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4/26/17

New Gold (NGD): And for the first quarter in living memory...

...New Gold (NGD) has managed to file its quarterly financials, its MD&A and the accompanying news release without adding to the capex or further delaying the construction timeline of Rainy River.

The IKN theory on the new US government's tax reform plans*

They've decided to make the proposal so fucking stupid that it doesn't have a chance in hell of passing. End of theory.

*You see how I managed to avoid the T word in the title?

The Paul van Eeden "Better Sleep Principle" and Rye Patch Gold (RPM.v) (from IKN412)

A little background is needed.

1) The IKN Weekly has a "15 stocks maximum" holding policy. There are several reasons for this, but the main thrust is to promote portfolio discipline and keep things real.
2) In IKN 412 dated April 9th I had 15 open positions and decided I wanted to buy a new one. Therefore, one of the open stocks had to go.
3) Even though I'd just run the numbers on Rye Patch Gold (RPM.v) in IKN411 in light of its news of the receipt of its long-delayed cyanide usage and decided to hold through, it was RPM.v that got the chop.
4) Since that date, RPM.v has dropped 22.4%. I got out with a small profit, which after commish wasn't much more than breakeven. In other words my trade was a real world failure, but it would have been worse if I hadn't paid heed to Paul van Eeden's "Better Sleep Principle". 

Read on (name of new purchase edited):

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Rye Patch Gold (RPM.v): SELLING: The short story; to make way for the new position in (EDIT) and to maintain the integrity of the “15 positions maximum” philosophy* here at The IKN Weekly (though I have bent the rules a couple of times over the eight years) something has to give. That’s RPM.v and so I’m going to sell this position in the next five days and close the position.

The slightly longer story; Even after running the numbers last week and summing up by writing a conclusion along the lines of...

  • Good news about the permit arrival
  • I’m holding on the numbers and its potential
  • But financials and cash position now look tight
  • And if they decide to run a placement it will be a bridge too far and I’m out

...as the week wore on that uncomfortable feeling about the corporate balance sheet came back again. I want to believe in this story because, if it goes to plan, RPM has a great looking operation at Florida Canyon that’s currently heavily discounted. The problem is, my wanting to believe ended in me deciding to ignore the risk that RPM dilutes my shares in a final, top-up placement which would deliver my profits to somebody else. And on re-consideration it’s more like a probability than a possibility, plus rumours about things not going as well as we on the outside would like at Florida Canyon have not gone away and keep coming around. If things had run more smoothly on the permitting track it would be much easier for me to brush off the chatter-talk and have more confidence in RPM, but where we are today and how we’ve got here means that I don’t. It’s at the stage where I’m worrying about this trade and it floats back into my brain at nighttime...not a good sign at all. I’m a long-term fan of Paul van Eeden’s “Better Sleep Principle” and here’s an excerpt from one of the times he’s written about the concept (8):

“This is where the Better Sleep Principle comes to play. I had not really thought about it but I have for many years now subconsciously followed the Better Sleep Principle in my own investing. It works like this:
If I start worrying about something when I go to bed at night I fix it the next morning. For example, if I own too much of a stock and am concerned about what would happen if the price falls, I sell some. If I don’t own a particular stock and I lie in bed worrying that the price would go up before I get a chance to buy it, I buy some. I do whatever it takes to make me sleep better at night.
Here’s why you should follow your own instincts to make sure you sleep well at night: it doesn’t help if you follow someone else’s advice and they sleep well while you lie awake. Investing is a very personal endeavor; only you know what you need to do.”

Result: When I made the decision to buy some (EDIT) last week it was easy to choose which company to drop from the ‘Stocks to Follow’. It means it’s likely to be a booked as a small profit of little consequence, but even if the price dives next week and it is closed at a minor loss it’s still nothing much more than a failed breakeven trade, 10% either side is not why I buy junior mining stocks. So, rack it up as another IKN Weekly failure, not the first and won’t be the last.

*Perhaps a bit too grand, it’s an idea.



The other thing about this Sandstorm (SAND) deal is the newco market cap

When SAND is joined by MARL, we're going to be close to the U$1Bn market cap threshold, something that Nolan Watson has been keen to promote as a target due to the way it will open up the door to a new tranche of insto cash.

Sandstorm buys Mariana (UPDATED)

Woah! Here's the chewy bit:


Under the terms of the Combination, Mariana shareholders will receive 28.75 pence in cash and 0.2573 of a Sandstorm share for each one Mariana share held. The Combination values Mariana at approximately 110 pence per Mariana share based on the closing price of US$4.04 per Sandstorm Share on the NYSE MKT and a currency exchange rate of £0.7788 per USD, on April 25, 2017.
The terms of the Combination represent a premium of approximately 84% to the closing price of 59.50 pence per Mariana share on April 25, 2017 and a premium of approximately 88% to the 20-day VWAP per Mariana share.
If successful, the Combination will result in Mariana shareholders, together, owning approximately 19.0% of the ordinary share capital of the Combined Group.
Sandstorm holds 8,980,243 Mariana shares, representing approximately 7.0% of the issued ordinary share capital of Mariana, and Mariana warrants over a further 4,490,122 Mariana shares.

UPDATE: MARL has opened at 87p in London on 3m shares traded. That's only just above its recent January highs and plenty below the nominal 110p offer price, probably due to UK capital gains tax laws. The lack of percentage lock-up is the main barrier to deal success here, so SAND may look like it's pitching high, what it's really doing is telling UK instos that this is a tax-efficient way of buying their shares. You can think what you like about the Hot Maden asset (for what it's worth, I like it and like it even more after the Yes vote in the recent referendum), but it's clear that Nolan has done his homework on the deal structure and thought it through well. After all, they'll still be 81% of the newco...that doesn't leave room for a massive price dumpage for SAND today.

4/25/17

Crapstone Mining (CS.to) 1q17 financials and that "costless" collar

Dear reader, cast your mind back to November 9th, the day Crapstone Mining (CS.to) announced it had hedged a large chunk of its production for the next year and a bit:
VANCOUVER, Nov. 9, 2016 /PRNewswire/ - Capstone Mining Corp. ("Capstone") (CS.TO) today announced that it has entered into zero-cost collars for 43,000 tonnes of copper with settlements between January and December 2017 at a minimum of US$5,025 and a maximum of US$5,585 per tonne of copper. There was no cost to Capstone to put this protection in place.
Oh how we laughed when Darren 'drop the' Pylot told us there was no cost, it was protection, it was zero cost. In IKN's words that day...
"...those of you wondering why all the gross profits have suddenly disappeared from the CS.to 1q17 and 2q17 results will receive a sharp lesson in just how "zero cost" this all is."
...and on fact we didn't even have to wait until the 2017 numbers showed up, the effect was felt in the 4q16 numbers. So with the 1q17 financials posted tonight and two quarters booked since this executive decision was enacted, we can check on just how much the device is hurting the company. We do that via checking on the "gain/loss on derivatives" line item in the P+L and here's a chart on that:

 Before Darren Pylot put his "costless" collar hedge on copper production in place, CS.to reaped a small dividend on other minor instruments. But with the hedge in place, as soon as the price of copper busted out of the upper end of the range (around U$2.54/lb) it caused and is still causing Crapstone significant financial losses, a total booked of $43.742m in just two quarters. And be clear, these are not fictitious, accountancy, non-cash losses. These are real cash losses and they literally involve writing cheques to the counterparty, cash that would otherwise have made it to the company treasury.

In short, the reason CS.to has files a 1q17 operating profit of $16.759m but a net loss of $7.395m and the reason its cash treasury position dropped by nearly $19m in this first quarter is due to the blithering idiots pretending to be intelligent executives making dumbass decisions as they fail to run this joke of a copper producer. The end.




The GMO piece on diamonds, De Beers and Stephen Lussier is a bona fide tour de force

In the post earlier today we featured two of the pieces in the latest edition of Global Mining Observer, but didn't point you to the major event, the interview on the evolution of the diamond market with Stephen Lussier of De Beers. I kind of left it to last to read because the diamond sector has never really been my thing, but it turns out to be the best single article that's ever come out of GMO. I've now read the whole thing twice and I'll go back to it a again later, too.

Insightful, intelligent and top class prose to boot, Alex W has out-done himself. You have to read this so do so by clicking this link.

Continental Gold (CNL.to) gives us an update

This morning Continental Gold (CNL.to) gave us one of those "hello we're here stop selling our shares please" NRs that didn't work, the stock is down another 6% as your humble scribe writes these words. Add that to the performance so far this year and...

...there's no doubt about it, you just gotta laugh about the way Louis Lobito Little Wolf James of Scamsberry / Casey Research told you to buy it on January 18th this year (after telling you to sell it in January 2016 when it was a $1.40 stock...bless him).

But leaving monkeys with dartboards aside, what is it with CNL recently, why has it been going down like a porn star at a stag night? Well for me the answer is to look at today's NR with the eyes of a newbie to the story, albeit a newbie who knows their way around the financial world. Such a person would see this in the top paragraph...
"With the senior secured debt facility in place, the Company remains funded for its 2017 planned activities with approximately $100 million in available cash and liquidity and remains on track for first gold pour in early 2020."
...and surely think:

1) Took $100m in debt 
2) Good for 2017
3) No production until 2020
4) So how are they going to fund 2018 and 2019???

And there's the rub. Why own this company now while it's owned by the banks? Why not wait until the end of the construction process when we'll know more about whether this mine will work? 

Still, never mind, CNL are conducting a site tour this week, Sprott, and Oppenheimer and a bunch of others in attendance with Ari and Don Gray leading the tour. We should get another round of pumpy pumpy from the sell side whores soon enough.

Why is it that nearly all mining stocks are going down...

...except the two I want to buy/add?

“The Clintons are family friends, I just want to leave it at that.”

Robert Giustra is featured in the latest edition of the best publication in all of the mining forever, Global Mining Observer. Read about Giustra's connected world of Russian oligarchs, France's hot favourite for President Macron, and the Clintons. Of course, the Clintons. That's linked here.

Also don't miss GMO's review of the book on the gold industry written by one Pierre Lassonde, way back in 1994. That's here.

The Copper Mountain (CMMC.to) financial disaster zone

The company formerly known as CUM (tcfka-CUM), Copper Mountain (CMMC.to), reported its 1q17 financials last night and in the NR this morning, was quick to trumpet its sales of $74.1m and net earnings of $7.1m (4c/share). Sound like strong financials, no? Stock will rally, no?

Nope, sorry, it's complete bullshit because there's no way O'Rourke and his collective band of mediocrity are going to point you to the reality of tcfka-CUM's financial disaster area. To do that you need to care enough to download its Reg F and when you do, even if you ignore the house of pain that is the Statement of Cash Flows there's no way you can ignore the dog's dinner balance sheet



They made a net profit of over $7m, but cash dropped and working cap went deeply into negative territory and the reason is down there at the bottom. Yes indeed madame and sire, tcfka-CUM has real and nasty cash debt to pay back at the rate of around $13m a quarter (which happens to be around $13.7m/qtr for the next three quarters of 2017), so how making less than $8m/qtr in operating profit (at U$2.65/lb copper, you're not going to see that average in Q2) is going to help the cause is beyond my ken.

It also beats me why this utter dog remains popular with the Canadian retail community, the only reason I can think of is that it's propped up by rah-rah boys and bought by people who wouldn't even know how to access SEDAR, let alone read and understand a company's financials. This company has 133.1m shares out and at its current share price, a market cap of $126.4m. Its true equity value is zero, unless of course copper prices come to the rescue. If they do tcfka-CUM goes up (but then again so do a whole lot of copper miner shares). If they don't, this company is destined to implode. Math says so.

This Angry Geologist piece on Barkerville Gold (BGM.to)...

...isn't just good geology and mathematics, it's damned funny too. Read it here.