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1/23/16

OT: The Hateful Eight (no spoilers)

For what it's worth, I saw Tarantino's new movie 'The Hateful Eight' last night. For context I'm a Tarantino fan and I've seen all his films to date, it wasn't a tough decision to go.

It's wonderful, the three hours zoomed past, all Tarantino fans will love it, many Tarantino agnostics will finally see the light and be converted. And there are so many things to like; the plot, the camerawork, the dialogues, the acting by the main players, plus typical Quentin doses of quasi-ironic blood (no spoilers in this short review, but it'll come as no surprise to say that things don't turn out well for the cast, or that the film isn't children's viewing material). All that said but I must pick out one element above them all; Samuel L. Jackson is magnificent and manages to stand out, even in a roomful of great performances.

So, go see it. Top movie. Reco ends.

1/22/16

The Friday OT: J. Balvin; Ginza

If you spend more than half an hour in a taxi in South America at the moment, you'll hear this tune on the radio. The year's summer hit down this way, hands down.



Now at 364 million Youtube plays (just the official version, there's about a squillion remixes out there too). Pepsi product placement, deluxe video, the whole nine yards. And to give you an idea of the philosophical poetry, here's the chorus and a translation.


si necesitas reggaeton, dale (If you need reggaeton, okay)
sigue bailando papi no pares (keep dancing daddy don't stop)
acercate a mi pantalon dale (get close to my pants, c'mon)
vamos a pegarnos como animales(Let's get stuck together like animals)

I wonder what Cole Porter would make of it?

Continental Gold (CNL.to) now on a charm offensive in Colombia

This is the best report on the Buriticá situation out in the last 24 hours, León Teicher getting plenty of space to air his (the company's) views on the illegal mining operations in and around CNL's concession. I like the bit when he explains how the illegal miners have this thing about throwing bombs at CNL workers. Real bombs.

All part of a clear strategy. What could possibly go wrong?


Gagnon Securities of Brooklyn** New York...

...are absolutely fascinated by everything that IKN has written about Tahoe Resources (TAHO) this morning, according to your humble scribe's back office stats at least. 

Now I wonder why that might be?*
No fewer than 43 hits on different pages, all but a few on pages mentioning TAHO and most of those on the posts that mention how TAHO still disclosed a single word about the death of a worker at Escobal in November 2015. TAHO seems to think they can keep this negative event away from the world in general, when it's exactly the type of thing anal ysts care about when there are serious deals in the offing.

UPDATE: Thanks guys, I knew you wouldn't let me down. Have a nice weekend.



*in fact I don't
**we now hear that they're not in Brooklyn, it's just that their ISP runs through there

How precious metals mining stocks perform during times of broad market volatility

In times such as these of extraordinary market volatility there are two basic scenarios. Under these two, this is the way the PM Miners trade:
1) When the broad markets drop hard, gold bullion rises due to the 'safe haven' factor. Mining stocks drop, pulled down by the market dump.

2) When the broad markets rebound and spring back hard, gold drops due to the reversal of its safe haven role. Mining stocks drop, pulled down by the gold dump.
Any further questions?

UPDATE: Long-term reader and mailpal JH writes in:
"(Y)ou forgot the third observation:

When the price of gold rises so much that even dogs become profitable, Mining executives waste half the money and pocket the other half."
Merci monsieur

Chart of the day is...

...the gold/silver ratio, five years:


I love how silverbugs have been getting hot and sticky about their fave metal "rallying above $14 and showing strength" this week. The great thing about meeting a silverbug at a party is knowing that you're not the dumbest person in the room.

Ten Years of Evo

Evo Morales became Bolivia's President on January 22nd 2006, ten years ago today.



And as the date comes around, he's in full campaign mode for the February vote in Bolivia that's looking to change the country's constitution and allow him to run again in 2019.

Happy anniversary, Evo, congrats on your first ten years.

1/21/16

HudBay (HBM) (HBM.to): Yet another truck carrying copper concentrates crashes at Constancia

By IKN's reckoning this is the fifth accident (or better said fifth reported accident) since Constancia opened and this time, it isn't just the enviro websites or pissy blogs like IKN that are carrying the news, it's the Peruvian national daily La Republica. Here's the photo...




...from the report and if that truck is in the correct conditions to carry the reported 30 tonnes of conc it had on board before it all went wrong, I'm Chinese*. And the report mentions the accident wasapparently due to the combo of excess speed and excess weight on board....naughty naughty HBM.

The accident happened at 06:20am this morning and the protective cover of the cargo broke, which allowed the concentrate to be dispersed by the wind and police say a wide area of local vegetation has been contaminated by the copper concentrate.

These are the World Class standards David Garofalo is bringing to Goldcorp soon.

UPDATE Friday: IKN welcomes Hill Knowlton as visitors to the blog this fine and sunny morning. Hi guys, great of you to come along and check out info on one of your main clients. IKN suggests that you bill them early, with copper at $2/lb you never know when Alan Haircut's company is going to hit that upcoming cash crunch.

*I'm not Chinese.

A Lydian (LYD.to) question

What happens if the financing package that management at Lydian (LYD.to) put together is voted down by shareholders? Will management do the correct thing and resign?

Y'know...just theoretically like ...no special inside information here....guv...

John Kaiser, Harris Fricker, the TSX

It was interesting to see John Kaiser pick up on the contents of the memo sent to the GMP staff who survived the recent round of deep cuts at the firm, the one we leaked on this blog last week (here). Kaiser said:

"The efforts by the TSXV to save itself are justifiably seen as a farce. But it is no longer just independent observers such as myself calling foul: read the comments by GMP's CEO Harris Fricker in his January 13, 2016 Memorandum about why he axed 27% of the staff of this brokerage firm that caters to small to mid tier companies. The enemy is not the TSXV itself, but rather its establishment bank overlords."

And that's just a small segment of his whole rant dated yesterday January 20th, the whole thing is here and it's worth your time.

BUT! But but but! But it's also interesting to note how IKN managed to find out about Kaiser's piece. It was due to noticing a back office link and how these people arrived at IKN:





Yup indeedy the TSX is reading you, John K.

Argonaut Gold (AR.to)

As at today, Argonaut Gold (AR.to) has a market cap of U$90m

Meanwhile, Argonaut Gold (AR.to) tells us its Magino property is worth U$229m. Just forget everything else they own, the gold they produce, treasury etc etc. Just Magino = U$229m, according to AR.to at least in its last financial statement.

On Monday, Argonaut Gold (AR.to) tried to convince us that Magino is worth more than everyone thought before.

Hey, I wonder who's telling the truth? The market, or AR.to?

The Safe Haven

Here are two charts, the monthlies of two very famous market media known historically as "safe havens". I've stripped them of their numbers.

Take a look and ask yourself, which of these two looks like a true Safe Haven that appreciates when times get rough? And which looks like a speculation vehicle that goes in and out of fashion?

The top chart is that of gold, the bottom one is the US Dollar index (USD).

Chart of the day is...

...five days of gold:

And here's a recent screenshot of another CotD, dated January 6th 2016:





Indeed, gold made a run at the U$1,110/oz level yesterday, but yet again couldn't hold it and failed to bust through.  The rah-rah pom-pom hoo-hah collective will be bitter and twisted and blaming "THEM" and the PTB Plunge Protective Squad or whatever other eminences grises they have to explain away their personal failings as investors.

The rest of us apply the necessary patience. As you were, soldiers.

1/20/16

IKN350 coming up on Sunday...

...will have an analysis of New Gold (NGD) (NGD.to) as its main event.


Continental Gold (CNL.to): What goes on

Here's the latest from Buriticá, here's your translation (your humble scribe doing the honours):

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The government  of Antioquia, with the support of police and the army, closed down 16 (illegal) gold mines in Buritica (Western Antioquia).

Enrique Olano Asuad, secretary of mining in the Antioquia government, said that the situation in Buritica is delicate because mining there is deeply involved with crime, specifically with organized criminal groups and paramilitary groups that have infiltrated the business.

"What we want to do is the preserve the community life of the mining community (of Buritica). We are working with Continental Gold to develop a model of formalization of mining, including contracts with co-operatives that work, not like those in previous occasions which failed."

Olano added that the evictions, that they were "trying to develop on a voluntary basis with miners", was urgent for the risk of rockfalls that could cause a landslide which could end in tragedy.

Meanwhile, the secretary of the regional government, Victoria Ramirez said that the evictions had been pacific.

"At the moment we're only working in the Lebron mine. Some 300 families live around that mine and were looking for them to leave the sector voluntarily, she said.


Gary Tanashian

Though not normally my focus, I'll say just one thing about the broad market action we've seen in 2016: Gary Tanashian of Biiwii and NFTRH has been calling it remarkably well so far. You'll get a gist for that in his public access pieces but I get to read his Weekly letter and that gives the full story.

Mailbag on the Silver Wheaton (SLW) tax post of last night

My kill-time-while-waiting-for-plane rant on the tax issues faced by Silver Wheaton (SLW) published yesterday evening has elicited some very interesting mails from you guys out there, with both sides of the potentially contentious debate covered. I thank you all for the feedback but the best so far is from "Reader S", who has given me permission to publish an excerpt from his mail. Read and enjoy:

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"Canadian tax law is quite different than the US (and other countries), in that revenue Canada issues guidelines in many cases and not hard and fast rules. 

They do this so that both individuals and corporations can't just "skirt" the rules or easily find loopholes.

It is a long standing policy of the CRA that if a corporate structure is setup just to avoid paying taxes, the CRA will "see through" that corporate structure to see who the beneficiaries are. That is the law, and it's been like that for ages in Canada. CRA basically goes, "we don't care what your legal paper work says, we care about what is actually going on."

If SLW conducted most of its business out of Canada and just sent the checks/wires through the Caymans, that should never have passed the sniff test and the only thing surprising in terms of what revenue Canada is doing, is how long it's taken them to go after SLW.  

In this particular instance, this doesn't seem like a case of government overreach (i'm no fan of government) but a case of corporate incompetence in how they conducted their business."

The future copper oligarchy

Here's a piece from IKN349 which is a continuation of a theme we've had running at the Weekly. No matter what Canaccord says (still laughing guys) you need to avoid the medium-sized copper company space because they're going the way of the dinosaur. Especially the ones up to their neck in debt.

PS: Just to be clear, the accurate word is "oligopoly", but as the IKN Weekly coverage of this issue has developed I started using the word "oligarchy" as the descriptive. It's a better fit in many ways. Read on...

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Chile: Latest investment figures offer a window on the future of copper

Some interesting figures out of the Chilean cabinet ministry last week regarding the change in investment dollars in its mining industry. The main point picked up by the local media (25) offers few surprises, that the amount of investment dollars in mining projects in the country has dropped considerably in the last four months, but the details offer more.



According to the data-filled report, in December 2015 mining projects under development in Chile were worth a total of U$15.122Bn, down 29% from the U$21.347Bn registered in its last beancount in August. The drop is due to three projects being shelved (the on-off-on-off Antucoya owned by Antofagasta Minerals (ANTO.L) and  Actualización Esperanza, also ANTO.L), plus the BHP Billiton OGP1 project, as well as other projects moving from development into production and therefore off this count’s radar.



So far so normal, but when we look at what’s left it becomes more interesting. Of the eight major works projects left on the list (that U$15.122Bn total), four of them are Codelco projects worth a total of U$10.531Bn. Add in the only other big ticket project, that of BHP’s desalinization plant for La Escondida and there’s little else happening in Chile.



Put simply—> If it weren’t for the State-run Codelco, which has a business and economic agenda which is wholly different from the normal capitalist-profit-only focus of a privately owned multinational and often works its investments to a counter-cyclical economic clock for national GDP reasons, plus a desal project that’s a no-brainer build for La Escondida (it pays for itself a dozen times over even if copper drops to $1.50/lb and stays there forever), there would be precious little growth in the world’s biggest copper producing nation right now.



It also has me thinking about bigger things, such as the way on which the copper production market is concentrating to the mega-players and away from the small and medium scale operations. I believe the Codelco policy of investment now is the right one, as it would be very difficult for a big mining company to convince its shareholders to keep the investment spigot running but for the nationalized, Pride-Of-Chile Codelco keen on keeping its world number one status (11% of world copper comes from them) it’s an easy sell which will give it the upper hand in the world market come the day that copper moves back up on its cycle. But aside from Codelco, it’s a window on how difficult it’s going to be for smaller entities to keep competitive (look at the enormous debt troubles of The IKN Weeky’s three touchstone stocks HudBay, Capstone, Copper Mountain, for an obvious example) or even for junior explorecos looking for the Next Big Porphyry in the Andes (or anywhere else) to compete efficiently. It’s far from the first time I’ve mentioned this but it bears repeating (for one thing I’m seeing a new batch of commentaries from higher profile anal ysts saying roughly the same thing): Copper is going the way of iron ore, where three players (BHP, RTZ, Vale) hold the market by its throat and can kill off competition in good old-fashioned oligarchy theory style.


The Can of Corn jumps the shark on copper

How to sum up the Canaccord "Flash Alert" on copper today yesterday:

"BECAUSE A DAM MIGHT COLLAPSE IN ZAMBIA, YOU SHOULD BUY HUDBAY!"

Seriously dudes...


And here's a paste-out of the front page of Canaccord's laugh-a-thon piece this morning, just to prove it to our lovable mascot. I'll spare you the graphic of "how that dam gonna blow" due to the erosion and plunge pool diagram on page three:

When the Levee Breaks
Investment Recommendation
The copper producers remain under pressure with spot copper prices below US$2.00/lb. While we have yet to witness substantial supply-side discipline, an extraneous event that could help bring the market closer into supply/demand balance may materialize.
At a minimum, a looming supply shock from the Zambian copper belt (~4% of world production) could swing sentiment and help alleviate the ongoing sustained pressure on equity prices.
The Zambian power supplier ZESCO has come under some scrutiny this year over its ability to continue to supply power to the energy-hungry copper miners in the world’s eighth-largest copper producing country. In this short report, we take a ‘what if’ approach to gauge the impact on the copper sector and specific copper producers.
We continue to recommend Lundin Mining (LUN:TSX) and Nevsun Resources (NSU:TSX) as the stalwarts in the base metals space at these low copper prices. However, if a supply-side driven, specifically Zambia related, upward move in copper prices were to take place, we would recommend investors place short-term focus on more levered (operationally and financially) Non-Zambian producers such as Hudbay Minerals (HBM:TSX), Capstone Mining (CS:TSX), and Teck Resources (TCK.B:TSX).

Peak Oil? Nope. 
Peak gold? Nope. 
Peak copper? Nope. 
Peak supidity in sellside cubicles trying to justify their next paycheque? You got it. Jeesh, you can tell Joe Mazumdar isn't there any longer.

UPDATE: What, you wanna see that "Ach Captain, ah cannae hooold it much longer she's gonna blow" diagram on page three? Okay, here you go:



In next week's installment: Canaccord recommends that you buy soybean futures on a "What if?" basis as a plague of locusts could hit South America and wipe out next year's harvest.



Chart of the day is...

...ten days of prices in:

Gold bullion (the GLD ETF)
Silver bullion (the SLV ETF)
The broad markets (the S&P500 index)
The precious metals miners (the GDX ETF)
The precious metals junior companis (the GDXJ ETF)
The copper miners (the COPX ETF)


The question "Why do you own gold bullion, Otto?" never bothers me and I always answer it in a succinct manner. If the other person then asks follow-up questions we can go a bit deeper, if they don't then that's fair enough too. It's the "But why do you own gold bullion, Otto?" with that first word added and the sardonic tone from "experts"...that's the one I never bother to answer because it always falls on deaf ears. Because they know better, y'see. There's nothing they could possibly learn, y'see.

1/19/16

Silver Wheaton (SLW) now on the hook for up to $575m in back tax

As your humble scribe waits patiently for a modern jet aeroplane that's decided to be three and a half hours late this evening (we thank the airline company for the complementary "evening meal", a chicken sandwich and a coffee), news arrives as to how the Canadian tax people (CRA), already after Silver Wheaton to the tune of $265m in back tax from the 2005-2010 period, are now after SLW for a potential $310m extra for taxes in the 2011-2013 period.

Which gets me thinking about tax. SLW's set-up, the reason it says it doesn't have any bill to pay, is that it runs all its revenue through its wholly owned subsidiary in the Cayman Islands. As it's zero percent income tax there, we're all good and right, right? Not so says the CRA, these tricky fools are pulling a fast one on us all and they should pay tax on their earnings just like any other Maple Leaf waving corporation. They need to pay their fair share. It's not fair otherwise. They're depriving the good honest Canadian taxpayers of funding for (etc)

Well, maybe. And I found myself dwelling on that idea of 'fair', of equality or even justice. Because as far as I can see on this issue what SLW did when setting up its corporate structure wasn't particularly fair in terms of paying its wedge to Canada, but it was perfectly legal and inside the law.

And since when does the law need to be just or fair? The law is the law! Yes it changes over time as society's concept of what's just changes, but justice is the leading edge and law drags along later on its coattails. So would it be "fair" to suddenly back-tax SLW just because it was smarter than the average bear and found a perfectly legal way of not paying a large amount of tax?

And pay to whom? Hey 575 large is a lot of money, write me a cheque for that size and I'll probably remember the day for a long time. I might even buy you a beer to say thanks. But half a billion in the coffers of a national government, the world's least efficient entity no matter which country is in question, doesn't even move a dial. It's "three hospitals" you say? Phooey, it isn't even one, it's money down the same drain that took the cash to build the other 50 hospitals that never happened (and never will).

The tax loop that SLW has taken advantage of may be eventually closed, that's another story. But it strikes me as utterly unfair that the CRA is on its back for trying to be the best capitalists they can be. It's the nature of the corporate beast, after all. Fair? Since when did capitalism give a shit about "fair"? Gimme a freakin'break.

Sometimes the best solution is to

...just walk away from the screen.

Current status:

Why have just one BOHICA day...

...when we can have five or six? My main downer is BTO of course, not the only one out there though.

My stars, this is now officially borong, The Clive. Just bite the bullet and agree to a streaming deal one time willyaz? What's the point in holding out for the bluesky upside when there's going to be nothing left of your stock price anyway?

Meanwhile, in glass-half-full news, LSG continues to buck the trend and trade rock solid.

Pan American Silver (PAAS) (PAA.to) provides an excellent snapshot of the silver space

The 4q15 numbers out of PAAS this morning are genuinely good; they've produced strongly, costs are down, they've become leaner and meaner over 2015 and the guidance for 2016 is a continuation of the efforts made.

But (and there's always one of those), you get to the AISC forecasts and it becomes cleat, they're still losing money at these silver prices. And that's the way it is, even the decent Ag plays are untouchable, so just imagine how bad things are at the never-ending list of mediocrities in the silver space...even when they aren't getting their dynamite stolen.

1/18/16

Continental Gold (CNL.to): IKN congratulates Louis James of Casey Research on a good call

About half a dozen of you so far have mailed in to tell me that Louis Lobito Little Wolf James of Casey Research has called "sell" on Continental Gold (CNL.to) after visiting Buriticá in Colombia and seeing for himself the state of play, his 180° turn on the Casey Research reco due to  particular emphasis on the community, social and political risk factors of the company and project. Several of you sent in his report too, which was kind (i think). 

Hey there's quite a bit I could say about that change of tack, especially if I put my puerile snarky hat on first, but really it would be unfair. The bottom line is that Louis James has done the right thing here and made the correct call, one that will benefit subscribers of Casey Research. It's not easy doing an about-turn like this, it takes some backbone and reading political risk correctly isn't an easy thing, this time on CNL.to you nailed it. 

Good for you Lobito, more like this one please, now let's hope the Ari-sycophant sellside brokerages see the light and direct their clients out of this trainwreck in the making before it's too late.

Argonaut Gold (AR.to) announces a pre-feas for Magino: IKN chortles and then rants about it

I wet myself laughing about the way AR.to decided to cherrypick a U$1,200/oz gold price for its marketing razzle for the Magino PFS out this morning. Not for the number but for the reason behind it, because it's comparative to the Canadian dollar forex right now, they say. You need to consider the project is in CANADA, so let's price gold in CANADIAN dollars and that way we can get more MONEY in the bank because...because....because dollars...and it's the same word as the one they use in the USA, isn't it?

Oh but what they DON'T do is translate ALL the PFS items into Canadian dollars, oh no those pesky things like capex, opex, closure costs all stay in neat and tidy USD. But when it comes to the thing they want to sell, there's no point at all in choosing a price level like U$1,100/oz, they get to choose U$1,200 "because of the Loonie".

Seriously dudes....


PS: AR.to reports in USD.



Capstone Mining (CS.to): Don't look at the balance sheet, people

Capstone Mining's (CS.to) Darren "Drop The" Pylot comes out swinging this morning with two NRs as he packs his bags for a nice bit of skiing serious business at the Whistler conference. The one we care about is the 2016 guidance and five year plan because it has this chart to cover FY16...



...and this line to cover 2017 to 2020 (and we like the way they assume they're going to be in business in 2020).
Copper Production and Costs 2017 to 2020:  Consolidated production from 2017 to 2020 is expected to average between 70,000 and 85,000 tonnes of copper annually at a consolidated C1 cash cost ranging from $1.60 to $1.70 per pound of copper. 

That C1 is an average of 5c lower than the 2016 number, which means the same thing about prices and things, with copper where it is today CS.to has basically said "we make no money at all this year". Then with production set to drop back in the years after that (the Minto bonanza grade only lasts for so long) they're going to need copper prices to rise fast because on January 16th 2019, i.e. three years from now, they get to pay back $328m in secured debt...or else. That's because "fully-loaded all-in cost" sure sounds comprehensive, but it doesn't include business and social niceties such as payback of capital.

Let's assume the top end of production for 2017 and 2018, 85k tonnes of copper. That's 187.4m Lbs of the stuff per year, so let's round it and be generous and say 375m lbs over the two years before that secured revolver is due. That means CS.to has to make 87.5c/lb clear profit on its copper production in those two years. 

Oh dear.

UPDATE: Hi guys!



1/17/16

Continental Gold (CNL.to): Trouble in Buriticá

You get that tip-of-iceberg feeling? Me too. The below a direct translation of this news report from Colombia's RCN News:
At least 200 uniformed officers from the Mobile Anti-Disturbances Squad ESMAD, have stopped miners in Buriticá, in western Antioquia, from entering the underground works of a mine owned by the company Continental Gold, considering it at a high risk of landslides in the last few days.

"ESMAD had to intevene, because there is a serious threat of landslides due to over-minng. Even so the mine workers are trying to enter the emergency zone, despite the unstable ground and warnings", said the sub-commander of the Antioquia police force, Coronel Javier Guerrero.

In the area a team from Human Rights is also present in order to calm the atmosphere between the government forces and the miners.

The Antioquia government, via a communicado, said that the instability of the terrain had forced them to close the mine entrances. However there has been no press statement to comment on the issue.

The IKN Weekly, out now


IKN349 has just been sent to subscribers. Some bits (e.g. regional politics section) were less painful to write up than others (B2Gold's share price action and what to do about the losses held), but it turned out all right. And there's even some buying and selling to be done next week.

The top three most visited IKN posts this week are...

...in reverse order:


Second Place: "Peter George has been a naughty boy". Oh, Peter....

First Place: "The GMP job cuts: Harris Fricker's internal memo" because there's nothing like a leaked memo (with sensitive info designed by its author to put the employment fear of the deities into brokerage cubicle human beings) to get them coming over in droves.

Bob Moriarty on Steve Letwin

I'm a bit late to this (it was published on Jan 13th), so my thanks to reader LF for the headsup last night on this piece by Bob Moriarty on a combo of a couple of things, basically a company I've never followed called Sanatana (STA.v), the disaster area we all know as IAMGOLD (IMG.to) (IAG) but most of all and for our purposes at IKN, Moriarty's precise and 100% correct opinion on IMG's boss Steve Letwin. For example:
"I’d far rather see Sanatana go into bankruptcy than to give the project away for peanuts to a prick bastard like Stephen Letwin. Thieving shouldn’t be encouraged."

And there's plenty more of that, made me remember the time IKN used to have teeth. Well written Moriarty, thank you LF. Go read it all here.