El más grande, lejos

Gracias por otra alegría.

The scene at this week's American Exploration & Mining Association convention in Spokane

IKN Nerve Centre receives this photo of the scene at this year's American Exploration & Mining Association convention, Spokane WA (Weds thru Fri):

According to the source, there were 1,200 people registered for the gig, of whom 1,100 were automatic booth registrations. Therefore real attendees were around 100 or so, or in the words of IKN's source, "It was crickets". And golf too it seems, the guy getting some putting practice in had few concerns about delegates in his sight lines.

Eric Coffin, your petticoat is showing

Mirth and merriment on show over at CEOca at the moment, where on the Prize Mining (PRZ) board you have such leading lights as Eric Coffin and Tommy Humphreys back-pedalling hard in order to try and distance themselves from the unfolding scandals. Got to adore Lord Haw-Haw and his "oh it was just one erroneous phone call" excuse to explain why he bought into the Kootenay Zinc ZNK.cse P+D, but even better is watching Eric Coffin squirm and carefully choose his own anti-strawman subjects before answering them himself. Yup, he's careful to broach only the issues he can deny easily.

So why not tell them about your cozy relationship with Scott Gibson and Gibson Capital, Eric? Or why you always seem to get interviewed by Gwen Preston on the Gibson-owned media channels? Or how certain companies always seem to get mentioned during those pally pal Q&As. C'mon Eric, stop being so coy, give your flock full transparency about your backroom double dealing for the first time in your life, not just the clean corners of your biz.

PS: And by the way, Coffin really likes to make out he's an expert judge of my character and will state with certainty this-or-that thing about my viewpoints, life choices, opinion of other human beings etc etc. So when he starts on the ad-hom attacks again, just remember one fact; he's never met me. Not once. Never even spoken on the phone with me, in fact. His expertise as character judge is just another layer of fakery based on his own error-strewn imaginations and third-hand snippets.

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

...in reverse order:
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Third Place: "Aphria Inc (APHA): I sincerely hope clients of Scotiabank sue their brokerage". We're all the potstocks all the time this week, the most viewed posts all connected with the short report whacking of Aphria (APHA). This one was my rant.

Second Place: "The Aphria $APHA Scotia post this morning results in an interesting conversation...". And this one was the conversation that arose due to that rant, but went off at quite a different angle.
.

First Place: "Classic moments in sell side due diligence, Scotiabank edition". And this is the post that started it all. Scotia, thy name is ouch.

The HIVE Blockchain Technologies (HIVE.v) five day price chart

Ethereum closed the week at $93. There is no zero missing.

The Friday OT: Bow Wow Wow; C30 C60 C90 Go

A blast from the past:




Seminal punk track. Youtube here. For best results, play it really loud thru a mediocre sound system.

A gold chart

The next three or four trading days will be important for gold.

More excellent mailbag on the perils of passive ETFs

Here's something received at IKN Nerve Centre midday today, which continues the subject brought up yesterday by VEP. This time, Another Reader has more light to shed. The entrance and exit blurbs are removed, what's left is what matters and darn, I'm lucky to have smart readers. Read on...

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As a mining banker I observe, on a daily basis, the corner of the market where these effects are most acute. Mining has absolutely no cyclical capital coming into it at the moment to paper over the cracks, so I’m left staring at the bare wreckage created by an absence of capital that is primarily due to the structural inefficiencies in the markets. And make no mistake about it, these structural inefficiencies are being caused by passive funds and ETF’s.

The succinct explanation as to why we should all be concerned, mining investment bankers or not, is as follows; If the dominance of passive funds and ETFs is followed to its logical conclusion, there is no need for a stock market.

Why? Because the biggest impact that ETFs and passive funds are having, invisible to most market observers (and especially those who don’t care about mining), is that the primary market for mining companies has been obliterated. While the secondary market seems superficially healthy, the new issue market is dead. A company with a good project, sensible capital structure and a a competent management team used to walk up and down Bay St before collecting a modest capital infusion for a drill program of merit, but there is now barely anyone left to write a cheque for them. And that is only partially due to the decline in the number of people willing to invest in mining, but everything to do with the fact that when ETFs take your capital, they don’t invest it in the primary market. If all of the capital willing to invest in mining is domiciled in ETFs, not a dime of new issue paper would ever get issued again.

“So what?”, I hear you say. Well, there are two reasons we should all care about this. Firstly, put yourself in the shoes of a mining junior. If you know you can’t raise capital on the public markets, why list? Sure, there’s a point being a public company if you’re big enough to get into an ETF or a passive fund, but the primary reason that juniors list is to raise capital. Which is a good thing because people like me and you get to participate in the upside of some great projects. But if you want all of the junior mining projects to be controlled by private capital, feel free to cheer on the rise of the ETFs.

Secondly, in my humble opinion, ETFs are indeed starting to look scarily like the sub-prime market before the collapse. In short, the liquidity of many ETF instruments is probably not matched by the liquidity of the underlying stocks, so in the event of a mass liquidation of ETF positions not all of your capital is coming back to you. I suspect that a significant market correction could create a scenario where ETFs have the potential to implode in a liquidity crisis reminiscent of that which eventually blighted the mortgage backed securities market. If you own ETF’s and there is a mass stampede for the exits, do you think that your only risk is the price of the underlying securities? The reality is that ETFs and passive funds are mispricing the risk that the holders bear. What every ETF holder is unlikely to be accounting for is the counterparty risk with the ETF provider who will need to liquidate ETF positions much faster than they can sell the underlying instruments in the event of a mass liquidation event.

On top of all this, don't even get me started on tracking error. I'd make a heavy bet that if you could ever precisely replicate the contents of an ETF over any given period in a portfolio of stocks you bought and sold yourself, that your performance would be significantly superior to that of the ETF itself. Call it a hunch, based on how much money the ETF providers are making.

Mailbag on Kootenay Zinc (ZNK.cse)

Here's an interesting mail, received from A. Reader yesterday. It's about one of the companies caught up in the BridgeMark scam and, lo and behold!, it was pumped by Gwen Resource Maven Preston to her subscribers at the time the P+D was in full swing. My, what a coincidence! It was also pumped by the so-called "Equity Guru" Chris Parry, who also makes full use of the Vancouver scamster central website CEO.ca to push his nefarious agenda. Yep, that is indeed the Tommy Humphreys site and....oh wow! Tommy was in on the Kootenay placement as well! My, another sheer coincidence.

People, the M.O. of the Vancouver newsletter scam cabal is on full show, right here. And if you think this is some sort of isolated incident, I pity your poor hide.

Sir,

I applaud your efforts in shedding light on the junior mining newsletter writer (NLW) business, really more a promotional business than anything approaching an analytical one, with rare exception (you, Kaiser, Exploration Insights, that's nearly it). 

As you rightly point out the Resource Maven is a particularly sneaky scamster, and the recent BCSC "Bridgemark" kerfuffle has swept her into the mix, albeit tangentially, regarding one of her picks, Kootenay Zinc (ZNK) (no company website, always a good sign).

One of the beauties of the CSE is its "open kimono" Form 9 distribution report which specifically names all PP subscribers (unlike the TSX equivalent, in which subscribers' name are kept confidential). See here for the Jan 2017 Kootenay Zinc Form 9, which lists Gwen Preston (plus Tommy Humphries, Chris Parry, among many other characters) as subscribers to a $0.20/unit PP (shares plus half-warrant @ $0.30/share strike price). Interesting to note that by the time the PP closed the shares were trading at about $0.55/share, so the placees seem to have gotten one hell of a deal. What a shrewd and lucky lot!

Henceforth did the pump well and truly begin, including this podcast appearance by the Maven within mere days of the PP closing. The placement holders didn't even have to wait the normal four months either, as ZNK changed the tersm to allow them to liquidate 25% of their holdings at the end of February, while it was still a forty cent stock. Thay got another 25% out in May, but by that time the collapse was in full gear. The stock has since done a 10:1 rollback and now trades for $0.06/share (or $0.006/share on a pre-rollback basis, i.e. less than a penny). If you'd bought shares at $0.50 (pre-rollback basis), you would have made a whopping return of negative 98.8%. What fun for Maven subscribers!

The simple fact is that 90% or more of junior mining NLWs are pumpers looking to dump their cheap shares on their flock, the latter of whom actually pay for that masochistic privilege! NLWs, by and large, are promoters full stop. Far from adding luster to a story, their involvement in a stock should be viewed by anyone outside that company's inner circle as a kiss of death.

My coffee mug explains capital markets action for the rest of 2018

Bought from Ebitbrah:

Get yours in for Christmas, before stocks run out. Link here.

A nice explainer on The BridgeMark Group scam

Right here. An extract:

As an example of what occurred, BCSC outlined how four of the 11 issuing companies (Green 2 Blue Energy Corp., Cryptobloc Technologies Corp., BLOK Technologies Inc. and New Point Exploration Corp.) raised nearly $18 million by privately placing (selling) shares directly to the various BridgeMark members.

The companies then returned $15.3 million to the BridgeMark members in so-called consulting fees, leaving them with $2.7 million. The members, now down $2.7 million, then sold their shares (which were originally issued on a free-trading basis) for $8.8 million, thus raising about $6.2 million in allegedly illicit profit.

“In addition to being quite bold, it’s quite clever. You get the money and back it goes. It’s simple enough, not overly complicated; but I guess that’s the charm,” said Woods of the allegations.

Full story here and notice a little further down the report the reference to Kootenay Zinc (ZNK.cse), as IKN will have a post on that stock coming out later today.

McEwen Mining (MUX): Puppet Show and Spinal Tap

"If I told them once I've told them a hundred times, to put Spinal Tap first and puppet show last,"
  Jeanine Pettibone, This Is Spinal Tap

Today brings another example of a junior trying to bury the real news below the flying sequins, McEwen Mining (MUX) telling us all about its fabulous plans for the proven money pit it bought from Primero. Here's the title:

MCEWEN MINING ANNOUNCES 2019 TIMMINS 

EXPLORATION STRATEGY AND FUNDING

Get those last two words? And here was me, thinking that the idea of buying Black Fox was to...

1) Make a profit on your operation

2) Re-invest that money into projects

3) Grow organically and accrete shareholder value

...but no, actually making money by producing gold and silver....that's so oldskool. So instead of making $15m, the guy with the teeth who promised you he'd look after you retail guys is going to take that upside away from you all.

The Aphria $APHA Scotia post this morning results in an interesting conversation...

...via DM with a person who will remain nameless, but it's fair to say that this person is not my peer when it comes to Canadian capital markets; This person is waaaay ahead of me and has forgotten more than I know about the subject (yes, I know I'm lucky to get to have conversations with these people, no need to point it out). I'm going to call my friend "VEP" (very experienced person).

Anyway, it turned into an interesting exchange and as I've been given permission to share right here, that's what you get. It was a DM conversation so I've brushed up the grammar and tightened the words very slightly, but changes are few and there's no meaningful difference to conversation we had (apart from at the very end where I have left off the bye-bye bits). I'll indent my bits and put them in italics, to keep your eyes on the important person's words in the exchange (hint: not mine). Read on:

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Very Experienced Person

Saw your note tearing the Scotia guys a new one. To be fair, the problem is systemic and relates as much to the buy side as to the sell side analysts. The fundamental problem is that sell side firms no longer get paid to do research.  It wasn't always the case. In the days of fixed commissions there was money enough for guys to do the work, kick the tires, do site visits and sincerely appreciate opinions as to their "top pick". Then fixed commissions went the way of the dodo and there was less money.  Then tech came along and lowered transactions costs. Then discount brokers came along and broadened access. Then DMA came along and cut out brokers altogether. Then ETFs and algos came along and made stock picking irrelevant altogether.

At each turn money for research went down a notch and at each turn, research looked to banking to make up the difference. Nowadays, banking funds research. This is technically illegal but utterly ubiquitous. Those guys picked Aphria because that's where they thought they'd get the most banking fees. Everyone knows this, yet no one talks about it.

I'm not sure what the solution is, but sunlight, as they say, is the best disinfectant. Research should be labelled advertising, because that's what it is. Don't bury it in the disclaimers in fine print, put it right up front in 48pt font. Anyway, that's my two cents.

IKN 

Thanks. Much to agree with there. I see this shit going on all the time, but I think the point here is that this one is an egregious example. You pull your own research note after just 6 weeks? And key word there is "example"; An example has to be set, so this blatant nasty is a good place to start. To be honest, I think the whole brokerage system is going the way of the dodo, but that's a larger story.

Another thing; nobody talks about it in public, you say? Well why not start! I'd love this DM conversation to be out there and in the public realm, just your screed above would make for a great post on the blog. I could do it with your name, or go anonymous route. Waddya say?

VEP

Feel free to pull the pin on the exchange but please keep my name out, thanks.

IKN

Okey dokey.

VEP

One more thing: Regarding the dodo, I think we are all worse off with the current state of affairs. Superior investment returns come with the efficient allocation of capital, yet the efficient allocation of capital is predicated, or at least strengthened, by a free and honest exchange of ideas. Now that equity research is largely banking-driven, investment decisions are made on the basis of a conversation that resembles a collection of used car salesmen pounding hoods and wearing funny hats. Who wins? Certainly not the investor, yet these inferior returns are masked insofar as the impact is market-wide, a market that is largely gone passive anyway.

IKN

The root of the evil is brokerages skipping over their fiduciary duty to clients and cozying up to the sources of 8% placement commissions.

VEP

I don't disagree. But these clients are getting exactly what they pay for, namely, not that much.

IKN

There is that. Brokerages are businesses and will follow the money.

VEP

Which is only to say that there is much blame to go around. It is everyone's fault and no one's fault, all at the same time.

IKN

We're back to your 48pt banner comment.

VEP

Actually, the root of all evil here is Bogle (IKN note: This refers to Jack Bogle, founder of Vanguard and normally understood to be the father of the passive investment model). It was his great insight to say, "Why try to pick an active manager when you can buy all of them and not pay for any of them!" Hence the start of passive investing, freeloading at its finest.

IKN

And here we are in 2018, it's turtles all the way down these days.

VEP

It worked well when passive was a small component (even if immoral), but now that just about everything is passive (or passive-esque, as index hugging is); the whole thing is on autopilot. No one is driving the bus and no one even knows the difference. We are all frogs boiled slowly.

IKN

It's sub-primey.

VEP

Can't stop dancing while the music plays on, eh?

IKN

You see other sectors, I just look at miners. And I look at GDX(J) for examples, propped up by holding 10%+ in All-Them-Miners.

VEP

Yes indeed (and then the conversation ends).

Aphria Inc (APHA): I sincerely hope clients of Scotiabank sue their brokerage

Before getting to the point of this post, I want to make it clear that this is not about the merits or otherwise of Aphria Inc. (APHA), the recently high-flying but now troubled pot stock. It's not even about the short report published by Hindenburg Research and Quintessential Capital Management, which has grabbed many headlines and made the stock do this:

My point is about Scotiabank and its analysts on the marijuana sector, namely Oliver Rowe and Ben Isaacson. As we know from yesterday, Rowe and Isaacson in October 2018 told the world that the pot sector "is real and here to stay", which is fair enough as an opinion. The went on to state this, "When selecting stocks in this sector, investors will need to assess the quality of management, funding and strategic relationships they have in place", which is also a reasonable statement, I suppose.

And then they selected Aphria Inc. (APHA) as the best way to play the sector, their number one equity idea, their Top Pick. However, what we now know thanks to the Hindenburg short report is, no matter what happens in the future to APHA, there are serious doubts to the quality of the management. The strategic relationships have gaping holes in them, at least in the LatAm arm (the part about Argentina was too amazingly funny for words) and as for the funding, the evidence as seen so far from Hindenburg/Quintessential shows plenty of reason for doubts. It is now patently clear that Rowe and Isaacson decided to make APHA their Top Pick without doing the necessary DD. Maybe they just took the word of the company as gospel, or didn't ask the right questions, or didn't do the legwork. But you can bet several thousand dollars against one freshly baked doughnut that they did NOT visit the company's assets before deciding not only to recommend this stock, but to make it their number one Top Pick of them all.

That is lazy. It's negligent. It's a godawful attitude toward your profession. And I'd vouch that their pathetically poor Due Diligence on APHA has opened Scotiabank up to lawsuits from people, clients of Scotia, who took their sell side analysis at face value and bought on this advice, back in mid-October when it was a $14 and $16 stock. A multi-billion dollar growth sector, a $2.6Bn market cap company, a team of two, a Top Pick....and you can't dedicate a few days to checking out the fixed assets in Jamaica, Colombia and Argentina? My stars, I hope Scotia gets its cojones clavados on this, it would be a step forward in clearing up the deservedly pathetic reputation of the Canadian sell side brokerage industry.

Classic moments in sell side due diligence, Scotiabank edition

In just six weeks, from this:

The pot industry “is real, it is here to stay and we believe there is money to be made,” Scotiabank analysts Oliver Rowe and Ben Isaacson write in a note.

Investors in marijuana should shift their focus from grams of weed sold as a product to cannabis sold as an ingredient, according to the analysts. They compare the sector to the chocolate industry, where investors are more focused on sales, margins and market share of top companies, rather than producers in a specific country or region. When selecting stocks in this sector, investors will need to assess the quality of management, funding and strategic relationships they have in place, they say.

Aphria Inc. is the best way to play the sector, according to the analysts, who initiated coverage of the stock with a sector outperform rating. Their 12-month price target of $25 implies 34 per cent upside to the last close.

To this:

Feeling stupid yet, guys? Mind you, it won't feel half as bad as being unemployed.

Let us talk arsenic pollution and Tahoe Resources (TAHO) (THO.to)

Here's a table from this guideline document showing the permitted maximum levels of arsenic in soils in various places around the world.

Japan looks pretty lax on this, but that 150mg per kilo level is under exceptional circumstances and normally, as the notes suggest, maximums before clean-ups have to happen are much lower. Perhaps a standard reading would be that of The Netherlands, which says that 76mg/kg is a severe  contamination condition. Meanwhile and not mentioned here, depending on where you are and what the ground is used for in the USA the permitted level max can be anything from 0.39mg/kg to 40mg/kg, but that's the absolute upper levels,

So, let's see what the Peru environmental authorities got from the sediments just outside of the Tahoe Resources (TAHO) (THO.to) Shahuindo mine in Cajamarca, Peru this year, from a document that fell into the lap of your humble scribe just last night (full PDF available on request):

Hmmm....531mg/kg. And by the way, the Cadmium levels on show there are off-scale dangerous and even worse. And what about this table, showing soil sample results from the mine?

Big numbers are not always good, ladies and gentlemen. So how's the clean-up going, guys? That award-winning community team make sure it's all spick and span for the new owners? Gotta wonder if this is why Ferrari Kev was so keen to do a cut price deal with Ross Beaty? Maybe Pan American (PAAS) isn't buying assets after all, maybe they've just paid goo money for a liability.

Dear Ari (updated)

Any particular reason why, four days after he was supposed to have resigned, Mateo Restrepo is still listed as President of Continental Gold (CNL.to) on your website (screenshot below from 5 minutes ago)? Mere corporate laziness and inefficiency, or is there something else behind this?

UPDATE post-closing bell: Aaaaaaand it's gone:

Tahoe Resources (TAHO) (THO.to): The arrogance and conceit runs deep

How pleasing it was to hear that the Tahoe Resources (TAHO) (THO.to) Shahuindo mine in Cajamarca this weekend won an award for its community relations program. Also very puzzling too, because Shahuindo has been the scene of endless protests against the company by locals for the couple of years, the people around the zone fed up with TAHO's two-faced attitude and promising things that never come to pass. We've seen roadblocks and ministerial committees arrive to try and sort out the bad blood, but then suddenly this...?

Yes indeed, as part of the "4th National Convention on Community Relations" organized and sponsored by "Grupo Hierro Comunicaciones", Shahuindo got this award (and allow me to translate the blurb on the gong, "...for its actions of sustainable social management, that benefit the communities where the company has its operations."

Very nice.

So who is "Grupo Hierro Comunicaciones", you ask? A fine question indeed, because when you check them out you see that Grupo Hierro is a investor relations/social relations/communications company in Peru with clients such as...

Oh wow! Tahoe Resources! What a surprise! And not only that,but their main one featured top-left of the list, even in front of Barrick. 

Probably just a coincidence.

The IKN Weekly, out now

Keep Beetling On

IKN497 has just been sent to subscribers. Lovingly created from the finest pixels, what it lacks in intelligence it makes up for in wild and unfounded libel.

So how are those Peru mine development projects getting on, Otto?

Oh, just about as you'd expect.

While searching for something completely different earlier today, I came across this slide from this presentation made by Peru's main Geological Mining and Metallurgical Institute, INGEMMET, back in 2014. For what it's worth, these are the people the government of Peru rely upon to give accurate forecasts of future developments and production timelines for mining projects in the country and the source for those puff pieces you'll come across when Peru does its presentations at PDAC and suchlike. Anyway, this one has a nice handy map of the country upon which are the names of a whole bunch of projects and...here's the interesting bit...the year that INGEMMET said the project would go into production:

Therefore we now know that:

Chucapaca (BVN, now called San Gabriel), Accha (Zincore) La Granja (Rio Tinto) and San Luis (SSRM I think, but it's been some time) and Los Chancas (can't remember) went into production last year, 2017. Los Calatos (ewww, ex-Metminco) went into production this year and Magistral (Nexa/Milpo) has been operating for the last two years.

Next year 2019 a whole bunch of projects have their first year of production, including Quellaveco, Tia Maria, Zafranal, Shouxin, Mina Justa, Pukaqaqa, Michiquillay, Conga, Cañariaco, Santa Ana, Quechua, Corani, Crespo, Haquira, Anubia, Ariana, Quicay II, Hilarión, Cotabambas, Ollachea, Galeno and Rio Blanco.

Fascinating, yeah? Because the funny thing is that none of them are in production yet. Pukaqaqa is close, Mina justa and Quellaveco have started construction, Michiquillay is going to get its first full year of development before any firm construction decision gets made, San Gabriel can't seem to make up its mind andif memory serves, Crespo isn't far off happening. As for the others, don't pick a year, pick a decade.

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

...in reverse order:
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Third Place: "HIVE Blockchain Technologies (HIVE.v): Embarrassing, Frank". Casting my mind back, a show on how far the crypto star has fallen is that a year ago (or even six months), one of IKN's very occasional posts on crypto would invariably be the most popular of the week. There was even one week where crypto/bitcoin posts took the top three places. Nowadays less so, but enough people tuned into the car crash quarterly from HIVE get it the bronze medal.

Second Place: "Here's hoping the BCSC goes after TSX companies as well, not just CSE". It does seem strange to me that the BCSC has turned a blind eye to no end of TSXV pump&dumps over the years, but has suddenly got hot on CSE listed stocks.
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First Place: "Mexico: The new mining law and the changing scenario around mining (from IKN496)". I'm happy about this, it reminds me there is a place for real content on the blog.

The Friday OT: Paco de Lucía plays the Adagio from Joaquín Rodrigo's Aranjuez Concierto

Rodrigo was in the audience that day, too. The day the greatest flamenco guitarist of all time took on the most famous classical guitar piece ever written. This is the second movement of the three and one of the melodies we've all heard at some point. But never played like this.

Youtube here. The last four minutes melt the hardest and coldest of hearts.

Prize Mining (PRZ.v) and the crooked Maven

Toldya:

And Palisade just keeps on blowing out its shares.

Oh, and by the way, has Gwen Preston's opinion of PRZ changed yet? And and by the way of by the way, she loves all that "I'm independent and no fees and everything" thing, but fails to tell audience that her paymasters at Scott Gibson get craploads of free shares in these BS exploreco, gets her to reco the stocks and then blows out the papers into the buying she creates. Prize Mining (PRZ.v) back in March/April when it was a 25c stock? Just one example of the backroom scam operating behind her squeaky clean facade.

UPDATE: What? She'd never told you about the massive conflict of interest between Gibson Capital and the Maven Letters? Wow, must have slipped her mind...

The end of 2018 in the mining sector...

...is worse than the end of 2015 in the mining sector.

Back then the sentiment was merely exhaustion, mining investors had been beaten near-senseless after nearly three years of a secular bear for miners that had sapped all strength and removed any hope. This time is isn't just exhaustion, as after consulting and conversing with all types of industry people, from CEOs to retail and all points in between, there's also a large measure of hatred in the air for mining stocks. People are sick and tired with the way all lessons from the bear period were ignored by mining companies, who just latched onto the pop in metals prices of early 2016 and told us that this is fine...

...when it was far from fine. Zero lessons learned, therefore when the metals rally petered out we shareholders were still under the burden of profligate spenders of Other People's Money who don't give a fig about their companies' financial well-being, hold very little skin in their own games and only care about making sure the salary cheques kept rolling in (or if they didn't, converted quickly into shares that get blown in our faces). 

Fellow mining shareholders, make your list of companies right now. And when the next metals bull arrives, make a point of not rewarding the idiot companies in this sector. There are many.

Personally speaking, 2018 cannot end too quickly.

That EMX Royalty (EMX) discretionary bonus thing: Both company and Rick Rule speak

IKN tries its best to provide a public service to the industry and has noticed on manifold occasions that when cockroach companies and/or players get light shined upon them, they invariably scuttle away. The reverse is also true, of course: When people with nothing to hide are required to speak up, then speak they do. Further to the IKN coverage of the enormous and sneakily awarded $3.8m cash bonus for a deal closed on land in Russia (of all places), EMX had this to say for itself this morning:

EMX Royalty Provides Additional Disclosure on Discretionary Bonuses

Vancouver, British Columbia, November 30, 2018 (TSX Venture: EMX; NYSE American: EMX) – EMX Royalty Corporation (the “Company” or “EMX”) provides additional disclosure regarding the US$3.8 million in bonuses announced in its asset portfolio and corporate update on November 28, 2018. This additional disclosure includes a summary of the rationale, approval process, recipients, and allocations related to the bonus.

The NR then goes to great lengths to provide details of the transaction and the discretionary bonus. And that's good (it's long, so use the link and read it all).

Also at the time, this humble corner of cyberspace also wondered what the large shareholders of EMX such as Rick Rule would think of the bonus handout. Now we have the answer, as Rule has offered up this on-record reply to your humble scribe:

"I am delighted with the outcome. This was a spectacular effort and outcome. The team worked well, and earned every penny. 

"As to the allegations that Michael Winn or Brian Bayley would preside over illegal payments, that indicates the ignorance of the accusers. Good copy perhaps, but factually absurd."

So now you know.

Core Gold (CGLD.v) 3q18 financials; The highlight

Oh, it's definitely this bit:

As at September 30, 2018 the Company’s accounts payable includes some balances which are significantly overdue, including income taxes, royalties, IVA and other withholding taxes owed to the Ecuador Government, who have seized the Company’s bank accounts in order to garnish deposits to pay down the payables. The Company is currently negotiating to defer these amounts. These negotiations are ongoing and there is no assurance they will be successful. During the nine months ended September 30, 2018, the Company incurred a net loss of $6,064 (2017 - $8,557) and as at September 30, 2018, the Company had a working capital deficit of $17,399 (December 31, 2017 – $19,258). Continuing operations are dependent upon the Company’s ability to maintain profitable operations and generate sufficient cash flow from the sale of precious metals or secure additional working capital from external sources as required, neither of which is assured. The recoverability of properties, plant and equipment is dependent on the existence of economically recoverable reserves and the ability of the Company to obtain necessary financing to initiate and complete development.

As for the chances that Core Gold (previously known as Dynasty Metals & Mining) will be able to deliver on the need for profitable operations, in 3q18...

• CGLD returned a net loss of $2.382m
• They couldn't even return at minehead, as revenues ($7.036m) were wiped out by COGS ($7.72m)
• Once you add in DD&A and office, operating loss was $3.09m
• Working capital deteriorated another half million to NEGATIVE $17.4m
• Even as the share count ballooned further, 12.269m shares added to bring the total to 146.047m

For some reason, the world thinks this company is still worth money and gives it a market cap of over $34m. The world is mad.

HIVE Blockchain Technologies (HIVE.v): Embarrassing, Frank

Truly embarrassing. How anyone lets Frank Holmes near their money is a mystery of the financial universe.

When you start delving into that net loss figure of $28.25m, some of the details are truly amazing. For me the best one is how they take a $14m impairment, but even then they assume a base price of $613 for Ethereum...imagine what the impairment would have been if they'd used true market prices! What this means is that there will be no respite in Q4, not for operations and not for Below-The-Line adjustments. 

The actual revenues number ($6.523m) needs careful examination as well, because most of that is coins they haven't sold. HIVE tries hard to bury the real info on that, but once you take tweezers to the numbers you see that in the three month period, HIVE sold $2.442m worth of digital currencies. Those coins sold cost the company $3.604m to produce and that at market prices that were WAY higher than today's. There are other pearls of wonder buried in the operating figures, too. This company is an absolute joke.

Meanwhile, over at the balance sheet...

We have impressive violin accountancy on show here, let's point at just a couple of items. The Mark-To-Market on held coins is going to whack them hard in the next quarter (again) and now that the receiveables and pre-paids are down to nearly zero, the next quarter's cash position will drop in scary fashion. The upcoming cash crunch at HIVE can only be avoided by a very large share placement (or a loan that would come at prohibitive cost) and with 313.7m shares out already, the dilution will be of Metanor levels.

But a special mention goes to the "Land" line item and note 7, written up at $15.413m it's the funniest thing I've seen in a balance sheet for months. For those just joining us, that asset is a 64 hectare tract of land in sub-arctic Norway that HIVE acquired as the place where they plan to build their next phase of beep beep machines to mine the coins. Yup, it's just land. It cost the company U$7.225m in cash and an assumed liability of U$2.719m from the vendor, plus 4.75m shares of HIVE and 1.25m warrants that are so far out the money you need binoculars. In other words, a piece of Elk pasture procured in May (when people still thought Ethereum was a thing) for just under $10m plus shares now worth $1.5m is booked at over $15m at end September! 

My stars Frank...you are one helluva shyster.

The obscene EMX Royalty (EMX) bonus payment; questions arising

After publishing on the news yesterday that EMX Royalty (EMX) had decided to reward its insiders and friends with $3.8m in cash due to the closing of a deal, the conversation over at Twitter turned to motives behind the deal and the payment. Feel free to check the details of the gig, but in the simplest of terms:

• EMX held a minority part of copper asset in Russia for many years
• A third party came along and expressed interest in buying it
• The market was skeptical and didn't expect the deal to close
• All went quiet for a considerable amount of time
• Then in October EMX announced the closing of the deal and the main part of its proceeds, $65m, was delivered (there's another $4m left to receive, apparently) in November
• The market applauded the unexpected result for EMX
• We then got the out-of-blue announcement on the $3.8m in "discretionary bonuses" awarded to insiders and consultants

 Which brings us to the Twitter conversation ensuing and in the words of Per Nilsson, a guy who knows this sector backwards as well as having a better feel for the way in which dirty deals go down in Russia,

"Seems shady. External consultants in Russia getting large bonuses after a successful deal = red flag. Might as well be compensation for bribes that a consultant had to give away."

That sounds at the very least a valid issue. You close a deal on a property in Russia that the market didn't expect to happen and then all of a sudden cash is slushed around for those concerned. Therefore and as EMX is both Canadian and USA listed, we point readers' attention to this document, "A Resource Guide to the U.S. Foreign Corrupt Practices Act" published by the Criminal Division of the U.S. Department of Justice and the Enforcement Division of the U.S. Securities and Exchange Commission. Specifically, this section of the PDF:

 

IKN believes that the shareholders of EMX Royalty (EMX) deserve far more transparency about this deal. A sudden windfall juicy profit from a mining property in Russia that generates windfall cash bonuses that the company tried to bury at the very bottom of a ling-winded news release? Seriously, David Cole?

A list of things that Allan Barry Laboucan cannot do

• Claim he is qualified as a geologist
• Claim he is qualified as an engineer
• Claim he is qualified as a lawyer
• Claim he has any expertise of any sort in mining
• Successfully run a mining company
• Write a coherent news release
• Hold his liquor

EMX Royalty (EMX) shits in the face of its shareholders

Talk about greedy assholes! Check out what this band of funsters snuck in right at the bottom of their news release today:

"The Company also announces that upon successful completion of the sale of the Company’s interest in the Malmyzh Project in Russia, a discretionary cash bonus has been allocated in an aggregate amount of US$3.8 Million to executive directors, officers, employees and consultants of the Company."

Oh my stars! I wonder how Rick Rule feels about being blatantly ripped off like this?

This is why we like Mining Ramblings UPDATED

Doug Beattie explains in simple terms why Western Uranium (WUC.cse) is an obvious scamjob. Here.

How this thing is priced at a $55m market cap is beyond my ken.


UPDATE: And yet another reason; Just added a couple of hours ago, a short and accurate assessment of the news out of Tinka Resources today. That's on this link. I hope DB gets into the habit on this, the mining blogosphere needs people with his level of nous.

Congratulations Eira Thomas, CEO of Lucara Diamond Corp (LUC.to)...

...on winning the 2018 "Outstanding Achievement for a Woman in Mining" award at Mines And Money in London this week. 

And here's the chart for LUC.to since February 26th, the day Thomas took over as CEO:

It's a small field.

Here's hoping the BCSC goes after TSX companies as well, not just CSE

Because there's plenty of grist for that particular mill, too.

I've been sent the link and/or the PDF of the BCSC announcement about the so-called "BridgeMark Group" around two dozen times since it came out yesterday. And a good thing too, thanks to all who cared enough to think of this humble corner of cyberspace, it's greatly appreciated. There's been plenty of real reporting on the development done by real reporters, you hardly needed a pissant blogger throwing in his dos centavitos yesterday, but there are a couple of interesting angles to the allegations brought by the BCSC Executive Director.

1) All the companies are CSE-listed. Now that's fine, if all the named issuers have been doing naughty things they should be called out but there's no way on God's green earth you can tell me these nefarious peddlers of scams are confined to that exchange. Sleight of hand as outlined in the report has been going on forever on the TSX and especially the TSXV, therefore we wait to see whether BCSC has actually grown a real pair. Is it after the bad guys, or is it just trying to shut down the TSX competition which has grown from insignificant to a thorn in the side of the main exchange these last couple of years?

2) The Bri-Bri factor. It's impressive to note how many people directly involved with Brian Paes-Braga over the years made that rogue's gallery of names in the release. For example:

• Justin Edgar Liu and Bri-Bri go way back together and have been tight on several deals in the past.
• We know from these very pages that Bri-Bri and David Raymond Duggan used to be tight, as Bri-Bri once used Duggan to quietly sell millions of shares of Lithium-X into an unsuspecting market. However, they've now fallen out and Duggan skipped off to live in Panama, no word on any reconciliation has reached this desk.
• And probably the most direct link of them all, though many people assume Frank Giustra to be Bri-Bri's mentor from the getgo, in fact it was Abeir Haddad who was the original daddy and the route that BriBri took to get his first break in his sordid business.

And those just three names known by this desk to have intimate connections with the sleazy, two-faced Bri-Bri, you may know of other connections with others people or companies on that list. Rather strange how many arrows point in the same direction, is it not?}

3) Meanwhile, if we assume the BCSC is really trying to do the right thing by the Canadian people (at last) to clean up its capital markets and is not going to restrict itself to the CSE, another special name leaps out at your author's eyes from those named. That's because David Matthew Schmidt is the person who ran the recent scam pump and dump on Prize Mining (PRZ.v), the company featured on this blog while the P+D was going on and named as the scam that it most definitely is by IKN. Schmidt was the person who did the cheque swap with PRZ. I know I'm supposed to say something like "...the person who allegedly did the..." etc because in a court of law you're innocent until proven guilty, but screw that and let's talk straight, he WAS the guy according to several ultra-reliable IKN sources and has a long-standing reputation as being as legit as a seven dollar note. 

Therefore, BCSC, it would be great if you got around to making an effort with TSX(V) listed stocks as you make to clean up Vancouver (and I know you guys read this humble corner of cyberspace, so don't pretend you haven't read this post later, okay?). Start with Prize Mining (PRZ.v), its connection with David Schmidt and once you start pulling on that string, I'm sure you'll get to wondering just why a whole range of newsletters, promoters and websites suddenly and all at once decided that PRZ was just the greatest opportunity to present to their collective readerships. 

And be clear, PRZ is just the tip of this sordid iceberg of greed and lies.

Mexico: The new mining law and the changing scenario around mining (from IKN496)

You can rant or giggle at this blog's contents as much as you like, it's not where the real work goes on round these parts. This from The IKN Weekly IKN496, out on Sunday evening. I've been asked by a couple of subscribers to put it on the open blog and yeah, why not. Here you go.

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Mexico: The new mining law and the changing scenario around mining

The main political risk news story out of the region last week is the very same we previewed last Sunday, a closer look into what we can expect from the new AMLO government for the Mexico mining sector. At the time last Sunday I expected to preview some of the potential negatives in the pipeline, but events overtook me and last week we saw a range of Mexico exposed mining stocks take steep dives on the political newsflow. Examples:

• Fresnillo (FRES.L) down 15%
• Torex Gold (TXG) down 15%
• Southern Copper (SCCO) down 15%
• MAG Silver (MVG) (MAG.to) down 8%

However, not all Mexico exposed miners were whacked hard, or even at all, compared to the benchmarks. More examples:

• First Majestic (FR.to) (AG) down 4%
• Fortuna Silver (FSM) (FVI.to) down 3.5%
• McEwen Mining (MUX) down 1%
• Gold Resources Corp (GORO) down 1%

And the reason for the drops? Let’s go to Bloomberg for its coverage, here a title line on Thursday November 22^nd (5):

Mexico Mining Selloff Worsens as Concerns Grow on Law Proposals

Here’s another from Friday November 23rd (6):

Prospect of Harsher Rules Causes Mexican Mining Companies to Fall Even Farther

As for the content, this segment is a fair summing up of what English language business readers understood from the coverage:

Fears of tougher mining regulation in Mexico under incoming President Andres Manuel Lopez Obrador are taking over investor sentiment, with some of the top stocks falling for the third consecutive day.

Industrias Penoles SAB, Grupo Mexico SAB and Fresnillo Plc extended losses after Morgan Stanley downgraded the stocks on concerns that Mexico’s new congress is considering as many as 11 bills or resolutions that could materially impact mining companies operating in the country. On Tuesday, an initiative from Morena party Senator Angelica Garcia called for increasing surveillance of mining activities and giving greater powers to communities and the government.

“We believe Mexican mining equities will decouple from fundamentals for the foreseeable future given the heightened uncertainty around the regulatory framework,” Carlos de Alba, an equity analyst at Morgan Stanley, said in the report. “The risk ranges widely and could be material.”

Proposed initiatives include empowering the Ministry of Economy to declare certain zones as not viable for mining, and revoke permits and existing concessions that had a negative social impact. They also contemplate charging Mexican agencies with overseeing the social and environmental impact of mining activities.

Meanwhile, Mexico media channels were also on the case, but covered the story with a little more depth. As you’ll see that depth is important (and we should also recall that one of the objectives of Bloomberg reporters is to earn bonuses by publishing “market moving reports”). Here’s a report from El Sol de Mexico (7) from Friday:

Shares in the country’s biggest mining companies continue to be in free-fall since the November 15th initiative presented by the Movimiento Regeneración Nacional (Morena) (note: AMLO’s party) which has worried investors and this Thursday became headline political news

Yesterday afternoon the Morena senator Angélica García made the formal presentation of the reform initiative to the Mining Law. The modifications propose to “give teeth” to the Mexican Geological Service to be able to actively regulate concession tenders, the power to cancel permits and sanction mining companies that do not comply with the law. It also states that the Secretary of the Economy would be able to declare non-viable zones for mining operations or under conflict for negative social impact and thereby cancel concessions.”

It goes on and covers the same type of commentary from this-or-that pro-mining committee or chamber of commerce, but then we get to the bits that didn’t make it to the English language coverage

Albert Híbert, who will work with Alfonso Romo (note: AMLO’s Chief of Staff as from December 1st who is in his own right a very rich and successful Mexican businessman) in the Presidency, asked for people to remain clam as this was only a proposal which had not gone through the legislative process. “We need to discuss them, we need to look at them, precisely because of the damage they are causing in the financial markets”, he said.

This is no small point, ladies and gentlemen. For one thing the world seems to be reacting as if these items are already on the statute: Far from it, these are law proposals no more and no less, they will go through the Mexico parliament in normal style and be debated, approved, denied, adapted or altered to the pleasing of congress.  For another, just one soundbite from the centre of the upcoming new government (starting in less than one week from now) is enough to show that the executive is at the very least not 100% behind the plan and probably looking at it as a means to negotiation.

And add in this one, the law bill as proposed by the senator for AMLO’s Morena party (the reason people are so nervous of this, it would seem) is already seeing opposition from other senators of the same party! Step forward Armando Guadiana, Morena senator in the upcoming parliament who said (8) on hearing of the contents of the law bill that it was a shame the protagonists were proposing regulations in sectors that already had legal instrumentation and how they were generating uncertainty in the capital markets. He added, “We mustn’t go around changing laws just for the sake of it”, and said that he was already preparing his case to put before congress in order to vote down this Morena-led bill. Again, that’s no small thing right there.

In other words, the first thing to take away is that this isn’t a law, it’s a law bill. The second is that in order to make it through parliament and into law as stands, it will need plenty of support (as well as time). The third is that strategically place people inside AMLO party itself (and we haven’t even mentioned the opposition yet) are either reticent or outright against the contents of the law bill. So if this is starting to sound less scary to you already, I’m not surprised.

Which brings me to my next point about the changes to the mining scene that AMLO will bring, as they start with the man who has already seen plenty of coverage on these pages this year, Napoleón Gómez Urrutia, aka ‘Napito’ who was the exiled leader of one of the largest mining unions until winning his senate seat and coming into the government of AMLO. He’s now firmly installed in parliament and it’s no surprise (considering his background and ambitions) that he’s already seeing significant victories in the mining sector.

Two examples in the last few days: First the Napito union, known as Sindicato Nacional de Trabajadores Mineros (SNTM), won a significant pay increase at one of the mines under its majority union control. The privately owned Nueva Rosita coal mine in Coahuila last week agreed (9) to a 13% pay increase for its 120 workers (7% direct, another 6% in bonus increases tied to productivity) along with other benefits such as interest free loans to buy personal vehicles. These workers suddenly find themselves with increased political power thanks to Napito’s new position and obtained a pay rise well over the current rate of inflation (Mexico is running at around 4.8% in 2018).

Secondly, by secret ballot just a few days ago the Boleo copper mine in Baja California Sur (which was sold by the near-bankrupt Baja Mining, Greenslade et al, to South Korean capitals) voted (10) to change its main representative union from the one controlled by Germán Larrea (head of Grupo Mexico) to the SNTM of Napito. This is a significant victory not only for the increased power over mining, but over Larrea with whom Napito has been in bitter dispute for over a decade. This one must have been very sweet for him.

To sum up, we have three things:

1)     Sharp falls in some Mexico-exposed companies, but by no means all of them. What the big fallers have in common is a rocky history of either worker or community relations (often both).

2)     A law bill that will at best will have a difficult passage, more likely will be greatly adapted before ever making it to statute, or may even get stuck in committee forever.

3)     A senator in Napito, suddenly powerful and making the most of it via his union,grabbing power and negotiating better employment terms for workers in his union.

That’s what I believe we have here, ladies and gentlemen. The law bill is part of the Napito strategy now unfolding that has him taking control of the mining union scene in the country, getting better deals for his members and more power for himself. As I’ve mentioned on several occasions already, the days of lapdog-type unions at Torex (for one example) that saw its own workers rebel against their representation and demand that Napito’s union were allowed in are now over (see for example this July 12^th post on the blog (11) entitled, “Costs will rise substantially at Torex Gold (TXG)”. This law bill looks like a stick to me, the carrot will be Napito and his people going to the mining companies with “You let our union represent the workforce and you then cut them a better deal than before, then your problems suddenly disappear.” One person’s negotiating position is an other's extortion, after all.

The new panorama for mining in Mexico is not wholesale militancy against the industry and the driving away of companies or new investment. What it is, however, are new deals that will see more of the cash generated go to its workforce. Or else. Therefore, what this means to investments in the country is that the sharp selling we saw last week is almost certainly overdone. However, I don’t think the nerves are going to abate in a matter of hours or days and none of the affected stocks are my idea of a rebound quickflip-trade. We may get more selling in the days ahead, but above all I doubt we’re going to get enough money sloshing back in to push price back in the very-near-term. On the other hand, we may eventually see the companies that weren’t hit hard last week as the bigger losers. As an example (and it’s probably unfair just to pick on one), Fortuna Silver at San Jose in Oaxaca has fought hard to keep its mine non-unionized or keep the union influence over its operations to a minimum. With the new strength of Napito and worker emancipation on the menu, they are an example (I repeat, there are others) of a smaller company that could see its operating costs rise meaningfully in dollar terms as workers demand a better remuneration package.

The bottom line is that I am less worried about the future of mining in Mexico than the panic sellers of last week. I’m also highly suspicious of the lack of depth shown by sell side analysts on the subject, especially those in the larger firms (Morgan Stanley and Citi are two of the large entities that helped spread the unalloyed fear last week) who should have the depth of knowledge to advise their clients better. However, I am not a knee-jerk buyer of the beaten-down stocks because a) the fear-mongering could go on for a while and b) even though the worst of the law project is unlikely to make it into law there is plenty of evidence to show that the Napito-driven mining scene in Mexico is going to see changes, first and foremost in better pay deals for workers. That means higher costs for the companies. And a final point; aside from the passive exposure via Sandstorm (SAND) (SSL.to) which is something I am happy to take, the IKN Weekly ‘Stocks to Follow’ list has had no Mexico exposure for quite some time. That is not a coincidence, but in 2019 that may change once the new rules are established.