The 2024 KRO Favorites Collection which started with seven companies and now totals ten companies has had a dismal year, tanking right out of the gate thanks to the presence of three lithium juniors, two of which, Brunswick and PMET, are the worst performers on the list. By late February the KRO Index was down 19.3% but recently was up 10.5% before the lithium members dragged it back down so that it is up only 4.3% as of May 31, 2024 (note in the audio interview I misread the scale on the chart and attributed the peak to January, which was true in January 2023, not January 2024). The 2024 performance is particularly embarrassing because during the same period gold has increased by 13.0% while the TSXV Index gained 10.5%. The TSXV Index does not worry me because it is a rigged index representing less than 10% of TSXV listings of which two-thirds are resource juniors. It does not at all reflect how dismal Canadian resource juniors have performed as a group.
At the end of May 45.2% of the 1,354 resource listings on the TSXV and TSX were trading below $0.10, which is better than 50.1% at the end of February, and certainly not as bad as 66.1% at the end of 2015. When you look at just the TSXV resource listings, of which KRO currently counts 1,157 companies, the financial health of the sector is horrific. 43% (497 companies) have negative working capital totaling $3.4 billion; these are zombie companies which deserve to disappear because they only serve to dilute the potential audience's attention. 57% (660 companies) have positive working capital totaling $4.1 billion. The target group for bottom-fishers is the 40% (467 companies) which have between $500,000 and $50 million working capital. It is from these that I select KRO Favorites. The 16% (182 companies) which have between $0 to $500,000 working capital are of interest to the KRO Bottom-Fish Workshop where we look for stories that can be salvaged if a secular bull market ever arrives for resource juniors. But if a Favorites Collection performs as poorly as it has done so far this year, why bother bottom-fishing for riskier resource juniors? The Canadian resource junior eco-system has crashed through the extinction threshold and may only be a memory by 2030. The serious management teams recognize this existential crisis and see the next three years as their last chance to hit it out of the park.
Although there has been an increase in traded value by TSXV resource listings, it is too early to call it a trend. The problem the market is grappling with is that it does not take seriously the recent breakout in the prices of gold, copper and uranium. It looks at the price of lithium carbonate which has crashed back into the $6-$7/lb range after mesmerizing the market for nearly two years in the $30-$35/lb range which was never sustainable because at that price far too much claystone, brine or hardrock sourced lithium supply is in the money. The market's fear is copper, uranium and gold will not hold their gains, so do not bet on resource juniors involved with these metals. You will be punished severely.
In my view these recent real price gains are rooted in structural changes that will not reverse. The energy transition is happening whether fossil fuel companies like it or not. The geopolitical conflict between Global West and East can only get worse. And the looming requirements of the AI Dream are focusing attention on energy infrastructure renewal. I lay it all out in my MIF May 2024 Presentation: The California Gold Rush Metaphor. When the inflection happens, we will have a secular bull market for resource juniors, and it could happen during the summer doldrums. But what many companies have not yet recognized is that the decade plus bear market which began in 2011 has altered the playing field. The older generation that winked and nodded at the pump and dump game has drifted off into rocking chairs or nursery homes. The younger generations have no clue about the resource junior exploration and development game. If and when the resource juniors catch their attention, it will be with a much more discerning eye. The quantitative limits of the resource sector are the key to preserving the resource junior eco-system. Rethink what a resource junior is all about and accept that it cannot compete with the dynamic that drives winner-take-all AI Dream startups. Teach the younger generations an alternative form of gambling that does not put you at the mercy of believing the trend is your friend. Teach them how to become a gambler who thinks all the time about what the data flow means, what its possible forks could be. But first figure out how to do it yourself. Although my 2024 Favorites Collection is up only 4.3% this year, I think everybody will be surprised by what it is up at the end of the year.
I talked about Hercules Silver Corp and its copper potential last week (see KW Episode May 24, 2024), and with regard to West Vault Mining Inc as my leveraged proxy for gold my opinion remains unchanged (see KW Episode Mar 29, 2024). I do recommend listeners check out the Backstage Interview I did with Sandy McVey on May 11, 2024 during the Metals Investor Forum in Vancouver. Both copper and gold have done well this year but the market remains indifferent toward resource juniors. With regard to Hercules a 20,000 m drill program has begun with results starting to flow in August. Last year's discovery was classified as "blind", which is code for "fluke". This year the drilling strategy is guided by an expanded data set and an enhanced understanding of the geological context. With West Vault one just buys the stock and watches it for signs that the market is starting to accept that a secular gold bull market has begun; the stock is relatively illiquid and will float quickly into the $2-$3 range, alerting one to start looking at more liquid juniors which will be slower to react to the inflection.
My greatest hopes lies with Solitario Resources Corp, which received a decision notice from the USFS on April 30 confirming the FONSI it issued in early December, and has submitted all the extra paperwork required for the USFS and state of South Dakota to sign off on the drill permit for the Golden Crest Plan of Operation. A drilling team has been contracted and the hope is that drilling can begin in mid June. The stock is in a holding pattern because there is a risk America's anti-mining lobby will file a lawsuit alleging that the USFS was incompetent or negligent in preparing the EA and issuing a FONSI. If this happens before drilling is underway Solitario will have to wait a couple months for the court to assess the plaintiff's success probability and decide whether or not to let Solitario begin drilling while the lawsuit winds its way through court. KW Episode May 17, 2024 discusses in detail why Solitario's Golden Crest project has the potential to become a cult stock for the younger generations.
In addition to recently buying a position in Solitario I also bought a position in PJX Resources Inc which I promoted from Bottom-Fish to Fair Spec Value rated Favorite on April 19 after Crescat and an anonymous strategic investor put up $3.6 million to boost the treasury beyond $5 million. This will allow PJX to test 2 types of targets at its Dewdney Trail project in southeastern British Columbia. KW Episode Feb 29, 2024 discusses the Sullivan 2 target which PJX plans to drill. The extra money allows them to test other intrusion related gold-copper targets that are much younger than the SEDEX target and were the reason John Keating had prospectors banging the rocks last summer when they stumbled upon evidence of bedded zinc-lead-silver massive sulphides that was very different from the nearby former Estrella vein mine. The company is awaiting a modification of an existing drill permit so that it can start drilling. The stock will be in a holding pattern until that permit is granted as Canada's leadership contemplates a name change to UNDRIP Nation. Keating says that the mountain has a bigger snowpack this year than usual, so he is not planning to be drilling before mid June. He says that no stumbling blocks have emerged but "consultations" proceed less quickly than juniors with a seasonally constrained exploration window would like. Drill crews have been contracted and are ready to start as soon as the permit is approved. As far as fire risk is concerned (the NYT had a full page article about how clearcut logging is now being done in Banff National Park to create buffer zones), the target area was burned three years ago, though that does not eliminate the risk that helicopters will be requisitioned to fight fires elsewhere.
I last talked about Arizona Gold & Silver Inc in KW Episode April 12, 2024 when the junior was just starting a 22 hole drill program at its Philadelphia gold project in the Oatman District of Arizona. The purpose of the program was to test the Resaca claim, an undrilled portion of the Philadelphia Vein. This program was completed in late May and the company is now awaiting assays which should be in hand by the end of July and possibly set the stage for an initial resource estimate in Q4 of 2024. The market and company, however, are waiting for the BLM to grant a drill permit for the staked claims to the east of the patented claims. The EA was posted on March 4, 2024 for a public comment period that ended April 4. The BLM is currently preparing its response. The comments were available at the BLM National NEPA Register for the drill permit application but are now no longer available. From people who saw the comments I hear there was nothing which would make one think BLM staff screwed up big time. If approved the drill permit will allow Arizona Gold to test the Red Hill target for a potential open-pittable bulk tonnage gold system as well as test the east dipping Philadelphia Vein beyond the 200-300 m depth that is possible from the patented claims. For Arizona Gold to develop an anticipatory speculation cycle it needs to be in a position to drill targets that scale Philadelphia's gold potential bigger. As with Solitario and PJX, reaching a point where drills are actually turning is key to exciting the market. It is a sad comment on the state of the sector that the biggest concern is no longer that drilling will kill a great story, but rather that the drill will never get a chance to do so.
I talked about Colonial Coal International Corp in KW Episode April 26, 2024 where I explained that the stock's recent price rise was due to a decision by CEO David Austin to retain Citi Bank to manage the potential sale of the company and its metallurgical coal operations in northeastern British Columbia. The bet is that Colonial Coal will attract a buyout in the $5-$10 price range, perhaps higher if a competitive auction develops. Citi Bank's job is to help negotiate a friendly buyout, but there is also a possibility that one of the potential steel company bidders launches a pre-emptive hostile bid for the company. The stock has been tracking sideways for the past month partly because potential bidders from India have been sidelined until the Indian General Election is over. Indian elections are a multi-phased affair which in 2024 ran from April 19 to June 1. The outcome is immaterial to Indian interest in buying out Colonial Coal, but the Modi government ordered state owned entities not to engage in any material transactions during the election. Some of the biggest Indian steel-makers are majority government owned, so things could start happening in June when they are no longer sidelined.
I talked about CanAlaska Uranium Ltd in KW Episode March 29, 2024 after the junior published results for 2 stepout holes at the Pike discovery on its West McArthur uranium project in the Athabasca Basin. This week CanAlaska released geochemical assays for the three holes which intersected high grade mineralization at the unconformity. The initial assays reported were radiometric equivalent readings done by lowering a probe down the hole and measuring the radioactivity in the core hole walls. Geochemical assays measure the U3O8 content of recovered core. Due to core loss the geochemical assays were slightly lower than the eU3O8 values but they did confirm the high grade nature of the Pike discovery at the unconformity. Getting the risk that something was baldy mis-calibrated out of the way seems to be what the market has been waiting for, though the visuals in the box implied that this was more about the glass-half-empty mindset that haunts this market. The results have enabled CanAlaska to calibrate the probe for this particular setting. Drilling will resume in June with small stepouts along both sides of the unconformity trend to establish a third dimension for what so far is still a 2-dimensional fence of 3 holes across the structural zone. Once drilling is underway CanAlaska will be in a position to provide real-time eU3O8 assays. This, of course, can go the wrong way if the Pike discovery is very small, but if it is shaping up to be a McArthur River clone it will push CanAlaska into S-curve territory. The disappointing news was that the second winter rig which tested other targets in the South C10 corridor did not hit any new mineralized zones. I recommend watching the May 11, 2024 MIF Backstage Interview with Cory Belyk for flavor on how discovery delineation could unfold at West McArthur.
I last talked about Brunswick Exploration Inc in KW Episode April 26, 2024 when Brunswick reported the first batch of assays from the winter program at its Mirage lithium project in the James Bay region of Quebec. The company has since released another batch of holes that did not inspire the market. We should receive the remaining assays which include some potentially very important holes by the end of June. Boots will hit the ground in June now that goose hunting season is over, and so far this part of Canada is not threatened by forest fires due to a more typically wet spring. The challenge for Brunswick this summer is to track down the bedrock source of the 3 km train of pegmatite boulders whose micaceous mineralogy is not explained by the bedrock pegmatite so far found outcropping and drilled. The density and size of spodumene crystals within this large but focused boulder train suggests a nearby world class scale source.
I last talked about Winsome Resources Ltd in KW Episode April 5, 2024 after Winsome announced a deal to investigate the Renard diamond mining site as a potential place to process pegmatite ore trucked from the Adina project and perhaps everything else that gets consolidated in that area. On May 28, 2024 Winsome released an updated resource for Adina which boosted the resource 33% without sacrificing grade to which the market responded negatively. The market is still in a bad mood about lithium whose carbonate price remains stuck in the $6-$7/lb range.
However, the funk about the EV future and lithium demand did not stop Patriot Battery Metals Inc from raising CAD $75 million at $14.54 per share through a charity flow-thru financing whose backend destination was arranged by both Australian and Canadian brokerage firms. In mid May PMET let the nine month exclusive MOU with Albemarle expire which could have resulted in downstream processing arrangements that limit PMET's desirability for other potential end-users. This year there is no evidence of Lithium Mania as goose hunting season ends and boots return to the ground. The market remains in a glass-half-empty mood which is a good reason not to flee the summer doldrums. Although the three James Bay lithium juniors are the main reason for the 2024 Favorite Collection's poor performance, all it really takes is for lithium carbonate to establish a trading range in the $10-$15/lb range to respark interest in Lithium Mania 2.0. This is the price range needed to mobilize the scale of lithium supply required by 2030 when demand for solid state LiB powered EVs goes exponential among the masses. It is an important range because it means only the best discoveries will get developed. |
