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Peru, impeachment, PPK, Vizcarra and mining (from IKN461)

I'm getting mails asking WTF is going on in the Peru political zooshow. Even though the following, written on Sunday, is somewhat out of date due to the big video upheaval of yesterday, it's useful for Thursday and is also a need-to-know on Martin Vizcarra. Here ya go, from IKN461 last weekend:

Peru: PPK’s day of reckoning this Thursday
Two developments in the slow death of the presidency of Pedro Pablo Kuczynski (PPK) this week. First we had the official approval of the “vacancy” impeachment debate in Congress, which for local protocol reasons needed a debate to approve the debate. That happened and Congress has now decided the date of the session, this Thursday March 22nd. A couple of weeks ago I mentioned that the magic number of 2/3rds of Congress is 87 and as things stood, the vote to vacate PPK would be between 80 and 98. Since then we’ve heard more positions and it’s looking even shakier for PPK, we can put the vote to kick out the President at between 86 and 93 votes. Only one of those seven numbers works for PPK.

Meanwhile, PPK faced the “Lava Jato” Commission looking into the effect of Odebrecht corruption in Peru on Friday, the grilling took place at the Presidential Palace and lasted seven hours. Although we have no official word yet, reports such as this one (18) are doing the rounds about the meeting. Along with factoids such as the case that brought PPK to the brink back in December turns out to be just one of eleven transactions performed by companies controlled by PPK, plus the way in which PPK denies any control of the companies used by Odebrecht to pay “consultancy fees” (First Capital Investments and Westfield Capital) but strangely, 49.96% of the fees received by those companies are then transferred to PPK’s bank accounts, we can quote the impressions of commission members who for the moment have to keep their name out of the papers. Here are two quotes from separate commission members:

“With the Financial Corruption Unit (UIF) report in hand, we asked him about the relationships of First Capital Investments and Westfield Capital, but he could not explain clearly why those payments from Odebrecht went through the companies. He repeated his discourse about the “Chinese Wall” (note, the supposed wall between him and his business dealing while he was a member of the government) and could not remember much about the sums involved. It was disappointing.”

“Neither was he convincing as to why a payment from Odebrecht to First Capital, a company he denies owning at the time, was transferred to a personal bank account in the BCP bank and then transferred to a Westfield Capital account in The USA. Didn’t he keep repeating that he had no relation with First Capital?”

Back in early January, I posted on the blog that PPK wouldn’t survive February due to this mess (19). That turned out to be wrong, but it’s looking like it was only wrong by a month because his fate lies with around seven “undecided” members of congress and many of them have said that they’d only decide on how to vote after getting the Lava Jato report. With the weak showing in front of that committee now a fact, I’d make a best guess we have an 80% chance of PPK being thrown out as President and his Veep, Martín Vizcarra, taking over. The debate happens Thursday and is likely to take all day and night, we may not get the vote and decision until the wee small hours of Friday, local time.

Regarding Vizcarra, he’s been playing his cards very close to his chest, ostensibly supporting his President without sticking his neck out. He’s also made it clear that he won’t resign if PPK is impeached, which is a de facto way of telling the world that he would accept the Presidency. This fits with the strongly sourced rumours already reported on these pages as to how people in his team have been in negotiations with the Fujimorista “Fuerza Popular” party on how to form the next cabinet of ministers. He’s also been getting messages of support from Keiko Fujimori, leader of the party at both personal and party political levels that speak volumes about the “pre-agreement” that’s been going on in the background.

And really, the presence of Vizcarra in this whole mess is the main reason none of us on the outside looking in should be worried about Peru or any mining investment exposure we have in the country. Two things:

1)     He’s a canny operator, experienced in the style and substance of Peru politics and a consensus seeker. He’ll bring much-needed stability to the upper executive (at least for a while) and is known as an honest politico (a rarity in Peru).
2)     Not only is he an experienced politician, but he’s well versed in matters mining and before becoming Veep he was governor of the Moquegua region of South Peru. He knows the industry and its pros and cons and was, for one example, the main figure in the negotiations between Anglo and locals around Quellaveco that reached key agreements for the EIA permit. I can offer up other examples but we can summarize with “Vizcarra is good for mining” and be done.


This blog will be quiet for the next three days...

...for non-secret reasons, I'm off visiting Chakana Copper (PERU.v) and its Soledad project. Back at the office Thursday afternoon. Now yo have fun, too.


Jerome does an FOMC (from IKN461)

The short intro piece in this week's edition of The IKN Weekly, IKN461*:

Jerome does an FOMC

“I don’t care what the newspapers say about

me as long as they spell my name right.”

Phineas Taylor Barnum

There are things we know and things yet to discover about the FOMC meeting this week:

  • We know Jerome Powell sits at the top of the table for the first time.
  • We know that a rate hike is going to happen. Put another way, if rates aren’t hiked a notch the market will be very surprised and the market doesn’t like surprises at the best of times, let alone from a Fed with a brand new chair.
  • We are yet to discover how Fed Head Powell handles the presser post-FOMC, but considering his polished performance in front of Congress a couple of weeks ago, a few pesky journalists are unlikely to ruffle his feathers.
  • But most important of all next week, we are yet to discover the tone and content of the FOMC communiqué, that publication of always close focus will be pored over, examined and debated more intensely than ever as the market tries to interpret the direction Powell will (or at least want to) take.

Anyway, Wednesday’s your day. We’ll see how “King Dollar” looks afterwards (thank you Kudlow) and by definition, gold.

Talking of which, I’m hoping that President Trump’s new (latest?) economic advisor Larry Kudlow continues the gold trash talk and more of his “I would buy King Dollar and I would sell gold” comments are highly welcomed by these pages. Less because Kudlow is a time-tested contrary indicator and more because the average financial professional and market participant, beyond casual mockery of we tinfoil hat wearers, simply doesn’t think about gold very much. Therefore, if the guy whispering in the ear of Trump is talking gold it doesn’t even matter that his comments are negative, it’s going to get more people to at least consider gold’s position in the investment firmament. We are in the political era that PT Barnum could only dream about, after all.

*Yes, that does mean I've spent the last 461 weekends writing the thing.

In order to understand just how bad Hecla Mining (HL) financials are, the necessary blog post on IKN

It's not just me, either. When A. Reader pointed out this bit of today's NR that announces the acquisition of Klondex (KDX), we both had a giggle. IKN highlights:
 “We structured the deal to use our excess cash balance so our shareholders can benefit from the approximately 162,000 gold equivalent ounces a year of production while minimizing dilution.”
Excess cash balance! Yup, like saltwater in a tidal pool HL has cash washing and lapping around. But once we'd stopped chortling and yokking at the words of HL President and CEO Phillips S. Baker Jr, it occurred to my lazy brain that it would be good to check out exactly how bad this company is at numbers and money and stuff so it was off to the RegFs and my stars, it's even worse than I thought. Two exhibits for you today, the first its latest balance sheet:

As at year end 2017 HL had $186m in cash so yes, it does have the "liquidity" to shell out $157m to KDX shareholders. However, look a bit further down and....oh, what's that? $502m in debt? Hmmm, and here's the payback schedule on that Senior Secured (aka at the front of the queue) obligation:

2018: $34.8m
2019: $34.8m
2020: $34.8m
2021: 518.107m

In other words, if HL can conjure up six hundred and twenty million dollars in the next three years, all will be well. That thought brings us to Exhibit B of this post, the net profits at HL over the last ten years:

Do the math (and notice how generous your humble scribe is by going for the ten year period and not just the last five years) and you'll see that HL has generated the sum total of $168.118m in the last ten years. TEN YEARS! What's more, $151m of that came in just one year. So folks, what do you think the chances are that Hecla makes enough to pay down that debt organically by 2021? Yeah, me too.

Thank you for the Monday merriment, Phillips S. Baker.

Just so you're clear about Alset Minerals (ION.v)

The people willing to invest money in the company would only do so under the condition that Allan Barry were fired as CEO. Barry was given time to find an alternative source of funds, unsurprisingly failed, and as a result "was resigned" by the board in order to get the people with the new cash in.

So it goes.

Hecla remains true to its corporate culture... once again overpaying for shit assets.

Have to admire their consistency.


The IKN Weekly, out now

The peanut stood on the railway line,
His heart was all aflutter,
The 461 came down the track,
Toot Toot! Peanut butter.

IKN461 has just been sent to subscribers. A better edition than last week's mess, the main gig is B2 but there's plenty more. All aboard!


First Majestic (AG) ( decides not to tell us about its cyanide spillage... its newly acquired San Dimas mine in Mexico (ex-Primero), so it falls to this pissant blog. According to the Mexican environment people, on March 11th (six freakin' days ago) First Majestic was trucking cyanide solution out of the mine when the truck ran out of fuel (weird in itself). The truck stopped on a hill and it turns out that one of the taps was either faulty (service dept?) or had been badly closed by the company. The result was the loss of 245l of cyanide solution, which then ran down 245 metres to the local river and proceeded to kill no end of fish when it entered the river.

Another Canadian mining company, winning friends and influencing people in Mexico.


Christopher Hitchens on Vladimir Putin

A nine minute segment of a speech and Q&A given by a Hitchens at the height of his powers, in Canada in 2005. The first six minutes give necessary background (including the Berlin Wall and Serbia), the last three minutes are impressively perceptive on the "KGB Weasel" Putin. Hitchens called it first and well.

The Friday OT: Smashing Pumpkins; Zero

Because zero:

Youtube here.

Fun Asanko (AKG) things

On checking out the 4q17 financials and MD&A out of Asanko Gold (AKG) today, I couldn't help but wonder how it managed to mine just 802kt of ore but mill 1087kt. The norm at the company, as you can see below, is that the company mines more than it mills.

The difference goes on the low grade stockpile and gets added to assets at the company. So you'd expect that stockpile to drop in value and sure enough...

...carried stockpile inventory dropped by U$4.5m during Q4. You can expect that stockpile number to drop further in the next two quarters too, what with AKG telling us how its' going to have to concentrate on cutting back the pit walls. That means the low 1.5g/t grade average will continue. As will the losses. 

There was also that weird thing about how AKG claimed mill throughput of 1087kt, 1.5 g/t and 94% recoveries. If you do the math on that they should have produced 49,282 oz but somehow managed to claim 51,550 produced ounces. That's 2,268oz magically created out of nothing. Clever trick, especially when there was another 2,047oz of gold magically created in the same way during first three quarters of last year.


IKN Welcomes Brent Gilchrist, president of JDS Resources

Hi Brent,

Thanks for signing up to the mailing list today March 15th, so good of you to take an interest in this humble corner of cyberspace. Now you're here, perhaps you could enlighten on just why your company managed to underestimate capex at VIT.v's Eagle project to the tune of around 47%? And all that stuff you guys are trying to do at Curraghinalt, too. Just drop me a line, it'd be great to hear from you. Anyway, thanks again for signing up and here's a link you may be interested in reading.

Kisses, Otto.