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4/24/14

The need to avoid mission creep

From day one, IKN Nerve Centre™ has been crystal clear on its main market advantage: political risk for mining companies in LatAm. For sure, over the weeks and months and years it's only natural for an inquiring mind to consider the multitude of other moving parts when it comes to mining company valuations and form opinions thereof, but on too many of those subjects this humble corner of cyberspace is just another voice, without a clear baseline advantage. Sometimes IKN is right on the way gold moves, sometimes wrong. Sometimes a bullshit management team has seduced this humble and fallible scribe into its world with grand plans, wise saws and modern instances, sometimes* not. No, all those tend to be reasonably level playing fields but the real advantage we run over The Great White North is LatAm political and community risk factors. That's been shown time and again because we may only have a single clue, but you guys up there don't even have that.

All the meta-twaddle and nonsense you read above was prompted by reading GMP's call on Argonaut Gold (AR.to) this morning. They like the thing, want you to buy it and even resort to the puerile "it's a smart money buying opportunity right now" argument to get your ego stirring and you on the phone to the trading and compliance desks. Thing is, GMP and IKN could argue the toss about its valuation call on the AR.to numbers (1.15X of NAV8% is rich as hell for this thing, guys) but when it comes to its pol risk call on what's happening in Mexico, they're just being plug dumb stupid. The subject is again San Antonio in Baja California Sur State, and the line GMP uses is...

"We continue to take a conservative approach, estimating production beginning in Q4/15."

Woah! Stop! That is not a "conservative approach". The true conservative approach is estimating production that will never begin and removing the $1.30/share NAV estimate for that "asset" (word used loosely, because in fact it's the exact opposite, a liability) from the calculation. Expecting San Antonio to ramp up in 2015 and calling that a "conservative" estimate shows a complete and utter lack of understanding about the political risk factors around the project, even if you decide to disagree with IKN's own "never gonna happen" call. It's the hallmark of a nodding dog analyst who cannot speak Spanish, hasn't bothered to read up on the local situation, has no clue about the type, strength or depth of the opposition to the project and has limited their DD to a phone call to the IR department to find out the company's own viewpoint and repeated it verbatim to brokerage clients.

It's at this point that the cry of "STOP TEH STOOOPID!" often makes its appearance in an IKN post, but not today. That's because I don't want the advantage to disappear, so Canadian brokerage dumbasses, please continue to be as dumbass as ever about Latam mining politics. AR.to and GMP today is but one example. 

*On that one, most times not. Gonna give myself a little extra credit.