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8/22/15

The Tekoa da Silva files: An interview with Miles Thompson of Reservoir (RMC.v) and Lara (LRA.v)



...if you like (personally I like reading these things more than watching them, so I recommend you click through). Tekoa da Silva does his normal good job of grilling Thompson (of Reservoir Minerals (RMC.v) and Lara Exploration (LRA.v) fame) by 1) doing his homework 2) asking pertinent questions and 3) then getting out the way and letting his subject talk. Highly recommended viewing.

Ron Stewart on BNN on Barrick (ABX)

Right here. Well worth watching, as 1) Macquarie analyst Stewart's the man who has best called ABX the stock this year 2) he's just upgraded his reco (from sell to neutral) and 3) he explains why in the four minute segment on that link.

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

...in reverse order:


Second Place: "Why was Daryl Hodges fired from Jennings?", which probably did that well due to the snappy title, but the real dirt info to answer the question is in this post, "Daryl and Chuck's Excellent Adventure".

First Place: "What subscribers knew about Minera IRL (IRL.to) (MIRL.L) on Sunday evening". It went viral and won by a mile. The central article of this whole saga and the one to read to get the best handle on it (if you care, that is).


And yeah, I've been a bit of a one-trick pony this week. Normal service will be resumed shortly, though.

8/21/15

The Friday OT: Ruben Blades; Vino Añejo (vintage wine)

Old-school classic salsa from one of its finest exponents:



We don't do many Spanish language Friday OTs, but it doesn't hurt to add a few quality songs into the mix. And although essentially dance music, great songsters and lyricists elevate the rhythms to higher levels. Ruben Blades (my personal fave) very much included.

Ya no me duele el pasado, ni lamento lo perdido,
No me importa hacerme viejo, si me hago viejo contigo

.

Those special visitors


Chart of the day is...

...the gold/silver ratio (GSR):


I find it nothing short of fascinating that silver hasn't managed to claw back even an inch of all the ground it's lost on gold during the rebound rally of the last couple of weeks. The GSR has been this high before, but only on spikes and the 70X and above we've seen since October last year (!!) is now a new normal. 

For those new to the Minera IRL (MIRL.L) (IRL.to) saga...

...the one you need to read is this article, which is long (apologies) but does the job of explanation.

8/20/15

Daryl and Chuck's Excellent Adventure

We know that before he worked at Minera IRL, Daryl Hodges worked at the now defunct Jennings Capital. We know that Daryl Hodges became the CEO there and from that moment on the company went downhill. We know Daryl Hodges then left Jennings. But we now know a lot more about the circumstances of that event. The Globe & Mail article "Jennings Capital replaces CEO, shuffles management" dated September 20th 2013 is behind a paywall, but if you get through that you find quotes such as:
Jennings showed former CEO Daryl Hodges the door, replacing him with Calgary-based head of energy banking David McGorman.  “The board made a decision on Wednesday and made the changes,” Mr. McGorman said in an interview. “Mr. Hodges is not with the firm any more.”
But why should that be so? IKN Nerve Centre today spoke with someone who was a high-ranking member of the Jennings team at the time. The source told your humble scribe that when he took over, Hodges ran the shop into the ground and the end came when a group of Jennings shareholders got together to depose him in order to salvage what little capital was left there. But it wasn't easy, as Hodges hired lawyers (using Jennings' own cash of course) to fight any moves against him and managed to run up a legal bill of over C$1m before he was fired. Along with that tidy sum he also saw many lawsuits brought against Jennings, some of which are still outstanding today (since Mackie bought Jennings out and took on the liabilities).

It just so happens that one of Daryl Hodges' favourite lawyers and a main beneficiary of business from Hodges' ill-fated time at Jennings is Chuck Higgins of Fasken Martineau. My contact today said the following about their cozy relationship (permission to quote received):
"One of his main legitimizers is a Fasken lawyer named Chuck Higgins, a real piece of work and cut from the same cloth"
Amazingly, coincidentally, purely by chance our Fasken lawyer Chuck Higgins does the Canada regulatory work for Minera IRL, where Daryl Hodges showed up after being booted out of Jennings and is now trying to grab all power for himself. The weirdly coincidental nature of this Higgins/Hodges repeated double-act brings up the potential for an obvious conflict of interest, but if it were just the above little snippet of information there would be suspicions but nothing much else to tie Higgins and Hodges together.

But there's more. As a matter of fact, Daryl Hodges and Chuck Higgins are joint owners of a bar in Toronto, The Pilot (N°22 Cumberland St, apparently the best place to sip your drink is the rooftop patio). Not only that, but they're often seen boozing in each other's company at their jointly-owned bar. They're friends, business partners and it just so happens that the place Hodges is now running his nefarious coup d'etat plans is the very same company that had the misfortune to have Chuck Higgins as one of its main legals.

Conflict of interest? You better believe it.

Screwtape Files versus Jason Zweig

IKN draws your attention to this post, in which we noted that The Screwtape Files called a bottom for gold on July 9th 2015 of U$1,081/oz.

I'm deeply, deeply impressed. Seriously, that's one helluva moneymaker call. You should do what IKN's been doing for years; read Screwtape.

We also remind you of this post, in which Jason Zweig got a mention. This is the "market expert", who had the memorable achievement of shouting "buy!" on gold bullion at its very top a few years ago. And after top-ticking the metal then, just a few weeks ago in late July added to his track record of unblemished failure by calling sell on gold and calling it a pet rock at...yes you guessed it...the very bottom $1,080/oz day. Bless him.

I'm also deeply deeply impressed by Zweig's track record, but not in exactly the same way. 

Anyhow, Screwtape versus Zweig. You be the judge.

Charles L.K. Higgins, aka Chuck Higgins, of Fasken Martineau


And here's some of the work Chuck Higgins has done during his time at Fasken. We note that Chuck Higgins worked closely with Jennifer Armstrong and Daryl Hodges on this deal. In fact, we understand that Mr. Higgins and Mr. Hodges have worked together on several occasions over the years. 

So, welcome to IKN Chuck Higgins. We hope you enjoyed seeing your name on the blog this morning. It won't be the last time you get a mention.




I wonder if "Jennifer Armstrong" is a real person, or...

...whether it's a pseudonym that somebody else is using?

Unanswered questions aside, here are a couple of comments "Jennifer Armstrong" left on Google+ under today's posts and as hardly anybody ever goes to Google+, these comments would get ignored and missed by one and all if I don't stick 'em here. So here they are in screenshot form, to share and enjoy.


Whoever you are Jennifer, you're my new favourite reader. Y'all come back now, y'hear?


8/19/15

What's really infuriating Daryl Hodges, Executive Chair of Minera IRL (IRL.to) (MIRL.L)

One of the key parts of the Hodges plan (well in fact the people running Hodges, but we'll get to that part tomorrow or Friday) is that he wants the Minera IRL (IRL.to) (MIRL.L) share price to collapse. It'd make things so much easier later. So he must be really pissed about the way the stock's rebounded hard this week in both London and Canada, even after the announcement that the Ollachea community have declared him persona non grata and have stopped IRL from working its project.

It's amazing when you think about it: Hodges must be the only executive head of a junior in the whole world that wants his share price lower, rather than higher. 

And Daryl, between you and me* I'll tell you one thing: You shouldn't have told your lackey to phone me and tell me not to publish anything. You do realize that now, don't you?

Enjoy that chat with the OSC this afternoon.


*i promise nobody else will ever find out

Why was Daryl Hodges fired from Jennings?

So far this humble corner of cyberspace has only been given rumours and hearsay on the matter, some of it pretty juicy too, but what we know as a stone-cold certainty is that Daryl Hodges was fired from Jennings. All information welcomed on this one, kind readers.

Karma's a bitch, Daryl.

UPDATE August 20th: Reasons here

8/18/15

What subscribers knew about Minera IRL (IRL.to) (MIRL.L) on Sunday evening

This is the kind of thing we do in the subscription Weekly. This went out to subscribers on Sunday evening, before IRL had even sent out its own news release. I've been asked by a whole bunch of people to put it up here on the open blog so here were are. Enjoy.

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Minera IRL (IRL.to) (MIRL.L): Community protests at Ollachea and information on the company's internal and financing situation
It is as sure as you are Roderigo,
Were I the Moor, I would not be Iago.
In following him, I follow but myself;
Heaven is my judge, not I for love and duty,
But seeming so, for my peculiar end;
For when my outward action doth demonstrate
The native act and figure of my heart
In complement extern, 'tis not long after
But I will wear my heart upon my sleeve
For daws to peck at. I am not what I am.
Othello, Act1, Sc1, ll56–65

There are three main sections to this piece:

1) We start with the news from Ollachea last week, which was relayed on the blog this Sunday via the direct translation of the brief but mainly accurate report shown.

2) We consider what's been going on inside Minera IRL recently, as there's a heap of internal politics to sift through.

3) We put it together and make a call on the future of the company, its officers and the ultimate fate of the Ollachea mine project in Puno, Peru.

The news last week
To begin, both for the record and for those of you who didn't see the post on the blog this Sunday morning, here's the translation of the news report (13) dated the evening of Friday August 14th. I'm repeating it here because it gives a good overview of the facts as stand in just a few lines:

Puno: Ollachea Paralysed in Protest Against Mining Company IRL
By Juan Choquetocro, from Macusani 
The community of Ollachea has decided to indefinitely block development activities at the Ollachea gold project in protest against the new president of Minera IRL, Daryl Hodges. The company executive announced changes for the company that are considered to show a lack of respect to the agreements the community has had for the last eight years with the founding executives of the company, Diego Benavides and Courtney Chamberlain, who died last April. 
The member of the Ollachea community say they feel deceived by the new director, because he presented himself to them as the person who had obtained a series of benefits (for the company and community), including the recent debt financing deal with COFIDE for the start of the project. However, the Ollachea community says that Mr Hodges has never participated in any of the agreements with the company and is now looking to take community property. 
The Ollachea community member communicated their decision to the company via a letter that also included several queries. Among them were the question as to why the company had given maximum authority on an interim basis to Mr. Hodges and not to Mr. Benavides. According to the community members, Benavides, who was a few years ago awarded the title of 'Honorary Community Member' by them, is the person who should be in charge.

This weekend the community is holding a meeting to decide on other courses of action they might take, according to the president of the community.

Since that news report came out I've been active in gathering as much information as possible from all sides. Some have been willing to talk to me, others have refused to talk, others have supplied information on-record and others would only speak off-record but in the end I have at least the views and opinions of just about all sides in this saga. A synthesis of all that is what you get today.

Since the untimely death of Courtney Chamberlain, Daryl Hodges has been in charge at the company as executive chairman. To cut to the chase, after reaching the $70m initial credit deal with COFIDE in June Hodges decided to go to Ollachea, present himself to the community with the IRL team and, along with the presentation of some overdue social community agreement money that was now available to hand over thanks to the COFIDE deal, explain the state of play to the stakeholders there. So on July 15th 2015 the top management of Minera IRL went to Ollachea and had a town hall meeting with the community. There were around 500 people present. First the community president welcomed their guests, then Diego Benavides spoke (he also handed over the cheques) and then came the central point of the meeting, a speech of approximately 10 to 15 minutes given to the hall by IRL executive chair  Daryl Hodges, the man now in charge. After the presentations, there was a question and answer session (as is normal at this type of meeting) with the floor able to voice its concerns.

In his talk, Daryl Hodges, who spoke in English with his message translated into Spanish for the audience by VP Exploration Don McIver, used his time to introduce himself to those present. He said that he hoped the good relationship enjoyed between the company and the community would continue. He then told those present that there would be changes in the way IRL operates and does business. He was polite and good mannered in his speech, but that doesn't hide the fact that the message of "there are going to be changes" went down like a lead balloon with the community of Ollachea. When I asked Daryl Hodges about this, he replied, "I said we are still adding a lot of new people and the company is going through changes" (quote unquote). In his opinion the meeting was not fractious and in general terms, although being nervous about having to give a speech, he thought it went quite well. He also told me (quote), "Last thing I expected from that night was bad press."

Unfortunately that's not how someone in Ollachea I spoke with this weekend put it, not even close. Also present at the meeting, my contact told me that when Hodges spoke, he spoke in English and his words were translated (true). In the question and answer session he was asked on many occasions by those present (often different people were repeating the same question) a combination of "why was he head of the company", "why wasn't Diego Benavides head of the company" "why was Diego Benavides only "interim CEO" and not ratified as CEO" etc. Daryl Hodges claims he was asked that question three times and that the questions sounded scripted, my eyewitness said he was asked many times over, far more than three. His answer was to smile and say that Diego Benavides was very important to the company and he hoped that he'd decide to stay with the company. This, quite rightly as you'll see later, was interpreted by the assembly as "Diego's not getting the CEO job". He was also asked repeatedly for details on the "changes", as he was in effect being asked by the community who had been used to working with Benavides and Courtney Chamberlain for eight years. At one point when receiving one of these questions he threw his hands up in the air and laughed, not with the people but at them.

The message from a non-Spanish speaker with apparent control over the destiny over the project on the community's territory could not have been worse. According to the eyewitness, he showed no respect for the people present and though he said he wanted to remain on good terms with the community his talk about wanting to change the way the company operates showed no respect at all to the recently deceased Courtney Chamberlain, with whom the people in Ollachea had an excellent relationship. He made no mention about why he had been made head of the company and not Diego Benavides, who in the opinion of the community was and is the obvious successor to Courtney Chamberlain. To sum up the attitude of the community, here's a direct translation of the letter sent to Daryl Hodges by the community of Ollachea, dated August 10th 2015, as their words are better than mine (I'm just the translator). I was supplied a copy of this letter by my Ollachea contact:

Sr. Daryl Hodges
The rural community of Ollachea is very proud of its territory and its riches and because of that, we have always defended them against anyone who has wanted to deceive us in order to appropriate that which we consider our principal resource and the most valuable asset from our previous generations for our children.
When the company (IRL) first came (to Ollachea) we conversed with them and reached agreements based on trust with the people who came as representatives of the company such as Mr. Courtney Chamberlain, who we always remember with much appreciation and Dr. Benavides, who we named an Honorary Member of the Community due to his laudable social leadership and who we elected as the only person authorized for agreements between the community and the company.
This good relationship of trust has lasted over eight years, with total respect for our customs and particularly our territory, which is why we gave our territory as guarantee via a contract and the our support to the company so that it could obtain financing with COFIDE.
However, we now see that nothing is being respected, which is why the General Assembly which took place yesterday agreed on the necessity to get a clear answer regarding the announcements of changes in the company that you, in an arrogant manner, spoke of in the Assembly of July 15th.
Our territory and agreements are to be respected and with you we have no trust that this will occur because we feel that you have lied to us and that you do not respect the relationship that the community and the company have built.
You said that you had worked in the company for the last eleven years and that you had achieved the deal for the credit agreement with COFIDE. We have never seen you before, nor do we agree with you.
You have treated us badly because you have taken Mr. Courtney's position, we don't know how, and you have ignored he who we named honorary community member, which represents a direct affront to us.
You mocked us when we said that you (i.e. the company) should give the position to Dr. Benavides, who deserves to occupy the main position at the company and not to be an interim.
You said that there will be a new company, ignoring the good relationship forged between community and company for eight years.
Until we have your answer, we will not grant any permission for the development of the drilling campaign or any activity (at the Ollachea project). If not, we will have to take further action. We await your immediate answer.
Sincerely,

Juan Luis Valeriano Gutierrez
President of the Ollachea Rural Community Directive
IKN327 back. To sum up so far, Daryl Hodges said the meeting wasn't fractious, seemed to go okay and he didn't expect any bad press. My eyewitness said it was an unmitigated disaster. Then on August 10th the community sends that letter to Daryl Hodges. You be the judge on how that meeting really went.

You'll also note how many times the word "respect" has come up in the last few hundred words, both in the narration of my eyewitness and the letter sent to Daryl Hodges by the community. I cannot overstress the importance of this, plus the element of trust and it leads me in a slightly abstract way to a point I want to make before moving on: The Assembly Meeting on July 15th should never have taken place. Knowing what I know about the way Peru works, it was in my opinion a gross error to call a meeting and go to the community. The rub here is that it was Daryl Hodges who insisted on going to Ollachea and introducing himself to the community, despite receiving advice not to do it from several quarters. I've been on the receiving end of that type of situation personally and know they're difficult to manage, and I'm a fluent Spanish speaker with a wife and in-laws from the region and a decent notion of the cultural codes and suchlike. For a gringo (no other word) like me it's not easy, for one that doesn't speak Spanish, doesn’t have a clue about the culture and then not only proclaiming himself boss but ignoring the achievements of a highly respected person such as Courtney Chamberlain and telling those present that the company is changing the way it does business….the phrase "recipe for disaster" only scratches the surface.

Which brings us to this week. On receiving the letter from the Ollachea community on August 10th, Daryl Hodges dispatched the head of his community team to Ollachea with a letter (that I haven't seen…yet) and directives to explain the situation, say that the company has no plans to change any of the social programs and that it remained fully committed to the community. In other word to calm the waters, which was the right thing to do (though a little too late, I fear). After that was when the community talked to the News Ser reporter who published his report seen above on Friday evening (the news also appeared in other media sources such as Peru's El Correo, by-lined to other reporters, so I'm assuming without knowing that the community president held a small press conference of some sort).

This weekend the Ollachea community has again been meeting to decide on their response to the message delivered by Daryl Hodges. Today Sunday they resolved to maintain the current freeze on the Ollachea mine development until such time as Diego Benavides is ratified as CEO and put in charge of the project.

On Minera IRL internal politics
If you managed to get through all that lot (and I apologize for the length of the piece, but this time it's unavoidable) it's not going to come as much of a surprise when I tell you that there's friction inside IRL at an officer level. There are plenty of anecdotal comments I could bombard you with to back up that statement as I've heard no end of negative comments about person or persons X about person or persons Y recently, sometimes veiled comments and sometimes starkly unveiled. But I'm not going to go there, I've learned from experience to keep out as much as possible of the personal ego-driven side of internal corporate politics, especially when I'm a mere third-party outsider looking in.

What we know, or can easily deduce, is another matter:

  • There is bad blood between Interim CEO Diego Benavides and Executive Chair Daryl Hodges.
  • Hodges does not want to ratify Benavides as CEO. That's clear from his answers to me, to the community and it's a glaringly obvious omission from the agenda of the company's AGM coming up on August 27th. This implies that he wants the job himself. In fact I'd bet large amounts of money on that one.
  • If this came to pass and then Diego Benavides decided to stay with the company, it means Benavides would be in a subordinate role to Hodges. With Hodges recently arrived at the company (made director in early 2014) and Benavides a founder of Minera IRL, the tensions would be obvious to anyone.
  • However Hodges seems to enjoy the tacit support of the corporate backers of IRL (to generalize, "the London people") as witnessed in May 2014 when he received the highest number of ratification votes as director (around 51m) of all the board.
  • Hodges has also made it clear he wants to "change" the company and the way it does business. We've yet to see what that means.
If it were just a type of Venn Diagram of politics, with Daryl Hodges and his camp one side, then Diego Benavides and his camp on the other side, then the company, the Ollachea project and its community in the middle, then it would be difficult to make a truly objective call on what was going on, who was in the right, who was in the wrong.
Hodges says this, Benavides says that.
Benavides wants IRL to do business in manner X (that one we basically know, status quo), Hodges wants IRL to do business in manner Y (changes).
The community says it's against Hodges as company head (that's a fact), but while Camp Benavides says it's the way Hodges has treated them (implication: permanent mess), Camp Hodges says that Benavides has turned the community against him for his own nefarious reasons (implication: situation can be repaired).
Camp Hodges says it's changing and renovating IRL into a better company, Camp Benavides says Hodges&Co is ruining the company for its own nefarious reasons right at the point when the company was about to secure the financing deal and build the mine.
We could continue. And after hearing from all sides, or at least all the sides that wanted to talk with me, I sat back and tried to consider things as a third-party onlooker. After all, this is capital markets and not kiddies play-date friendly-time, the ultimate objective for us the retail shareholder is to buy low sell high and if that means getting onside with a new broom that comes into a company, ruffles feathers, shakes things up and gets things moving forward in better shape, then it could be a perfectly acceptable situation that improves the company's stock price and with that, there are only questions of personal style and taste left to consider.

However, when I found out about the position of the main lender COFIDE in all this, the whole thing changed.

The COFIDE position: The canary in the coalmine
Let's start with a clear statement: I believe the deal done by Minera IRL with COFIDE to be a good one. Good for the company, for the Ollachea project and all its stakeholders, good for shareholders such as you and I and said as much in the NOBS report we ran on IRL in IKN318 dated June 14th 2015, just after the announcement was made. I liked the deal, I stuck a 23c target price on the stock (assuming the current $70m deal solidifies into the full debt financing deal of up to $240m). I also added more to my position afterwards and averaged down.

Since then and even taking into account the new wave of abject negativity in the wider gold sector through the end of June, all July and into early August (you know all about that) I've been at a loss to understand why the stock has been trading so poorly. Yes they've all gone down but we're now back at 7.5c and that's AFTER the financing deal has been struck, not before! The other big mystery connected to that is the lack of traded volume in the stock, as even at these basement levels people are not interested in the equity that should be interested (by whom I mean switched on people, particularly in Lima and London, who know the project and its robustness…there are a few of you reading these words right now).

But this weekend I now understand why. And this is the part that starts to explain the prime buying opportunity for IRL shares that I think is about to present itself. To mix metaphors, it took the news from the community in Ollachea to rip the lid off this can of worms and get the canary in the coalmine to sing for its supper. But before getting there I want to highlight the weak point in this section so that you see it clearly, I'm not hiding anything or playing sleight of hand: Sources for this part are off-record and will stay that way. However they're also trustworthy to the point where I'll stake my reputation as an analyst of LatAm mining matters on their word. If the following doesn't pan out the way it's presented don't ever listen to me again or take anything I say seriously. Enough 'the lady doth protest too much methinks' stuff:


  • I now know that the COFIDE people aren't annoyed at Daryl Hodges, they're absolutely livid. In several ways, COFIDE has been treated with absolute disrespect by Hodges ever since the initial $70m deal was closed.
  • For just one example, I know that the deal liaison man between COFIDE and IRL, who happens to be a Peruvian financial person of good standing in its business community, was accused being a thief by Daryl Hodges and unceremoniously kicked out of his office.
  • I know that despite his representing otherwise, Daryl Hodges had very little to do with the thrashing out of the deal. The agreement between COFIDE and IRL was finalized in a process lasting over a year and a half and the only reason Courtney Chamberlain wasn't there at the end to sign the papers is that he passed away before the process closed.
  •  I know that COFIDE has voiced its grave concerns directly to Hodges over the direction the company is going and asked for a conference meeting with the IRL board of directors, but was refused that opportunity by Hodges.
  •  I know that once COFIDE sensed problems it sent its own team to the town of Ollachea to investigate the situation for itself (not stupid, there are millions in play here). I know that their own independent findings coincided very closely to the position taken by both Diego Benavides and the community leaders as regards Daryl Hodges and "new" IRL.
  • I know that if Daryl Hodges remains as head of Minera IRL the company isn't going to get another penny from COFIDE.

Those are things I know and because of that I'm sharing them with you. I also know that I've just trodden on a lot of people's toes by doing so, but at this point I care more about the equal distribution of knowledge than political correctness or interpersonal niceties. You, the IKN Weekly reader and/or IRL shareholder, need to know about this in order to fully understand what Daryl Hodges has done to this company since he took over after Courtney Chamberlain's death, to what degree he's wrecked the company's good standing in Peru. What I suspect but don't know is that Daryl Hodges wants it that way because he's found a different source of financing, one that's going to be very shareholder-unfriendly but serve his personal purposes more readily. That's a maybe, just a personal suspicion.

Conclusion, discussion, recommendation
To round this off we need to get down to the baseline of this wild and weird saga. There are three points to take in:

Without the support of the community, Minera IRL will not be able to build its mine. Period. As I put it to Daryl Hodges in a mail yesterday Saturday, "The community is a key stakeholder. Without the community Minera IRL has nothing, zip, zero. You cannot force a project onto a community in Peru, as any number of recent examples will amply show". Just by reeling off names like Santa Ana, Conga, Cañariaco, Majaz, Tia Maria I make my point to the casual observer of the Peru mining scene but it doesn't end there: Not only is the town of Ollachea consummately easy to physically defend (one road in, one road out, high mountains all around) but the access from the town to the mine is even easier to blockade successfully. It matters not if a bunch of lawyers walk into town waving pieces of paper saying that the community has broken its agreement with IRL and now has to pay. It won't matter a jot if the government is stupid enough to send in police to break up protest barricades, either. Without Ollachea the town onside, Ollachea the mine doesn't happen. Very simple.

With Daryl Hodges at the helm of Minera IRL, the company will not get the support of the community. Period. The community of Ollachea has made its position crystal clear in this regard. You may agree or disagree with their decision, you may find it objective, subjective, smart, biased, influenced, understandable, political, reasonable or otherwise. In fact I haven't gone much into the thorny issues of cultural empathy and the value systems of provincial communities in Andean Peru, but I for one see exactly where they're coming from and respect their decision. But be clear, what matters to us is the result, not the reasoning and once a decision like this is taken those people don't back down, it's not about money.

And semi-on-topic, one thing that Hodges told me is that his community team was at fault, as they haven't handled the situation correctly. This beggars belief, because it's exactly the same community team that built the strong relationship with Minera IRL. Even if I hadn't done all the digging that I've done on this story, it's plain as day that the only thing that's changed is the person running the company and that the only question would be how directly or indirectly that had affected the sudden deterioration in community relations. And even discounting something that obvious, the executive chair of any company is the person responsible for its actions and the buck must stop there.

With Daryl Hodges at the helm of Minera IRL, there's no deal with COFIDE. Period. And you better get used to the idea.

To sum up the three main points, on the one hand you have the stakeholders of the community of Ollachea, who for eight years built a relationship with a mining company under the tenure of Courtney Chamberlain that was the best in all Peru (that, as you may know, is one of the reasons I've stuck with this company through the downturn), who are now blocking the project due to the way they've been treated by IRL's new head. On the other hand you have the chief financing body that's now blocking the project due to the way they've been treated by IRL's new head. See the common denominator? Yep, me too.

Tomorrow Monday we can expect a news release from Minera IRL. It won't have even a tenth of the information you've just read and I'd expect it to be spun hard to make the company's top man look in as good a position as possible. Be clear, he's not, and until he either resigns or is fired it's not going to get any better. That's where the upcoming AGM may become a factor because on August 27th we the shareholders get to vote on the ten point agenda put forward by the IRL board. The points include the ratification of Daryl Hodges as director of IRL, plus the voting on-board of at least one of his close allies. I'd advise all shareholders of IRL (and I know there are many who read The IKN Weekly, be that good or bad) to get their proxies in early (we're close to the deadline date) and to use their votes wisely.

But even if Hodges survives the vote on August 27th his days are numbered at IRL and that's where the real investment opportunity lies, ladies and gentlemen. He may try to deflect blame for the soured community relations onto the leaders of Ollachea, the IRL team or even (and in the circumstances very likely) the Interim CEO Diego Benavides. I'm likely to come in for my own quota of flak too after writing this exposé on his incredibly poor handling of IRL affairs (and guess how much I'll care about that? Yup, you got it). But when the facts emerge about COFIDE's position, he's toast. This is something Daryl Hodges doesn't seem to understand yet, but he will. It's not if, it's when.

I expect that IRL will trade lower next week on news of the community unrest. If so I'm a buyer of this stock and will average down my position further because when Hodges leaves and Diego Benavides is ratified as CEO (and by the way, I'd like an independent insto person to be chosen as eventual company chair to oversee good financial housekeeping), the community relationship will be restored immediately and COFIDE will be good about returning to the deal at hand. It will be like waking up from a bad dream and with that, the share price should start recovering on decent traded volumes to where it deserves to be. And that for me is at least a double on the day when COFIDE and IRL close the main debt financing deal.

I could add more, but this has gone on long enough already and you should have the picture by now. So I'm going to wrap this up, clean up the copy, PDF and send it out. IKN327 main feature, Sunday August 16th, signing off.


The latest letter from the community of Ollachea to Minera IRL (IRL.to) (MIRL.L)

This is a translation of the letter that arrived at Minera IRL yesterday evening August 17th. After reading it I think the Ollachea community's position is fairly clear. And just so you know Daryl, I have a copy of the letter and although my source will remain confidential, it came from the town of Ollachea and not from anyone at your IRL office. Also Daryl, I did the translation and it's wholly accurate in both message and style. But you wouldn't know that, not being able to speak Spanish.

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Via this official letter, we the rural community of Ollachea, in full defence of its territory and its community rights, make our statement on the commitments agreed upon as company partners and community. We have made the decision via General Assembly to declare Señor Daryl Hodges 'Persona Non Grata' and solicit his retirement from the company, due to his lies and his lack of respect from not taking us into consideration and mocking our fair petitions. 
Señor Hodges does not care about nor respect the relationship of trust built over eight years between company and community through our Honorary Community Member, Dr. Diego Benavides, for who we clearly asked that his position of Interim CEO be ratified, to be recognized and part of the directorate and as the lead authority of the company according to our community assembly dated 15th August 2015. 
If Señor Hodges has not taken into consideration, nor even respected, our request made to him by the assembly, what trust can we have in him while at the same time we see he has auto-proclaimed himself the maximum authority of the company without giving any sort of proposals to the community?  
The community has always trusted in Dr. Diego (Benavides), which is why we gave him our support in order that he could reach the financing agreement with COFIDE, and now Señor Hodges wants to push all that aside and change the company to get the project for himself and damage our community, appropriating our territory in the same way that Rio Tinto before him wanted to do. This is something the community will never allow.  
Therefore, we have decided that the project will advance no further if Dr. Diego Benavides Norlander is not put in charge exactly as requested and that the commitments agreed upon are adhered to, such as the case of the machinery plus the payment of surface rights for 2015 that was agreed upon in August with him. Also, we request that our agreements and decision on no activity at the project are complied with and respected. If not, we will be obliged to take drastic strike measures via all the community.  
Sincerely, 
Juan Luis Valeriano Gutierrez 
President of the Ollachea Rural Community Directive


Daryl Hodges of Minera IRL (IRL.to) (MIRL.L) deliberately deceives market authorities, breaks market rules, leaves his shareholders in the dark

Four facts to consider:

1) On August 10th 2015 (remember that date) Daryl Hodges, the Executive Chair of Minera IRL, received formal notification from Senor Juan Luis Valeriano Gutierrez, President of the Ollachea Community, that the community is suspending its support of the project development activities at Ollachea.

2) According to the rules of the TSX, a company has a maximum of 72 hours to file news and notify the market of a material change to the company.

3) Yesterday August 17th, seven days after receiving the formal notification, Minera IRL notified the market about the news via its NR (link here).

4) Today Minera IRL filed to SEDAR a material change report on yesterday's news release, i.e. the company acknowledged that the news from the Ollachea Community was indeed material.

In yesterday's NR, Hodges tried to worm out of the obvious non-compliance with market rules by adding, "This situation was also reported by the Community to the Puno press on 14 August 2015" and that may be true, but his error of omission is glaring. He and the company knew of this material event via an official letter sent addressed to him personally and received by the company on a registered date/time stamp on Monday August 10th 2015.

The man is a liar.

Re. copper stocks deep in the doo-doo, here's the piece IKN327 last Sunday about Capstone (CS.to)

Capstone Mining (CS.to) is one of the stocks in the "Copper Basket" at the IKN Weekly, 15 stocks which we track as a bunch (not buy or reco, just track) to gauge the state of play in the copper space. Here's the bit on CS from three days ago and as you'll see, it's hardly the first time we've warned loudly about the sector, or this specific stock's near-term future (or lack of):

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Capstone Mining (CS.to): In IKN319 the call was to get out of the copper space, with part of that piece saying "the big players happy to run their big mines at full speed because they're still highly profitable at the current copper prices, but the small players, the medium-sized and those left holding exploration projects are now being priced out".

In IKN324 we zeroed in on CS.to as a prime candidate for real share price pressure going forward as copper's price drop started to bite:

"If my scenario plays out, we're not just going to see a few stocks come under share price pressure, we're going to see companies with weak balance sheets get overrun by their debt positions and call for bankruptcy protection and from the state the 1q15 balance out of Capstone (CS.to), this company is a candidate for such a fate.

"The problem CS has is with its Senior Secured debt, which stood at $298m as at 1q15. According to the terms of the financing deal, CS has to keep ratio of debt-minus-pledged-cash to rolling EBITDA to 3:1. In real terms, CS has to show rolling EBITDA of over $50m or so (debt minus cash at 3 to 1) over its quarters in order to be in good stead, and as it has some decent quarters in the bag (in EBITDA terms at least) it's currently in compliance. But as the last quarter's EBITDA was negative $11m, it's not going to take many more of those to drag the ratio over 3:1, at which point CS is in non-compliance with its covenant and could be called into receivership by its creditors."

And indeed the scenario is playing out. Here's a two month price chart which illustrates to 40.6% drop in the share price of CS.to between IKN319 and today:



That's pretty hairy and unlike the precious metals plays, there's been little relief in the last few days. It's my contention that things have to get worse in the copper space before they get any better and that probably means a few headline-making corporate casualties before the market turns around. One of the prime candidates for bankruptcy protection is the highly leveraged CS.to so you may think this weekend's 76c price is wildly cheap. I think the cheap is going to get a lot cheaper.

UPDATE: And good morning to you Cindy Burnett, VP Investor Relations and Communictaions at Capstone Mining (CS.to):



Nice to see you've decided to use the feed option and become a regular reader, too. Have a pleasant day, Cindy. And perhaps you'd like to spend a little time this afternoon learning about internet anonymity. Or the lack of it.

Chart of the day...

...is still all about copper and yeah I know it's getting tiresome and repetitive, but if you don't have the price action in this metal in the very centre of your radar at the moment, you're not doing mining markets right. Here's the 30 minute barchart, which takes in since last Friday:



We've broken under $2.30/lb today. Watch out below.

8/17/15

Three easy pieces

We haven't done a news roundup aggregate-y type post for a long time and as there are some decent things to point your collective noses at this morning, let's bring back the tradition:

Biiwii parses Schiff. Gary T does a great job of dismantling another round of financial guff'n'nonsense from the snake oil salesman Peter Schiff.

Mike does Guatemala pre-election. Central American Politics gives us a preview of the big show coming to you in just three weeks' time. A reasonable and jaded-eye view of the election campaign and the bunch of assorted sordids that want the big job.

Franklin does Peru coca. Let me tell you about Frankin Briceño of Associated Press. He's young, bright, hard-working, perceptive, a talented young journalist with a great future ahead of him and what's more, incredibly handsome. In other words I hate him. His article out today on the coca eradication campaign in Peru and the disastrous consequences of this heavy-handed and badly designed program is a must read. h/t two weeks notice


Three things about Minera IRL (MIRL.L) (IRL.to)

1) This morning Minera IRL (IRL.to) (MIRL.L) published a news release. You can read it here. It says very little.

2) The stock is dumping hard this morning in London trading.

3) Last night The IKN Weekly published on the whole affair. It says a lot more. I'm already getting urged to put the piece on the open blog and so I will, but to be fair I'm going to wait until tomorrow Tuesday to do so. Subbers should have their chance to act first. And so should I, dammit.

Opportunity knocks.

Chart of the day is...

...copper, dailies:



Still the most important metal out there. Gold's moves are sideshow; an interesting, expensive and profitable sideshow for sure, but still sideshow.

Daryl Hodges, the Executive Chairman of Minera IRL, was declared 'persona non grata' by the town of Ollachea tonight

And to be clear about this, that doesn't mean he's a person without any grilled cheese on top.


8/16/15

The IKN Weekly, out now



IKN327 has just been sent to subscribers. Inside there's more advanced mathematics like the example shown above.

PS: I've just been told by the rapid and sharp-eyed reader AB that there's a cool word error at the end of the edition. I've managed to write "overvalued" instead of "undervalued" in the wrap up about one of my favourite stocks. I'll now sit back and let you laugh at me, it's all I deserve.

Another brilliant SMBC today: "The Ethical Fourier Transform"

The Zach guy is really on form this week. Improve your day by clicking this link and enjoying an excellent cartoon.

And come to the dark side.

Minera IRL (IRL.to) (MIRL.L): The Ollachea community protests against the company, access to project blocked

This is a direct translation of this Spanish language news report:

Puno: Ollachea Paralysed in Protest Against Mining Company IRL 
By Juan Choquetocro, from Macusani 
The community of Ollachea has decided to indefinitely block development activities at the Ollachea gold project in protest against the new president of Minera IRL, Daryl Hodges. The company executive announced changes for the company that are considered to show a lack of respect to the agreements the community has had for the last eight years with the founding executives of the company, Diego Benavides and Courtney Chamberlain, who died last April. 
The member of the Ollachea community say they feel deceived by the new director, because he presented himself to them as the person who had obtained a series of benefits (for the company and community), including the recent debt financing deal with COFIDE for the start of the project. However, the Ollachea community says that Mr Hodges has never participated in any of the agreements with the company and is now looking to take community property. 
The Ollachea community member communicated their decision to the company via a letter that also included several queries. Among them were the question as to why the company had given maximum authority on an interim basis to Mr. Hodges and not to Mr. Benavides. According to the community members, Benavides, who was a few years ago awarded the title of 'Honorary Community Member' by them, is the person who should be in charge.  
This weekend the community is holding a meeting to decide on other courses of action they might take, according to the president of the community.


IKN back with a message for subscribers: In IKN237 out this evening you're going to have a lot more information about this. A lot. It's a classic can of worms, which is going to be spilled on your lap tonight.