1) Here's the piece that was featured in IKN124, published to subscribers last Sunday September 18th, that talked about the opportunity afforded by beaten down plays with Peru exposure:
Peru’s IGBVL ‘General’ index offers clues to value in Peru
This is a stock market index I watch closely and it’s been mentioned on these pages on plenty of previous occasions. The reason why it’s got my eye is that it combines strong mining presence (Peru being Peru, about 65% of the total index weighting is directly from mining companies) with the volatility of an Emerging Market with good growth, thanks to a country that, macro-economically speaking at least, is running its shop well. It also happens to list several companies that your author follows closely or even owns, but that’s a secondary reason really because all access to those stocks is just as easy via the Canadian, US or London markets.
So to the squiggly lines and the reason for featuring the IGBVL index today. We see that by comparing the Peru index to the S&P500 year-to-date there have been two major periods worthy of mention. The first started around April and finished around mid-July, when Peru’s first possible then confirmed election of Ollanta Humala as its new President spooked the markets and caused some strong volatility. Then the more recent period, from around mid-July to today, is far more interesting in the considered opinion of your author not least because it’s where we find ourselves today. Now we have an IGBVL that’s moving very much in lockstep with the wider world (represented by the S&P500 index) that, in turn, suggests that the market is more relaxed about the way things are in Peru politically.
That’s as it should be, because the fears that many had about Peru’s new mandatory (including those of your author before Humala’s impressive move to the centre post round one voting) have not been realized and it’s becoming clear that business is welcomed and encouraged, as it's a stable playing field for those wanting to invest.
So the expected process of “hey, Peru isn’t so bad after all” has begun, with the first stage that of a market index that has stopped falling and is acting like the rest of the world. This is good, but it also means that there are still Peru-exposed issues that were beaten down due to the ill-perceived political risk and haven’t yet recovered. Your author has his bought-in positions in some of these and this type of bigger-picture strategy note isn’t the place to start touting stocks. We’re all big girls and boys here, DYODD but at least recognize that the consolidation of the Peru macro picture may now be offering decent gains in stocks that haven’t played their catch-up yet.
2) Here's the five day chart of Bear Creek Mining (BCM.v)
3) Here's an owl:
DYODD, dude.
Disclosure: Long BCM.v, entry price $3.80. And the target on the trade is plenty above today's price so not selling yet, either. And while I'm here, I'd just like to thank that dumbass Lobito for the opportunities he offers the rest of us...keep em coming, dude!
The lazyman's blogging technique is to excerpt a bit of the subcription weekly written and published the day before and stick it on the open blog and, as I'm feeling particularly soporific this fine morning, here we go with a chunk of IKN96 out yesterday that covered LatAm mining political risk. It has pretty charts and everything, so enjoy.
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The LatAm part of the Fraser Institute 2010/2011 mining country risk report
Out last week, The Fraser Institute annual report is the mining industry standard on world political risk factors. As regards LatAm, here’s how the region’s countries stack up on the world scale.
Note that in 2011 Fraser surveyed 79 countries/regions for its report and the lower your score, the higher up you are on the league table and the better the place is for mining. The IKN-generated chart has colour-coded the Fraser data for easier reading and the best of LatAm is (once again and with little surprise) Chile, which is the eighth best place to go mining in the world according to Fraser. Second place goes to Mexico (35th in the world) and third place Colombia (40th place and has moved up a lot, as we’ll see in a moment). Peru and Brazil (48th and 49th) get a qualified pass and then we come to the riskier jurisdictions. Panama in 68th place does not impress anyone and let’s note that LatAm hods four of the world’s bottom five places for mining (Guatemala 75th, Bolivia 76th, Venezuela 78th and Honduras 79th).
Now we turn to the evolution of mining political risk in the region (according to Fraser) and this chart that tracks how country scores have changed in the period 2006 to 2011.
Two things to note about the above chart. Firstly, in 2006 there were only 65 world jurisdictions covered by The Fraser Institute and now there are 79, so if a country has neither improved nor deteriorated in the last five years we’d expect to see a slight downmove in its world ranking. For example, a country such as Brazil doesn’t seem to have changed that much since 2008 or so. Secondly, the main positive has been the improvement in Colombia in the period in question. Back in the 2006/2007 report, Colombia was the seventh ranked region and sat behind Chile, Mexico, Brazil, Argentina, Ecuador and Peru. This year’s report has Colombia in third place in the region with only Chile and Mexico in front of it.
A final comment or three from your author. One thing to note is the difference in attitude between last week’s general political risk qualification of Colombia as the region’s riskiest country (the Maplecroft report) compared to the Fraser judgement that Colombia is improving in strictly mining terms. Another is that the Fraser report has an information gap or two, with a particular hole in the shape of Nicaragua. Nica is a pretty friendly place to go mining at the moment (as long as you pick your in-country region wisely) as companies like B2Gold prove, but Fraser has no coverage on the country. Hopefully that will change in the years to come as the report’s scope widens further. But overall, the Fraser calls and their country ranking is one I generally agree with, bar a nitpick there or a quibble there. This section also reminds me that our quarterly update on mining risk is due some time this month (the last one came in IKN83, December 5th). We’ll get round to that once PDAC is out the way.
1) The Presidential Elections (Toledo featured as frontrunner...toldyaso) 2) Social Conflicts (with mining front and centre) 3) Drug Trafficking (the one nobody ever seems to talk about...i wonder why?)
Anyway, it's a good snappy report and worth your time. Go read.
GSL.to five day chart: Is there a problem, officer?
The whole Greystar (GSL.to) news release is right below on the next post, but I think this little passage from the DJNW wire report (sorry no link yet, this is off the wires) really sums up just how deep in the doo-doo Greystar is:
"Greystar said the ministry wants the new Angostura EIA to adjust the occupied area to an elevation below 3,200 meters. As currently designed, almost all of Angostura's facilities and infrastructure are at a higher elevation, Greystar said, and half of the proposed open pit is above 3,200 meters.
"It said the request would require the Angostura project to be completely redesigned, "including identifying and acquiring new land positions to house displaced facilities and initiate new environmental base line studies." Greystar said it hasn't had the opportunity to determine the feasibility of redesigning the project, but that the requirement "will severely impact the project schedule and may have a material effect on its economic viability."
It's like the Colombian government suddenly says, "Hey dudes, you know all that stuff you got above 3,200masl?...Y'know, the stuff we said would be ok to put there and the great big fat hole you were planning to dig there? Yeah, well....it's like....errrr.... we've changed our minds. You can't do that."
So what stunt are these government suits going to pull next, eh? People investing in Ventana Gold (VEN.to) and Galway Resources (GWY.v) just next door have obviously thought that question through this morning already: How they laughed at my constant "avoid Colombia" calls. How they chorlted when I told them Colombian political risk was being wildly underestimated by the junior mining community. How they guffawed when I pointed out that investing in a country without a tradition of formal, large-scale modern mining is a risky business. How you feeling now, newsletter-writing dumbasses? Where's Frank "Colombia Risk Free" Holmes and Thom "I know Colombia" Cassandra when you need them, eh? Do me a favour you two (and all the other ignorant country pumpers) and...
You always have a choice of information sources. If, for example, you prefer to take your Colombia pol risk appraisals only from the IR departments of Antioquia Gold (AGD.v) or Colombia Mines (CMJ.v) or other juniors currently operating and exploring in the Antioquia region of Colombia, then that's fine by me. Or if you prefer to swallow the biased bullshit of stock promoters in trade show presentations using glossy powerpoints and "everything's all right in Colombia now" lines, that's also fine by me.
It's your money after all, waste it the way you want.
However, if you ever get round to doing a bit of serious DD on the region you'll find out something different than the corporate line. Take for example the report linked here, all ready for you to download. It's the latest from the United Nations' OCHA office in Colombia, dated April 2010 (i.e. now). It's one of the typical weekly or bi-weekly dispatches from OCHA. It'll show you just what you're letting yourself in for by throwing money at a bunch of wildcat explorers in the most dangerous region of all South America. It'll also give you a taste of what the IR departments of juniors hanging in Antioquia haven't bothered to tell their willing sheep. Me personally I read this kind of stuff all the time, but I had to rootle around to find something in English. Anyone versed in Spanish has reams of information at their disposal about the dangers of Antioquia. If you don't speak Spanish, you're at the mercy of those who will distort facts to suit agendas.
To wrap up, while you author continues to be very leery on Colombia exposure in general, he makes no bones about avoiding anything Antioquia like the veritable plague, avoiding any junior with liars at the helm who tell me there's no risk and mentally scrawling a great big red "do not trust this person ever again" on the forehead of any newsletter paid bullshit pump pusher who tells me Antioquia is a great place to expose my investment cash. But that's just whussy old me.....
This post is for all those analysts in all those Canadian brokerages, shops, houses and newsletters that cover junior goldies in the Norte de Santander department of Colombia, for example Ventana Gold (VEN.to), Greystar Resources (GSL.to), Galway Resources (GWY.v) amongst a lot of others. And really it's more of a question for you guys up there, because I'd really like to know why you refuse to inform your clients about the unstable political situation in that region, why you refuse to pass information on the social upheavals and misery being caused by far-right wing paramilitary terrorists, why you refuse to tell people about the drug trafficking, the mass killings, the attacks on civilian populations, the displacement of entire villages under duress and the underaged girls forced into prostitution.
Why do you stay totally silent about the enormous political risks currently suffered by Norte de Santander? Do you really think that encouraging a bunch of wealthy Canadians to pour money into such an unstable region is a good idea? It seems to me that by not passing on important information about this region you are either ignorant of Norte de Santander and shouldn't be covering the stocks in the first place, or you are deliberately misleading people.
The National Public Defender Ombudsman also indicated that the cases of violence that communities are exposed to include selective homicides, massacres, forced displacements, threats, attacks and combats using the civilian population as human shields, anti-personnel mines, use and recruitment of children and adolescents to the paramilitry and forced prostitution.
The functionary also said that the illegal groups that operate in the region such as the 'Aguilas Negras' and the 'Rastrojos' have shown a capacity of expanded control over the populations, particularly in the border areas.
Just time for another quickie before going to do other things, because by the looks of the mailbox there's a lot of interest in Ventana Gold (VEN.to). So here's a small extract from the article on VEN in IKN31 published last Sunday. I'm not going to give away the much of the text offered up to subscribers, but it's fair enough to give a lead and point them as to where DD is worthwhile.
Here follows an excerpt from the June 14 2008 Technical Report on the La Bodega property:
Surface rights within the property are held by various landowners. The company reports that it has signed exploration access easements with all the surface owners where drilling has been undertaken or planned to be conducted. Additional surface rights may be required to establish a commercial mining operation.
It’s a sure fire certainty that SMLB and/or Gelvez are the major names inside those “various landowners”. What we have here is a serious weakness, a chink in the armour of VEN and its position. VEN might be able to close on the option and secure that very impressive mienralization, but the topsoil (if you like) isn’t included in the deal, and if you’re prohibited from setting foot on the land, it becomes impossible to build a mine and dig the depths. Again, if you want to you can say it’s the leverage point with which SMLB is illegally and immorally blackmailing the poor, hard done by Ventana Gold. It’s just semantics anyway and makes no difference to the facts of the matter.
Disclosure: No position in VEN.to. Not long and not short. Best advice is 'avoid'. DYODD, dude.
PS: Semi OT- Congrats to PEZ for securing its land rights; overdue but welcome.
BOGOTA – A dozen municipal council members have been killed so far this year in Colombia and more than 2,000 others have received threats from guerrillas and other illegal armed groups, officials said on Tuesday.
“Two councilors are kidnapped, attacks have been made against some 32 councilors and more than 2,000 councilors today have security measures known by the national government,” Colombian Federation of Councilors spokesman Fabio Estrada told Caracol Radio.
Colombia’s municipal council members must also deal with “a situation of neglect that affects their security,” Estrada said.
Over the weekend, a member of the city council in Villavicencio, the capital of Meta province, was killed during CONTINUES HERE
Here's one of about ten thousand reports on the connections between Uribe's gov't and far right wing death squads:
BOGOTA - Colombian prosecutors have decided to open an investigation into the alleged ties between Vice President Francisco Santos and right-wing militiasCONTINUES HERE
And especially for you guys that think Norte de Santander (GSL, VEN, plenty others) have no problems...
Irregular armed groups from Colombia have been active for years in Táchira, an Andean highlands state that borders the northeastern Colombian department of Norte de Santander.
DYODD dude, and while you're at it why not ask your financial advisor about the conspiracy of silence amongst mining analysts about the total lack of talk on political risk in Colombia?
In the intro section ofThe IKN Weekly issue IKN24 published last Sunday there was included a piece on general thoughts about Dynasty Metals (DMM.to). By the looks of the mailbox it went down quite well with subscribers, so just for a change let's put it up here on the blog too and spread a little feelgood happiness about a really cheap, misunderstood gold mining stock. By the way, as you can see above the stock is flying today on great volumes, too.
Dynasty Metals (DMM.to) and valuation on fundamental analysis
I have, quite rightly, had more mail in the last two weeks from subscribers on Dynasty Mining (DMM.to) than on any other company. This because 1) it has continued to underperform while 2) I continue to highlight it as a top pick. By way of example, here’s what one subscriber wrote on Friday evening:
Hi, as you know I rarely request content for the weekly report, but am curious whether you'll be talking a lot about Dynasty.
I find the market's current assessment of DMM.to puzzling, to say the least. And no I never just blindly rely on you are anyone else, taking my own look at the company I also don't see why it's valued the way it is, especially relative to other producers.
If you can give it a discussion this Sunday, would appreciate it.Best, XXXXXX
So let’s have a few lines on the company here.
We’ve run the numbers using a more conservative cash cost level than that used by DMM in its own projections and have the company netting one loonie per share with gold at U$1,000/oz once commercial production is achieved. I know of no 100,000oz gold mine out there that runs at a PE of sub4X, so we can safely assume that the business economics are not the problem here.
We known that the company enjoys good mineral resources, a long potential mine life and potential upside from either doubling production capacity at Zaruma (for no more than an extra $3m or so in capex) or adding production at its Jerusalem or Dynasty projects.
We know that although late on the ramping timeline (mostly for reasons out of his control), CEO Washer now has a producing gold mine on his hands. There are even photos of the first pour available at the company website for those into gold porn. With the move now towards commercial production well underway it would seem there are only minor teething problems left between DMM and a fully functional mining company.
Therefore (bar the possibilty that the market is utterly ignorant of the stock’s existence) the only thing that can be holding it back is the political risk. After all, as some of you have already said to me “If this mine were in (choose your own favourite location) the stock would be in double figures by now”.A moot point perhaps, but true enough.
So what is there to say about political risk? Well, let’s start with the fact that I think Dynasty is worth CAD$6.50 (12 month target) and the market says it’s worth CAD$3.74. This clearly means that I think there is less risk in Ecuador for DMM than the market believes. The law is now in place, the region in which Dynasty operates is not one of the “hot zones” and prone to environmental battles, the company has clear approval for its operations from the government, it is happy to comply and be a “responsible mining company” and it doesn’t have to wait for any sort of permit to be delivered by a government now entering its latest round of talks with the indigenous local communities.
In other words, I believe DMM is sorely misunderstood by a market that simply lumps all miners in Ecuador under one sort of political risk. There is no way in the world I’d recommend to you a project in one of the greenfield, virgin jungle areas of Ecuador right now, but the place where DMM.to sits at Zaruma is slap bang in the middle of a valley that is full of mines, full of miners, full of mining families (all of which, it’s worth adding, will benefit from the environmentally responsible practices brought to it by DMM instead of the normal muck and nonsense left behind by the artisanal mining practices of the region) that know what mining is all about, the good and the bad and the indifferent. If you tried make a chunk of the Florida Everglades into a potato growing region you’d have seven types of hell to pay, but set up a field in Idaho and nobody would bat an eyelid. Same thing here.
But in spite of all the evidence that includes a first pour at the plant, all permits in place and approved and, most importantly, a new mining law that is now on the statute and gives a clear rulebook for all concerned, the investment community still sees risk in DMM as an investment. It worries about a windfall tax being set when the tax cannot be set lower than the current spot price and DMM will absolutely rake in cash at current prices. It worries about the rules being changed when the whole point for going through the last two years was to create a stable law that would be recognized by everyone. It worries about an uncertain state tax burden when the government has made it crystal clear that the total burden (everything, from income tax to VAT to worker participation to royalty and all stops in between) will be around the 51% mark, leaving 49% or so for the company. It worries about indigenous protests when there are no protests whatsoever in the place where it operates.
There is little left to say that hasn’t already been said. But the final point is about how your author operates as a fundamental analyst. When I make a valuation call on a company I do not know when the market will make the same valuation discovery as I, but what I do know is that (this point repeated from a previous rant) that I would be a fool to assume that the rest of the world will discover my great discovery about a week after I personally make it. Sometimes the wider realization comes early and sometimes it arrives late. Those people that crunch numbers of mining companies for a living are sure to know that DMM offers great fundamental value right now, but what I can bring to the table (being quite frank and with no false modesty) is a better understanding of Latin America than the rest. That’s what you’re paying me for, in the end. When you fork out that U$25/month you want to get an edge on the game. And that, dear and esteemed subscriber, is exactly what I am convinced I’m offering you when recommending Dynasty as an investment right now. It may revalue next week or it may need the first quarter results in 2010 before others begin to believe. But they will and I’m staking my professional reputation on that call. Sometimes it might grate on me a little that the stock isn’t moving up on my personally preferred timescale but there’s no way in the world that I’m selling, so my day-to-day emotions are of very little consequence. DMM.to is a strong buy at this current price level and will be higher once people catch up to the fact that Ecuador will allow them to do good business. I don’t know when that moment will be, but it’s coming all right.
Funny old world, innit? You get reams and reams written on Ventana Gold (VEN.to), not to mention next door neighbour Greystar (GSL.to). There's also Anglo at La Colosa and then after those big three a whole bunch of hangers-on in the area, too. But I'll be darned if I can find a word written by any analyst hot on VEN.to and/or the other stocks about political risk in the cocaine-smuggling, fast-shooting, blood-stained Colombia/Venezuela border region.
Which is strange. I mean, to the East of Santander (where the gold-bearing region in question lies) you have Arauca, controlled by the far-left wing FARC, so why not check out the latest on what's happening in that area by going over to the CAJA blog and reading this post (excerpt here)
Pablo Rodriguez, of the Sikuani people, taught in the indigenous school in Marrero.He was murdered in his classroom by the FARC on June 9.Because of the difficult access to that community, his body wasn’t recovered until two days later.When I arrived in Arauca City, the wake had finished and the funeral procession was marching to the cemetery.
Humberto Echeverri taught for 18 years in the community of Los Colonos and he was with his students on June 11.The Social Pastorate program of the Catholic Church has a nutrition and community garden program in Los Colonos, and they were monitoring the weights of the children.FARC guerrillas came into the school and told Humberto they needed to speak with him.They led him away, prevented the people from following, and then killed him.
.... and then when you've had your heart broken by the stories and photos of the children left behind, check out this other recent post at CAJA when the blog author suddenly found himself on the wrong side of town(excerpt here):
The bursts of gunfire were becoming longer and the direction of the sound was changing.It seemed as though the shots were coming closer.There was a particularly long, and ugly, burst of automatic rifle fire.At one point, shots were fired in the plantain grove – 100 yards away.
We also heard explosions which could have been army mortars or guerrilla cylinder bombs.The guerrillas sometimes launch propane cylinders filled with shrapnel – deadly devices that often veer off course and miss their intended target.
A group of soldiers had set up camp in the neighboring house – 50 feet away.I was afraid that the explosions could have been cylinder bombs and that the guerrillas would attempt to hit the army encampment.I counted the explosions (something else to focus on) and noted 16.
A helicopter came and circled overhead five minutes later.A roar of machinegun fire came from the helicopter – the ugliest sound I’ve heard in my life.I looked behind me and saw Nidia crouched underneath a table with her son Brandon, who was crying.One of the bullet cases tore through the metal roof of a house fifty yards away and landed on the ground a few feet from a mother and child (see attached photos).
Sounds like a safe place to start a multi-billion dollar gold mine or two next door to, doesn't it? So what about the far-right wing Paramilitary zone that includes and runs North of Santander? Well, here's Plan Colombia and Beyond with a video post of what an area looks like after the paras surge through and force people to relocate. And here's a report on the paras' recent admissions that they're responsible for 21,000 extrajudicial killings in Colombia.
That video example is North of the exact zone, but Bucaramanga, just next door to Ventana & friends, is a well-known para stronghold, too. So why not do a bit of DD and ask your friendly stockbroker about political risk on these stocks the next time he pumps them down your throat with his $10 target prices? If he tells you the truth, I'd guess the investment may not sound as inviting as it did when he was giving you the full spiel. If he tells you there's little risk and there's nothing much to worry about, I'd guess it's time to change your investment advisor.
It's now six weeks old but that's a very minor detail. If you are in any way interested in the LatAm mining sector you need to read the Kroll take on country risk in the major mining areas in the region. Here's the link to autodownload the PDF.
