Portfolio & Exploration Update...Gold Miners ETF is up 145% and the Global Gold explorers ETF is up...

Portfolio & Exploration Update Ed Bugos, TDV Senior Analyst

August 15, 2016

The following is a brief review of our gold stock portfolio with a special focus on four of our exploration stocks for premium members: Amarillo Gold (AGC:TSXV), Cascadero Copper (CCD:TSXV), Goldquest (GQC:TSXV), and Merrex Gold (MXI:TSXV). Except for Merrex and Nautilus, our exploration stocks are up several hundred percent so far this year. A full review of the portfolio is scheduled for the fall after labor day, along with updates on the remainder of our exploration portfolio: Sabina (SBB:TSX), Premier (PG:TSX), Nautilus (NUS:TSX), and Eurasian Minerals (EMX:TSXV). TDV’s Long Term Defensive Investor Stock Portfolio

As of last week, our gold stock portfolio is up almost 200% year over year without imputing any leverage (plus our gold/silver positions are +35%, bitcoin is +120%, and our trading service has produced big wins).

Portfolio Segment weight 1 wk % 1 mo % 12 mo %

Gold/Silver Majors 40% +0.8% +2.3% +128%

Junior Producers 45% +2.4% 2.2% +242%

Expl & Dev 15% +4.1% +32.2% +216%

Weight Adjusted Ttls 100% +2.0% +4.8% +193%

For comparison purposes the Market Vectors Junior Gold Miners ETF is up 145% and the Global Gold explorers ETF is up 139% in the same period. The popular HUI gold share index is up by about the same amounts. The Market Vectors Gold Miners, excluding juniors, is up only 112% and can be compared with our “majors” segment, which is up a bit more (weighed down by Goldcorp’s poor performance). The NUGT ETF is a 3x leveraged ETF. It is up about 300% in the year over year comparison, way more if you take the February low, which I know some of our subscribers did even if we didn’t. From the February low this ETF is up

1 www.DollarVigilante.com

practically 800%! Amazing stuff. We took profits at about 200300 percent between $100 and $120 on the ETF itself, and booked gains of up to 600% on related option strategies (for our trading service). In a recent report I also recommended scaling back our precious metals equity weightings from 35% down to 30%. Should We Buy??

The answer to the question, “should we still buy these gold stocks” is yes, if you have less than 30% of your financial wealth invested in them. But be patient. And if you have more sell your exposure down to 30%. This 30% allocation is in addition to the 30% we recommend for your physical bullion holdings. If you followed us this year you have a 60% total exposure to the sector including physical but you built a buffer of profits and are hedged for any correction. If you are a new investor remember to wade into our positions in tranches over several weeks or months, a.k.a., “dollar cost averaging”, this method helps smooth out the bumps in timing tops or bottoms. Get long at least a little bit, but try to be patient and wait for the correction if you want to go big. I am still very bullish. This is just the first leg of a new 35 year emerging bull cycle. My gold price target for the currently emerging bull market in this time frame is $5000 for gold and about $100 for silver, which does not factor in the possibility that the Fed will go all out to a hyper inflation policy. From their lows in December most of the high beta gold stocks have tripled, more or less. The HUI has recovered ⅓ of its total post 2011 loss already. All it would take is a double from here to take it all back. And I believe that will happen. If my bull market call is right and we accept a middle of the road fair value of about 0.35 for the HUI/Gold price ratio then the HUI is shooting for 1,750 ($5k * 0.35) in the 35 year cycle. That would translate into an expected gain of about 500% from here for the average gold stock. But nothing goes straight up, and the gains we have seen this year, even though from manic lows, are anomalously high. Maybe the correction won’t be deep. Maybe we go sideways in a tight range for the next month or so just as we have been for the last month. Maybe the correction will be deep. Maybe it won’t start for another month or two, and maybe from higher levels. I don’t know. These are the things I am constantly thinking about. My intuition and experience tells me that the market is trying to get everyone as long as it can right now, and that has to include the gold bulls who have been resoundingly bearish. The trick was to keep the stock market afloat while letting the metals pop. Easy. Just adopt a weak USD policy. Whereas 12 months ago if you asked me what I thought gold stocks would do when the stock market collapsed I said they would rally, today I don’t think they would. The reason is that they have been the only game in town all year long. They have been the only sector that has really rallied. And my what a rally. As you know from above, the average precious metals


investor is likely to be up at least 100% year over year, and the average TDV subscriber at least twice that, all while the rest of the market has gone nowhere. The shares have outperformed the metal and there is some froth at the low end of the market now. If there is any kind of panic in the stock market, like when everyone wants to get out at the same time, then you will see every asset fall in the short term as investors scramble for liquidity (fiat cash in this case). You might think they should scramble for gold but that isn’t the way traders think, today. They will tomorrow! Until that day, we decided it would be best to hedge by taking out some cheap insurance on the Market Vectors Junior Gold Miners etf (GDXJ). Gold Stock Insurance Policy

We recommended buying the out of the money November $32 put options on this ETF to cover us to an extent from losses exceeding 2030 percent. It would have cost more to fully cover the portfolio and since we made out well in our trading strategies on the way up that wasn’t necessary. As it was we are only giving up 2% of our potential returns to cover potentially catastrophic damage between now and November. Nothing is certain of course. And there are other ways to hedge besides buying index puts, like buying puts on actual stocks you own if they are optionable. As with all of our shorts, these options are down 5060% from our July 1st purchase price, as all manner of equity has continued to march onward and upward. Another way to hedge is simply to take profits and keep some cash on hand, and ignore the noise until you see the panic the proverbial whites of their eyes. But don’t be completely out. Uncertainty cuts both ways. Large Cap Review TDV Picks

The large cap companies have started to lead the group again, although over the past month the explorers contributed most of our gains and over the entire year the junior producers have performed best, as expected which is why we overweight them at 45% of our total long term defensive investor stock portfolio. Our core large cap segment consists of five producers each producing over 1 million ounces of gold per year, or that are just about to make that leap, and one precious metals royalty company (the world’s largest). The largest companies in the TDV portfolio are Goldcorp (GG) and Agnico Eagle (AEM) with market caps of about $16 and $13 billion and Franco Nevada (FNV) with a market cap of just about $14 billion. Goldcorp produces about 3 million ounces of gold per year from over 10 mines in the US, Canada and Latin America. Agnico Eagle produces about 1.5 million ounces per year from about eight mines in Canada, Latin America, and Finland. Franco is the world’s largest gold/silver royalty company with producing royalties from over 100 properties and a portfolio of almost 200 exploration royalties/assets generating about $600 million on the top line this year and about $1 per share on the bottom line (plus an 88 cent dividend). While both Franco Nevada and Agnico Eagle earned shareholders respectable returns of 80 and 149 percent over the past year, Goldcorp has lagged with a gain of just 30%, persistently underperforming everything. The other three stocks in our large cap segment are: IAMGOLD (IAG), B2Gold (BTG), and Yamana (AUY). These mid caps have market capitalizations from $25 billion and produce from only a few mines.


IAMGOLD produces about 800,000 ounces per year at the moment (growing towards 1Mozpa) from about four mines, excluding Yatela, located in Suriname, West Africa, and Canada. The company has rationalized its operations to focus on precious metals a few years ago and is coming back from the market’s most hated gold stock in the down cycle after a successful cost cutting program. It has a strong balance sheet with over $500 million in cash and $700 million in working capital. Plus, it has just raised $200 million to pay down some of its debt. The stock is up almost 200% year over year, about 400% from its lows, and has recovered a good part of its post 2011 declines. But not as much as First Majestic (AG) has in the chart on the right.

One stock that has recovered almost all of its bear market losses is B2Gold (BTG), which at $3.45 is only $1 per share off its highs. That stock has not disappointed. It held in better than the rest, and recovered better! Nevertheless, charts like these only serve to illuminate my concerns. We were right. The post 2013 lows were manic and unsustainable. We knew they would reverse with a vengeance. They did. But the volatility has been so incredibly one way here in such a short period of time, i have to repeat myself, please be careful. Junior Segment Review TDV Picks

The second segment in our portfolio (the juniors) comprises six companies averaging about a billion in market cap, and includes our two silver producers First Majestic and Fortuna, which are up 400% and 200% respectively over the past 12 months. I recommend a weighting of 45% to this segment (and 40% to the large caps above) for the average investment portfolio, or in our specifically designed portfolio. The companies in this segment average a $12 billion market cap and produce less than 1 million ounces of gold per year (usually closer to between 100 and 400 kozpa) from 1 to 4 mines. The silver producers may produce a lot of silver but comparatively small revenues about the equivalent of a 200,000 ounce per year gold operation when looking at First Majestic (AG), which has about six silver mines in Mexico producing an average of 19 million silver equivalent ounces annually. Alacer has an expanding mine in Turkey, Endeavour


has a few sweet mining assets in West and other parts of Africa that I like, McEwen in Argentina and Nevada, and Argonaut is in Mexico. In the portfolio design I deliberately try to stay out of areas or countries where there is any potential for geopolitical instability or hostility towards mining. The positions that have performed the best for us over the past year in this segment have been the silver miners, as well as Mcewen and Endeavour each with about 400% gains in the past year. Alacer Gold has been the worst performer and a lot of that may owe to where it is mining (Turkey). The region has grown increasingly unstable so the risk premium has inflated. The question is whether it has grown too much. My favorite large caps continue to be Agnico Eagle (AEM), B2Gold (BTG), and Franco Nevada although I think Franco Nevada is overvalued here. My favorite juniors today are Endeavour (EDVMF) and Argonaut (ARNGF). I love our silver producers, especially First Majestic, but note they have risen far and fast. And in our exploration and development segment I still like all eight and will go into depth on half of them today. I will try to cover earnings when I get back from a short vacation after labor day as part of an overall review of our portfolio, which will include a few changes to our holdings as well. I will be replacing Goldcorp and Alacer, and may consider replacing a few other names, as well as reconsidering their segment weightings. It will never have more than 20 stocks. Just fyi, I am looking at an interesting little Mexican oil company and a large cap uranium producer. I am on the lookout for a high growth junior gold/silver miner as well. More on that in September, we have lots on the go. Earnings and Portfolio Changes Coming... Earnings are important but it may be too early to judge too harshly in many cases given that we have just come out of a historic trough where miners’ margins were depressed to historic lows. One thing I can tell you is that current earnings from the miners are not that exciting. I will concede that. And unless the price of gold and silver continue to rise like they have been, then chances are that the valuations of the miners are a bit ahead of the cycle. As an example, I like Agnico Eagle. The company earned $19 million in the second quarter ending June 30, 2016, an increase of 80% over the amount earned in the same quarter last year (or up 95% to $35 million looking at their “adjusted” figures). In the first six months of the year it earned a total of $46.8 million, or a more modest increase of 21% over the amount earned in the first six months of 2015 (while the adjusted figure was up about the same percentage wise to $61 million compared to $50 million in the first six months of 2015). Those are definitely nice gains. Right? And we know the company has a strong balance sheet, as do many of the miners (at least most that we pick); and it should be able to earn operating cash flows of $600800 million this year, or free cash flows of around $300 million, based on my analysis. BUT, it has a $13.5 billion market cap on annual revenues of about $2 billion. That makes for a higher than average price to sales ratio of over 6x, three times the S&P’s ratio of 1.9x for the average blue chip listing. On the bottom line, extrapolating above figures, it is on track to earn $100 to $120 million in 2016, maybe $150 million if we get a good spike in gold. But that means it is valued at a price to earnings ratio of more than 100x forward earnings and almost 300 times trailing 12 month basic or reported GAAP earnings.


Its potential price to cashflow ratio is 19x operating and 40x free cash flow, and this is industry wide because the miners’ earnings are coming out of a historic low where margins were extremely depressed. The key thing to understand is future earning power, and whether our picks are taking or have taken the right steps to maximize their profits in the years ahead. I will touch on that in the post labor day review. Exploration and Emerging Producer Updates

The biggest gainers in this last group over the past year are Amarillo, Goldquest, Cascadero and Sabina with gains of 800%, 450%, 400%, and 217%; and over the past month they are Cascadero, Eurasian, Nautilus, and Amarillo with gains of 100%, 81%, 46%, and 22%. Nautilus and Merrex have been our worst performing shares this past year… both of these stocks have been diluted due to their presently heavy funding needs. Goldquest Mining Corp (GQC:TSXV)

210 million s/o, 241 million f/d

Goldquest is a little company exploring for gold in the Dominican Republic. The company’s founders were also behind the discovery of the high grade (7 gpt Au) ~13 million oz Fruta Del Norte gold/silver deposit in Ecuador in 2006 that Kinross purchased for almost a billion dollars a couple of years later, and which the Lundin group is currently putting in production. Not long after, Goldquest started to find gold in the DR. The initial discovery at Las Animas yielded just a few hundred thousand ounces of gold, a couple million ounces of silver, and some copper and zinc. But it wasn’t until 2012 that they drilled into what they thought was going to be the heart of the system to the northwest, on the same structure. The shares were trading up very firmly, but carefully, on visuals of the copper in the core. On May 29th we got in at about 47 cents (CAD). I just couldn’t refuse an eye popping drill hole intersecting: “231 Metres Grading 2.4 g/t Gold including 160.3 metres grading 2.9 g/t Gold and 0.62% Copper ”. It turned into the only game in town for a while. The stock ran straight up to $2 per share within a few weeks and then started falling back after it was realized the deposit was structurally controlled, which in geospeak means the market figured out its limits. A resource estimate ultimately came in demonstrating a total inventory of about: 2.2 million ounces of gold grading 2.3 gpt, 350 million lbs of copper grading half a percent, 3.5 million ounces of silver, and some zinc. The only problem with it, aside from the market’s pessimistic mood, was that the deposit lay deep under overburden so it had to be an underground mining operation, metal recovery was low, and it was small. However, in a 2015 PEA the company ultimately demonstrated that a surprisingly low initial capital investment was required to get the mine up and running ($143 million) and a surprising low operating cost of


less than $600 per oz of gold was required to keep it going: “returned after tax economics of net present value (6 per cent) of $219million (U.S.), internal rate of return of 34 per cent and allin sustaining costs of $572/ounce goldequivalent, with a payback of 2.7 years (see news release of April 29, 2015). ” It was good enough to help the company raise $1015 million in a series of cheap financings late in 2015 and early 2016 revealing some interest by people like Rob McEwen who we recently discovered controls 20 million shares of the company (most of it through Evanachan Limited) probably acquired in the recently announced bought deal at 32 cents in June. For those of you who don’t know, McEwen is Goldcorp’s founder, and now Chairman and CEO of his own company McEwen Mining (MUX:TSX) which is part of the TDV long term defensive investor stock portfolio. McEwen’s interest is particularly curious since Goldcorp has a 40% interest in the 20 million oz Pueblo Viejo goldsilvercopper deposit shared with Barrick, not far away, also in the Dominican Republic. Goldquest may be onto another elephant in the DR. Goldquest’s spec cycle just got a boost from news in April that work on nearby claims resulted in “five new chargeability high trends, all coincident with favourable alteration and geochemistry in outcropping rocks .” The significance of this is that the Romero deposit is marked by very distinct chargeability patterns. The company notes:“Drilling on IP chargeability high anomalies led to the discovery of the Romero deposit and thus is a key exploration tool in the region .” On the new anomalies, Goldquest says, “the IP program has confirmed five new chargeability high trends, all coincident with favourable alteration and geochemistry in outcropping rocks. These trends include a continuous 17kilometre anomaly which extends south from the Romero deposit in the central portion of the belt as well as four new subparallel anomalies in the southern portion of the gold belt .” The speculation has engulfed Precipitate’s Ginger Ridge Discovery to the south. Goldquest has embarked on a drill program to test these anomalies (Loma El Cachimbo prospect) with 10,000 meters of drilling in about 40 holes. The drilling program was supposed to start early this month, and Friday morning management issued themselves options on about 5.35 million shares at 60c. The stock has been a terrific performer. We repeated our buy at 25 to 30 cents in our April 5th update. If they can produce a large enough hit at one of these anomalies this thing is going to go right back to $2 in no time.


I still like the stock but like everything else it has run up a lot (more than 300% since Feb/March alone), and we would not discourage anyone from taking some profit off the table if they bought below 3040 cents. As a rule, my recommended weighting for the segment is 15%, so try to keep your positions in the individual stocks in the group to not more than 12 percent. If you have a small account and/or are not afraid to have concentrated positions then still keep it below 510 percent there are lots of good things to own. Cascadero Copper Corp (CCD:TSXV, CCEDF:US)

167 million shares o/s, 190 million f/d

Cascadero received a very important report this week from BMW Geoscience that will help it optimize its drilling program this fall (spring in Argentina!) on its Taron rare metal polymetallic (Cesium) epithermal deposit. The report was compiled after assaying “386 drill core samples from three of the seven drill holes on the property and 2,605 trench samples ” from previous exploration work. The modelling enables Cascadero to plan its drilling in order to delineate an NI 43101 compliant resource estimate: “Its objective was to identify prospective areas of mineralized material for drilling and further surface work.. .” The report recommended that Cascadero drill 2,100 meters in 21 core holes targeting a resource of up to 20 million tonnes over an area of about 9 hectares (21 acres). That is enough to supply the current estimated shortfall in Cesium due to the shutdown of Cabot’s Tanco mine for about ten years. And yet, that is only a fraction of the known mineralized area i.e., the area already tested by trenching and drilling is 128 hectares, and the total area of the Cs anomaly, which has been sampled in outcrops, is over 400 hectares (> 2 sq km). The area targeted for delineation under the PEA is less than 1% of the latter area, and the total known extent of hydrothermal alteration. [Incidentally, there are also many silver targets at Taron, from what I understand.] The BMW report will help them target the best portion of the deposit in order to obtain a relatively high confidence estimate of an initial Cesium resource large enough to subject to an economic study (PEA). If the PEA demonstrates that the mining process is economic then the stakes really go up. As a result of the situation in the industry, Taron has a shot at becoming the lowest cost (and potential monopoly) producer of Cesium in the world, effectively displacing Cabot. An entire industry has developed downstream and the demand for Cesium compounds is proliferating with every new discovered use. The race is on for the players to secure supply. That’s why the PEA is important. It will put some numbers on the inputs. And there are many suitors watching from the sidelines. The company says it has signed another


confidentiality agreement with industry players this week, which may ultimately lead to a funding agreement, and eventually maybe an offer, depending on the results of the economic study. Another aspect of this story is that the Taron deposit is an unrecognized style of deposit, and the Cesium has formed in a unique way, which allows for a patenting opportunity that the company has already jumped on, as Cabot did with the Tanco mine in Canada. The patents if issued will just give them another way to protect their interests in case a similar deposit is found in whatever jurisdiction is covered by the patent. Cascadero’s CEO, Bill McWilliam, has returned from a trip to Argentina and Toronto. In Toronto he met with First Quantum executives. Negotiations are under way there for the sale of the company’s La Sarita properties, some of which are joint ventured with FM. However, he offered no guidance on the outcome. The drill program is currently planned for September but things like that always take longer than we expect. While the has had a small cash infusion from warrant and option exercisings in recent months it will need more to fund the drill program so I am looking for the company to raise equity capital in the next few weeks. Also, in addition to the start up of drilling next month we’re looking for the company to make a few deals on its portfolio of gold/silver projects in the next few weeks that may ultimately lead to additional discoveries. I continue to like this deal but please beware of the summer doldrums. Although there is a lot going on under the surface, nobody likes to release news in the summer (because nobody is watching!), so we would use the news vacuum to pick up any stock that comes out below 15 cents (CAD), but keep it to our general allocation guideline i.e., less than 5% of your total investment portfolio. Try not to chase the stock above 15 cents per share this month, but rather patiently accumulate weakness.

Disclosure: Cascadero is a corporate client. I’m not an insider but have provided consulting services to the company in previous years, and as a result own shares and options totaling over a million bought from 3 to 5 cents. Please keep this bias in mind, although I would never recommend anything that I didn’t believe in. In general, while we may have positions in the companies or trades we recommend, we have advisory or corporate relations with only a few. Moreover, as a rule I do not trade for at least 48 hours following an explicit recommendation nor do I habitually take the other side of trades we are recommending.

Amarillo Gold (AGC:TSXV)

69.9 million s/o, 78.4 million f/d

Amarillo is another one of our cheapies that has recently flown off the bottom of a manic depression in the mining and exploration business. In fact, this underdog should get an award for the comeback it has made.


The stock is up almost 700% year over year, up over 10 fold from its December 2015 tax loss selling low at below 5 cents. Like Cascadero it was heading into the abyss, and then wham the sun started to shine on the stock. I bought Amarillo because it was Buddy Doyle’s foray into company building. Buddy is an old hand responsible for some of the world’s biggest diamond and gold discoveries made by majors in the nineties. As CEO and founder of Amarillo he was trying to develop a low risk but small 1.2 million ounce gold vein (posse) in Brazil, estimated to be worth an after tax net present value of US$186 million at an AISC of $524 per ounce (with an IRR of 27%) in 2012 using a gold price of just $1100 and a discount rate of 6%. The mine is open pittable and is considered to be a relatively low risk operation because it exists within excellent operational infrastructure a mining district where there is easy access to key inputs.

Pitfalls in the permitting process added to the bear market in explorers to crush Amarillo’s shares and hence its chance at funding the mine. With its shares at a nickel it would have taken the issuance of billions of shares to get off the ground. At 50 cents, if construction relied purely on equity, it would still take an issue of about 400 million shares. Fortunately Buddy has stuck with the deal and found there to be a few ways to skin this cat. In May Amarillo received a preliminary license to mine the posse. The license is only a preliminary stage of permitting, but it is the most important one… the one that is fundamental. The other stages of the process

require hammering out more details but this one “is regarded as the most important licence as it outlines all the basic parameters of the project that have to be accepted by all the parties involved”, said Buddy Doyle in the company’s press release. The news was followed by two deals the same month, enabling insiders to paper themselves up cheaply (at around 28 cents). One of the ways that Doyle is trying to maximize returns and fund development of Amarillo’s project is by agreeing to process a few of the tailings stockpiles on its property from an old toll milling agreement between the prior mine operator and the miner who the tailings belong to (Baribras Mining Ltd), which controls the dormant Zacarias mine 13 km away. In June Amarillo and Baribras agreed that Amarillo will process the tailings and the two of them will split the profits. I haven’t talked to management in a while and have no idea about the size of those tailings but they’ve “taken a number of samples from the tails and have reported an average grade of 0.48 gram per tonne gold and 31.7 grams per tonne silver (from 36 surface and auger samples) .” The company says there are other tailings on the property 100% owned that can be processed. But in both cases more sampling and work needs to be done to get a handle on the scope and economics of the piles. It will take these potential assets into account in developing an updated feasibility study.


The most bullish piece of news besides the successful licensing of the project is the recently reported 13% increase in total gold inventory at its Mara Rosa (posse) resource. This is important because the deposit is generally viewed as constrained, but Buddy set out to prove that view wrong with a 34 hole drill program. The 2016 estimate was made at the same 0.5 gpt cut off. Drilling increased the confidence of the measured and indicated resource by shifting previous inferred resources into the higher quality category (“measured and indicated”) and adding new resources to the inferred category by peppering a few drill holes to the north along strike where the deposit is still open. As a result, the resource has grown from 1.33 million ounces (358,300 @ 2 gpt measured + 816,600 @ 1.65 gpt indicated + 156,400 @ 1.34 gpt inferred) to 1.5 million ounces (551,100 @ 2 gpt measured + 659,000 @ 1.52 gpt indicated + 287,700 @ 1.26 gpt inferred). Notable aspects were the 53% increase in measured higher quality ounces, and the discovery of 200,000 ounces. Amarillo is preparing an update to its prefeasibility study that will incorporate these numbers at a higher gold price using a new model so we are looking for a slight bump up in the valuation of the resource. This link will take you to the Amarillo website where they describe the deposit in detail (including visuals), http://www.amarillogold.com/projects/mararosa Based on my own financial modeling using the inputs from the previous prefeasibility study discounting future cash flows at a 9% “riskadjusted” rate (determined by a proprietary formula) the mine at $1100 gold had a net present value of below $100 million. The aforementioned $186 million NPV was calculated with a lower (6%) discount rate, which may also be fair. However, I didn’t calculate sensitivities at that rate, and the company doesn’t offer them in their prefeas. Although, I did calculate sensitivities to the gold price at my risk adjusted rate, as well as at the 5 and 10 percent rates, and found that the value of the deposit changed by a factor of $6070 million for every $100 change in the price of gold. While at $1100 my valuation came in at just under $100 million, at $1650 I calculated a $350 million after tax NPV, and at $2000 gold I calculated a $550 million NPV. At $1300 (gold price) we could infer an NPV (9) of about $220 million. Using the new model and the increased resource, perhaps they can push that number up to the $250300 million range. I’m only speculating. What I like about this deal is that Buddy has kept the share count low. That’s important because the capex to get the mine up and running approaches $200 million, which implies significant dilution if done through equity. However, it probably won’t be an equity deal. Even though it is a relatively small deposit, it is also a low risk operation with low costs in a mining friendly jurisdiction with high quality ounces in the estimate.


Ideally, the asset will draw a bid from a nearby local miner, but barring that if the feasibility work allows it to be bankable then they will be able to finance using debt or some type of forward sales program. Obviously we are not fans of the latter, or of going the equity route. The project is not without risk but the reward is worth it. Whether the project is sold or debt financed I see the stock at over $1 by this time next year. Take some profits off the table if you bought cheap, and buy AGC on any pull backs to the 40 cent level. I wouldn’t chase it, like anything else right now, there is some froth. Merrex Gold (MXI:TSXV)

199 million s/o, 236 million f/d

Merrex’s story is progressing as expected, only very slowly. IAMGOLD is still expanding its potential new mine (BOTO) to the north of Merrex’s 2014 discovery (Diakha). The Diakha resource has been estimated at the low end of expectations but still in line at around 1 million ounces (they get 50%). There’s a few more ounces northeast a few km’s on the old Siribaya trend. But the market’s focus shifted to the Diakha discovery in 2014 because of its location on trend with IAMGOLD’s 100% owned BOTO discovery made in 2012. If BOTO becomes a mine then the small deposits on Merrex’s ground can be bought out as satellites. On their own they may not fetch much value but as satellite pits for a main mine they may work for IAMGOLD. That’s what it is currently considering. The problem with the story was a lack of capital. Their low share price during the downturn made advancing the project very dilutive, and IAMGOLD kept putting out big budgets to advance it, which is what shareholders wanted even though it came at their expense. It would spend $35 million per year, and since it has a 50/50 “vested” deal with IAMGOLD (vested means it has earned into the relevant properties) it has to keep up with expenditures. Naturally, and not out of pure kindness, IAMGOLD has accepted Merrex’s stock in exchange in the ongoing exploration work. As a result, they now have a control block approaching 30% of Merrex, as well as 50% directly in the property. So the story is working slowly but shareholders are getting diluted out of the gains. The climate is now changing and the company may be able to fund its side going forward but the size of funding they need is still dilutive and has been weighing on their shares –they just completed one financing for about $3.5 million, and are working on another one for perhaps a similar amount based on what I see. The upside here is the 100% owned claims in Guinea, which are in between BOTO and Diakha, in Senegal and Mali respectively (the discovery area transcends three countries where their borders meet on the map).


Some of the funds are intended on being used to drill test targets revealed by artisanal miners historically on the claims, where they have a good shot at making a discovery but haven’t drilled yet as far as I know. That is their only real leverage imho because Merrex owns it 100% and any new discovery for them will open up the upside. For the past two years IAMGOLD has been generously funding the boring work of measuring the 2014 Diakha discovery but has not been so generous in drill testing Merrex’s other targets. Why would they. It would be like shooting themselves in the foot if they wanted to ultimately buy Merrex out. My target for the stock if IAMGOLD makes a bid is 50 cents right now based on what is known to the market. I still like it below 20 cents. At a market cap of about US$33 million or maybe US$35 after the next financing it is roughly fair valued. I would still buy it up to C$0.25 per share, and I believe that if they get around to drilling their 100% owned Karita claims in Guinea there is a shot for the stock to fetch up to $1. Rainy season up there now so they can’t do anything until October or maybe November. But the news vacuum allows for an opportunity to keep picking away at this emerging asset below 20c.

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are subject to risks, including a possible loss of the principal amount invested. Generally, the investments in this blogmay bemore volatile on a daily

basis and have higher headline risk than other sectors as they tend to be more sensitive to political and regulatory events. Because of significant

volatility, large spreads and very limited market liquidity, typically youwill not be able to sell a low priced security immediately at the same price you

purchased the stock. In some cases, the stock may fall quickly in value. Investing in foreign markets may entail greater risks than those normally

associated with domestic markets, such as political, currency, economic and market risks. You should carefully consider whether trading in low

priced and international securities is suitable for you in light of your circumstances and financial resources. This blog does not constitute an offer to

sell or solicitation of an offer to sell any securities in the United States. The securities have not been andwill not be registered under the United States

Securities Act of 1933, as amended (the “U.S. Securities Act”) or any state securities laws andmay not be offered or soldwithin the United States or to

U.S. Persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available.

Past performance is no guarantee of future returns. TDV, entities that it controls, family, friends, employees, associates, and others may hold

positions in the securities it recommends to clients, and may sell the same at any time. This document was prepared by Jeff Berwick and EdBugos

exclusively for TDV Premium subscribers. The information contained in this document was taken directly from the company’s presentation or from

reliable sources; however we cannot ensure the accuracy of the information contained in this report. The author may be compensated for any

introductions of accredited investors as it relates to this offering. Investing does comewith some risk, however wewill not be liable for any financial

losses which might occur as a result of your participation in this financing. Please contact the company directly to verify any of the facts and figure


Portfolio & Exploration Update...Gold Miners ETF is up 145% and the Global Gold explorers ETF is up...

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Transcript of Portfolio & Exploration Update...Gold Miners ETF is up 145% and the Global Gold explorers ETF is up...