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8/2/08

Smarter than the average bear


Remember e-bear? He was the dude who guest-blogged here in July (here's his post if you don't remember, darned good job he did, too). Well tonight I'd just finished writing on something else, was kicking back internet-style, and decided to float over and read the debate at the agoracom Aurelian board. Lo and behold, e-bear has written a post that deserves real applause. Here it is pasted underneath (bar the first part that was referring to a previous post there).

I wholeheartedly agree with him. It looks like there are at least two nutsos in this world thinking the same way about Ecuador, Aurelian and the future. Anyone want to make it three (preferably with a multi-million share block of ARU)? Señor Sprott? Señor Barron? Señor Fund-Manager-At-Canadian-Teachers'-Pension-Fund? But whoever seconds (better said 'thirds') this plan e-bear and I seem to be a-cookin', they'd better be quick. I'm currently in contact with Alberto Acosta via an intermediary, and he's expressed an interest in getting the state to bid for 100% of Aurelian. Imagine that! It'd only take a bid of one dollar over the Kinross offer and it's game over, folks. Why? Cos nobody would dare outbid the people that had to give you the licences and permits afterwards!

Ok, here' we go with e-bear's smarter-than-the-average post. Enjoy.

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I tend to break investments into two categories: "S" for short term speculative, "A" for long term appreciative. I believe Aurelian has the potential to cross over from S to A. Those kind of opportunities don't come along very often, and are usually only recognized in hindsight.

The proper comparision here is not who got bought out at what price, but the long term growth prospects compared to the long run market average. If you sell Aurelian now, you still have the problem of where to put the money - money which is losing value against gold and other commodities. So, unless you use the money to buy gold, you have to find another A type investment with the same long run potential as this one, or try to stay ahead of the market by trading S type investments along with every other shark in the pond.

Anyone who's spent any time in the markets will tell you that the serious money is made by indentifying the A situations early, then sticking with them for the long run. The only decision you have to make is how much to add and when, and you can eliminate that problem through dollar cost averaging. You never pay taxes because you never sell, and you only incur brokerage fees when you add to your position. Naturally, all dividends are reinvested.

Granted, this isn't the modus operandi of this industry, but there are some players who think that way or you wouldn't have any Newmonts, Barricks or Goldcorps.

So then, what are the specific features that make this a potential A type investment? Obviously not the directors. No vision there, so unless we toss them, we may as well hand the prize to Kinross and be on our way. OTOH, maybe there's enough of us A types around to tip the balance? We'll find out soon enough.

So, here's my case.

We have a huge deposit in a friendly jurisdiction. Hardly anyone realizes just how friendly, and therein lies the opportunity. I've made the case for Ecuador many times over, so no need to repeat myself - we all know the story or we wouldn't be here. If others want to assign higher risk, fine. By the time they realize their mistake we'll be fully operational, and they'll never catch up. They'll have to come to us if they want in.

What we're looking at here is the chance to be a long term partner with a govt. that can provide financing (from oil revenue) to develop not just one mine, but an entire industry. We don't need to involve Bay St. at all. They're not doing us any favors, so to hell with them. Frankly, I trust Ecuador more, and I'm willing to give them a chance.

But it's not just Ecuador. You also have Colombia and Venezuela with undeveloped mining potential. Thinking down the road, why not leverage our Ecuador position to expand into those markets?

It's a different business model is all. One that Bay St and the big miners don't want to try. So fine. We'll show them how it's done, and they can gaze on us with envy five or ten years from now when it's too late and no one in Ecuador, Colombia or Venezuela needs them.

For that matter, who needs the TSX? These countries all have nascent stock markets. Let's help them consolidate, and take the TSX's listings away. You'd have a cleaner market because you'd put serious controls in place from the get-go. Now you're cooking with oil, because in addition to Canadian and other global investors, you just opened up the market to domestic investors as well. Once you have Ecuadorian, Colombian & Venezuelan investment banks, pension funds, insurance co's, mutual funds, retirement accounts etc involved, you can say good bye to political risk. Most of the political risk people squawk about is nothing more than the resentment that grows from not being cut in on the deal. So cut them in already. Duh.

Anatomy of a Canadian Stock Promotion (part 3)


In part one and part two (access here), I laid the background to the series of posts. It's now time to reveal the lucky(?) stock chosen by Otto as the company to follow in the next few months as its management and key players use their tried and trusted promotional abilities to sell the stock to the retail market.

The company is Dorato Resources (DRI.v).

Dorato Resources (DRI.v) is a junior explorer-stage gold mining company that has recently moved off the restricted stock lists and on to the TSX Venture exchange. Its focus is on a very prospective area of North Peru which lies on the border of Peru and Ecuador and close to existing properties on the Ecuador side that include Aurelian's Fruta del Norte project. The whole area is known as the Cordillera del Condor.

This series will take things a step at a time, as there are a lot of separate parts that make up this stock promotion exercise. But as a general overview of the posts that are to come let's point out the following right now (in no particular order).

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1) Many of the people behind Dorato Resources have worked previously in at least four other companies. Those companies are known as the 'Cardero Group' and are:
  • International Tower Hill (THM) (ITH.v), an explorer stage junior with its main properties in Alaska and Nevada.
  • Cardero Resources (CDY) (CDU.to), an explorer stage junior with properties in Peru, Mexico and Argentina
  • Wealth Minerals (WML.v), an explorer stage uranium junior with its main property in Argentina
  • Trevali Resources (ZINC.C) an explorer stage junior with its main property in Peru
2) Dorato has obtained many of the concessions from the same person that sold previous concessions to at least one of the companies mentioned above.

3) The concessions are prospective, and the upcoming drill program is very likely to intersect high grades of gold bearing mineral in at least one of the targets. This can be said now thanks to previous work done in the area by AngloGold Ashanti (AU) and also the ongoing artisan (garimpeiro) mining that takes place at the sites.

4) Dorato has recently hired an expert Investor Relations company to help promote the company. This IR team is headed up by the same person who covers investor relations for CDY and ITH, a certain Quentin Mai.

5) Although the concessions are very prospective, they also have considerable drawbacks. Not least is access to the target areas, which is currently limits the company to using an expensive helicopter to lift drilling machinery and personnel in and out. Roads are basically non-existent and would be very expensive to construct. Also, the area is likely to be considered environmentally sensitive, and anti-mining campaigners are likely to pose a considerable problem to DRI in the longer term.

6) Importantly, the original seed capital for the project is due to fully vest at the same time as the (probably) eye-catching drill results are published, which is likely to be some time in early 2009. This will give those people who bought into the seeding private placement (which include the previous owner of the concessions) the chance, if they wish to do so, of selling at least some of the stock held at the same time as buying interest is high amongst retail investors.

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So there we have the basic idea. As this series continues, I will go into further detail about each of these points. We will also be able to follow Dorato's PR campaign as it develops. In fact, if you check the company website (here) or perhaps the yahoo page dedicated to DRI.v (here) you will see its first three press releases have already been released, setting the scene somewhat for the campaign to come.

So in out next episode, we'll start looking at the details. Finally, I've been advised by people who know about these things that the following piece of legalese is a very good idea, so here we go: I would like to remind you that at no will I point make any sort of recommendation to buy or sell any DRI.v securities. I would also like to make it clear that to the best of my knowledge the promotion techniques used and to be used by Dorato are totally legal. Finally, I would like to make it clear that I am not passing any moral judgement on Dorato Resources, and will try to avoid any insinuation of judgement in future posts in this series. My aim is to educate readers about some of the ways promotion campaigns are used and the company structures behind them.

Other posts in the series
Anatomy of a Canadian Stock Promotion (part 1)
Anatomy of a Canadian Stock Promotion (part 2)

Good weekend reading from respected bruddasites*

All links provided. Just click, go and learn, dudes!

Over at Jurgen Schuldt's blog, learn more about the message behind Alan's message to the Peruvian nation, and how President Twobreakfasts is trying to have his cake and eat it on the issue of public spending (if he's true to form he'll end up eating it, though). Excellent insight from Professor Schuldt.

I knew that Bolivia is a land of inequality, but this one blew me away. Did you know that 0.2% of its population owns 50% of its arable farmland? And amazingly enough, that 0.2% tend to be rich...and white....and pro autonomy for the half moon states...and anti Evo. Abiding in Bolivia has the jawdropping details.

South-South Cooperation has the story on an interesting Council of Foreign Relations report. The CFR recognizes the growing influence of China (and by definition the waning support for the USA) in Latin America. However it calls China "a partner, not a threat."

Ecuador Mining News has a great report on the Kinross bid for Aurelian, and amongst other things is kind enough to say a couple of nice words about this corner of cyberspace. Silvia has rounded up reactions from all spheres and put them in a very neat and readable package. Go read.

*and sistasites, silvia

The net is closing on Guillermo Moreno

"What, that door over there?"
"Yes...now use it."

Argentina's Secretary of Interior Commerce, Guillermo Moreno, has lasted out the week (which is more than I expected, gotta be said), but the clock is ticking even louder now.

Last night, the so-called "Defender of the People" ombudsman (cool job title, no?) Eduardo Mondino published a report calling for the 'urgent normalization' of operations at Argentina's now infamously crooked statistics bureau, INDEC. Along with plenty of other recommendations (those Spanish speakers sufficiently interested can access the report right here), he makes special mention of Moreno, and even headlines the report by aiming directly at his ministry by saying that it should "guarantee the credibility of public statistics and avoid interference from outside organisms."

For sure, the overhaul at INDEC is badly needed. Since Nestor Kirchner sacked the head he didn't like and put in his own nodding-dog replacement, the office has lost all semblance of credibility. INDEC's (and Moreno's) insistence that national inflation is running at under 9% per annum is evermore insulting for a population that knows inflation is running at a minimum 20% and probably much higher. This joke has got to stop. Hopefully it stops when Moreno is booted out of power.

So now all eyes are on the Klishtina press conference this afternoon. With the ombudsman giving journalists plenty of fuel for Moreno's bonfire, her answers to any INDEC questions will be revealing.

Just how much crap can Simon Romero write on Venezuelan Finances for the New York Times?

Answer: an awful lot. Here's the italics paste of his latest report dated Saturday August 2nd, and between his junk you'll find my comments in bold type.

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Bank Tries to Allay Fears of Instability in Venezuela

Published: August 2, 2008

CARACAS, Venezuela — The central bank sought on Friday to calm fears of faltering banks a day after President Hugo Chávez unexpectedly announced the nationalization of a large Spanish-owned bank, his latest effort to intensify state control over the economy through takeovers of private companies.

What actually happened was pretty boring. The Central Bank issued a communique that said the nationalization of Banco Santander controlled 'Banco de Venezuela' would not affect the banking system, and that the country's finances were solid.

The nationalization of the bank would extend to the financial sector a series of takeovers, which Mr. Chávez initiated last year, in industries including oil, telecommunications, electricity and steel-making.

We note at this time that Chávez is fully compensating shareholders for this operation, which is more than shareholders of US banks like IndyMac can say. They got nothing from their gov't.

Mr. Chávez further shook the political establishment and financial markets on Friday when he disclosed that he had used his decree powers to issue 26 laws on Thursday.

And my how they shook! According JP Morgan's EMBI+ index, Venezuelan bonds lost a mighty 0.09% on Friday (yes, that reads zero point zero nine percent). Here's Reuters with the details.

They included a banking reform, although the government did not provide details on any of the laws the president decreed.

And Simon Romero forgot to provide a small detail, too. Chávez's Presidential Decree powers finished on Thursday. That's why all these laws came out together.

The central bank was similarly vague in its attempt to reassure depositors that the banking system was solid. It said it had enough reserves to guarantee normal financing operations throughout the economy, but did not provide new figures on its reserves, which are thought to exceed $30 billion.

This proves that Romero is a dick. Anyone worth their financial salt knows that the BCV reports on its reserve figures at close of every Friday (holidays permitting). It was not any different today, because after Romero had gone to press, the BCV announced its reserves at a very healthy U$35.113Bn (with a "B").

On Thursday, Mr. Chávez announced plans to nationalize the nation’s third-largest bank, Banco de Venezuela, owned by the Spanish financial giant Santander. Compensating Santander could cost the Venezuelan government more than $2 billion, banking analysts here said.

Although Mr. Chávez had earlier threatened to nationalize Spanish-owned enterprises in retaliation for European immigration measures, his move surprised investors. He returned from a trip to Spain last week and assured Venezuelans that he had mended relations with King Juan Carlos, who famously told Mr. Chávez to “shut up” at a summit meeting last year.

Kingie assured his people that things were good, too. But that's not unilateral enough for Romero.

Pavel Gómez, an economist with ODH, a financial consulting firm here, said Mr. Chávez’s government could build 500 schools for an estimated 500,000 students with the money needed to pay Santander for the takeover of Banco de Venezuela. “The true cost of this measure to Venezuelan society is open to debate,” Mr. Gómez said.

Beats me why Romero didn't convert that number into loaves of bread. If anyone doubts that schooling is now available for more people in Venezuela's history, they need to check the numbers.

Mr. Chávez said that a Venezuelan banker had asked for his approval to buy Banco de Venezuela from Santander, a plan that the president overruled. Reports here identified the banker as Victor Vargas, a flamboyant financier whose daughter is married to the great-grandson of Francisco Franco, the deceased Spanish fascist.

“It’s possible that Santander saw the clouds gathering on the Venezuelan economy and is relieved to just get out,” said Orlando Ochoa, a financial analyst here. “But this move also destroys some of the pragmatism recently introduced into policies trying to stave off a crisis among the banks.”

Yeah, as Banco de Venezuela made U$227m in net profits for Santander last year, they must be so very very relieved that they can't make the same whopping profit again.

Venezuelan bonds fell Friday for a second day, with the nation’s debt trading at more than 6.5 percentage points above United States Treasury securities. That puts Venezuela behind only Argentina, also struggling with rising inflation, in economic risk measures of large Latin American countries.

Romero mentions the absolute difference, but does not mention the tiny change in bonds valuations on Friday (see above). Romero's just miffed cos he didn't get a t-shirt.

Indeed, fears recently arose over the possible collapse of several banks because of rules forcing them to sell $5 billion of complex securities called structured notes. Banks bought the notes last year at values tied to high black-market rates of the dollar, exposing some of them to huge losses after the local currency, the bolívar, strengthened this year.

Oh my God!! This is the most bullshit I've seen about Venezuelan banks in one single paragraph ever. The Vennie banks absolutely cleaned up last year with the change in parallel rates and Romero either doesn't have the faintest clue about what he's saying or he's lying through his teeth. Sack this joker, NYT!!

This is just a short comment-y resumé of the Romero note, but really I could go on for thousands of words about how much BS is here. These are total lies! This post from April gives you a general idea of the licence to make money that is the Venezuelan parallel exchange rate for banks.

Faced with a possible banking crisis, Mr. Chávez recently named as finance minister Alí Rodríguez Araque, who had won the grudging respect of some members of Venezuela’s business establishment after serving as the country’s representative to OPEC.

Rodriguez replaced the ex minister who is running in the 2008 regional elections. That's why he got the job. Not cos of a "possible crisis". Bullshit again.

Mr. Rodríguez quietly sought advice from the I.M.F. and from the World Bank, multilateral institutions previously shunned or threatened with expulsion by Mr. Chávez. In recent weeks, banking executives and financial analysts here said, the finance ministry had asked troubled banks to individually negotiate ways out of the crisis.

Ridiculous. Rodriguez hasn't been near the IMF.

But nationalizing Banco de Venezuela could cause those plans to unravel. Smaller banks might be hesitant to take difficult steps to strengthen themselves financially if they thought they would be nationalized anyway.

But they won't, cos they don't. Chávez has already said that he'd only nationalize the Banco de Venezuela, because he'd only nationalize those entities that were once controlled by the state and were privatized. Other banks won't go the same way.

Soaring oil revenues give Mr. Chávez a cushion to carry out the nationalizations, with oil revenues up 70 percent in the first quarter to $20.5 billion. But demands from some sectors for a greater share of the revenues have also intensified, as seen in Mr. Chávez’s decision last month to raise salaries for the armed forces by 30 percent.

Such increases barely offset inflation, the highest in Latin America at 32 percent; food-price inflation has soared even higher, reaching 52 percent.

I defy anyone to show me that food price inflation rate of 52%. But be prepared to get your argument ripped into shreds by financial fact and logic, ok? Total, total crap.

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So here endeth the lesson, and the lesson is "Romero wants to scare people with lies about Venezuela". That's the New York Times for you. Pure shit on Latin America.

8/1/08

Breaking News! Venezuela Opposition Leader Murdered, National Police Suspected

Big news breaking in the region. The body of Guillermo Rivera was found buried in a garbage dump, apparently having been strangled. Rivera, a leader of an important opposition group in Venezuela, went missing on April 15th. His family were told at the time he had been taken in custody by the National Police Force.

This promises to set off an international scandal of the highest order. With the political situation tense as it is, this form of suppression of opposition political leaders is an affront to the spirit of democracy, protests should be made to the government of Hugo Chávez immediately and without doubt Venezuela and its government should be IMMEDIATELY SANCTIONED BY ALL INTERNATIONAL BODIES.

Here's the link to the full story. Oh....wait a minute....it's in Colombia, not Venezuela. Oops, silly me! And it was news there two weeks ago. Amazing how that one wasn't reported in English, isn't it?

Argentina: It's good to talk

The "Guillermo Moreno Replacement Name Envelope" is still unopened

You can't expect miracles overnight, but the underlying tone of the Klishtina gov't has been changing since that watershed Cobos "no" moment.

Firstly, as well as the new Cabinet Chief Massa saying things have to change at the gov't INDEC statistics office (i.e. those directly responsible for the blatant lie known as the inflation figures, amongst other silliness), the gov't has implicitly recognized the real rate this week by approving a 22.5% rise in the national minimum wage, which then steps up to 27%% by the end of the year. This minimum wage is the highest in Latin America by quite some distance, by the way.

Secondly, this week Klishtina met with the soon-to-be-ex Veep Julio Cobos met with Klishtina. According to referee..sorry...sole witness Massa, the 45 minute conversation was cordial and frank. In other words, Cobos won't go just yet.

But maybe the most interesting development was today, when Klishtina announced a press conference for tomorrow with all national media. Each media outlet will be allowed to ask one question (to give everyone a fair shot, sez Massa). This may not sound like much to you, but open Presidential press conferences have been a real rarity in the Kirchner era, and this will be the first since Klishtina took charge. She also said that regional media would get their chance in the future when she travels to the provinces on official business.

So signs of a thaw in the so far insular Kirchner approach. I'm no fan of the gov't (it might have shown up in previous posts..ahem), but the kinds of moves towards more accountability listed above cannot be a bad thing and might even turn out as positives given enough time. Credit where credit is due, and here's hoping it continues. Vamos a ver.........

The value of good due diligence

DYODD*, dude! I say that all the time, and it's the most important thing you can do if you are an investor. Individual or corporate with large or small pockets, it matters not. Knowledge is the basic tool here. It is YOUR money. Trust nobody. Check facts. And believe me, that applies to this humble corner of cyberspace as much as any other.

Two quick examples.

1) Example of bad DD. Can you spot the (not one, but) four factual errors this author makes about Aurelian and Ecuador in the space of just ten lines? I read this today and thought, "Well, he might have some good ideas about other buyout plays, but if he can't get his basic facts straight why bother with him?"

2) Example of good DD. This link shows you exactly why you have have HAVE to take time and read company filings. Good on you Gary for showing the way.

The bottom line: Take advice from the good ones and discard the bad ones, yep for sure we all do that. But trust nobody but yourself. It is your money.


*Do Your Own Due Diligence

A word on Crystallex (KRY)


That word is "DON'T"

DON'T believe the half-truth stories you read in unscrupulous news media

DON'T buy into the latest attempt to create interest in the stock via a whisper campaign started by KRY longs and inside parties. They always use innocent third parties, by the way.

DON'T think for a second the company will get its permit.

DON'T think the liars are in the Venezuelan gov't and the honest guys are at the company. To be sure, the VZ gov't is pretty secretive in its ways, but they've consistently shown that once they actually make a public announcement they stick to it.

DON'T believe the company is in any way solvent.

DON'T try to understand how a miner that does basically nothing can have a burn rate of $45m per annum.

DON'T buy the stock, don't short the stock, don't even look at the stock. Just avoid it like the plague.

When it comes to Crystallex, just DON'T, ok? Why bother with the cheap crud when there are so many excellent opportunities in quality junior miners going equally as cheap right now?

A must read on Correa and Ecuador


As analysis pieces go, this report by Daniel Denvir ranks as every bit as good as anything I've read on Rafael Correa, Ecuador, the current political scene, the dynamics of the upcoming constitutional referendum and what it will all mean.

Perhaps the most impressive thing about this report, however, is that it's in English. Proof that top quality journalism is not dead in the language of Shakira (sorry...Shakespeare).

Full applause and Kudos to you, Daniel. Now go read it. You'll understand a helluva lot more once you have.

7/31/08

Ecuador Mining: Time to play "Spot the Difference"

Yes indeed, dudes and dudettes, it's funtime happy hour chez Otto. After a hard day slogging over the markets we can kick back with a bit of R&R. Today's relaxing quiz is Spot The Difference. All you have to do is look at the statements that follow and decide which one is substantially different from the others. All links to original source materials are provided. So on with the show!

1) Made by IAM Gold (IAG) (IMG.to) on July 29th 2008.

The President of Ecuador has consistently maintained his commitment to developing a Mining Policy that allows for and promotes responsible large-scale mining, while providing an equitable sharing of benefits between all stakeholders. The President of Ecuador has indicated his intention to publish the draft Mining Code and conclude the Constitutional assembly process before the end of August.

2) Made by Corriente Resources (ETQ) (CTQ.to) on July 31st 2008

Corriente CEO and President, Ken Shannon, commented "While President Correa's office has yet to release a draft of the government's new Mining Law, we remain optimistic that recent dialogue and events continue to confirm that mining will be an integral component of Ecuador's future economic and social development. With over CDN$ 86 Million in the treasury and an excellent Ecuador-based development team in place, Corriente is well-positioned to continue working with the Ecuador Government to develop a responsible mining industry for the benefit of all stakeholders."

3) Made by Aurelian Resources (ARU.to) on July 18th 2008

"An earlier version of the draft law posted on the MMP web site was reasonable," said Patrick F.N. Anderson, President and CEO. "We are confident that President Correa wants to see a responsible mining industry in Ecuador."

4) Made by Dynasty Mining (DMM.to), April 28th 2008

Dynasty Metals and Mining received Ecuador President Raphael Correa and senior members of his cabinet at its Zaruma Gold Project over the past weekend. The President spent several hours meeting with Dynasty senior staff and community leaders. In a public address, his comments in favour of environmentally and socially responsible mining and its importance to the local economies of Portovello, Zaruma and several neighbouring towns were welcomed by a large crowd of supporters.

5) Made by Rafael Correa, President of Ecuador, on April 25th 2008

"Responsible mining will go ahead in Ecuador."

6) Made by Rafael Correa, President of Ecuador, recent conversation with Corriente Resources

"I have a vision of responsible mining that will bring to the Ecuadorian people the benefits of resource development. Mining will go ahead in Ecuador and our role in government is to ensure such development is fair to all stakeholders, including the local communities."

7) Made by Tye Burt, CEO of Kinross Gold (KGC) on July 24th 2008

"We've had a number of meetings with senior government officials and believe that they will be supportive of the direction, which we are discussing,'' Burt said today on a call with analysts and reporters. "We believe the country is headed in the right direction.''

The new law is "not going to contain any substantial surprises,'' he added.

8) Made by Galo Chiriboga, Minister of Petroleum and Mines, May 15th 2008

Ecuador's new mining law will call for community consultation over projects but villagers will not have veto powers to shut them down, Mining Minister Galo Chiriboga said Monday.

"In our opinion we think the previous consultation is important, but it should not be binding," Chiriboga said. "Mining projects in this country will not move ahead until there is a regulatory framework different from what we have now for the benefit of both the state and companies."

9) Made by José Serrano, Undersecretary of Mining, Ministry of Petroleum and Mining, Ecuador

Once the law is in force, they (the mining companies) will be able to start working immediately -- we expect in August by the latest,'' Serrano said. That will allow mining of metals like gold, copper, and molybdenum to start by the end of 2009, he added.

10) Made by Michael Gray CFA, analyst at Genuity Capital, June 25th 2008

We believe Kinross must have sufficient in-country intelligence to propel them to make a bid for ARU at this time “pre-new mining law and new constitution.”

11) Made by Tom Meyer CFA, analyst at Raymond James, April 30th 2008

In our view, this (Ecuador's mining situation) is politics playing out in the press and although we are far from a certain outcome, as a whole we are constructive on the country based on our view that the potential for mining industry investment is too high for the voters and the politicians to ignore.

12) Made by Alberto Acosta, ex head of Ecuador's Constitutional Assembly, April 18th 2008

"The new mining law will favor serious entrepreneurs, not the speculators."

13) And now....roll on the drums for unlucky thirteen....this one made by Patrick Anderson, CEO of Aurelian Resources (ARU.to) on July 25th 2008, just two days after the Aurelian Board of Directors accepted as "friendly" the bid from KGC that was fanfared as valuing the company at $8.20 per share:

"And what if the Mining Law isn't favourable? Or what if it's only favourable to a corporation that can take on bigger risks than we can? There are lots of factors."

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Did you notice? A whole range of informed, responsible and professional analysts, miners and politicians all thinking one way, and the only one that seems to think there's a problem here is the CEO of the company that has just accepted a lower-then-lowball bid on his company. And be clear; the above list does not include the commentaries of rabid righties, loony lefties or green treehuggers. These are all people with their professions and their professional reputations on the line. And the only one that is afraid of the big, bad mining law wolf was saying that he was confident that the law would be reasonable just two weeks ago!

What might have made him change his mind? Well, the only substantial change on the horizon between then and now is Kinross dangling several million dollars in front of him and his options. It sure looks from here that he decided to ignore his peers, ignore his fiduciary duty to shareholders and accept the first offer that passes his desk as 'friendly'. Not only that, he and his board add insult to injury by gifting Kinross 15 million shares at $4.75 (at a time ARU has plenty of cash on board for 2008 and 2009 operations) that stack the deck of voting shares wildly in favour of the bidder (as well as making them a very quick and easy profit).

Fortunately, Otto is not the only one who has noticed this very strange turn of events. In a message to shareholders today, Aurelian mentioned the following:

"...Aurelian has recently been selected for a full review of its continuous disclosure record by the Ontario Securities Commission (the "OSC") in accordance with OSC Staff Notice 51-703, Implementation of Reporting Issuer Continuous Disclosure Review Program, Corporate Finance Branch. Aurelian remains in the process of responding to the comments raised in the OSC's letter."

Now I'm no legal beagle expert on Canadian law, but luckily I know a few guys that are. Prestigious Canadian law firm Oster, Hoskin & Harcourt LLP can tell us more about this 51-703 thingy. This is the link to the relevant information, and here's the passage that most interests us:

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Reporting Issuer Continuous Disclosure Review Program
On June 16, 2000 the OSC released Staff Notice 51-703, entitled "Implementation of Reporting Issuer Continuous Disclosure Review Program, Corporate Finance Branch". The Staff Notice advises that beginning July 1, 2000 the Continuous Disclosure Team of the OSC will implement its Continuous Disclosure Review Program (the "CD Review Program"). The CD Review Program will subject every reporting issuer to either a full, an issue-oriented, or a limited review of its continuous disclosure record on average once every four years. The CD Review Program will also involve insider trade report reviews.

A full review means that the reporting issuer's entire continuous disclosure record for the past year, and its financial statements for the past two years, will be reviewed. Staff will look at interim and annual financial statements, AIFs, MD&A, material change reports, press releases and proxy circulars. Importantly, staff will also review press articles, public complaints, the issuer's website, trading activity, industry data, analysts' reports, transcripts of investor/analyst meetings and internet bulletin boards, as appropriate.
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So let's get this straight: There are three types of review, and it just so happens that the OSC has slapped the major full review option on Aurelian's tush, and although it could have run the review at any time over four years the OSC chooses the exact moment it goes into a friendly M&A deal. Interesting, no?

And as for that review, the OSC is going really deep. Two years worth of financials....all the interims......the PRs......the press.....public complaints (!!!!), trading activity (oh, let's not talk about those insider sales just before the Mining Mandate, Patrick)....transcripts of meetings (oooooh.....conflict city!)...internet bullboards (oh wow! Hey, agoracom...you gonna be famous!). I think we can take it for granted that this is no run-of-the-mill review and the OSC are not going to all this trouble for nothing.

The bottom line: As I've stated before, unless somebody can give me a good answer to two simple questions.......

1) Why accept the current low bid as friendly?
2) What possible advantage is there for Aurelian shareholders to sell 15m shares to Kinross at $4.75?

.........there is every reason to believe that Patrick Anderson and the board of directors at Aurelian is not performing its fiduciary duty correctly. In such a case, the shareholders of Aurelian who are not happy with the pricing of the current offer have good reason to demand the resignation of the CEO and its board. With the stock languishing 20% below the wholly imaginary $8.20 headline offer made by Kinross and endorsed by Aurelian as friendly, the market is shouting loud that the chances of any counter bid are diminishing fast. So if enough people vote against this deal (the current price is close to insulting, and even a Kinross sweetener wouldn't bring it to within a country mile of a fair valuation), and the OSC considers the 15m share placement Aurelian struck with Kinross as suspicious as I do and decide to annul the deal, then the only honourable thing for Anderson to do would be to resign.

There are people to replace him, and there are many ways of ensuring Aurelian shareholders get a much better deal than the paltry one offered up by this board. I have already outlined one scenario, and there are many more. I'm sure the Gold Eagle/Goldcorp deal struck today that valued the (as yet non 43-101 compliant) GEA gold in situ at $140/oz has not escaped the attention of Aurelian shareholders. ARU's 14.1m oz of43-101 compliant resources will certainly be added to once further (and suspiciously delayed) drill results are published and incorporated. If, as most suspect, there are at least 20m oz Au on the table at Fruta del Norte, the present offer puts that gold at $63/oz. Is there that much risk? According to the people quoted above, only the CEO of the selling company seems to think so!

Trading Post (yay edition)


In the long run cream rises to the top, and it matters not if a whole sector is out of fashion.

MAI.to back over a loonie. Yay.

BWR.to having a real rebound of a day. 0.31. Yay

FVI.v joining in the fun at 1.51, but volumes not fabbo, gotta say. Still....yay.

ARG.to continues its great 4 day run. $1.65 and 25% up since the results. Yay.

JAG doing well. Yay.

LA.v at 0.54. Yay.

NETC bucking the Bovespa down day with a 3.5% rise. Yay.

And pointing to the macros, Zinc kept its head while all around lost theirs. Gotta like that (and BWR.to says that you do).

Manta reactions


As previously mentioned by your vigilant IncaKola, this week Ecuador finally got around to telling the USA the obvious, namely that The Manta Air Force base on its coast would be closed for business in 2009.

A couple of interesting reactions that you're unlikely to catch on Fox News tonight.

1) When the Ecuador Chanchellor, Maria Isabel Salvador, officially informed the world at the non-aligned nations conference (now on...betcha that isn't making much news round your way either), she was given a standing ovation by the officials of the other countries present. This link is a subscription service, but the report includes this excerpt (translated) of an offical press note from the Ecuador gov't:

"She received an ovation from the the various Chancellors of the world when she officially announced that the ecuadorian Govt' has finished the convention of the operations base at Manta."

2) Colombia has now clearly stated that it does not want a US Base in its country. That's not some whisper, but a clear statement from its Minister of Defence officially announced by its chancellor through the necessary protocol channels.

Which means that the US options are running thin down here. The list of countries in South America who have declared "No base here, dudes" includes Ecuador, Colombia, Venezuela (natch), Brazil and Bolivia. Southern Cone nations Argentina, Uruguay and Chile are not well placed geographically for the job and would be unlikely to agree, anyway.

Maybe a Central American country is a possible, but the obvious choice right now is the USA's new best friend, Peru. With Alan doing everything he possibly can to annoy the rest of the continent by bending over backwards for the rich North and an US manned airstrip already being set up in the cocaine-sensitive VRAE region (details here), my money is on Peru as the next host with the most.

The little zinc engine that could

Puff puff puff...........

You just know it wants to, don't know? This link adds yet another element to that fundy reasoning I've been using this last week on zinc. There are plenty more stories like this.

"...Western Mining Co, China's second-largest lead miner, on Wednesday lowered its lead and zinc production forecast for 2008 after falling zinc concentrate prices cut first-half profits etc etc etc......."

Stocks I like with Zn exposure:

  • Fortuna Silver (FVI.v), though it's really a silver play, and 45% of its zinc and lead production is already hedged in the $1.10 to $1.20 range.
  • Breakwater (BWR.to). Any zinc pop will really benefit BWR, as talk of mothballing its mine(s) will disappear.
  • Farallon (FAN.to) Zinc and other metals in Mexico, commissioning starts this quarter.
  • Vena Resources (VEM.to). Its Azulcocha Zinc/Lead/Silver mine due open in November. Very cheap right here.
Please keep in mind that Fortuna is an advertiser on site. But also keep in mind that it's only there because I like it. In fact, I refused an ad placing from a company this week because I'm not comfortable with it. Also, as usual DYODD, dude. We're all big boys and girls, yeah?

More news from "investment grade" Peru

Four simple data points.

1) Peru's 2007 budget for the nutritional assistance program: U$212m
2) Peru's 2007 budget for the 'Juntos' anti-poverty program: U$177.5m
3) Peru's 2008 defence spending budget, as reported here: U$514m (minimum)
4) Percentage of pregnant mothers with anaemia in Peru's highland Puno region: 57%

And speaking of health and poverty issues in Puno; This link reports on a 17 year old girl who gave birth to her own baby unassisted in a public lavatory in the city of Puno. When she cut the umbilical cord incorrectly the baby died. The girl is now in a stable condition in the local hospital. The word 'tragic' doesn't even come close.

Viva Investment Grade. Viva, Viva, Viva.

Rattling the cup, July edition


It's that begging post again. Over there...up in the right hand corner of the page....


....there's that naggy little paypal button.

The same spiel as other months. If the blog has done you a service this month it's a chance to throw over a small tip. No coin too small, and as always it'd be very appreciated. But once again it's important to understand that this is totally voluntary. Donate or not, the door is permanently wide open for one and all. If you enjoy reading the blog and maybe have learned something along the way and generally have warm and fuzzy and cuddly thoughts about this tiny corner of cyberspace, that's more than enough for me.

7/30/08

On Brazil (for M.P.)

Reader MP mailed me today asking why I don't say much about Brazil.

Fair comment, I suppose. On the blog I cover a few stocks there (NETC, GOL, TAM, PBR, RIO, CZZ), and the political stuff is limited to Lula when there's lots more to say about the place. But really it's cos of the fact that Brazil is covered to such an extent by LatAm news services that it sometimes feels as though (along with a guy called Chávez) there's nothing else going on down here according to the English-speaking world. I'll leave you with an example; on the Bloomberg Latin America front page tonight, here are the headlines. Seven out of the eleven stories are directly related with Brazil. Nuff said.

More to life than Brazil you know (dare you to phone a LatAm fund manager and tell him that tomorrow, dude)

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Latin America

Financial News

Brazil's Real Rises to 9-Year High as Stock Gains Boost High-Yield Assets Brazil's real strengthened to a nine-year high on speculation gains in U.S. stocks increased demand for the country's higher-yielding assets.

Petrobas Workers May Cancel Strike After Union Backs Offer, Estado Says Petroleo Brasileiro SA workers may call off a strike planned for Aug. 5 after a union recommended they accept the state-controlled oil company's offer, Agencia Estado reported.

JBS May Buy Brazilian Rivals Whose Margins Have Weakened, UBS Analysts Say JBS SA gained in Sao Paulo trading after UBS AG said the world's biggest beef producer may purchase Brazilian rivals because rising cattle prices have left them vulnerable.

Brazil Stocks Rise, led by CSN, Gerdau, Usiminas, Cosan; Bolsa, Ipsa Gain Brazilian stocks climbed the most in almost two months, led by steelmakers, after the world's largest producer of the metal beat profit estimates. Rising sugar and nickel prices boosted their industries.

World Bank Economist Says Latin America Inflation Will Exceed 8% This Year Latin American inflation will average more than 8 percent this year because of steeper food prices, the World Bank's chief economist for the region said.

Sadia Net Income Increases 9.6 Percent on Higher Foreign, Domestic Demand Sadia SA, Brazil's second-biggest foodmaker, said second-quarter profit rose 9.6 percent as higher demand boosted sales and allowed the company to increase prices.

Petroleos Mexicanos Refining Unit Reports Loss for Second Straight Quarter Petroleos Mexicanos, the state- owned oil company, reported a refining loss for the second consecutive quarter as record crude prices erased margins.

Mexico Central Bank Raises Inflation Forecasts Through 2010 on Commodities Mexico's central bank raised its inflation forecasts through 2010 because of higher-than-expected commodity costs, increasing speculation policy makers will again raise the country's benchmark lending rate.

General News

Yellow Fever Alert Widened in Brazil After 25 Deaths in Sao Paulo State A yellow fever alert in Brazil was widened to include parts of Sao Paulo state, which had its first human fatalities from the lethal disease in eight years in June.

WTO Trade Talks May Succeed After Elections in U.S. and India, Lula Says Brazilian President Luiz Inacio Lula da Silva said global trade talks that broke down yesterday may succeed after elections in the U.S. and India this year and the next.

FARC Leader Says Group Won't Disarm Under Colombia's Uribe, AFP Reports A leader of the Revolutionary Armed Forces of Colombia said the country's biggest guerrilla group won't give up its armed fight and ruled out peace talks with President Alvaro Uribe, Agence France Presse reported.

Potash has peaked: Official


If it looks like a duck, and quacks like a duck, we have at least to consider the possibility that we have a small aquatic bird of the family anatidae on our hands.

Douglas Adams. Author, 'The Hitch Hikers Guide to the Galaxy

Good news! We can stop worrying if the potash/phosphate bubble is still on the way up, if it's here to stay, if it's already burst. With the information contained in this post we can now relax and get back to the boring job of looking at non-fashion companies and crunching numbers and deciding on true values.

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Press ReleaseSource: Lateegra Gold Corp

Lateegra Announces Phosphate Acquisition
Monday April 21, 3:05 am ET

Press ReleaseSource: Lateegra Gold Corp.

Phosphate Expert Joins the Lateegra Team
Monday April 28, 3:05 am ET

Press ReleaseSource: Lateegra Gold Corp.

Lateegra Reinforces Its Focus on Phosphate Exploration
Wednesday May 28, 10:05 am ET

Press ReleaseSource: Lateegra Gold Corp.

Lateegra Stakes Additional Claims and Amends Terms of Phosphate Acquisition
Tuesday June 10, 3:05 am ET


Press ReleaseSource: Lateegra Gold Corp.

Lateegra Forms Joint Venture on Phosphate Project in East-Central British Columbia
Tuesday July 29, 2:43 pm ET

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Dušan Berka, P.Eng.
Position: Director, Lateegra Gold Corp.

Mr. Berka is a graduate engineer with a M.Sc. (Dipl.Ing.) degree from the Slovak Technical University, Bratislava, Slovakia (1968) and a member of the Association of Professional Engineers and Geoscientists of B.C. since 1977. He has over 35 years international experience in Engineering, Marketing & Sales and Business Administration. He also has extensive experience in the management, marketing, promotion and administration of public companies as well as in the Corporate Communications, shareholders information, public relation and contract negotiations. During the past 26 years Mr. Berka has served as a Director and Officer of various public companies traded on the TSX and TSX Venture Exchanges and the NASDAQ System in USA.

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Jul 25/08 Jul 18/08 Berka, Dusan Indirect Ownership Common Shares 10 - Disposition in the public market -7,000 $0.275
Jul 25/08 Jul 17/08 Berka, Dusan Indirect Ownership Common Shares 10 - Disposition in the public market -2,500 $0.275
Jul 25/08 Jul 16/08 Berka, Dusan Indirect Ownership Common Shares 10 - Disposition in the public market -500 $0.275
Jun 12/08 Jun 03/08 Berka, Dusan Indirect Ownership Common Shares 10 - Disposition in the public market -10,000 $0.240


Trading Post (green edition)


Not everything is going up as it should, but at least there's some green on the screen and more importantly some volume in these beaten down juniors.

Minera Andes (MAI.to) up 3.3%. It added to yesterday's interesting news with more today. In this production update PR MAI confirmed the San José mine is now at full speed, will enjoy a production capacity upgrade towards the end of the year and (very nice to confirm) is now cash flow positive. Really...I gotta ask you...how cheap do you need this thing to be with these fundies before you buy some? In the words of an analyst friend that has followed the stock for many years, "current price is an insult".

Amerigo Resources (ARG.to) now $1.54 on good volume. Nice to know that at least some bargains are still recognized by this dreadful market.

Breakwater (BWR.to) is still under 0.30, but up 11% on really good volumes today (yeah, I'm stressing the volume thing today). I am more and more convinced that the bottom is in for Zn. Look how Teck Cominco has performed in the last two days, too.

Colossus (CSI.to) is our spot of red today. Down at $2.33 right now, volumes remain light. In a conversation with a technical analyst I respect this morning, he said that CSI.to could test $2.20. So that's where I'll dip my toe (if it gets that far). Until then, patience. This linked post explains why I like CSI.to as a long term prospect.

I'm kinda miffed that I bought GLD yesterday, as I could have got it whole POG ws under $900 today. My timing sucks again....tell me news, not history. Was kinda tempted to add this morning but didn't. I always have plenty of time and patience when it comes to gold.

wow, just look at Aurelian fly!!!!


You can just tell from the recent share price action that there's a counter bid coming at any second, can't you? ARU shareholders are now being advised to "sit tight, do nothing, wait for the action to start". HAH! Guess who that tactic favours the most?

A simple question: If it's so damn obvious that a counter bid is on the way, why aren't those voracious funds buying up every single share they can at under the phantom $8.20 offer level? Go on.... I dare you to think about it a little........

How do you like your Koolaid, folks? Cherry? Grape?

Amerigo Resources Update

Don't say I didn't warn you, dudes.....

Amerigo Resources (ARG.to) is a very nice moneymaking machine I featured in this post earlier this month (for more details of its operations, check the original post). In that post I put together an estimate of the quarterly earnings, so now that the results are out (here's the link to the necessary PR), let's have a look and see how badly I did:

Amerigo Resources (ARG.to) 2q08 est and real results

2q08 (otto's guesses) 2q08 (reality)
Revenue 34.15 31.16
Power costs 9.00 9.00
Teniente royalty 5.40 5.32
Other COGS 9.00 9.23
Gross profit 10.75 7.61
Other exs incl tax 2.50 1.39
Net earnings 8.25 6.22

My big mistake was adding a revenues adjustment carried forward from 1q08. In my estimates I thought ARG.to would be able to add U$3.13m from extra booked revenues over the 1q08 booked price. I now see that this was a basic mistake, and the 1q08 revenue number was already fully loaded. Errare humanum est, and i would have been close otherwise.

Going down the quick'n'nasty estimates further;
  • Power costs were spot on, but no plaudits deserved. ARG.to announced this number in its previous PR
  • I'm happy enough with my close result on the El Teniente royalty.
  • Equally, my other COGS estimate was close enough
  • The difference between gross profit estimate and reality was, therefore, wholly due to my dumb mistake with revenues.
  • Other expenses came in substantially lower than I expected. Could be a tax write-off due to the Codelco strike that I didn't factor in.
But all in all, not so very far out and I'm awarding myself 6/10 for this one. What I did nail. however, was the market reaction. After being on offer at all prices in the $1.30s these last three weeks, ARG.to has enjoyed a nice little rebound on these strong results and trades at $1.50 right now. I also mentioned the good dividend policy at ARG.to, and sure enough it declared another 6.5c divi for its loyal holders. So maybe I'll give myself 7/10, all things considered............

Capstone Mining (CS.to) puts in a good quarter

CS.to operates a copper/polymetal mine in
Mexico, and is doing very well tyvm

Here's the link to the Capstone Mining (CS.to) quarterly results PR. A few things of note:

1) EPS of 15c gives us a 6X PE ratio. That's worthy of another notch up (at least).

2) Production throughput is set to increase by about 5% in the next quarters, then a further 17% approx in 2009.

3) Realized prices for metals suggest the next quarter's revenues will come in slightly lower. I have 6% pencilled in here, but really need to run the spreadsheets more accurately over the weekend.

4) Great to see a small miner bucking the downtrend and adding share price valuation this year. An excellent quarter overall, and due congrats to the company. Note the difference between "small producer" and "small explorer", please. Now think about other miners in the same position that have been unfairly whacked.

GOL and TAM: an update

On 7th July, I scratched out this overview of the Brazilian airlines Gol and Tam. On that day crude oil closed at $142/bbl, and if you look at the charts in the original post on that link above, you'll see Gol at $8.62 and Tam closed at $15.31.

Just three weeks later, and both are stocks are feeling much better about life. With crude back down at $121/bbl, here's Gol.....

.....which bottomed slightly after July 7th and has put on 20% since then to currently stand at $10.35. But even better has been the rebound in Tam....

....which has zoomed 38.7% to its current $21.25, and as luck would have it the bottom of the bottom for TAM was on the same day I published the original post. July 7th. If we look at the comparative chart.....

.....you'll see the rebound in airlines has been even stronger for the general XAL index, suggesting that those almost crucified names up North have fared even better. And I added Lan (LFL) to the chart, as my airline of choice (great service) yesterday posted 10.7% YoY earnings growth for the quarter, and there are not many airlines round the world who can say that in 2008.

It's just a pity I didn't play any of the stocks. As I wrote last time:

The bottom line is that neither GOL nor TAM strike me as a Chap11 candidate, not in the slightest, not least because between them they have a close-on-duopoly of the Brazilian skies. Or put another way, if GOL/TAM go bankrupt there would have to be a whole slew of other airlines that will have to fall before they do. Therefore we should find a bottom in the stocks somewhere, and by the looks of the recent accelerated selling that bottom may be sooner than later. But after saying all that, I'm not planning on buying tomorrow. I'm far too chicken.

Never mind. Fortune favours the brave, and I'm a whuss.

I think there's value to be had in GOL right here. It splits the Brazilian market almost straight down the middle with TAM, and although TAM might have an edge because GOL's expansion program was more aggressive just at the wrong time (i.e. early 2007) there's no real reason for this difference that has opened up between the two stocks. So GOL is the pick, if only as an oil play hedge.

7/29/08

Snippety stuff (political risk edition)

Q: What's the difference between Alan Garcia and Klishtina Fernandesh de Kirchner?
A: Six percentage points (Garcia's Approval rating 26%, Klishtina's 19.9%)

The USA has now been officially informed to get its tush out of the Manta air base in Ecuador at the end of 2009. This decision will shock and surprise.......errrr....nobody. That's cos Studmuffin (approval rating 54%, Alan and Klishtina take note) has been saying "you're gone, dudes" since November 2006.

The International Herald Tribune comes up with a doozy of a headline: "Arabist named Paraguay foreign minister, says he wants to improve ties with Israel." The IHT is an equal opportunities publication, giving all sides something to hate in a few short words.

Reuters highlights the case of a Venezuelan opposition politician barred from running in the upcoming elections. Reuters neatly avoids mentioning that of the hundreds barred candidates, over 50% are Hugo Chávez supporters and all are either being investigated for or have been found guilty of corruption.