20/oz on
Friday, with Comex cash closing at U$19.85/oz
and its most traded September contract at
U$19.67/oz. That shot the gold/silver ratio to
above 90X and that compared to this five-year
GSR chart (right).
Before moving to our focus metal of gold, I’m
going to risk a line of TA and suggest Friday’s
dump in silver may indicate a temporary top, so
if spot silver re-takes the 20-handle in the week
ahead it wouldn’t surprise (but that’s as far as
my semi-random arty-charty soothsaying goes;
temporary means just that so talk to a real
chartist for more).
2
So to gold, with this next chart showing how gold performed its role as the AntiDollar in correct
style last week. It also notes the overselling spike on Friday (for context, it started overnight
Asia and followed-through in European early trading, with the rebound kicking in once The USA
opened for business. Meanwhile, the US Dollar index (DXY) tipped over 105 again (three times
in recent weeks) as the world tries to decide whether we’re in for plain vanilla recession or if
the world is about to get stagflation:
And on that score, rather than repeat the same diatribe as previous weeks let’s boil it down to a
couple of overly-simplistic phrases:
Recession: Yield curve inversion, dollar rises, metals drop
Stagflation: Yield curve inversion, dollar drops, metals rise
You are allowed to crit me on those, in fact I’d deserve it, but the essence is true enough. As
for the US Treasurys yield curve, last week it flattened further but didn’t invert, with the 10-
year minus 2-year dropping from +0.8 to +0.4 on the week (see the chart last week, rather
than repeating the same graphic and using space today). Instead the main driver of market
sentiment was again Fed jawbone and its main mouthpiece spent the week reiterating the same
message. What’s more, the hypnotic tones of Jay Powell seem to be working, here’s a quote
from the man on Wednesday (1):
"Our focus is very intensely on setting policy in order to get inflation down to 2% ...
getting it under control," he said.
Although Powell admitted that there is a risk in the Fed "going too far" in raising rates,
he said the bigger mistake would be to fail restoring price stability.
"Our job is literally to prevent that from happening. We will not allow a transition from a
low inflation environment into a high inflation environment," he said.
The same “whatever it takes 2.0” message, the same “if it causes recession, sorry” rejoinder
and the market reacted by assuming recession will come, rather than stagflation. The market
now takes that as “It’s Recession” and Dr. Copper showed us the effects on the metals
complex, but despite GLD losing over 20metric tonnes of physical from its vaults, atleast gold
didn’t buckle under the selling.
GLD gold holdings, 2022 year to date (metric tonnes)
1140
1120
1100
1080
1060
1040
1020
1000
980
960
940
920
3
12/21/13 22/1/5 22/1/01 22/1/51 22/1/02 22/1/52 22/1/03 22/2/4 22/2/9 22/2/41 22/2/91 22/2/42 22/3/1 22/3/6 22/3/11 22/3/61 22/3/12 22/3/62 22/3/13 22/4/5 22/4/01 22/4/51 22/4/02 22/4/52 22/4/03 22/5/5 22/5/01 22/5/51 22/5/02 22/5/52 22/5/03 22/6/4 22/6/9 22/6/41 22/6/91 22/6/42 22/6/92
mt GLD: Inventory/Price Ratio, 2022 year to date
6.40
6.30
6.20
6.10
6.00
5.90
5.80
5.70
5.60
source: SPDR GLD data 5.50
13/21/1202 5/1/2202 01/1/2202 51/1/2202 02/1/2202 52/1/2202 03/1/2202 4/2/2202 9/2/2202 41/2/2202 91/2/2202 42/2/2202 1/3/2202 6/3/2202 11/3/2202 61/3/2202 12/3/2202 62/3/2202 13/3/2202 5/4/2202 01/4/2202 51/4/2202 02/4/2202 52/4/2202 03/4/2202 5/5/2202 01/5/2202 51/5/2202 02/5/2202 52/5/2202 03/5/2202 4/6/2202 9/6/2202 41/6/2202 91/6/2202 42/6/2202 92/6/2202
Source: SPDR data, IKN calcs
Risk management in juniors means being wrong about the market
The difference between theory and practice. Here are two simple statements:
If you are completely sold out of the market when it drops, you are right.
If you are completely bought into the market when it drops, you are wrong.
Nothing controversial there, however junior mining portfolios don’t tend to work like that. In the
real world, the market participant will extend or reduce their exposure to the market according
to circumstances and those circumstances should include the person or institutions full financial
exposure but that’s econoblahblah, so let’s focus on our subject at The IKN Weekly: When it
comes junior mining, nearly all retail (and most instos, for that matter) take long positions in
stocks and but vary their exposure, with hedging done via other means (e.g. US Dollar, inverse
ETFs etc). And sure enough you witness me doing that with my junior portfolio over time: I
buy, I sell, sometimes treasury is near-empty and sometimes there’s cash on the sidelines, but
at no point do I walk away totally from the market and the portfolio is always long.
Which means that you don’t have to be completely bought into the market when it drops to be
wrong. Just half-bought is enough. Or a quarter. Or even a tenth because no matter how leery
the retail player might get, unless they fully sell a market when it drops, they are going to be
wrong. And that means, whatever I do as a market participant it’s going to be wrong:
Sell a few and the market drops, “Why didn’t you sell a lot?”
Sell a lot and the market drops, “Why didn’t you sell them all?”
Sell and the market rises, “Why did you sell?”
Etc and of course, all the opposites to those statements also apply to any buy decision made.
We all know the “Ah, why didn’t I buy more?” when a small speculative trade suddenly
skyrockets higher. All that is fair enough and when you trade and comment on the market in
the public sphere (e.g. me) you also get to field those loveable trolls on social media because
QED above, if they want to point out that your decision was wrong they have the tools.
Fortunately I grew the skin required to listen to that particular type of incessant nonsense long
ago, But I also know my own failings as a trader and investor in junior mining stocks (e.g. my
stubbornness with “fundamentals”, as witnessed below in today’s edition). I also know that it
would have been better for me to sold more positions earlier than I did, raised more cash
treasury than I have and not be as long the market today as I am, however I also know a few
plain facts. I have liquidated positions. I have raised treasury cash. I have a stated intention to
keep that powder dry while the current rough period plays out. I ‘ll also be ready to take
advantage of the eventual rebound and upturn in the metals and mining market, because
however bad it gets it always rebounds. I’m fully aware that my response to the current
negative market could have been better but hey, it also could have been a lot worse.
Which brings us to my next upcoming mistake and a further pruning of the portfolio to add a
little more cash to treasury. Read on.
Fundamental Analysis of Mining Stocks
Reviewing copper exposure in the portfolio
Today we bite the bullet on copper and address the state of your author’s ‘Stocks to Follow’ list
in light of the metal’s sharp drop to the U$3.60/lb. Today’s main note first lays our some short
statements regarding risk management of the portfolio, offers the reasons why we are cutting
one stock from the list and leaving another on the chopping block, but then moves to the
fundies on why the two largest copper trades we own, namely Amerigo Resources (ARG.to) and
QC Copper & Gold (QCCU.v) will remain as personal longs and Stocks to Follow on the list.
Therefore, today’s fundamentals section:
A list of weak excuses in light of copper’s continued price drop
4
A decision to sell Element 29 (ECU.v)
The potential to sell Aldebaran Resources (ALDE.v) soon
The reasons why I will continue to hold QC Copper & Gold (QCCU.v)
The reasons why I will continue to hold Amerigo Resources (ARG.to)
We take Dylan Thomas’s advice and begin at the beginning:
Being wrong: I did not expect copper would drop this low, which means I was wrong. When the
U$4.00/lb floor was lost it didn’t come as much surprise, but the loss of the U$3.80/lb line and
its continued rapid drop have caught me by surprise. The house position took into account the
standard weakness in industrial metals at times of recession (or at least perceived recession),
but considered copper a separate case due to its continued robust demand from its main
customer, China. However and sadly, I cannot help but admit to being bullish on copper and
even after what we’ve witnessed in the last four weeks, consider its risk to the upside rather
than it going much lower. Yes that might seem pig-headed at first as even I realize sentiment
for the metal is in the dumpster and its momentum to go lower remains unabated, so yes of
course in the near-term we may see even lower prices. The weight of financial bets on a market
of exchange will always influence price, but there’s precious little difference in copper’s
underlying fundamentals and with China now reactivating after the Covid lockdown(s), we have
reason to see real world copper demand improve into the next few weeks, rather than drop
further. This fundamental bullishness is predicated on the real world and not the abstract of
market moves or sentiment, as such it’s tough to ignore copper even after the recent heavy and
sharp price decline.
However, real portfolios are run on real world situations and like it or not, risk management
demands that I adjust copper exposure in light of the recent downturn. The real world doesn’t
care whether I “agree with the market” or not, as too many portfolios move from losses to
heavy losses when their owner shakes their fist at the world in stubborn defiance. Yes I am
stubborn, but there have to be limits and with the U$3.80/lb line firmly breached last week,
action is required.
Selling Element 29 Resources (ECU.v)
Therefore I am reducing my exposure to copper by selling my position in Element 29 (ECU.v).
These are the decisions that suck, because ECU.v is the type of company I prefer to sponsor,
with a good plan, two solid assets in the right jurisdictions (not just Peru, but good localities in
Peru) and a management team that may have brought in a new CEO, but has the type of
knowledge required to make a successful exploreco (country, rocks, etc). However, my
exposure to copper cannot remain as long as it is and this is the first place that gets cut, due to
its size (not the smallest position, not the biggest) and the fact that it’s treasury will deplete as
it executes on plan to the point where a new financing will have to happen at some point.
The issue with ECU is not its prospective and now drilled Flor de Cobre project in South Peru,
nor its even more interesting and about-to-be drilled Elida project in the North of the country.
The issues are that 1) it’s a copper trade at the wrong time and 2) it will need to top up its
treasury position at some point.
ECU.v: Assets per qtr
20
18 16
14
12
10
8
6
4
2
0
5
02q3 02q4 12q1 12q2 12q3 12q4 22q1 tse22q2 tse22q3 tse22q4
ECU.v: Liabilities per qtr C$m
2.0
fixed 1.8
other current 1.6 cash
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
source: company filings
02q3 02q4 12q1 12q2 12q3 12q4 22q1 tse22q2 tse22q3 tse22q4
source: company filings, IKN ests
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LT debt
current debt
Balance sheet items show this clearly, as with C$5.59m as at end 1q22, we don’t expect ECU to
burn as much cash in the recently closed 2q22 quarter but with the drills set to start turning at
Elida in the North during Q3 and Q4, the cash treasury is bound to deplete and in these charts,
we assume ECU doesn’t run a financing this year
ECU.v: Working Capital per qtr
10
9
8
7
6
5
4
3
2
1
0
-1
Under those circumstances, our model sees ECU leaving 2022 with working capital of $1.7m,
which won’t get them very deep into the next year. The shares out chart shows how ECU has
financed every fourth quarter by raising a modest amount, again suggesting they will go to
market either later this year or at some time in early 2023. Either way there’s an obligatory
raise in its medium-term future and with the market depressed as it is, that is going to weigh
on the share price as from today.
Under today’s circumstances, we require rock solid balance sheets from our exploreco trades
and not just good or acceptable ones. Therefore the decision is to raise some extra treasury
capital by selling out of Element 29 (ECU.v) in the days to come, through no particular fault of
the company and with a heavy heart, but market circumstances dictate change and more
prudent exposure.
Aldebaran Resources (ALDE.v) on the potential sales list
The other potential sale at this point is Aldebaran Resources (ALDE.v), but with the potential of
good news coming from the next set of drill results (i.e. the intriguing hole 221 as noted last
weekend) I’m going to let that call wait until the news comes from the company. In the event
of a good hole that suitably impresses the market, we may get lucky and see the share price
pop higher, thereby providing a better exit. The second-best result would be a liquidity window
on the news which doesn’t push the price much higher, but does allow the type of volume that
allows a graceful exit (ALDE is another junior hobbled by typically low traded volumes). Then of
course, by delaying a few days or weeks we also open ourselves to getting lucky, as if the
copper price and market decides to rebound before Decision Day on ALDE, there’s always the
opportunity to hang on a while longer and ride the trade.
We’ve noted previously how ALDE has been
scraping by on treasury cash. By judicious use of
warrants exercises, it has managed to reach the
end of its Q2 drilling season without going to
market and raising, however that will have to
change eventually and until that time, ALDE’s
story is also weakened by its low treasury
position. No firm decision today, but if things
remain the same when and after its Hole 221 NR
comes along, this will be a likely sale as well.
That ends the real world admissions and planned
changes to the Stocks to Follow list regarding
copper. While made under some duress, at this point I feel it necessary to act (and you never
know, selling ECU might even bottom-tick the market). We now move to the two copper
6
02q3 02q4 12q1 12q2 12q3 12q4 22q1 tse22q2 tse22q3 tse22q4
source company filings
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ECU.v: Shares outstanding
100
90
80
70
60
50
40
30
20
10
0
91q4 02q1 02q2 02q3 02q4 12q1 12q2 12q3 12q4 22q1 tse22q2
source: company filings, IKN ests
QCCU.v: Assets, per qtr
22
20
18
16
14
12
10
8
6
4
2
0
7
91q4 02q1 02q2 02q3 02q4 12q1 12q2 12q3 12q4 22q1 22q2 tse22q3 tse22q4
stalwarts and explanations as to why QC Copper & Gold (QCCU.v) and Amerigo Resources
(ARG.to) will remain in your author’s portfolio and on the Stocks to Follow list.
QC Copper & Gold (QCCU.v): Deep value at the bottom of a bear market
In a bear market and recessionary scenario, there are several ways of managing a stock
portfolio and one of the most obvious is “Sell Em All And Walk Away”, which may be brutal and
simplistic but, quite honestly, there are worse options. However, if you are like me and are
looking to manage portfolio risk instead of throwing in the towel wholesale a way forward is to
concentrate market exposure on more robust companies and structures. To cut a potentially
long-winded intro into a manageable size, when it comes to copper exposure I want:
Strong cash treasury
Robust development plan
Focus on asset development
And a strong cash treasury
Yes, that was repeated because it’s what really matters at times like these. With Dr. Copper
alone a source of risk, the company vehicle needs to reduce other market and financial risks as
much as possible and the main way is to be as financially independent as possible. The three
remaining copper companies pass that test, as in the cases of Amerigo (ARG.to) and the small
Altiplano (APN.v) they have their own mining operations and income from cash flow (albeit
small-scale in the case of APN, it’s enough to cover the corporate needs).
The third example is QC Copper & Gold (QCCU.v), which as a classic exploreco has no income
and has to run on treasury alone but currently has plenty of cash which, combined with a
disciplined development plan, gives us a junior exploreco that will be able to continue deep into
any downturn period without recourse to markets.
That’s the overview, now let’s get to the details starting with corporate structure :
Shares out: 148.923m
Options: 13.21m
Warrants: 21.575m
Fully diluted: 215.775m
Current share price: C$0.16
Market Cap: C$23.83m
Approx cash per S/O: 9c
All prices are in Canadian Dollars unless stated. Forex U$0.80=CAD$1
The first thing to note is that at this time (and those numbers happen to be bang up to date,
with the company’s 2q22 financials filed last week), 9c of the 16c share price is covered by
cash. That’s a good start, but we also know that cash doesn’t last forever in an exploreco and
when treasury only represents a snapshot in time (that well-worn phrase), so valuing an
exploreco on simple enterprise value can be a fool’s errand, because all you need to do is wait a
couple of quarters and that changes (and normally for the worse).
Today is all about the financials and why QCCU stands out as a strong value proposition among
a suite of copper names that have seen their share prices hit hard by the downturn in the metal
and for that, we move to the balance sheet items. There is no better place.
$m QCCU.v: Liabilities, per qtr
4
3.5
fixed
other current 3
cash 2.5
2
1.5
1
0.5
0
source: company filings/IKN ests
91q2 91q3 91q4 02q1 02q2 02q3 02q4 12q1 12q2 12q3 12q4 22q1 22q2 tse22q3 tse22q4
source: company filings/est
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LT liabs
current liabs
We begin with the two charts above showing assets and liabilities, which also have the IKN
guidance for the last two quarters of 2022 (which should take us up to the delivery of the
resource update at Opemiska. First a brief mention of liabilitie4s, which are small and are set to
drop gradually for the rest of the year as the non-cash flow-through liability is burned away. As
the company expenses its exploration dollars there’s no concurrent raising of fixed asset value
as and while cash is depleted, we also see the judicious combo of 1) a flow-through placement
which added to treasury in 4q21 (good timing, hindsight and all that) and 2) the sale of
Baselode (FIND.v) shares also during 4q21. That cashed up QCCU nicely gives it all the money
it needs to execute current plans in 2022, as well as go deeply into 2023 without having to slow
exploration or development cadence.
These next charts underscore that strong cash position and it’s a major plus for the company
now that markets have turned against juniors. We forecast working capital at C$9.2m at the
end of the 2022 financial year (November 30th) and straight liquidity slightly higher. All good.
QCCU.v: Working Capital per qtr
But wait, there’s more. We know QCCU told a wad of Baselode FIND.v shares last year, but the
company still owns 10.714m shares of FIND.v and they are not valued at market in its books.
Instead QCCU uses the equity method, rather than mark-to-market, to value its holding and
means its remaining FIND shares are booked at approximately C$0.22 each on the balance
sheet (and as a consequence any fluctuation in the value of the holding shows up as a non-
cash expense/negative expense on the quarterly P+L). That’s a mouthful of theory, the
practical results are:
1) QCCU holds more in asset value than it shows. For example, at quarter end, its FIND
shares were booked at a value of C$2.35m when as at this weekend, they are worth
C$8.36m. In other words, the difference is worth C$6m today, or 4c/share.
2) The quarterly P+L may be skewed by a non-cash movement in the FIND.v shares, so a
better way of following its burn rate is QCCU’s declared exploration expenses (as long
as other line items such as salaries, professional fees etc don’t fluctuate by too much)
The second is less important, but the first is a real source of hidden value that QCCU brings to
the table. We’ve already noted that its treasury position would be enough to take the company
into 2023, with the backstop of those FIND shares this company could do all it wants to do this
year, next year and into 2024 without recourse to market. This composite chart (right) gives a
per-share visual of this total liquid asset
value at QCCU, with an orange line marking
the share price at quarter end (including end
October 2021, when the recent MRE had its
positive effect on the share price) and a
black line that marked the combination of
working capital, plus the extra cash that
would be added if FIND shares were carried
mark-to-market (e.g. around C$6m as at
April 30th 2022).
8
343.0 417.0 306.0 603.1 864.1 571.6 108.4
196.2 372.41 763.41 249.21
7.01 2.9
20
18
16
14
12
10
8
6 4
2
0
91q4 02q1 02q2 02q3 02q4 12q1 12q2 12q3 12q4 22q1 22q2 tse22q3 tse22q4
source company filings/IKN ests
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QCCU.v: Cash treasury per qtr
20
18
16
14
12
10
8
6 4
2
0
91q4 02q1 02q2 02q3 02q4 12q1 12q2 12q3 12q4 22q1 22q2 tse22q3 tse22q4
source: company filings/IKN ests
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QCCU: Equity vs liquidity
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
02q2 02q3 02q4 12q1 12q2 12q3 12q4 22q1 22q2 WON
C$/share pps at qtr end
working cap+FIND residual value/share
source: IKN ests from QCCU data
For a couple of examples, at the end of QCCU’s 2021 financial year, the difference between
these lines was 18.5c, or C$24.9m using the share count at that time. Even when we take into
account the value of those FIND shares and then back out all its cash, that was the equity
afforded to the project and operations at the company. Right now, after the recent downturn
and the crushing of the share price to this weekend’s 16c, the difference is down to 1.1c or
C$7.3m. That, in effect, is what you’re paying for the whole of Opemiska. And before we move
on, it may be worth comparing the orange line above to the trajectory of the spot copper price
(right) during the same period. The drop in copper has brought it back to where it was in lata
2020 and within tolerances, that’s also true for QCCU’s share price. Back then, the company
was a promising prospect but without a 43-101 compliant resource and C$2m or so at bank.
You’re getting a lot more company for the same price today, the difference comes from the
negative sentiment in copper that’s dragged everything down.
We move to the P+L, demonstrating QCCU’s low
burn rate run more efficiently than in words. The
chart below right also includes the negative “other”
from 4q21 when the company sold (2) “…7,142,856 common shares of Baselode Energy to
arms-length parties for gross cash proceeds of $7,857,141”, so the complementary chart
showing the isolated exploration expenses shows that even while running a comprehensive drill
QCCU.v: Expenses breakdown
6
4
2
0
-2
-4
-6
-8
-10
program, the company keeps cash burn low compared to most any peer.
The quarterly net loss number is less of an indicator, as the BTL numbers at QCCU include
reconciliation of the flow-through shares that are non-cash and make the quarterly loss lower
than the real cash burn, another reason why we should care more about the balance sheet of a
junior exploreco. Meanwhile and below right, the share count has been clicking up in the last
few months as share payments and some derivatives are exercised. At end April the count was
146.6m, this weekend we are at 148m and change and by the end of the current quarter, we
expect there to be 150m shares out and by the end of the year, we estimate a maximum of
156m S/O (as seen in this chart), we’ll see how close that gets.
9
91q4 02q1 02q2 02q3 02q4 12q1 12q2 12q3 12q4 22q1 22q2 tse22q3
C$m QCCU.v: Exploration Expense, per qtr
3.5
3
2.5
2
1.5
other
1
Prof fees
cons/mgmt fees 0.5
Exploration exp 0
-0.5
source: company filings
91q4 02q1 02q2 02q3 02q4 12q1 12q2 12q3 12q4 22q1 22q2 tse22q3
C$m
source: company filings
QCCU: Quarterly net loss 6
3.856
4 2.126 2.53 1.752 2.211 3
2 0.1080.464 0.318
0 -0.33 -2
-4
-6
-6.222
-8
02q1 02q2 02q3 02q4 12q1 12q2 12q3 12q4 22q1 22q2 tse22q3
$m QCCU.v: Shares out (m)
source: company filings
4.93 4.93 4.35 4.35 7.85 8.07
9.701 7.311 2.711 4.431 0.541 6.641 0.051 0.651
180
160 140
120
100 80
60
40
20
0
91q3 91q4 02q1 02q2 02q3 02q4 12q1 12q2 12q3 12q4 22q1 22q2 tse22q3 tse22q4
source: company filings, IKN ests
Summing up the financials, we see a robust corporate structure that’s been battered down to
bargain levels compared to its tangible and liquid assets. So far we’ve been all about the
financials at QCCU because today is about justifying the share price in light of a bear market
mood and negative backdrop for copper stocks. However, we also need to consider its assets
and what it has and for that, we now update on our normal focus when considering and
watching the progress of QCCU here at The IKN Weekly, Opemiska. This table comes from its
latest corporate presentation and gives the current resource at the project, i.e. its maiden
resource estimate (MRE) published last year (3):
That’s already a lot of copper (and gold) for the money, even if you ignore the balance sheet
and consider the C$24m market cap. How for sure I realize a few things about Opemiska
(because we’ve talked them over enough times already), such as…
The overall grade isn’t massively high
The current program is typically returning intersects of 0.3% copper
The pit shell begins to encroach on the local town (and if what QCCU thinks is true, at
some point in the future at least some of the town of Chapais will have to be relocated)
Canada is more expensive to go mining for copper than LatAm
Etc
…but there’s also a lot to like about Opemiska, even at this stage. One of the standout data
points of the 2021 MRE was is 0.2% CuEq cut-off using U$3.50/lb copper (and U$1.650/oz
gold). That’s means the overall grade of the initial MRE was 4X cut-off and that’s a lot, the type
of leeway you want for robust economics.
Secondly, it’s been frustrating as a shareholder to note how the company hasn’t managed to
explain to the market what the current drill program is aiming to achieve. This drill map, taken
from the 2q22 MD&A out last week, shows the amount of work that’s been done since the MRE
was delivered in October last year (that you may recall shot the share price higher, at least for
a while):
That’s a lot of work. It’s salient to reiterate that the drill holes you see in this map are all post
MRE and are designed to add to the tonnages and metal content when we get the updated
resource count, slated for the end of this year. Indeed the average grade of intercepts in year’s
program has been lower and that will dilute the resource count percentage, but due to its low
10
cut-off all the rock they’ve been adding to the resource in 2022 is economic. What’s more, the
program has been specifically designed to explore the low grade, it’s not as if the company has
been disappointed! The low-grading returns are typically from areas that would have to be
mined anyway in the event of Opemiska becoming an operation, so what they’ve been doing is
quite literally turning what was thought of as waste and in the previous MRE into mineralization
(or “ore”, though the company would be hammered by the Canadian market authorities for
using that word).
The bottom line to QCCU in 2022 is not to fear the low grade returns of its current drill
program. Come year-end, QCCU is set to add substantially to its copper and gold resource
numbers and all inside a conceptual pit shell that will remain economic at current (or even
lower) metals prices, thanks to that low cut-off rate. We all know about the effects of inflation
on mining costs at the moment and in theory at least, that may raise the cut-off levels of any or
all projects, mine plans and open pit mining shells, in the case of QCCU at Opemiska they will
be able to trade off the general rise in costs by lowering the strip rate and amount of dirt
moved that contains no dollars. We will have to wait until the end of the year and its resource
update, but in this specific project and due to the reasoning behind the 2022 drill program,
along with a hike in contained metal we may even see the project cut off dropped further,
rather than staying the same or raised for inflation’s sake.
Conclusion: The interesting thing to consider is that even though QCCU has been beaten down
to within 1.1c of its current asset value (all liabilities included), its share price could be pushed
lower in a market determined to sell anything with the name of a base metal in its corporate
title. We’re already seeing some of the smallest and most beaten-up companies start to trade at
or under cash in this downturn and if (repeat if) the process continues, QC Copper & Gold
(QCCU.v) is also small enough to be sold down by people who’ll prefer to rescue any equity
value from a losing trade. However, it’s one thing to sell down a flimsy exploreco to near-zero
fixed asset value (which basically says the to world “All the work you’ve done is worth
nothing”), quite another to do it to a company with strong financials and the cash treasury that
allows it the luxury to ignore the current sentiment in capital markets. QCCU is a good example
of the stocks that rebound first and fastest once the downturn is done and the underlying
commodity price (in this case copper) finds its bottom. There’s too much to like at QCCU to
abandon it now, even as copper trips through lower prices and once the fruits of this company’s
labours are known at the end of this year, they may even be able to justify their 2022 drill
program and those long, low-grade intercepts in their own words. Holding and unless copper
collapses completely, there’s no reason to change that position in 2022.
Amerigo Resources (ARG.to): Considering the model under lower copper prices (in
USD unless stated)
This shouldn’t take up as much space as that rather long-winded note on QCCU. The last time
we considered our largest copper trade (by quite a distance) was in IKN 677 dated May 8th
2022 in the main fundies section, as we considered the quarterly number out of our three
largest trades (MAI.v, RIO.v, ARG.to). Since then we’ve seen copper prices drop hard and as
AERG has just finished the quarter in which it’s expected to deliver the lowest production and
copper sales in 2022 due to its scheduled maintenance shutdown, there are plenty of questions
on whether this company is still profitable and whether its new and generous dividend regime is
now in danger. Today we consider that by running the updated numbers on the stock and
considering what ARG can deliver in profits under the new and lower copper prices.
But first, we update on the changes in the ARG share count, as the company deserves a round
of applause for the way it’s gone about its normal course issuer bid (NCIB) share buyback
program. Announced during 4q21 after previously dropping the share count with a block
purchase (from Director Michael Luzich), we expected ARG to take action but not as quickly and
efficiently as this. Our model had ARG arriving at 166m shares at end 4q22, in fact and
according to its June 21st NR (4) the NCIB is now complete and ARG has bought back its
11
maximum allotment. Assuming the company doesn’t emit any more shares or sees further
exercising, it has 166.018m shares out and that number is good for the rest of 2022 and here’s
the visual on that, in fact two visuals as below left you have the cut-down Y axis to show how
aggressive this share buyback has been in the last three quarters, then below right the
standard view and Y-axis for perspective:
ARG.to: Shares Out
200
195
190 NB CUT DOWN Y-AXIS
185
180
175
170
165
160
155
150
As at end 3q21 ARG had just under 182m shares out, that’s now just over 166m S/O and the
difference represents a tangible benefit for shareholders. ARG isn’t a junior or miner playing lip-
service to share buybacks or merely absorbing new shares as insiders convert their gifted
derivatives into shares (cough, Sandstorm, cough) and with the company intent on continuing
the NCIB next year, there’s every reason to expect ARG to continue to extinguish shares in the
future.
Back in May and IKN677 we featured this slide from the company’s corporate presentation at
that time:
Back then, ARG plugged the copper spot price of U$4.64/lb into its model and told us that such
a copper price would be enough to pay its regular 3c/lb dividend, complete a full share buyback
program for 2022 by spending $14m on extinguishing shares (it turned out to be $13.7m) and
then, potentially, offering top-up dividends of up to $35m, representing 27c/share. That was an
eye-popping number for a “bonus dividend” (even though CEO Davidson doesn’t like that term)
and even in IKN677 we were keen on damping down assumptions on getting that much.
Cut to this weekend and copper is a full dollar cheaper per pound. That affects the model,
obviously, but we already know the NCIB is complete (it seems ARG made hay while the sun
shone no that score). We also know the company’s stated strategy involves keeping working
capital to a healthy level (CEO Davidson uses the frame of working cap at between U$20m and
U$25m) and once capex and sustaining capex projects are covered, returning excess cash to
shareholders.
To that end, we’ve already had one 2c Canadian and two 3c Canadian dividend payments, so
with the new and lower copper price, our job today is twofold:
1) Is the regular 3c dividend under threat
2) Will there be any top-up (bonus) dividend payments later this year.
12
71q1 71q2 71q3 71q4 81q1 81q2 81q3 81q4 91q1 91q2 91q3 91q4 02q1 02q2 02q3 02q4 12q1 12q2 12q3 12q4 22q1 tse22q2 tse22q3 tse22q4
source: company filings, IKN ests
serahs
fo
snoillim
ARG.to: Shares Out
220
200
180
160
140
120
100
80
60
40
20
0
71q1 71q2 71q3 71q4 81q1 81q2 81q3 81q4 91q1 91q2 91q3 91q4 02q1 02q2 02q3 02q4 12q1 12q2 12q3 12q4 22q1 tse22q2 tse22q3 tse22q4
source: company filings, IKN ests
serahs
fo
snoillim
For that, we crunch the numbers starting here, with the new assumptions for input copper
prices. While 2q22 will see lower prices, the first
part of the quarter enjoyed strong Cu prices (that
allowed ARG to complete its share buyback) and
we guesstimate an average Cu price of U$4.40/lb
for the quarter just finished. From there, we then
run 3q22 at U$3.80/lb and 4q22 at U$3.60/lb. The
U$3.80/lb level is chosen because according to
ARG, that’s the level at which is can guarantee is
3c/quarter dividend. The U$3.60/lb level is chosen
to show what happens under this weekend’s
copper spot price. To those assumptions, we apply
copper production of 14mlbs for 2q22 and 16mlbs
for 3q22 and 4q22. The scheduled maintenance
halt went as planned in Q2 (imposed by DET, so
ARG took advantage and got its own work done) which is why we pitch that quarter production
slightly lower, but aside that the numbers jive with the company’s 2022 guidance. Here’s how
that works on gross CU value and, once DET and cost deductions are made then the moly by-
product credit is added back in, the “total revenues” (i.e. the top line of the P+L):
ARG: Gross Cu value vs Total revs, per qtr
13
637.72 296.22 9.33
474.53
836.51
640.62
555.73
881.74 709.84 305.05 231.84 900.25 567.35
50.04 35.04 39.83
90
80
70
60
50
40
30
20
10
0
91q1 91q2 91q3 91q4 02q1 02q2 02q3 02q4 12q1 12q2 12q3 12q4 22q1 tse22q2 tse22q3 tse22q4
ARG: Average Cu price for MVC
U$m
source: company filings, IKN ests
The result of the drop in production/sales in Q2, then the price drop in the next quarters,
shaves a significant amount from gross sales. However the main cost also
drops because the DET royalty works on a sliding scale and drops accordingly
with the spot price. This table (right, squeezed in there) from its recent
corporate presentation does the background work for us on the DET royalty
paid by ARG at different spot copper prices:
29.2 76.2 26.2 67.2 53.2 16.2 40.3
25.3 80.4 44.4 32.4 23.4 46.4 04.4 08.3 06.3
5
4.5
4
3.5
3
2.5 2
1.5
1
0.5
0
91q1 91q2 91q3 91q4 02q1 02q2 02q3 02q4 12q1 12q2 12q3 12q4 22q1 tse22q2 tse22q3 tse22q4
U$/lb Cu
source: Company data/IKN ests
ARG: Charges to gross Cu value
35
30
25
20
15
10
5
0
91q1 91q2 91q3 91q4 02q1 02q2 02q3 02q4 12q1 12q2 12q3 12q4 22q1 tse22q2 tse22q3 tse22q4
U$m
Transport
smelting/refining
DET royalties
source: company filings, IKN ests
To give another viewpoint on how overall costs drop at ARG with the price of copper, here’s a
simplified visual showing the two main cost inputs, i.e. COGS and the DET royalty, on a per Lb
basis, once again using U$3.80/lb for 3q22 and U$3.60/lb for 4q22:
ARG: Main costs per Lb Cu
14
88.1
60.1
18.1
33.1
26.1
22.1
86.1
82.1
09.1
73.1
09.1
63.1
08.1
60.1
08.1
59.0
4.00
3.50
3.00
2.50 2.00
1.50
1.00
0.50
0.00
12q1 12q2 12q3 12q4 22q1 tse22q2 tse22q3 tse22q4
U$/lb
cash cost/lb
DET royalty/lb sold
source: ARG data, IKN ests
Then when stacked up against the received price, we get this:
ARG: Estimated margin/Lb Cu
49.2
80.4
41.1 41.3
44.4 03.1
48.2
32.4 93.1
69.2
23.4 63.1
72.3
46.4 73.1
62.3
04.4
41.1 68.2
08.3
49.0 57.2
06.3
58.0
5.00
4.50
4.00
3.50
3.00
2.50 2.00
1.50
1.00
0.50
0.00
12q1 12q2 12q3 12q4 22q1 tse22q2 tse22q3 tse22q4
U$/lb Cu main cost subtotal
Avg Cu price
difference
source: ARG data, IKN ests
The “difference” column is not the totality of costs taken from ARG on a per pound basis, but it
gets close in most quarters, depending on the amount of other expenses incurred. The idea
behind this datacrunch is to show that even with significantly lower copper prices, ARG keeps a
robust operating profit and will be able to meet all its obligations. We now move back into more
standard chart fayre with this P+L operations overview that also uses the new lower price deck
for the rest of 2022:
ARG.to: Gross, operating and net profits, per qtr
09.4-
13.3-
60.8
44.31
40.61
70.81
56.21
15.71
10.12
01.8
05.5
09.3
26
24
22
20 18
16
14
12
10
8
6
4
2
0
-2
-4
-6
-8
-10
02q1 02q2 02q3 02q4 12q1 12q2 12q3 12q4 22q1 tse22q2 tse22q3 tse22q4
U$m
Gross profit
op profit
Net Income
source: ARG data
While 1q22 operating profit was pimped somewhat by catch-up payments, we’re still in for a big
drop in overall operating and net incomes at ARG under the new lower copper price. That
shouldn’t be a big surprise, what we need to know is whether this level of profit is enough to
cover its dividend program.
0.14 ARG.to: operating and net earnings per share
0.12
0.10
0.08
0.06
0.04
0.02
0.00
-0.02
-0.04
15
91q1 91q2 91q3 91q4 02q1 02q2 02q3 02q4 12q1 12q2 12q3 12q4 22q1 tse22q2 tse22q3 tse22q4
eps
op profit/share
source: company filings, IKN ests
The answer is “yes”, at least as long as copper doesn’t go too low. The important line to cover
the dividend plan is operating profit and thanks to the new lower share count and the continued
profitability of operations, our model spits out the following:
2q22: at 14m lbs Cu sales at U$4.40/lb: Op EPS of 4.9c US per share (CAD 5.9c)
3q22: at 16m lbs Cu sales at U$3.80/lb: Op EPS of 3.3c US per share (CAD 4.0c)
4q22: at 16m lbs Cu sales at U$3.60/lb: Op EPS of 2.3c US per share (CAD 2.7c)
In other words, even at U$3.60/lb, the company will be able to pay its 3c/quarter dividend as
long as it doesn’t drain the treasury by too much and as cash&eq stood at U$71.1m as at end
1q22, that means ARG could carry on paying 3c/quarter for many quarters (years, in fact)
before treasury feels the pinch. At U$3.80/lb the current dividend policy is self-sustaining and
anything above that will mean the Top-Up Dividend is still a viable option over the long term.
At this point, we need to underscore that our assumptions are on the conservative side for
quarterly production and sales. Our
14mlbs/16mlbs/16mlbs production assumption ARG.to: Copper sales
fits ARG guidance for 2022, but as this chart
shows, the company beat the same level of
guidance for those three quarters by nearly 3m
lb Cu aggregate in the 2021 financial year.
That alone may allow ARG to improve
significantly on any of our model quarters, even
if copper prices drop lower for a temporary
period. And finally, the “pinch point” of
operating breakeven comes at around U$3.00/lb
copper for ARG, so even if the price spikes lower
the company would not be in any sort of financial problem. Obviously if we saw sub-$3.00/lb
copper prices for more than a few weeks there would come a point when the dividend policy
would need to be adjusted downward, but even that would take more than a couple of quarters
to come to pass. The bottom line is that the current 3c per quarter dividend regime is safe and
it would take prices going a lot lower and for an extended period for that to change.
However, the Top Up dividend is less likely to happen with copper at U$3.80/lb or below. The
company may decide that, come the end of 2022, it has excess liquidity and return capital at
that point as long as copper is at a reasonable price level, but it’s not difficult to imagine a
situation in which ARG decides to guarantee the 3c/quarter payment in 2023 by holding a little
more cash through to the new year.
It’s not easy to guess six months into the future today, but even under the current copper
prices ARG should have enough cash to do to pay 3c/quarter indefinitely and also pay a 5c Top
Up dividend art the end of this year. That would make 17c total for 2022 and while a step down
from the eye-popping number presented in that May corporate presentation, it’s still a very
good dividend for what is now a C$1.24 stock. Also, it’s only 8c lower than our own house
forecast (we were being conservative) so while more modest, it would still provide a very solid
28.11 7.31 29.41 9.51 11.51 31.51 9.61 298.61 92.61 41 61 61
25
22.5
20
17.5
15
12.5
10 7.5
5
2.5
0
02q1 02q2 02q3 02q4 12q1 12q2 12q3 12q4 22q1 tse22q2 tse22q3 tse22q4
source: company filings
rtq/uC
sblM
backbone to the equity price.
To visualize the changes, here’s an updated dividend yield table. The presentation is the same
as before, but the numbers and share prices used have come down and now start at C$1.00
with a dividend starting at 8c Canadian (i.e. under the unlikely circumstance that aERG cuts its
dividend to 2c/qtr):
Amerigo (ARG.to): Dividend Yield Percentage Spread Table
Share Dividend paid per year (Canadian Dollar Cents)
price CAD$ 8 10 12 14 17 20 25
1.00 8.00 10.00 12.00 14.00 17.00 20.00 25.00
1.10 7.27 9.09 10.91 12.73 15.45 18.18 22.73
1.20 6.67 8.33 10.00 11.67 14.17 16.67 20.83
1.30 6.15 7.69 9.23 10.77 13.08 15.38 19.23
1.40 5.71 7.14 8.57 10.00 12.14 14.29 17.86
1.50 5.33 6.67 8.00 9.33 11.33 13.33 16.67
1.60 5.00 6.25 7.50 8.75 10.63 12.50 15.63
1.80 4.44 5.56 6.67 7.78 9.44 11.11 13.89
2.00 4.00 5.00 6.00 7.00 8.50 10.00 12.50
2.20 3.64 4.55 5.45 6.36 7.73 9.09 11.36
2.40 3.33 4.17 5.00 5.83 7.08 8.33 10.42
2.60 3.08 3.85 4.62 5.38 6.54 7.69 9.62
source: ARG data, IKN estimates
I’ve shaded in a few boxes on the table for illustrative purposes, please feel free to consider
your own preferred combination of share price and projected dividend:
If the ARG share price drops to C$1.00 and they cut the dividend to 2c per quarter, the
stock still offers an excellent 8% dividend yield. That compares favourably to nearly all
mining sector dividend payers.
At the current price deck, even if we discount the potential of a Top Up dividend and
assume ARG merely delivers on its 3c/qtr payment, the yield runs at between 9% and
10%. Once again, an excellent yield for an equity and it’s not difficult to imagine the
market paying up for ARG stock (once the market and their nerves settle) and pay up
to C$1.60 and $1.80 for shares, implying a 6.7% or 7.5% yield.
However, we still think it likely that ARG pays both the regular and a year-end Top-Up
dividend and if so, the current share price is a true bargain. In my example, adding a
5c Top-Up to current expectations would drive the share price to between C$1.60 and
$1.870 and still give the same high yield implied by this weekend’s share price.
Discussion and conclusion: Before getting to the main point of this closing passage, a brief
note regarding the new tax regime as announced in Chile on Friday by President Boric. First,
the law projects have to make their way to statute and second, as a copper producer of around
30,000 tonnes per annum Amerigo and MVC fall under the low-end threshold set by the Boric
government’s new tax on copper producers (see Regional Politics, below). According to Chile’s
FinMin Mario Marcel, “small producers will remain unaffected” by the proposed tax increases
though there is a latent threat that the Windfall Tax proposal be extended to all profits from
copper sales in Chile. However and for the moment we assume that won’t happen to ARG,
though it will be worth keeping a close eye on the law project’s passage through Congress.
As for the real conclusion, the selling in Amerigo Resources (ARG.to) stock recently is overdone,
even with the copper price at these new low prices. Operationally, ARG keeps turning a profit
and while we may see copper go lower than this weekend’s U$3.60/lb for a while, it would take
a long period of consistently lower prices for its current dividend policy to come under threat.
There’s no doubt that the company will continue to pay its 3c/quarter dividend and that alone
provides the type of backbone that will prevent the equity price going much lower. Once the
market realizes this, we won’t even need a rebound in copper to see higher share prices for
ARG.to but on that score, once the rebound comes (and it will), ARG is bound to be in the first
16
echelon of recovery stocks due to its high quality, financial strength and proven profitability. If
you’re going to hold just one copper stock into the metals price downturn, however brief or
extended it turns out to be, make it this one. It will literally pay you dividends to do so.
Stocks to Follow
I’m not going to dwell too long on this week’s ‘Stocks to Follow overview. There were four
winners (ALDE.v, CKG.v, MIRL.cse, MENE.v), one unchanged stock (QCCU.v) and the other nine
open positions were all losers, including double figure percentage losses taken by Electra (ELBM
down 17.2% as the world fell out of love with companies building battery metal infrastructure),
Rio2 Ltd (RIO.v down 16.9% but that could reverse in seconds this coming week), Altiplano
(APN.v down 14.9%), Newcore (NCAU.v down 13.8%), Western Copper (WRN.to down 11.5%),
Palamina (PA.v down 11.5%) and Amerigo (ARG.to down 10.1%) and the beatings will continue
until morale improves.
With Discovery Silver (DSV.v) gone (and just in time, it closed at $1.15) we now have just 14
open positions, six fewer than our self-imposed maximum and of those, I only own shares in 11
of them. That will be 10 this time next week as ECU.v leaves the list. Only one is in the green.
company Ticker this week Avg Price Reco date Current PPS Gain/Loss% Notes
TOP PICKS
Minera Alamos MAI.v STR BUY C$0.21 13-Oct-19 C$0.49 133.3% $1.14 tgt, #1 idea on FY22 dev
Rio2 Ltd. RIO.v STR BUY C$0.83 22-Apr-18 C$0.2825 -66.0% $1.30 tgt May22 permit catalyst
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QC Copper&Gold QCCU.v SPEC BUY C$0.275 25-Apr-21 C$0.16 -41.8% Now drilling. Easy hold
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SPECULATIVE TRADES
Chesapeake Gold CKG.v SPEC BUY C$3.07 20-Feb-22 C$2.30 -25.1% Au leverage, small trade so far
Aldebaran Res. ALDE.v SPEC BUY C$0.72 16-May-21 C$0.70 -2.8% hole 221 may give boost
Palamina Corp PA.v SPEC BUY C$0.295 21-Nov-21 C$0.115 -61.0% Au expl in S.Peru
Altiplano Metals APN.v HOLD C$0.31 17-Sep-21 C$0.20 -35.5% Cheap entry, plan on track.
Minera IRL MIRL.cse hold C$0.195 22-Jul-12 C$0.09 -53.8% CEO change will move stock
THREE TRADE IDEAS FROM IKN670, March 2022 (originally five) NB: I DO NOT OWN
Newcore Gold NCAU.v WATCH C$0.51 20-Mar-22 C$0.28 -45.1% tracking IKN670 idea
Electra Battery ELBM.v WATCH C$5.31 20-Mar-22 C$3.60 -32.2% tracking IKN670 idea
Western Copper WRN.to SPEC BUY C$2.41 20-Mar-22 C$1.77 -26.6% tracking IKN670 idea
LONG-TERM NON-MINING HOLD
Mene Inc. MENE.v adding C$0.66 6-Dec-20 C$0.60 -9.1% LT bet, adding slowly
CLOSED TRADES IN 2022 date closed close price
Great Bear Res GBR.v Jan'22 C$15.83 26-Aug-20 C$28.58 80.5% Bought out by Kinross, print
Copper Mountain CMMC.to Jan'22 C$3.40 18-Jun-21 C$3.78 15.9% Sold 1/2 position in rebalance
Copper Mountain CMMC.to Feb'22 C$3.40 18-Jun-21 C$3.70 8.8% Sold rest on FY22 guidance
Trilogy Metals TMQ Mar'22 U$1.84 15-Sep-19 U$1.04 -41.3% killed by US permit reversal
McEwen Mining MUX Apr'22 U$0.89 2-Jan-22 U$0.82 -7.9% No 2022 turnaround, cut loss
Abrasilver Res. ABRA.v May'22 C$0.42 24-Apr-22 C$0.33 -21.4% sold to reduce Ag exposure
Strategic Metals SMD.v May'22 C$0.42 31-Jan-21 C$0.30 -28.6% trade flatlined 1.5 years
Discovery Silver DSV.v Jun'22 C$1.77 24-Oct-21 C$1.39 -21.5% Cutting Ag exp.& raising cash
2015 to 2021 annual closed positions in appendices below, 2009 to 2014 closed positions in editions IKN553 or earlier
Now for a few notes just one or two of the covered companies:
17
Element 29 (ECU.v): SELLING. A brief line to confirm and underscore the decision as laid
out in today’s main fundies section. I will look to sell my shares in ECU in the days to come,
with a view to raising capital and padding out treasury. At some point the bargain prices now
on show all around the junior market will become bargain prices with positive momentum, but
until that time I am going to try my very best to sit on my hands and keep powder dry.
Rio2 Ltd (RIO.v): The stock we most want news on remains under a news blackout. The day
of the big EIA meeting arrived but instead of resolution, all we got was a NR to inform that the
meeting had been suspended until this coming Tuesday, July 5th. FWIW, the rough time
schedule outlined in in the brief post I put on the blog that morning (5) still counts and without
knowing exactly when or at what time things will happen aside the start, we know that 1) the
meeting is scheduled to begin in the morning 2) it then takes depositions from interested
parties, including of course the company 3) the meeting then goes behind closed doors (with
minutes available later for transparency) and probably at some point in the afternoon, the vote
and decision happens. Also, after conferring with Rio2 last week I know that the company
inquired with IIROC on a voluntary trading halt but were told that it wouldn’t be practical (not
least because Rio2 shares trade on three exchanges) and while the Chile EIA decision may or
may not happen inside market hours, there won’t be a trading halt. Also, a reader left a
comment under the IKN blog post of last Friday so I checked on the dynamics of last Friday’s
meeting suspension. Here’s what I wrote in reply to that comment:
The meeting suspension was not at the company’s behest, in fact they would have no
power at all to call or suspend such a meeting. However, Rio2 is happy to have more
time to lay out its position because it believes the company argument to be strong.
They are going to take advantage of the brief suspension and the only quote I got out
of CEO Black was, “There’s a lot of work going on in the background.” And that’s fair
enough
Obviously, I tried to fishing for more information, but CEO Alex Black was rightly tight-lipped.
Finally and after due consideration, one thing must be said about this situation. Please
understand that I’m still expecting a positive result from the Tuesday meeting, but clearly we
have to consider the possibility of a negative verdict for this EIA permit, therefore:
Considering Rio2 has a strong case and has duly complied with all requests for
information on fauna throughout its EIA process
Considering the local SEA (Chile environmental office) was happy with all aspects of the
work done by Rio2
Considering the national SEA got involved with the process at a late stage
Considering the recommendation to reject only came once national SEA got involved
Considering the national SEA is headed by recent appointments from the new Left wing
government
If the eventual result is to deny Rio23 its EIA permit, it must be due to a national-level political
decision, rather than based on any technical aspect of the project. The decision would not be
about the pros and cons of Rio2 at Fenix, but based on ideology and that would not only be bad
for this company and stock price, but for all companies working in Chile today. Due to that, we
have a brief thought in ‘Market Watching’ on an actionable way of hedging the Rio2 verdict if it
goes against us. Once again, I underscore that I believe Rio2 will be awarded its EIA on
Tuesday and an extra conditional clause to “look after the chinchilla” in some way or form
added, would be acceptable. However as good Boy Scouts know it’s best to be prepared.
Newcore Gold (NCAU.v): NCAU bit its own bullet last week and announced (6) a bought deal
financing to raise gross proceeds of C$5.01 via the sale of 16.7m shares at 30c apiece. The
team cannot be very happy with the 30c ticket price, but the fact NCAU can raise $5m via a
bought deal with no warrant attached show this company has plenty of insto support. In
trading, the stock closed out the week at 28c but that won’t threaten the success of the
financing and is probably as cheap as this company is going to be (gold continues to hang
tough). As I’m not buying anything at the moment I must resist the temptation and will keep
the powder dry. But I repeat, this is darned cheap now.
18
The Copper Basket
After twenty-six weeks of 2022, The Copper Basket shows a loss of 45.32% level stakes:
company ticker price 1/1/22 Shares out Market Cap current pps gain/loss%
1 Copper Mtn CMMC.to 3.42 210.166 357.28 1.70 -50.3%
2 Western Copper WRN.to 2.00 151.451 268.07 1.77 -11.5%
3 Marimaca Cop MARI.to 3.77 88.118 264.35 3.00 -20.4%
4 Oroco Res OCO.v 2.04 203.4 152.55 0.75 -63.2%
5 Nevada Copper NCU.to 0.71 448.437 116.59 0.26 -63.4%
6 Meridian Min MNO.to 1.18 153.735 86.09 0.56 -52.5%
7 Regulus Res. REG.v 1.06 101.845 84.53 0.83 -21.7%
8 Aldebaran Res. ALDE.v 0.84 114.495 80.15 0.70 -16.7%
9 Hot Chili HCH.v 1.53 109.223 70.99 0.65 -57.5%
10 Kutcho Copper KC.v 0.88 103.94 31.18 0.300 -65.9%
11 Doré Copper DCMC.v 0.79 66.123 30.42 0.46 -41.8%
12 C3 Metals CCCM.v 0.16 645.379 29.04 0.045 -71.9%
13 Element 29 Res ECU.v 0.58 79.24 25.75 0.325 -44.0%
14 QC Copper QCCU.v 0.34 129.06 20.65 0.160 -52.9%
15 Coast Copper COCO.v 0.13 41.335 2.89 0.07 -46.2%
NB: All stocks in CAD$ Portfolio avg -45.32%
There’s a famous moment in Peruvian Presidential campaign politics when a supporter of Keiko
Fujimori went on TV to explain that the country
The Copper Basket 2022, weekly evolution
should vote for his candidate because Fujimori 5%
0%
family “we killed less people” than the Shining
-5%
Path terrorists who came before them. While -10%
-15%
somewhat scandalous to claim that the selling in
-20%
copper wasn’t as bad as in previous weeks and -25%
-30%
with some obvious exceptions, there are more
-35%
signals of selling exhaustion now showing. It’s no -40%
-45% fun to report week after week of chunky losses,
-50%
but there’s always a bottom to a sell-off.
We saw three week-over-week winners (REG.v,
ALDE.v, DCMC.v) and three unchanged stocks (MNO.to, QCCU.v, COCO.v), then of the nine
losers (CMMC.to, OCO.v, MARI.to, NCU.to, WRN.to, HCH.v, CCCM.v, KC.v, ECU.v) five were
double figure losers, namely Hot Chili (HCH.v down 18.8%), C3 Metals (CCCM.v down 18.2%),
Kutcho Copper (KC.v down 16.7%), Oroco Resources (OCO.v down 16.7%) and Western
Copper & Gold (WRN.to down 11.5%).
And here’s the reason for the loss:
19
ts1naJ ht9naJ ht61 dr32 ht03 ht6bef ht31 ht02 ht72 t6raM ht31 ht02 ht72 dr3rpA ht01 ht71 ht42 1yam ht8 ht51 dn22 ht92 ht5nuj ht21 ht91 ht62 dr3yluj
source: IKN calcs
Copper blew through another set of technical floors and by Friday (one day after the Canadian
markets closed, which means there’s likely more drop to come for our list above) and that’s not
good at all for a commentator with a bullish outlook on the metal (e.g. me) and here’s how
Bloomie reported on the continued selling (7):
Copper prices tumbled to a 17-month low, extending last quarter’s slump, as
deepening fears about a global economic slowdown drive a rout in industrial
commodities.
The red metal, widely considered a barometer of the world economy, fell as much as
3.7% to $7,955 a metric ton in London. Prices collapsed 20% in the three months
ended June 30, the worst quarter in a decade. Investors appear increasingly convinced
that growth is set to fade amid tightening monetary policy and Europe’s energy crisis.
Weaker growth is bad news for the metal that’s used in homes, cars and appliances as
construction and consumer demand typically slow with the economy.
“The selloff in metals seems to be accelerating heading into July,” Edward Meir, an
analyst at ED&F Man, wrote in a report.
The copper market will face a surplus of about 10% of total supply in the coming two
years based on a so-called hard landing scenario for the US and Europe, with the
recovery in China too anemic to offset demand declines elsewhere, according to TF
Futures Co.
Aluminum, nickel and zinc also extended losses, opening the third quarter on a gloomy
note after the LME’s index of six base metals racked up the steepest quarterly slump
since the 2008 financial crisis.
It’s a rapid reversal from conditions earlier this year, when a combination of booming
demand, logistic snarl-ups and production outages sent prices for metals including
copper and nickel spiking. Even as the storm clouds darken on the demand front,
many metals are still facing acute supply constraints.
There are some bright spots for metals, as Chinese demand gradually recovers from
Covid-19 lockdowns and the government boosts stimulus including more cash for
infrastructure spending. The nation’s property market slump eased in June, and
manufacturing activity also snapped back more strongly than expected. Even so, some
analysts are warning that the bounce could prove short-lived.
That excerpt is longer than usual because I wanted to get in the last section about supply
constraints and the evidence of a rebound in Chinese demand. Indeed, China’s manufacturer’s
PMI rose to 51.7 for June, up from 48.1 in May in an index where a score above 50 indicates
economic expansion, That’s the highest Caixin/Markit PMI reading for the last 13 months and
the first signal that President Xi’s widely announced stimulus program is beginning to show
fruits. He’s certain to want the Chinese economy back on rails by the time of he annual party
conference in November at which Xi is set to be ratified in his post.
We move on. It’s the end of the quarter and the end of the first half of 2022, that means it’s
time for the regular comparative snapshot of basket components to consider the winners and
the losers so far this year:
The 2022 Copper Basket components after 26 weeks
20
%5.11- %7.61-
%4.02- %7.12-
%8.14- %0.44- %2.64-
%3.05- %5.25- %9.25- %5.75- %2.36- %4.36-
%9.56-
%9.17-
40%
20%
0%
-20%
-40%
-60%
-80%
-100%
ot.NRW v.EDLA ot.IRAM v.GER v.CMCD v.UCE v.OCOC ot.CMMC v.ONM v.UCCQ v.HCH v.OCO ot.UCN v.CK v.MCCC
source: TSX, IKN calcs
Or more precisely, the losers and losers. As you can see, all 15 of our basket components are in
negative territory at the midway stage of the year, with the least worst performance from
Western Copper & Gold (perhaps because it has the word “gold” in the title) and only four
stocks keeping within touching distance of UNCH. That means there is pain everywhere we
look, with eleven stocks with losses of at least 40% that include the drop in Copper Mountain
(CMMC.to) from modestly positive to over 50% down in the last three months, the 63% lost by
retail fanstock Oroco (OCO.v) and the painful 53% drop in one of my own holdings, QC Copper
(QCCU.v). However, and with a few exceptions (NCU, CCCM) it’s difficult to point fingers and
lay blame at the management teams and officers behind these companies when they are all inj
the same boat.
It’s also the end of the month as well as the quarter, so we also catch up with the long-term
copper inventories data and while the second chart showing the ratio of holdings doesn’t say
much, the above chart shows how overall world copper stocks have remained largely
unchanged as an aggregate, though clearly at a very low level compared to any other time in
recent years.
Key Cu inventory aggregate, 2012 to date
1000000
900000
800000
700000
600000
500000
400000
300000
200000
100000
0
21
21.naJ ram yam luj pes von 31.naJ ram yam luj pes von 41.naj ram yam luj pes von 51.naj ram yam luj pes von 61.naj ram yam luj pes von 71.naj ram yam luj pes von 81
naj
ram yam luj pes von 91
naj
ram yam luj pes von 02
naj
ram yam luj pes von 12
naj
ram yam luj pes von 22
naj
ram yam
Mt Cu
Comex
Shanghai
LME
source: Cochilco
Copper inventories: percentage held per exchange
80
70
60
50
40
30
20
10
0
21.naJ ram yam luj pes von 31.naJ ram yam luj pes von 41.naj ram yam luj pes von 51.naj ram yam luj pes von 61.naj ram yam luj pes von 71.naj ram yam luj pes von 81
naj
ram yam luj pes von 91
naj
ram yam luj pes von 02
naj
ram yam luj pes von 12
naj
ram yam luj pes von 22
naj
ram yam
LME Shanghai Comex source: Cochilco
It’s not much of a monthly review this time, but that’s now done so now for the regular weekly
look at world copper inventories data:
We saw a clear uptick in the world copper stock aggregate, total stocks having risen by
19,311 metric tonnes (mt) to close at 260,956mt. It’s still low, though (I might have
mentioned that before).
The most interesting move was the 9,508mt added by the SHFE, which makes three up
weeks in a row of gains to close Friday at 66,661mt. The offshore stocks we wondered
about last week seem to be starting to arrive in larger numbers and we now watch to
see if the trend continues into a period in which SHFE stocks are normally drawn down
by end user demand.
The other big upmove came from LME, what includes 13,075mt landing in its Taiwan
warehouses alone. Inventories closed at 126,850mt and this uptick helped fuel the
bearish sentiment in the metal (that’s now undeniable). Not a quiet week at the LME.
However the Comex bucked the trend and saw a chunky drawdown of 4,022mt to close
at 67,445mt on the week, Normally I’d say “no biggie,” for Comex numbers, this time it
looks as though stocks based in the USA may have made it across the Pacific..
Here are the dedicated SHFE charts and we see that small uptick in stocks to the right of the
first chart:
Shanghai Futures Exchange Warehouse Stocks, 2014 to date
400000
350000
300000
250000
200000
150000
100000
50000
0
22
31'13ceD dr32 ht02 ht51 ht01 ht5tco ht03 ht52 dn22 ht71 ht21 ht6pes ts1von 5102ht72ced ts12 ht71 ht21 ht7guA dn2tcO ht4ceD ht92 ht62 ts12 ht61 ht01 7102
ht5von
ts13 ht52 dn22 ht42 ht91 ht41 ht9 9102
dr3bef
ts13 ht62 ts12 ht51 ht01 0202ht5naj 0202ts1ram ht62 ts12 ht61 ht11 0202ht6ced ts13 ht82 dr32 ht81 ht21 ht7 2202dn2naj ht72 ht42 ht91
Mt Cu
|
source: Cochilco
Here in this second chart, it’s easier to see the non-seasonal aspect of the modest upmove
compared to the more typical lines (e.g. 2021). This may be mixed up in the market confusion
caused by the Covid shutdown (or shutdowns) in China and there’s still very low stocks both
here and in the other systems, but the improvement in stocks certainly does play into the
economic slowdown narrative.
SHFE copper inventory levels, 2018 to 2022
400000
350000
300000
250000
200000
150000
100000
50000
0
1 2 3 4 5 6 7 8 9 01 11 21 31 41 51 61 71 81 91 02 12 22 32 42 52 62 72 82 92 03 13 23 33 43 53 63 73 83 93 04 14 24 34 44 54 64 74 84 94 05 15 25
MT Cu 2022
2021
2020
2019
2018
source: Cochilco data
Now for notes on a couple of basket stocks:
Nevada Copper (NCU.to): Midday Americas time on Friday NCU published an NR entitled
“Nevada Copper Provides Further Operational and Financial Update” (8) and in these cases,
only the financial part matters. The whole NR is worth a read but to get to the important part
we know that Pala Investments (i.e. the Vladimir Iorich empire) has recently made another
U$20m in capital available. On that we learned, “The Company has drawn US$11.5 million
under the previously disclosed US$20 million promissory note from Pala. Further draws under
the promissory note are subject to agreed use of proceeds and satisfactory arrangements being
reached with certain creditors and vendors (which have not yet been reached).” That’s a bad
start, which got worse with, “The Company has not made payments due to certain creditors
and vendors, including its mining contractor and working capital provider, and is in discussions
with them regarding timing of payments and services and supplies.” It’s one thing to stiff the
liquidity provider (again, Pala) because they must be used to it by now, but if you don’t pay
your mining contractor you have serious issues and that brings us to the whole point of the NR:
“Consequently, the Company is in default of its obligations under certain financing and
contractual arrangements.”
The nuances are played out with potential mitigating circumstances, but a company doesn’t
write those words in a NR for fun. The news was timed with Canada Day on Friday so the main
NCU.to ticker wasn’t trading, but the US OTC was and…
NEVDF took another sharp leg down in Friday afternoon trading. The same awaits NCU this
coming week.
Copper Mountain (CMMC.to): We’ve noted the high volatility (beta) offered to traders by
Copper Mountain (CMMC.to) in the copper space, which along with its good liquidity makes the
stock a popular trading vehicle. However, the last two weeks show that CMMC’s normal rough
waters have been tamed.
Another small signal of seller’s exhaustion to add to the pile.
Oroco Resources (OCO.v): This time last week I was musing on whether OCO was showing
signals of final capitulation, writing that
“…Thursday’s action was copybook trading
for a stock in which a whole bunch of small
owners throw in the towel at the same time.”
This ten-day chart shows you how much I
know:
At some point OCO will bottom out, but last
week blew a large hole in my blather about
near-term trading patterns in copper juniors.
The Producer Basket
After twenty-six weeks of 2022, the Producer Basket shows a loss of 9.81% to level stakes:
23
company ticker price 1/1/22 Shares out MktCap(U$Bn) current pps gain/loss%
1 Newmont NEM 62.02 797.44 48.78 61.17 -1.4%
2 Barrick GOLD 19.00 1779 32.13 18.06 -4.9%
3 Franco-Nevada FNV 138.29 191.192 25.73 134.59 -2.7%
4 Agnico Eagle AEM 53.14 454.904 21.57 47.41 -10.8%
5 Wheaton PM WPM 42.93 450.3 16.69 37.07 -13.7%
6 Gold Fields GFI 10.99 887.72 8.32 9.37 -14.7%
7 Kinross Gold KGC 5.81 1296.5 4.80 3.70 -36.3%
8 B2Gold BTG 3.93 1055.6 3.69 3.50 -10.9%
9 Alamos Gold AGI 7.69 392.503 2.94 7.50 -2.5%
10 Sandstorm SAND 6.20 191.4 1.18 6.19 -0.2%
All prices and stock quotes in U$ Port. avg -9.81%
On the week, GDX dropped 5.1% and GDXJ dropped 7.1%, which means the 2.27% total loss
from our list was substantially better than the median and means that in one fell swoop, we’ve
made up all the deficit against the benchmark and for the first time this year our list has its
nose in front (by 0.22%, but I’ll take it). However, it’s definitely “less worse” instead of good as
there was only one winner (AGI) and nine losers (the others). The biggest drop came from
Kinross (KGC down 7.5%, see below).
It’s also the end of the quarter and half year for this segment of The IKN Weekly and as with
The Copper Basket above, here’s the comparative snapshot performance of our ten charges for
2022 and wow, what a reversal of fortune:
The 2022 Producer Basket components after 26 weeks
24
%9.63
%2.0-
%5.33
%4.1-
%7.21
%5.2-
%4.81
%7.2-
%3.13
%9.4-
%1.91
%8.01-
%4.02
%9.01-
%8.31
%7.31-
%7.64
%7.41-
%6.3
%3.63-
The 2022 Producer Basket: Weekly performance and
35% comparative to GDX control
30%
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
50%
40% 30%
20%
10%
0%
-10%
-20%
-30%
-40%
SAND NEM AGI FNV GOLD AEM BTG WPM GFI KGC
source: NYSE, IKN calcs
At the end of 1q22, all ten stocks were in the green
At the end of 2q22, all ten are in the red. Amazing.
Least worst is the 0.2% lost over the last six months buy Sandstorm Gold (SAND), which
happens to be one single penny and fuelled by its disposals into new satellite companies that
offloaded risk at the same time (better born lucky than rich, Nolan). However, my idea of the
ts1naJ ht9naJ ht61 dr32 ht03 ht6bef ht31 ht02 ht72 t6ram ht31 ht02 ht72 dr3rpa ht01 ht71 ht42 1yam ht8 ht51 dn22 ht92 ht5nuj ht21 ht91 ht62 dr3luj
The 2022 Producer Basket: Percentage difference
between GDX benchmark & basket (negative = IKN ahead) 5.0%
4.5%
ikn 4.0%
3.5%
gdx control 3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
-0.5%
-1.0%
source: NYSE, IKN Calcs
ts1naJ ht9naJ ht61 dr32 ht03 ht6bef ht31 ht02 ht72 t6ram ht31 ht02 ht72 dr3rpa ht01 ht71 ht42 1yam ht8 ht51 dn22 ht92 ht5nuj ht21 ht91 ht62 dr3luj
source: IKN calcs, NYSE data
best performing PM stock has to be Newmont (NEM), down just 1.4% while all around lesser
sized companies wilt and die. NEM has had its issues with Covid in Western Australia too and
we wait to see whether it will improve production from Boddington in Q2 (that NR should come
soon) but overall, a sector winning performance. Alamos has galloped up to third spot on last
week’s strong positive news out of Island Gold (see below) and then come FNV and GOLD, both
also hanging in well.
As for the Rogue’s Gallery, Kinross (KGC) started Q2 in tenth position and finished in tenth
position, a rotten display from a company that’s been hobbled by its Great Bear purchase from
the moment it happened, then got whacked by its exposure to Russia (Kupol) and while on an
even financial keel after a timely refinancing, cannot get out of its own way. But the worst
performer of Q2 was Gold Fields (GFI), with a massive slip from top spot after Q1 to
penultimate today and all due to a self-inflicted wound. We’ve documented its proposed merger
with Yamana over the last few weeks and some of the pushback it’s been getting from the
market and last week, that got even worse. GFI now has Van Eck on its back who are calling
the deal as too expensive.
Kinross Gold (KGC): We talked up the conference run by Kinross on Wednesday in last
weekend’s edition, it was mostly about the progress made by Dixie and, as seen in this five-day
chart, KGC failed to impress the market. Those interested enough can check out the recording
on the Special K website, or perhaps just the PDF of the presentation slides (here (9)) is
enough to get the gist. In fact, there was nothing particularly negative or unexpected about the
contents and there was no real overt for the selling spurt, K said that its drilling program was
progressing in good order we’d get a first pass resource estimate by the end of this year
(mostly inferred with some indicated, again hardly a surprise), with a slated construction
decision by 2027 and first pour in 2029. In a world where instant gratification dominates, the
thought of waiting a full five years for anything aside geology and planning may have been the
reason for the selling but hey, WDIK?
Also and to save a segment below, K largely confirmed what we know about Manh Choh and its
70/30 JV with Contango Ore (CTGO), as noted in last weekend’s ‘Market Watching’. Here are a
couple of excerpts from that part of the presentation…
…with the resource as previously disclosed and…
…the way Manh Choh fits into Fort Knox plans in the
main period. Again nothing, but when Kinross speaks
more people listen and the CTGO story and trade
potential probably reached new eyes and ears last
week. Here’s the 10-day chart comparing CTGO (up
10%) against KGC, GDX and GDXJ (all down) and
while it’s totally unfair to compare a “By
25
appointment” thinly-traded junior against those lines (please see the volume scale), there’s no
denying that RvN’s company had a better week than its JV partner did.
Alamos Gold (AGI): One look at the ten-day comparative chart of AGI against GDX (right)
shows when the stock price bucked the trend. Wednesday morning was a reaction to the
Tuesday June 28th post-close NR (10) with a long title that covered a lot of the reason to like
this news:
Alamos Gold Announces Phase 3+
Expansion of Island Gold to 2,400 tpd,
Driving a Larger, More Profitable Operation
with Average Annual Gold Production of
287k oz, Industry Low All-in Sustaining
Costs of $576/oz, and a 31% Increase in
Net Present Value (“NPV”) to $2.0 Billion at
$1,850/oz Gold
The other part of the equation is (of course, it’s
2022) the capex outlay and AGI also won applause
for its P3+ plans. What with being located next to
the highly troubled Magino (AR.to), Island Gold would come under careful scrutiny for its capex
and sustaining capex assumptions but an operating mine that wants to expand brings a lot of
advantages. AGI was at pains to explain that the U$756m net total would be covered
organically, with zero outlay for 2022 while the first stage of the expansion kicks off. This visual
shows how the previous estimate for the
smaller “P3” expansion plan has seen its capex
bump up, but with significant production and
opex improvements to the original plan and at
an acceptable level of investment (and with
U$103m of the total already sunk in.
AGI hit the right chords, by delivering a mine
expansion project that improves production at a
price the market can stomach, all funded by
one of the strongest balance sheets among the
Tier 2 producers. The result was an 11% delta
over three difficult market days, a clear win.
The TinyCaps List
After twenty-six weeks of 2022, the TinyCaps show a loss of 26.67% to level stakes:
company ticker price 1/1/22 Shares out Mkt Cap current pps gain/loss%
Aurelius Min AUL.v 0.24 45.836 4.81 0.105 -56.3%
Golden Pursuit GDP.v 0.13 34.638 6.23 0.18 38.5%
Infield Min INFD.v 0.06 48.445 1.94 0.04 -33.3%
Kingfisher Met KFR.v 0.30 103.007 17.51 0.17 -43.3%
Latin Metals LMS.v 0.12 57.296 5.44 0.095 -20.8%
Manitou Gold MTU.v 0.06 344.57 10.34 0.03 -50.0%
Melkior Res MKR.v 0.295 24.011 5.88 0.245 -16.9%
Precipitate Gold PRG.v 0.105 129.322 9.05 0.07 -33.3%
Signature Res SGU.v 0.07 238.4 10.73 0.045 -35.7%
Winshear Gold WINS.v 0.08 61.585 4.31 0.07 -12.5%
Prices in CAD$, data from TSXV basket avg -26.67%
This section attempts to track the tinycap mining sub-sector of the market, our ten companies
26
chosen under the following criteria to put together a list representing the state of play in the
sub-sector of tinycap exploration company stocks. At least, that’s the plan.
Market capitalization of under $20m. They have to be tiny. In two cases I’ve stretched the window a
little and allowed sub-U$20m market capper in that are just over the C$20m level, but the spirit is unaltered.
A “non broken” stock price and project story. There are literally hundreds of tinycap juniors of the right
size, but it was a particularly depressing exercise to trawl through the whole of the TSXV and find companies
that are small enough, but with life in them. The vast majority of sub-$20m stocks are broken stocks, either
traded to death on the exchange or with projects that are a bust or with entrenched management more
interested in their monthly paycheck than anything else.
Likelihood of meaningful newsflow in 2020. This connects to the company’s “unbroken” status, as we
want news and potential catalysts from companies with projects that can work.
Decent management if possible. When you are down among the little guys it doesn’t pay to be too
choosy, but still I preferred companies that have teams or people with good peer reputations.
Impressively, the TinyCaps list saw its average improve last week thanks to three week-over-
week winners (GDP.v, MTU.v, MKR.v) and three
unchanged stocks (INFD.v, SGU.v, WINS.v) 15% TinyCaps, 2022 weekly tracker
10%
outweighed the effect of four losers (AUL.v,
5%
KFR.v, LMS.v, PRG.v). The overall average
0%
improvement was mostly due to the -5%
improvement in Golden Pursuit (GDP.v up -10%
100.0%) that finally offered news to the market -15%
-20%
as well.
-25%
-30%
Golden Pursuit (GDP.v): If a company goes -35%
up 100% in a week, it gets mentioned. On
Tuesday evening GDP filed a 43-101 technical
report to SEDAR on its South Gordon Lake
project, NWT Canada (90kn NNE of Yellowknife), with an accompanying NR you can find here
(11) I’ll be honest and say I haven’t read all 150-odd pages of the 43-101 but I’ve taken in the
overview, conclusion and 43-101 compiler recommendations that include early-stage
exploration evidence that backs up the company thesis of South Gordon Lake. Here’s a
segment:
The exploration program through 2021 allowed for the relocation of many of the quartz
veins and breccia zones to be revisited and resampled along with new zones being
recognized. Sampling has shown that historical assays have been confirmed with a lot
of 2-4 g/t, up to 30-40 g/t, Au samples with one value at Lynk Zone returning an assay
of 6,190 g/t Au.
According to the 43-101, the next stages of development should include airborne mag survey
with follow-up groundwork with a view to
generating drill targets for a planned drill
program as from January 2023. The next stage is
budgeted at just under C$5m and that’s when
the problems start, as GDP had less than $100k
in its treasury three months ago. As for last
week’s big price move, there were a few nibbles
in the days around the announcement but
nothing much until the 40k+ trade came in late
on Thursday that bolted the stock price higher,
but even that is small beer volume and it will
take more than a few small trades to make a
move like this stick, particularly when an
exploreco wants to raise $5m or so in a tough
market.
NB: Please be clear that The Tiny Dogs is NOT a list of recommended tinycap stocks. It is a list of companies with
market caps of under $20m offering a reasonable representation of the wider tinycaps market. It’s possible in the future
I may buy shares in one or several of these stocks, at the moment both my opinion and wallet are strictly neutral.
27
dn2naJ ht9
naJ
ht61naJ dr32 ht03 ht6bef ht31 ht02 ht72 ht6ram ht31 ht02 ht72 dr3rpa ht01 ht71 ht42 ts1yam ht8 ht51 dn22 ht92 ht5nuj ht21 ht91 ht62 dr3yluj
source: IKN calcs, TSX data
Regional politics
Chile’s new tax laws and mining
Away from the Rio2 EIA issue, Friday was a big day in Chile for mining as new President Gabriel
Boric unveiled his new tax law regime and to translate the quote from his speech which
garnered the most headlines, “The objective of this tax reform is the advance with more equity,
better equality and social cohesion so that we are all a little bit more protected.” Unsurprisingly
for a left wing government, the tax plans lean more heavily on the wealthiest sectors of Chilean
society and look to raise State incomes incrementally, to reach 4.1% of country GDP by 2025.
This isn’t the place for a blow-by-blow account of all proposed measures, but between now and
end 2023 law projects will be sent to Chile’s Congress for approval that reduce corporation tax
by 2% to 2%, but add capital transfer and capital gains taxes of 22% as well as “other
measures” that, according to Boric’s FinMin Mario Marcel, will leave 97% of Chileans untouched
by new tax hikes but raise taxes on the richest 3% (however, part of the plan is to better
formalize the economy, which may mean more lower-earning people paying tax).
When it comes to mining, the same philosophy seems to have been used because aside from
the aforementioned new capital taxes (that apply to companies as well as HNW individuals), the
government is aiming at the megabucks being made by the larger and largest mining
operations, leaving the small entity untouched (or so they say). The focus is on “the big copper
miners” with two proposed new levies:
1) A new “ad valorem tax” (state royalty) of between 1% and 2% for producers of
between 50,000mt and 200,000mt copper per year, and one of between 1% and 4%
for producers of 200,000mt and above, with the sliding scales based on the price of
copper.
2) A tax on profits from copper sales of between 2% and 32% on copper prices between
U$2.00/lb and U$5.00, again on a sliding scale. In other words a Windfall Tax on profits
from excessively high copper prices
The FinMin also assured small copper producers that they would not be included in this new
taxation plan, which is good news for Amerigo Resources (ARG.to) and others though as noted
above, there’s no taking that for granted and it will be well worth checking the small print once
the law project gets its committee hearings in Congress. It’s worth remembering that even
considering the official alliances, Boric’s government does not have a majority in either the
upper or lower house of Chile’s Congress. That means dealing with non-aligned or even
opposition members in order that any law reform might prosper.
Peace breaks out in Ecuador (for now)
“Meeting jaw to jaw is better than war.”
Winston Churchill, 1954
“Jaw-jaw is better than war-war.”
Harold Macmillan, 1958
After 18 days of protests, strikes, roadblocks and sometimes violent clashes that left between
five and nine people dead (pick your media of choice), there was good news from Ecuador on
Thursday as peace finally broke out between the government of Guillermo Lasso and the
protesters led by indigenous umbrella group CONAIE, as well as two other groups representing
indigenous and minority groups in Ecuador, FEINE and FENOCIN (the latter’s leader wasn’t
happy with the deal and only agreed to sign on after an hour of intense talks between the
groups). The brokered deal was mediated by a respected member of the Catholic Church in
Ecuador and most of the headlines were taken up by the deal to lower the fuel prices inland
and some of them were about the debt relief deals for individuals, as well as the opening of
new cheap lines of credit with banks. However and for us, one of the points of agreement was
also the reform of Executive Decree 151, otherwise known as the “Mining Plan” that was set out
to make investment and permitting much easier for companies looking to Ecuador.
Here’s how CONAIE presented the deal to its followers (for the record, its leadership was feted
28
with “victory” when returning from the negotiating table) (12), headlined by the main
concession from the government to drop the fuel price by 15c per gallon:
We’re not going into all the agreed points here, instead we now focus on the deal around the
contentious issue of mining development, which in essence is loved by the national government
(for the dollars) and hated by indigenous locals who host exploration or development projects
(for the environment). The deal is to reform and not ditch Decree 151, with the agreement that
there will be no mining in:
Protected area and ancestral territories
Declared intangible zones
Archaeological Zones
Areas of hydraulic protection
The free and informed prior consultancy will be guaranteed for communes,
communities, peoples and indigenous nationalities, by the standards mandated by the
International Court of Human Rights and The Constitutional Court of Ecuador.
Though that might sound like a long list of concessions from the pro-mining President Lasso, in
fact there’s no real change from the current statute and from the government’s point of view,
it’s about applying the current law correctly. Here’s how two local mining figures explained the
deal on Decree 151 (13):
Despite the changes outlined in the peace agreement, observers believe that there will
be limited impacts on existing mining activity in the country and projects to build new
mines that are expected to take place in the coming years.
“The commitments are as expected and some are formal. It's not a step backwards,”
former deputy minister of mines Fernando Benalcázar said during a virtual panel
organized by the mining chamber of Bolívar province.
According to Benalcázar, the agreement reached is an opportunity for improvements in
the sector, especially with regard to the issue of prior consultation and protection of
territories.
And…
29
One of the most controversial issues in that respect is the definition and delimitation of
the so-called ancestral territories, an aspect that could take months or even years to
complete, according to experts.
Daniel Alegría, vice president of the provincial mining chamber, said that although
indigenous groups may try to halt mining activity in certain cases and in certain areas,
arguing that it is taking place on ancestral lands, there would have to be technical
studies demonstrating those claims.
What happens now is a legal scramble to insist that location in which any particular mining
project is located is not in any of the denominated zones or areas. Some of the zones and
regions are relatively straightforward to define, such as the declared intangible zones and
archaeological zones. The fun will start in regions that one side will claim as “ancestral
territories” (for one example) and the other will state are not and according to the deal struck
last week, ancestral territories are defined as those that conform with Article 407 of the
Constitution (14). And that’s where the fun begins, because indigenous cultures around
Ecuador and particularly those in the higher Andean zones in the South-East of the country
(e.g. the Shuar-Arutam) where mines and projects such as Mirador, Fruta del Norte, Warintza
etc are located, claim large swathes of territory as ancestral for millennia, while on the official
books it’s not recognized in the same way. Article 407 of the Constitution clearly defines
“territorios ancestrales” as officially protected areas (i.e. nature reserves), urban zones and
intangible zones. Indeed and for what it’s worth, before Guillermo Lasso or even his
predecessor Lenin Moreno were President, President Rafael Correa (who ironically has been
trying his hardest to depose Lasso throughout this protest) justified the development of the
Mirador copper project (ESCA) located in the region of Ecuador where the Shuar people are
located by stating that it was not located on ancestral territories, because the locals had no
papers to prove as much (despite them living there for thousands of years…there seemed no
point for the Shuar to get it in writing until then).
And this is where we are today, with the mining companies working zones that are not officially
covered under Article 407 considering themselves now free and clear, but locals and indigenous
opposition still fiercely opposed to their presence in areas they consider ancestral, no matter
what a government set up 200 years ago might think. There is the bone of contention
Ecuador’s mining industry will now deal with, basically the same one that existed before this 18
days of unrest and for from here, we now have a ninety day period in which the two sides work
together to ensure the application of the agreements. That includes the above agreement on
mining and the reform of Decree 151, so it remains to be seen how far this deal will go and
whether it gets ratified. However, what is clear at this stage is that the mining companies
operating in Ecuador will feel their presence as justified and under a formal agreement and they
are bound to promote their cause on the back of last week’s deal. They believe they now have
a green light to continue on their path of development and indeed, both the deal and the
national government will agree. However, the bad blood has not gone away and it’s worth
remembering that President Lasso’s government is still hugely unpopular with rank and file
Ecuadorians. This remains a high risk jurisdiction for mining investment and your author will
continue to avoid Ecuador like the veritable plague.
Colombia accommodates Gustavo Petro
In Spanish, accommodation is not necessarily a place in which to live. When one
“accommodates” something or somebody, it can also refer to getting used to them and, by
implication, trying to make the best of new circumstances. Such is the Presidential transition
period now in Colombia as, with standard exceptions at the political extremes, the near-50% of
a country that didn’t vote for its next President makes the best of the new bad lot and the
50%-and-a-bit that voted for him try to incorporate Petro’s visions of new peacemaker and his
desire for consensus politics. This new Kumbayah won’t last, it never does, but for the moment
we have a new Foreign Minister plucked from the Right Wing of Colombia’s politics, a respected
technocrat FinMin from the political centre and smiles’n’handshakes meetings between Petro
and run-off loser Rodolfo Hernández as well as a high-publicity meeting between Petro and his
arch-enemy from the right, ex-President Álvaro Uribe.
30
The same atmosphere has moved through Colombia’s economic and financial world, with
financial entities walking back their doomsday messaging over Petro during the election by
necessity and the markets, now adjusted for the new risk, carrying on in the way markets do.
The only outward sign of trouble brewing is the Colombian Peso (COP) which hit our target of
4,200 to the USD late week when the Colombia Central Bank raised its base rate 150bps to
7.5% (as expected, the market suspected a larger hike was possible).
And so it is with mining; as well as receiving a few mails etc of the “It doesn’t seem so bad in
Colombia” from mining market participants, I’ve kept and ear to the ground and paid attention
to business and sector commentaries and op-eds on Colombia’s mining sector in both English
and Spanish (though in Spanish “mining” often gets Colombia’s hydrocarbons industry lumped
in as they are often combined in national stats), with most editorials also tentatively positive.
But do not be fooled, as the upcoming President Gustavo Petro will undoubtedly be poison for
the Colombian mining industry and what’s more, particularly problematic for the exploration
stage and development projects. I am the first to agree that to reach some sort of consensus
Petro has moved to the centre by necessity, this happened during the campaign and now his
strategy continues. But be clear, his opposition to medium and large scale mining projects (i.e.
mining not done by small-scale collectives) is long-standing and ingrained in his policy book.
Throughout the campaign, one of the hard left positions he maintained with vigour was his
opposition to open-pit mining projects, not least because that policy is a net vote winner in the
country and his victory/acceptance speech made a great deal of his environmental protection
stance and his green vision for the future of the country. Mining is simply not part of Colombia’s
future under a Petro government and it is in your best interest to understand that before his
inauguration, because at some point during his honeymoon period the hammer against mining
in Colombia will fall. So let others be lulled into their false sense of security around Colombia’s
mining sector under Petro, let them believe what they want to believe. And avoid Colombia or,
if you a large enough entity and so inclined, short its exposure.
Peru: President Castillo’s institutional position weakens further
It may be difficult to believe, but the weakest President in LatAm just got weaker. The title to
last week’s note on Peru ended with “political storm next” and that storm brewed a little further
last week when the nefarious Vladimir Cerrón, President of the Perú Libre party on whose back
Pedro Castillo went from candidate to President (in, we repeat for the Nth time, the most
bizarre and unlikeliest circumstances imaginable), called for and got the resignation of President
Castillo from the Perú Libre party. The outward reason for Cerrón to demand the President to
leave his party was that he didn’t represent the policies on which he ran now that he was
President (i.e. the party’s hard left proto-Communist manifesto). However, the real reason goes
something like this:
1) In the latest round of ministerial cabinet changes, Castillo replaced Perú Libre members
for other people (who are actually competent, e.g. the new Mining Minister who knows
the sector and is doing ok, replaced a Peru Libre idiot)
2) The Peru Libre ministers gave cushy jobs to no end of Peru Libre party members, they
are now being sacked en masse.
3) Cerrón is unhappy about that (his party no longer gets big cuts of those juicy salaries,
or power to disrupt the normal running of government
4) Like the rest of us, Cerrón also knows that Pedro Castillo now faces criminal
investigation into corruption cases and will likely face Congressional votes of No
Confidence and/or impeachment motions.
5) Therefore, by throwing him out of the Perú Libre party, Cerrón gets more control over
the fate of Castillo in any Congress vote that includes members of the Perú Libre party.
They are no longer guaranteed to vote in favour of a President who has “betrayed the
party”.
6) With this, Cerrón is trying to re-gain control over President Castillo via the latent threat
of his Congressional party power.
Or in other words, Castillo’s institutional position weakened even further last week and he is
31
now even more isolated than before, with no friends left on either side of the political
argument. Rather than dead duck or lame duck, he’s now a sitting duck of a President and wide
open to the eventual move or moves that Congress, his oppositional enemies or even people he
previously trusted have in store for him. Their preferred plan is to rid the country of Castillo
without having to dissolve Congress (and their own cushy jobs) and that is taking more time to
engineer, but the sharks are now circling for the kill and waiting their moment, presumably
when the new Congress is convened in August with its new head.
As for us on the outside we can be practical and not political. While difficult to predict the
timing, the inevitable will happen eventually and when it does ignore the likely ballyhoo about
whether he fell, was pushed and whether the way President Castillo was removed from office
was legal, constitutional or a Coup D’Etat (soft, bloodless, it’s highly unlikely to be a violent
change as he simply does not have the support to defend his position). Instead, Peru’s mining
sector will be an obvious buy because 1) whoever becomes next President will do a better job
and 2) will be more business and miner-friendly than any of the cabinets seen under Castillo,
from the original lefty-leaning positions of a year ago to the current crop of mediocrity*.
Whoever replaces Castillo will be a friend of the 20 families who really run Peru and that means
its mining companies will return to favour.
*Two notable exceptions are the new FinMin, a quiet technocrat who does not play politics, and the new Mining
Minister who has done a good job in cleaning house. Is she’s given a few more months she may even start to make a
positive difference.
Argentina: More pro-mining politics and a new round of instability
For the first time (in my memory at least), the mining sector got its day in front of Argentina’s
Lower House of Congress last week in an important presentation headed by the national
Secretary of Mining (i.e. the minister) Fernanda Avila. Her cross-committee presentation was
well attended and (again for the first time ever) mining got report coverage in Argentina’s
serious political press, for example the Parlamentario Dot Com website (The Parliamentarian),
the place for serious politics in the country (15) in a report entitled “By 2035, Argentina Could
Multiply Its Mining Exports Fourfold”. We are a long way from the days when Cristina (CFK)
pushed mining at a nacional level only to be blocked by a minority of provinces and the Macri
opposition, and the days when Macri promoted the industry at a national level only to be
blocked by the CFK opposition…and the same minority of provinces. The Alberto Fernández
government has finally worked out the way forward and ultimately it wasn’t that difficult: They
now ignore the rebel provinces such as Chubut and promote the pro-mining provinces such as
San Juan separately. They have opened up the industry to close examination and show how
“formal, large scale mining” is better controlled, and now promote copper and lithium as a
“green new deal” to stymie the ecology-based opponents.
And of course, they are also dangling large Dollar amounts in front of polticians (that never fails
in Argentina). The result was a packed room for Ms. Avila, who went over the plan for those
members of Congress new to the industry (or newly converted).
She started with a segment called “Some myths that surround mining” in order to allay doubts
about the way mining happens and its eventual cost/benefit footprint.
There was then an explanation of what Argentina “Servicio Geológico Minero” (body does (no
translation required) and the advances in territorial planning that have occurred recently.
Next came segments on the potential and development of the Lithium and copper sectors,
including the amount of investment they have already attracted to the country
Then an explanation for members of Congress of the newly created MEMAC and SIACAM
bodies and for more on those, see IKN661 dated January 23rd entitled “Argentina announces a
major new policy for renewable energy” (yes, we’ve been telegraphing the improvement in
Argentina’s mining sector all year) and in particular the note in IKN667 dated February 27th
entitled “Argentina’s welcome initiative for country-level mining ESG”. That began in this way:
Last Tuesday February 22nd Argentina unveiled another piece in its plan to attract
32
large-scale investment in its mining industry. Superminister Matias Kulfas is the brains
behind two new government bodies, namely Memac and Siacam, both designed to
bring transparency to the mining industry and promote public opinion for the industry.
Memac: This stands for “Mesa Nacional sobre Minería Abierta a la
Comunidad” and let’s translated that as “Open Round Table for Mining in the
Community”. Memac is set up to allow open dialogue on the mining sector, including
debates between stakeholders, workshops given by mining experts and technical
reports on mining activity, also at a micro and macro level.
Siacam stands for “Sistema de Información Abierta a la Comunidad sobre la
Actividad Minera en la Argentina”, a nice mouthful that reasonably translates as
“System for Open Information in the Community on Mining Activity in Argentina. The
idea for Siacam is to create the most accountable system for an industrial sector in the
country, which offers details on revenues, imports, exports, environmental data,
workplace accidents etc, so that the general public can verify the cost/benefit of the
mining industry at a macro and even at the company level.
IKN685 back and on Wednesday, Avila also outlined the State burden regime on mining and
the various ways in which mining generates provincial and national incomes (royalties, taxes,
sales tax, export taxes etc) all to combat that persistent myth of how “the gringos come and
steal all the money”, so typical among mining opponents and their unwitting political allies.
Added to this was the benefit of FDI in bringing hard dollars into the country at a time that
Argentina is in sore need of foreign dollar reserves.
Finally, she walked through the type of environmental protection afforded to the industry,
including the laws preventing mining in specific environments and locations, again to
demonstrate is seriousness and viability as an economic activity.
By all accounts the presentation went down well and though it may seem strange for an
audience in countries with established mining cultures and a good understanding of the pros
and cons of mining, it was a first for Argentina’s Congress and the type of presentation that
breaks down barriers to the growth of mining. So well done, Ms. Avila. In a South America
becoming increasingly hostile toward mining for ideological or environmental reasons, Argentina
currently stands out as bucking the trend and a place where the sector is increasingly
welcomed.
Guzmán goes: For the moment that is, because in Argentina there’s always been a black cloud
on the horizon and a new one appeared this very weekend. The resignation of (now ex) FinMin
Martín Guzmán yesterday Saturday means President Alberto Fernández took a hit to the flank
and weakens a President who is now looking beyond the travails of 2022 to the October 2023
Presidential and General elections (he’s on record as stating he wants to seek re-election).
Guzmán was his closest ally and after the recently departed Matias Kulfas, the cabinet member
he most closely defended from the slings and arrows of daily politics in the country. Last week
was a difficult one for the FinMin as the country had a big sovereign bonds expiry moment to
get over and as a result, there were speculative runs on the Argentine Peso and heavy criticism
aimed toward the Ministry of Finance from opposition parties also from the left wing of his own
PJ Party (by loyalists to Veep CFK). When CFK herself joined in the fray on Saturday, accusing
Guzman of not being able to control the rampant inflation running through the economy at the
moment, enough was enough and he threw in the towel.
This isn’t a direct issue for the mining sector, in fact it may even help in the near-term as the
country has another big sovereign bonds rollover on the horizon in September and needs to
comply with the rules set by its recent deal with the IMF. The need for dollars to pay its bills at
the end of Q3 is around double the big hump navigated last week, so the hard dollars that
mining FDI offers will look even more attractive in three months’ time (for a President that
needs to get out of 2022 intact in order to put his re-election campaign into effect). However,
the big problem for mining may come from the increasingly vociferous CFK left wing of the
Peronist (PJ) party, as they are now baying for blood and money from “the monopolies” (i.e.
the large private industries in the country, often connected with the agro sectors). The
33
resignation of Guzman this weekend could mark an infection point in the country’s moderately
centre-left trajectory under Fernández and that’s not so great for an industry such as mining
that needs long-term stability to progress. Argentina has always been and will always be the
Basket Case of South America, our task is to take advantage of the moments in which it acts
normal and not be around when it goes against crazy. The good news is that 2022 sees it
welcome the world of mining, we shall see if that continues in 2023 and beyond.
Market Watching
Chile: The flipside to miner-friendly also offers trades
It would be remiss of your author not to point out the potential flipside trade to next week’s key
permitting meeting for Rio2 Ltd (RIO.v). As noted in last week’s edition and expanded upon
slightly this weekend in Stocks to Follow notes, while we should expect a positive result out of
the Rio2 (RIO.v) EIA meeting scheduled for this Tuesday, we are now open to the foibles of
LatAm political decisions and due to that, experience tells this desk that anything could happen.
Clearly, a negative result will be bad for RIO.v, but due to the way this issue has come out of
left field (pardon that pun again) it’s reasonable to conclude that if the permit is denied, it won’t
be due to any specific technical reason. Instead, we’d be up against and national environmental
bureau with the a priori intention to deny the permit that then went about trying to find an
excuse to do its will. And that would not only be bad news for Rio2, but for any mining
company with significant exposure to Chile because if the new government denies this permit,
when the call is added to the decision made against Anglo’s Los Bronces the writing will then be
on the wall: They are going to deny any permit put before it and due to that, the opportunity
arises to make money from shorting other stocks that need permits from Chile in order to
prosper and after due consideration, here are a couple of ideas:
We can of course find potential shorts in many places, but a real world short prospect also
needs to be a stock that’s real world shortable.
That rules out tinycap and penny priced juniors
such as Mirasol, Atex, Hot Chili or World Copper
(no matter how bad or good those companies
may be….I quite like Atex in fact). They don’t
work as a reasonable short prospect needs to
have size and availability, so better choices may
be companies the size on Lundin Mining
(LUN.to) or Capstone Copper (CS.to) may fit
the bill, as both of those have significant
exposure to Chile. Of the two, CS.to has most
to fear from a newly anti-mining permitting
track in Chile as its major expansion project at
Santo Domingo, as well as its recently closed
merger deal, are Chile-centric but as the above
chart shows, CS.to has already come under price
pressure.
Another potential with a smaller market cap
would be Marimaca (MARI.to), as its C$265m
market cap and C$3.00 share fit the bill, as does
the fact that it will need its only project to go
through the same track as Rio2 has done.
However, MARI’s project is probably easier to
permit, based on its low altitude arid coastal
location and standard oxide mineralization
technology.
34
However, the most obvious candidate is Los Andes Copper (LA.v). This company has the right
size market cap to make a short feasible and a
share price that’s done nothing but climb,
mostly due to its successful development
track. However, its mid-altitude location in a
valley with 1) Chilean historical background
and 2) environmental opposition would be a
prime example of a project that a militant
anti-mining SEA would do everything in its
power to block.
Therefore and to close, I want to reiterate,
underline and emphasize that there’s no
logical reason outside of political ideology to
expect the Rio2 permit to be denied in the
meeting on Tuesday. However, if politics takes
over reason and Chile’s key environmental permitting office has indeed been hijacked by
militant green lefties, one way of recouping losses would be to bet on the same thing
happening to other stocks exposed to the same permitting track. And Los Andes Copper (LA.v)
fits the bill as a short trade predicated on that theory.
Conclusion
IKN685 is done, we end with bullet points:
The big day for Rio2 will now be Tuesday. I will post on the blog as and when news
arrived at this desk.
The continued drop in copper plus the requirement for risk management means that
Element 29 (EWCU.v) is leaving the list as from this week, an uncomfortable decision
and not one caused by the company or its project.
The regional political scene continues to be crazy.
I thank you in advance for any feedback. Our Top Pick stocks are Minera Alamos (MAI.v) and
Rio2 Ltd (RIO.v). Flash updates will be sent if required by events.
I wish you good trading fortune, ladies and gentlemen.
Best wishes, Mark
Footnotes, appendices, references, disclaimer
(1) https://www.aa.com.tr/en/economy/us-fed-chair-says-slower-growth-likely-outcome-in-dealing-with-high-
inflation/2626041
(2) https://qccopper.com/news/qc-copper-completes-sale-of-baselode-shares-for-7.85-million/
(3) https://qccopper.com/site/assets/files/2670/qc_copper_presentation_2022_04_29.pdf
(4) www.amerigoresources.com/_resources/news/nr_20220621.pdf
(5) https://iknnews.com/rio2-rio-v-eia-meeting-logistics/
(6) https://newcoregold.com/news/newcore-gold-announces-c-5-million-bought-deal-financing/
(7) https://www.bloomberg.com/news/articles/2022-07-01/copper-extends-losses-after-quarterly-slump-on-recession-
fears
(8) https://www.globenewswire.com/news-release/2022/07/01/2473070/0/en/Nevada-Copper-Provides-Further-
35
Operational-and-Financial-Update.html
(9) https://s2.q4cdn.com/496390694/files/doc_downloads/2022/06/Kinross-North-America-Projects-Update-June-
2022.pdf
(10) https://www.alamosgold.com/news-and-events/default.aspx
(11) https://www.goldpursuit.ca/golden-pursuit-completes-rock-sampling-and-geophysical-surveys-at-south-gordon-lake-
gold-project-nwt/
(12) https://twitter.com/CONAIE_Ecuador/status/1542658723684012033?
(13) https://www.bnamericas.com/en/analysis/peace-deal-with-ecuadoran-indigenous-groups-not-expected-to-hurt-
mining
(14) https://www.laprensa.com.ec/el-contenido-del-acta-compromiso/
(15) https://www.parlamentario.com/2022/06/29/para-2035-argentina-podria-multiplicar-por-4-las-exportaciones-en-
mineria/
Stocks To Follow Closed Positions 2021
Closed in 2021 closed close price
Fiore Gold F.v jan'21 C$0.98 21-May-20 C$1.17 19.4% closed as part of rebalance
Norsemont Min NOM.cse feb'21 C$1.55 6-Set-20 C$0.70 -54.8% Cut loser to reduce Au exp.
Element 29 Res ECU.v feb'21 C$0.49 7-Feb-21 C$0.54 10.2% Cut Peru exposure
Kuya Silver KUYA.cse feb'21 C$1.66 8-Nov-20 C$2.51 51.2% Cut Peru exposure
Pucara Gold TORO.v apr'21 C$0.65 4-Oct-20 C$0.26 -60.0% Cut loser, Peru risk call
Copper Mountain CMMC.to apr'21 C$1.40 22-Nov-20 C$4.18 198.6% tgt hit, profit taken
New Gold NGD may'21 U$0.76 9-Feb-20 U$2.14 181.6% Sold to buy AGC, nice win
Orezone Gold ORE.v jun'21 C$0.79 21-Jun-20 C$1.61 103.8% sold on pop, leaky boat
Wolfden Res. WLF.v sep'21 C$0.30 11-Abr-21 C$0.19 -36.7% Failed spec trade, cut loss
Cartier Res ECR.v sep'21 C$0.32 21-Mar-21 C$0.235 -26.6% Failed spec trade, cut loss
Amarillo Gold AGC.v sep'21 C$0.31 30-May-21 C$0.30 -3.2% Capex story changed: Out
Excelsior Mining MIN.to oct'21 C$0.93 10-Mar-19 C$0.53 -43.0% May return in 2022
Royal Road Min. RYR.v nov'21 C$0.155 17-Mar-19 C$0.275 77.4% Closed on Nica pol risk
Aurelius Min. AUL.v dec'21 C$0.75 28-Jun-20 0.24 -68.0% cut end 2021, failed trade
Argonaut Gold AR.to dec'21 C$2.95 25-Jun-21 C$2.15 -27.1% cut on capex blowout
Stocks To Follow Closed Positions 2020
Closed in 2020 closed close price
TMAC Resources TMR.to Jan'20 C$3.41 20-Dec-19 C$3.61 5.9% TLS flip play, sold new year
Regulus Res REG.v Jan'20 C$1.10 20-Dec-19 C$1.30 18.2% TLS flip play, profit taken
Bonterra Res BTR.v Jan'20 C$1.90 9-Dec-19 C$1.66 -12.6% TLS flip play, loss taken
McEwen Mining MUX Jan'20 U$1.12 2-Dec-19 U$1.18 5.4% TLS flip play, profit taken
Core Gold CGLD.v Jan'20 C$0.255 7-Apr-19 C$0.305 19.6% arb trade, profit taken
HudBay Min HBM Jan'20 U$3.56 9-Dec-19 U$3.36 -5.6% TLS flip play, loss taken
Midas Gold MAX.to Feb'20 C$0.71 5-Jan-20 C$0.57 -19.7% sm & silly trade
Warrior Gold WAR.v Feb'20 C$0.08 3-Aug-18 C$0.05 -31.3% clean out non-perf sm stocks
Contact Gold C.v Feb'20 C$0.40 19-Aug-18 C$0.18 -55.0% clean out non-perf sm stocks
Sandstorm Gold SAND Feb'20 U$3.73 17-Apr-16 U$7.21 93.3% Sold during port rebalance
NexGen Energy NXE Feb'20 U$1.20 2-Dec-19 U$1.06 -11.7% TLS flip play, loss taken
MAG Silver MAG Apr'20 U$8.95 1-Mar-20 U$10.07 12.5% Sold to cut silver exposure
Alexco Res AXU Apr'20 U$1.69 7-Sep-17 U$1.69 0.0% sold to close Ag exp. in FY20
Bonterra Res BTR.v Jun'20 C$1.62 2-Feb-20 C$1.10 -32.1% under-performer cash moved
Regulus Res REG.v Jun'20 C$0.64 6-Apr-15 C$0.79 23.4% moved $ TMQ/MIN & Au stocks
Great Panther GPR.to Aug'20 C$0.60 21-Jun-20 C$1.10 83.3% Profit taken, good trade
Jaguar Mining JAG.v Aug'20 C$0.42 21-Jun-20 C$0.65 54.8% Profit taken, good trade
Sandstorm Gold SAND Aug'20 U$7.76 10-May-20 U$9.37 20.7% Profit taken, good trade
36
Integra Resources ITR.v Aug'20 C$2.23 13-Aug-18 C$5.40 142.2% Profit taken, good trade
Wesdome Gold WDO.to Aug'20 C$2.37 14-Oct-17 C$14.82 525.3% last 1/2 of big win closed
INV Metals INV.to Sep'20 C$0.40 17-May-20 C$0.45 12.5% Cut all Ecuador exposure
Cartier Resources ECR.v Nov'20 C$0.155 3-Aug-18 C$0.25 67.7% Exact close price TBA
Tinka Res TK.v Dec'20 C$0.195 19-Apr-16 C$0.195 0.0% Closed on a round trip fail
2015 to 2019 annual closed positions in appendices below, 2009 to 2014 closed positions in editions IKN553 or earlier
Stocks To Follow Closed Positions 2019
Closed in 2019 closed close price
Atico Mining ATY.v jan'19 C$0.55 24-Jul-16 C$0.32 41.8% patience ran out, made room
Candente Copper DNT.to jan'19 C$0.075 3-Ago-18 C$0.05 -33.3% tiny trade, made room for new
B2Gold BTO.to feb'19 C$2.11 12-Set-14 C$4.05 91.9% Took 1/2 profits, reduce size
Western Copper WRN.to mar'19 C$0.80 20-Ene-19 C$0.81 1.3% Spec trade that didn't work
B2Gold BTO.to mar'19 C$2.11 12-Set-14 C$4.15 96.7% Took rest of profit.
GT Gold GTT.v mar'19 C$1.17 10-Oct-18 C$0.90 -23.1% Took loss. Story changed
NovaGold NG apr'19 U$3.84 13-Ene-19 U$4.15 -8.1% Short that didn't work, sm loss
Zinc One Z.v jun'19 C$0.47 14-Set-17 C$0.025 -94.7% clearing out dead trade
Amarillo Gold AGC.v jun'19 C$0.24 22-Ago-18 C$0.20 -16.7% clearing out dead trade
New Gold NGD aug'19 U$1.44 31-Jul-19 U$1.23 14.6% ST short win thru Q2 earnings
IMPACT Silver IPT.v aug'19 C$0.39 21-Jul-19 C$0.46 18.0% took a quick profit
Fiore Gold F.v aug'19 C$0.34 26-May-19 C$0.56 64.7% Took profit, 2q19 avg
Chakana Copper PERU.v oct'19 C$0.84 22-Mar-18 C$0.16 -81.0% Exploreco trade fail. Want space
Wesdome Gold WDO.to oct'19 C$2.37 14-Oct-17 C$7.57 219.4% Sold half, profit taking
Superior Gold SGI.v oct'19 C$1.46 8-Abr-18 C$0.47 -67.8% Failed sm spec on Au. Moved on
Amerigo Res ARG.to nov'19 C$0.91 23-Set-18 C$0.50 -45.1% worst trade of year, hefty loss
Guyana Goldfields GUY.to dec'19 C$0.94 14-Abr-19 C$0.56 -40.4% taking the loss, financials weak
Tethyan Res TETH.v dec'19 C$0.30 8-Set-19 C$0.16 -46.7% tiny trade, word of probs in co
Stocks To Follow Closed Positions 2018
Closed in 2018 closed close price
Amarillo Gold AGC.v jan'18 C$0.38 24-Mar-17 C$0.31 -18.4% Cut away losing trade
Riverside Res RRI.v jan'18 C$0.39 27-Jun-16 C$0.31 -20.5% Cut away losing trade
Eros Res ERC.v jan'18 C$0.175 1-Mar-17 C$0.16 -8.6% CEO sudden exit, not good
Excellon Res EXN.to jan'18 C$1.54 9-Oct-16 C$1.66 7.8% 4q17 poor, one too many bad qtrs
Wesdome Gold WDO.to jan'18 C$1.68 15-Dec-17 C$2.06 22.6% Near-term trade block, took profit
Sabina G&S SBB.to apr'18 C$2.06 17-Dec-17 C$1.77 -14.1% Near-term trade, bad timing, small
B2Gold BTO.to May'18 C$2.11 12-Sep-14 C$3.67 73.9% sold 25% to reduce exposure
Lara Expl. LRA.v May'18 C$0.65 11-Feb-18 C$0.58 -13.8% Spec on Brazil didn't work
Solitario XPL June'18 U$0.72 19-Mar-17 U$0.41 -43.1% Failed trade, may return in 4q18
SolGold plc SOLG.to July'18 C$0.475 19-Nov-17 C$0.415 -12.6% cut, trade didn't perform
Pan American PAAS July'18 U$17.90 1-Jun-18 U$16.30 8.9% modest win on short position
NGEx Res NGQ.to Sep'18 C$1.01 22-Oct-17 C$1.00 -1.0% Closed to reduce Argentina exp
Sandstorm Gold SAND Oct'18 U$3.73 17-Apr-16 U$4.13 10.7% partial sale to raise cash for GTT
Aldebaran Res ALDE.v Nov'18 n/a n/a n/a n/a liquidate spin out of REG
Stocks To Follow Closed Positions 2017
Closed in 2017 closed close price
Continental Gold CNL.to Jan'17 C$2.68 22-May-16 C$4.17 55.6% trade closed, profit taken
Focus Ventures FCV.v Jan'17 C$0.23 1-Jul-12 C$0.05 -78.3% Give up, a disaster trade
Wesdome Gold WDO.to Feb'17 C$1.72 28-Aug-16 C$3.00 74.4% Target hit, sold, good trade
Belo Sun BSX.to Mar'17 C$0.90 30-Jan-17 C$0.90 0.0% failed near-term flip trade
Lara Expl. LRA.v Mar'17 C$1.15 8-Apr-12 C$1.05 -8.7% cut to make room for new trade
Rye Patch Gold RPM.v Apr'17 C$0.31 2-Sep-16 C$0.32 3.2% cut for doubts & new stock
37
Cordoba Min. CDB.v Jun'17 C$0.75 15-Sep-16 C$0.63 -16.0% closed
Constantine Metal CEM.v Aug'17 C$0.135 9-Apr-17 C$0.28 107.4% spec trade closed, good win
Red Eagle Min. R.to Sep'17 C$0.67 13-Dec-16 C$0.27 -59.7% IKN's biggest failure in years
Starcore Intl SAM.to Sep'17 C$0.61 10-Jan-15 C$0.31 -49.2% Patience ran out
B2Gold BTO.to Dec'17 C$2.11 12-Sep-14 C$3.39 60.7% sold small portion for liquidity
Stocks To Follow Closed Positions 2016
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-ago-15 C$0.25 38.9% okay trade, sold on pol risk
McEwen Mining MUX jan16 U$1.09 25-ene-15 U$1.20 10.1% sold due to lack of value
Lake Shore Gold LSG.to feb-16 C$1.10 07-abr-15 C$1.69 53.6% bot out, sold early in process
Atacama Pacific ATM.v feb-16 C$0.19 26-abr-15 C$0.40 110.5% sold for a double on big pop
New Gold NGD feb-16 U$2.06 24-ene-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-ene-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-abr-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-abr-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
Avino G & S ASM nov-16 U$2.00 21-oct-16 U$1.40 -30.0% Abandon trade on bad bot deal
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
Please note that due to space considerations closed positions 2009 to 2014 are now
available on request, or were published in any edition to IKN553 (end 2019).
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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