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Kaiser Media Watch Blog - October 1, 2024 to October 31, 2024
KRO Blog Overview
The KRO Blog is where unrestricted content is posted such as Kaiser Watch, material produced by third parties such as the as Investing News Network, and Metal Investor Forum conference links.
Kaiser Watch is a weekly audio show produced by KaiserResearch.com with Jim Goddard and John Kaiser discussing the junior resource sector. The show has three parts: the first is a general topic, the second discusses developments involving the KRO Favorites which as of January 1, 2022 are no longer exclusive to KRO members, and the third is a peek inside the members only KRO Bottom-Fish Workshop. KRO is transitioning into a Do-It-Yourself research platform that covers all Canadian and Australian resource listings and which also features a Bottom-Fish Workshop where John Kaiser highlights juniors with solvable "missing pieces". Companies that graduate from the Workshop may become part of the Annual Favorites collection whose profiles and related commentary are unrestricted for non-members. Visit the KRO Favorites Dashboard for quick access to all the unrestricted Favorites related content. KRO is not sponsored or compensated directly or indirectly by public companies. The business model is based solely on membership fees which have changed for 2024 as a transition to a $200 per month auto renewal program in 2025. During 2024 individuals can register for a KRO membership at a non-refundable price of $450 for a term that expires December 31, 2024. All active KRO members will be grandfathered to renew annually at $450 on Dec 31, 2024. Sign up here for this limited $450 offer. Kaiser Watch is available at Kaiser Research YouTube and as a Podcast downloadable from KaiserResearch.com. Each episode will be made available through the publication of a Kaiser Media Watch blog report which will provide links to specific questions and include supplementary graphics. All episodes will be archived at Kaiser Watch.
Kaiser Watch October 25, 2024: Bottom-Fishing Season Coming Up
Jim (0:00:00): What are your thoughts about the year-end bottom-fishing season?
A big question I have been mulling is whether to continue running Kaiser Research as a research platform covering all Canadian and Australian listed resource juniors. We have been in a bear market since 2011, interrupted only a few times by short lived rallies. The result has been a major shrinkage of the traditional audience for resource junior speculation, namely the generation that are called Boomers, without the arrival of younger generation audiences. One of the problems I have had selling KRO as a DIY research platform is the sluggishness of the Amazon server response. Do-it-yourself researchers want instant results. Work is being done to fix this problem. If successful I will switch KRO to a $200 per month service aimed at high net worth and corporate researchers who aren't interested in my bottom-fish picks.
The part about KRO that I enjoy the most has been the bottom-fish workshop where I track down juniors that could lift off the bottom if key missing pieces fall into place. One key missing piece these days is a secular bull market for resource juniors. While metal prices in general are not reaching new highs, I think geopolitical supply disruption is inevitable. It will happen quickly if Trump wins the election, more slowly if Harris wins, but it will happen in any case because China is determined to displace the United States as the top superpower and the United States has allowed globalization and a domestic NIMBY mentality to create a big raw material import vulnerability. The resource juniors are going to become the super stars finding new deposits in secure jurisdictions in places like Canada and the United States, provided the First Nations and NIMBY blockade subsides. But also staring us in the face is a long running secular bull market for gold which delivers meaningfully higher real prices for the first time since the 1980 adjustment from being a $35 controlled substance (currently up 76% for the 1980 base of $400 CPI adjusted to the present). The inflection the makes the secular gold bull market obvious to everybody has not yet happened, but I think it will be underway by Q1 of 2025.
I have decided to continue the $450 KRO individual membership for retail investors until the end of March 2025 after which the new $200 per month price kicks in. Anybody who subscribes from today until March 31, 2025 at $450 will have a membership expiring December 31, 2025. This membership will give full access to the KRO research platform as well as the Bottom-Fish Workshop. Assuming I continue the Bottom-Fish Workshop in 2026, those members will be grandfathered to renew for another year at $450. While the $200 per month members can participate in the Bottom-Fish Workshop if they wish, this limited time enrollment is designed to cap the grandfathered membership.
I have started going through my existing list of bottom-fish to see which ones deserve to be renewed for 2025, and I am also using my search engine to find new candidates. Today we are going to talk about a few of them to illustrate what sort of stories I am looking for. Now is a good time to sign up for a KRO membership because there is a good chance there will be a general equity market meltdown if the election outcome creates domestic turmoil. There is also a risk that Global East members such as China, Russia and Iran will undertake major geopolitical moves while the United States is distracted by domestic turmoil. Should this happen the resource junior sector will go close to no bid, with capitulation selling smacking stink bids. This will be a temporary phenomenon that serves as an unusual bottom-fishing opportunity as diehard shareholders finally give up on the Canadian resource eco-system as a lost cause. To take advantage of such a sell-off one has to have a bottom-fish watch list, which is why now is a good time for former or new members to purchase a membership.
Comparison of DoJIA trend 1920-1934 and 2010-2024
Daily Changes in GLD ETF Hodlings 2005-2024
US Raw Material Supply Import Vulnerability to China and Russia
Long Term gold chart showing actual and inflation adjusted price
Jim (0:07:37): Why have you confirmed Adamera Minerals as a bottom-fish for 2025?
Adamera Minerals Corp has been an unhappy bottom-fish experience for me following a 10:1 rollback on June 13, 2024 which has left me with a fraction of what was a meaningful position. The balance sheet is messy, cluttered with offsetting lease liabilities and receivables (Adamera is the landlord subletting office space on a floor of a downtown Vancouver building). Accrued payables are owed mainly to the CEO and CFO, both of whom I know. Neither would pull the plug on Adamera. Although I have featured Adamera with a bottom-fish rating multiple times since 2013, the flagship play that most intrigued me is Buckhorn 2.0 which surrounds the former Buckhorn Mine (1.3M oz) operated by Kinross as a very lucrative underground mine. The goal is to find a clone of the high grade skarn deposit, largely by drilling geophysical targets in areas with geochemical support. The junior has tackled this with small drill programs done whenever the USFS granted permits and money was available. It needs a minimum budget of USD $1 million plus. That is not doable for a junior with a market cap of CAD $4 million. So the Buckhorn 2.0 story is for now on hold as a Plan A story.
The northeast Washington story began in 2013 when Mark Kolebaba blended Diamonds North and Uranium North back together and pivoted to high grade gold by staking or optioning claims in the Republic Graben district of northeastern Washington hoping to find something overlooked during the prior century. At the time the region's mines were depleted except for Buckhorn which eventually shut down in 2017 (see Tracker April 8, 2021 for background on the Buckhorn story). Kolebaba's timing was not great because in 2013 the resource junior bear market that began in 2011 really got bad as gold crashed back to $1,100 when the fiat currency debasement hand-wringers proved woefully wrong.
Flag Hill was one of the earlier plays Adamera tackled but no instant luck. It then tested Overlook, Cooke Mtn and Lamefoot, also with mixed success. In 2020, when Kinross abandoned the claims it had staked around the Buckhorn Mine after giving up on its giant plan of operations application, Adamera staked them, which attracted Chris Herald and Mark Jones as backers. They ran Crown Resources which found the Crown Jewel (Buckhorn) in 1988. Adamera has had to deal with USFS permitting headaches and a market seeking sniper kill shot drill plays. That has not worked out during the past few years so Adamera did a rollback in June which effectively reset the company to 2013 when it started out on this epithermal gold hunt.
Following the rollback Adamera raised $500,000 in September through a $0.15 unit with a 5 year $0.20 warrant but with an acceleration clause. During September Adamera also did a fairly cheap lease deal on the Flag Hill South claims. These are patented claims whose mineral rights had somehow gotten lost through inheritance procedures. A number of years ago Mark helped the owner track them down and reassemble them so that surface and mineral rights were whole again. After Mark helped the owner get back the mineral rights Kinross swooped in and got the owner to do a 2 year right of first refusal deal in exchange for Kinross doing some outcrop sampling. As they say, no good deed goes unpunished. The ROFR lapsed this year and this time it was Mark who stole back into the picture and offered something a little better than what Kinross was offering for an extension of the ROFR. So the owner gave a lease to pay USD $10,000 over 2 years and buy the property for USD $1 million during the third year. As private land no BLM or USFS permitting is required, which is why a small drill program was started this week to test the C3 vein.
These veins have never been drilled because they are off the main Republic trend from which the Knob Hill and Golden Promise veins produced 2.8 million oz gold at better than 15 g/t. Hecla operated the mine until 1989 (a tunnel connected the 2 shafts). Because Mark has his eye on other ground in the area he has not done a good job showing where everything is located, but I have cobbled together some graphics to show roughly where the Flag Hill South drilling is taking place. The gold values plotted on the map are outcrop values sampled by Kinross and Adamera. These veins have never been drilled, partly because the mineral rights got "lost" through inheritance succession. The potential is for narrow high grade gold veins that could be underground mined and trucked to the nearby mothballed Kettle River mill of Kinross.
One might ask, why am I highlighting this bottom-fish which is cash poor and drilling a skinny vein target not even Kinross, with a nearby idled mill, bothered to drill when it had a chance? The mindset I am encouraging bottom-fish work-shoppers to contemplate is, what sort of junior will attract investor attention if we end up in a long running secular gold bull market? Ounce in the ground plays will finally wake up, but there are not many of those around, so there will soon emerge a revival of interest in gold exploration plays run by competent management teams.
Arizona Gold & Silver Inc which is a KRO Favorite comes to mind as a more advanced exploration junior that recently attracted a big financing from investors who realize a secular gold bull market is imminent (see KW Episode October 16, 2024). But the biggest movers will be those juniors with stories ready to be financed and put into play. That alone would mean accumulating Adamera as a bottom-fish and waiting for the gold bull inflection to happen and make investors eager to finance the Plan A project, Buckhorn 2.0. But because Adamera is drilling a Plan B project called Flag Hill South right now, the stock could attract buying based on gold intersection fundamentals over the next couple months. If Adamera gets lucky it may be able to sell Flag Hill South to Kinross for what amounts to a hefty non-dilutive financing. But at a minimum Adamera will probably look like it is getting lucky as it drills the C3 vein at Flag Hill South. And with only 35 million FD post-rollback and what was pre-rollback a debilitating warrant overhang now in the stratosphere, predatory organizations such as Canada's biggest banks, one of whom just got fined $3 billion for deliberate blindness to money laundering, will not be able to do their intra day capital stripping strategies to snuff out any uptrend that may develop.
So while bottom-fishers are cowering amidst possible post-election turmoil that could tip equity markets into the garbage can, Adamera's Plan B story could attract an audience and develop an uptrend which could allow the junior to pivot back to its Plan A story, namely Buckhorn 2.0, in 2025. The market will want to shove several million dollars at Adamera, but it needs a story that will not immediately deliver a missed sniper kill shot, which Flag Hill South is vulnerable to doing. It wants a drilling play that can play out over the next 18 months while a secular gold bull market gains momentum. Buckhorn 2.0 is that Plan A. I've highlighted Adamera as a bottom-fish because of the combination of big and little picture circumstances.
If Adamera does get lucky at Flag Hill South there is also a unique opportunity for Adamera to leverage its misery of the past decade by rapidly expanding its land position in this part of northeastern Washington. Beyond Kinross focused on its K2 project Adamera has not had much competition from others in this region, has immersed itself in the region's geology and history, and has developed relationships with the permitting bodies and local stakeholders. One of my big picture speculations is that as the United States steps back from the global stage and becomes more inward looking there will be revival of interest in the mineral potential of its own backyard. So I imagine Adamera as restarting what it began a decade ago with its rethink of this high grade epithermal gold-silver region, except this time it has a bull market gale at its back rather than in its face.
Maps showing location of Flag Hill play in northeastern Washington
Map showing former mines in Republic District
Jim (0:18:21): What will allow Endurance Gold to emerge from the bottom?
Endurance Gold Corp has been Favorite or Bottom-Fish rated multiple times since it acquired the Reliance gold project in southwestern British Columbia in late 2019. Robert Boyd during his Homestake days had looked at the project decades ago when Charlie Boitard's Menika Mining pulled a speculator hole and over night shot to $5 as the market speculated that another 4 million ounce high grade Bralorne system had been discovered (see Tracker October 29, 2020 for background on the Bralorne district). Boitard was a Howe Street maverick whose target development method involved dowsing, not with boots on the ground while holding a forked stick, but by moving a compass around on a big property map (he demonstrated this to me in person), which may be why the Imperial Zone turned into a one hole wonder. When the project became available after Boitard passed away Boyd optioned it because he had been impressed by the alteration system and suspected there was something big at Reliance but it would take a lot of careful exploration work to reveal which was never in a dowser's toolbox.
Endurance spent 2020 carefully sampling what has become known as the 300 m wide Royal-Treasure Shear corridor which runs up the hill in a southeast direction at least 2 km from the Carpenter Lake hydro reservoir. During 2021-2023 the junior drilled 84 RC and 82 core holes, with 22 holes drilled in 2024 as of October 23, the latter representing 6,100 m out of a 10,000 m program expected to wrap up at the end of November (assays have been reported for 10 holes). The company has a 70% success rate in terms of hitting gold mineralization, but the project has gained no respect from the market. Last year was supposed to be the year Reliance achieved major discovery status, but those hopes were dashed by Canada's horrendous forest fires which shut down the Bralorne area for much of the summer. This year there have been no fire problems and in KW Episode August 16, 2024 I explained why this could finally be the big year. The October 23 news release including assays for 4 holes into the Crown Gap and Eagle Zones revealed why this prediction is coming true, but the market does not yet agree, which is why Endurance Gold Corp is my top priority bottom-fish for accumulation.
The news had three important elements in it. One of these was that a second rig was now at work. Normally this is good news because companies will add an extra rig when they get new positive results and see time running out for a seasonally constrained project (Reliance is best left alone from December until April). But the second rig was deployed for a different reason, albeit an important one. The second core rig on the Eagle Zone is testing the oxidized shallow part of the Eagle Zone previously drilled with RC holes because the rock would have yielded poor core recovery. This rig is using specialized technology to achieve good core recovery which the news release confirmed has worked with the first 6 holes. At the same time as near twinning the RC holes this rig is testing the margins of the Eagle Zone and infilling it. The purpose is to support "geological modeling", which is code for producing a maiden resource estimate. This work will establish the extent that the RC grades from the 84 holes can be relied on for a resource estimate, plus better define domain boundaries. Endurance is internally modeling the emerging Reliance resource with each new batch of holes, with an eye on making a decision to hand off 43-101 estimation to an independent party.
So what will be the trigger for submitting the data for third party resource estimation? Boyd says they would like to see 1 million plus ounces in their internal modeling. They would be in a position to make that decision in early January, with an estimate possible by early Q2 of 2025. The purpose will not be to kick off economic studies because the system remains open at depth and along strike. It seems to peter out southeast of the Eagle Zone but the dud holes in that direction may be due to a fault offset. The purpose will be show what has been accomplished during the past 4 years of drilling. The technical report will include information about the geometry and domains which will show that the company is beginning to understand how it all hangs together.
I am not sure they will have the drill density to support 1 million ounces, and have suggested that they make 500,000 oz a decision threshold for an open-pittable resource. 1 million ounces is a market threshold, but only when a company delineated a deposit and economic studies are the next step. One of the market's hangups about Reliance is that high grade mineralization seems to occur within the bars of a scaffold occupying the shear corridor, which makes it very difficult to concoct back of the napkin estimates of the resource slowly taking shape. Some analysts have suggested a Fosterville analogy, but to me that signals a need for millions of metres of drilling, and Reliance has not delivered the multi-ounce grades that are irresistible to somebody like Eric Sprott.
I think publishing any resource that qualifies as a "starter pit" will help convince the market that this is no longer a discovery exploration play, that it is a discovery delineation play whose greatest potential resides in chasing this system down dip a thousand metres rather than just the 200-300 m so far tested. If we do get a gold bull market inflection the "ounces in the ground" will also offer cover to institutional audiences which need to point to something that explains why they have exposure to raw upside potential. The next assay batches will be around mid November and early December, with the last holes either late December or early January. They plan to include the Imperial, Crown Gap and Eagle Zones in this estimate, which implies that much of the remaining drill holes by rig #1 will be in the Crown Gap area.
The second important element in the news is the two assay intervals for the Crown Gap which were not wide but high grade, and this is a very positive development because the 400 m gap within the corridor exists due to minimal gold values in the soils at surface. Hole #103, for which assays are pending, is important because it is deeper and within the long section one of the 2 dots labeled #103 is tagged as VG for visible gold. Hole #93, which is shallower in the Crown Gap, has also been tagged as VG. (The reason #103 shows up as 2 dots is because the hole intersected a separate mineralized zone behind the SW dipping structure, and the long section projects everything into a single plane.)
When I asked Robert how many other holes had VG, he said not counting the earlier Imperial holes only the two unassayed ones mentioned have VG. When I asked if this was the type of VG where a single tiny speck is found within a metre length of core using a hand lens, he joked that in #103 it is what the geologists call "3 foot gold" and in #93 "10 foot gold". This indicates how close you need to be to see the gold with the naked eye, so that's pretty impressive! He says the speck kind of VG is more abundant at Reliance but they don't bother talking about that because the gold tends to be with sulphides and show up in the assays. Given that #90 and #89 in the Crown Gap yielded 19.2 g/t Au over 0.7 m and 14.5 g/t Au over 1.3 m I figure this bodes well for the two VG holes (Endurance did not disclose the width of the mineralized intervals).
While the news indicated they have drilled 6,100 m out of 10,000 m in 22 holes as of #103, Boyd indicated that 3 more holes have since been completed and they will continue drilling until the end of November. The third element that is important are the two deeper holes drilled under the Eagle Zone. #91 (5.91 g/t over 3.0 m) is indeed an important hole because it represents a 185 m down dip stepout beneath the Eagle Zone. #92, which had only 1.43 g/t over 1.9 m, was a 125 m down dip stepout. While it is good that hole #91 delivered a decent interval, the market wants to see more aggressive stepouts down the dip of the mineralized structure because according to the epizonal orogenic model the presence of antimony and arsenic in the mineralization indicates that we are still high in the system compared to where the rich Bralorne veins show up a thousand metres deeper.
The bluesky dream is that as the Royal-Treasure Shear mineralization is chased deeper grade and width will blossom. The market has been begging for this but hopefully we do not end up with a "be careful what you wish for situation". Boyd says that one of the remaining planned holes will be drilled to intersect the system 650 m from surface down dip, a stepout that would double the down dip extent tested (the corridor appears to have a 75 degree southwest dip). This will be the deepest hole yet and I have my fingers crossed. If it misses that could just be local bad luck, but if it hits the market will feel that drilling a lot more at depth is definitely justified. As it gets colder in November they will move down the hill to test the corridor northwest of the Imperial Zone. If it repeats the Crown Gap experience that will be very good news.
As I pick my bottom-fish for 2025 I am also asking the question, if we end up in a raging resource junior bull market, what would the company do if offered a huge pile of money at much higher prices? I proposed two scenarios to Robert. One is that the current bear market continues well into 2025. The other is that the bear market inflects into a secular gold bull market which has capital rushing into this sector looking for good stories. What would Endurance Gold plan for 2025 in either case?
The bear case will probably see another $2-$4 million program to repeat this year's exploration strategy, ideally helped out by a maiden resource estimate that gets rid of the emerging stigma that this is an endless exploration drilling story. We made no money bottom-fishing for Endurance in 2024, and we were lucky that the biggest shareholder, Richard Gilliam, stepped up to provide $4 million through a $0.20 private placement with a half warrant, at a premium to market and which the stock only briefly poked above and only because of the private placement news. But even if we just get another 10,000 m drill program in 2025 I think with what was accomplished this year after last year's forest fire sabotaged season, next year we could see the story grow at depth much more rapidly. As of June 30, 2024 Endurance had $6 million working capital, so even when this year's costs are subtracted, Endurance does not need to finance at current prices. Insiders own 55% of the 194 million fully diluted so structurally and financially Endurance is in great shape.
The bull case would emerge if the market starts to accept that gold has achieved a real price rise that is sticky and will not be gobbled up by resurgent inflation. (What makes the gold uptrend interesting is that while everybody is complaining about inflation, the current rate has dropped to 2.4%, but that does not make go away the recently inflated cost of everything which is what burns up everybody.) The higher real gold price has the effect of lowering cutoff grades for resource estimates, which in turn makes what used to be marginal targets worth chasing after, or, in the case of existing gold systems with broad zonation yield more ounces. Reliance will be at a perceptual tipping point by early 2025, ideally with a starter resource already in place, and a case for substantial expansion potential at depth while a rising gold price makes what exists near surface more valuable.
In this scenario Endurance could find itself having $5-$10 million shoved in its face at much higher prices than the current level. When we are in a bull cycle capital becomes available, but with the question, what are you ready to accomplish with it? After five years of cautious, market constrained advancement of Reliance, Endurance knows where to put 30,000+ m of drilling at Reliance with multiple rigs. Endurance has also been developing structural targets on the adjacent 100% optioned Olympic property. It is still going through the First Nations permitting consultation process, but if they can get Olympic permitted for next year they have drill ready targets in an area that has never been drilled and has potential to repeat the Royal-Treasure shear story.
In addition there is 100% owned Elephant Mountain in Alaska which sits within the Tombstone suite that stretches from Yukon into Alaska and is becoming famous for intrusion related gold systems. Sporadic past drilling at Elephant Mountain has yielded evidence of such a system, but where the guts are located is not yet known. Boyd says this project needs a minimum $2 million program to yield a discovery that becomes a delineation play such as Sitka Gold Corp and Snowline Gold Corp have achieved with their RC and Rogue projects in Yukon. As it turns out, that $2 million number is a function of what can be drilled with the existing permit which assumes helicopter supported drilling. Once a proper discovery has been made they will need to build roads to allow multi rig access to delineate the discovery, which will require a new permit application. That is good news for bottom-fishers because there otherwise would be a risk that Endurance Gold farms the project out to another major such as Kinross which operates the Fort Knox mine in Alaska. Endurance would be better spending its own $2 million next summer if the money becomes available. Endurance Gold is the perfect bottom-fish because not only does it have substantial upside from exploration fundamentals alone both from this year's pending results and a similar scale program at Reliance next year, but it also has upside linked to an inflection that accepts we are in a secular gold bull market.
Kaiser Watch is a weekly audio show produced by KaiserResearch.com with Jim Goddard and John Kaiser discussing the junior resource sector. The show has three parts: the first is a general topic, the second discusses developments involving the KRO Favorites which as of January 1, 2022 are no longer exclusive to KRO members, and the third is a peek inside the members only KRO Bottom-Fish Workshop. KRO is transitioning into a Do-It-Yourself research platform that covers all Canadian and Australian resource listings and which also features a Bottom-Fish Workshop where John Kaiser highlights juniors with solvable "missing pieces". Companies that graduate from the Workshop may become part of the Annual Favorites collection whose profiles and related commentary are unrestricted for non-members. Visit the KRO Favorites Dashboard for quick access to all the unrestricted Favorites related content. KRO is not sponsored or compensated directly or indirectly by public companies. The business model is based solely on membership fees which have changed for 2024 as a transition to a $200 per month auto renewal program in 2025. During 2024 individuals can register for a KRO membership at a non-refundable price of $450 for a term that expires December 31, 2024. All active KRO members will be grandfathered to renew annually at $450 on Dec 31, 2024. Sign up here for this limited $450 offer. Kaiser Watch is available at Kaiser Research YouTube and as a Podcast downloadable from KaiserResearch.com. Each episode will be made available through the publication of a Kaiser Media Watch blog report which will provide links to specific questions and include supplementary graphics. All episodes will be archived at Kaiser Watch.
Kaiser Watch October 16, 2024: Chilling & Drilling in Arizona and the Rockies
Jim (0:00:00): Is the weather cool enough yet for Arizona Gold to start drilling its Philadelphia project?
When I talked about Arizona Gold & Silver Inc in KW Episode October 2, 2024 the company was still waiting for temperatures to cool enough for drilling crews to be safe from the risk of heat exhaustion or stroke. On October 3 Arizona Gold announced that it had closed a private placement of 15,425,090 units at $0.30 that raised $4.6 million which puts it in great shape to weather any market storms that might erupt during post US election turmoil. This financing will not come free trading until early February 2025, well after we know if the Red Hill hypothesis at Philadelphia has merit. On October 8, 2024 Arizona Gold announced that site preparation was nearly complete, which means that the temperature has dropped to a safe level and that drilling is probably now underway. Each hole is expected to take 10-20 days. They will start with 4 angled holes from Drill Pad #1 designed to intersect the projected eastward dip of the Philadelphia vein.
The first hole will pass through the western edge of the CSAMT resistivity anomaly that is the basis for the Red Hill Hypothesis, namely that the hanging wall (my brain incorrectly substituted "footwall" during the audio interview) above the vein hosts a disseminated stockwork gold system ideally grading 1-2 g/t that could be developed as an open pit mine. This hypothesis emerged a couple years ago when Greg Hahn noticed 1+ g/t grades over meaningful intervals above the high grade Philadelphia vein. Until that time I tried to avoid CEO Mike Stark every time he called to pitch me on a play that struck me as a small scale mom and pop underground revival story of the sort that entertain rich Americans. The Red Hill idea is that the feeder system for the vein is to the east and that the fluids not only traversed the easier path of the Philadelphia vein where high grade was deposited, but also defused through the stockwork in the hanging wall of the vein. If the CSAMT anomaly represented the center of this feeder system, a 2-5 million ounce low grade open-pittable system could be present, boosting the play's upside well beyond the 500,000+ ounce high grade underground mining scenario offered by the vein itself, parts of which were previously mined.
Each successive hole will step down the dip of the vein and cut a part of the CSAMT anomaly closer to its heart. The last of the initial 4 holes will be a vertical hole that cuts through the anomaly just to the west of the most intense part. The company plans to publish a news release after the completion of each hole so that the market can see the geology being encountered. Assuming drilling is underway now and no problems emerge, Arizona Gold should be in position to have assays in early December.
The market will be looking most closely at the hanging wall grades. If evidence supporting the Red Hill Hypothesis emerges, not only will it give legs to the bulk tonnage upside potential in the current area permitted for drilling, it could have a leveraged impact on market expectations for the scale of the overall Philadelphia play. The company has acquired Aster data for the property which suggests that the untested eastern part has substantially bigger potential than the current focus of drilling. Aster data is satellite imagery which captures surface rock reflections that get analyzed as styles of alteration. The Red Hill area has a combination of phyllic and argillic alteration, as does a much larger area in the eastern part they call Philadelphia East. Alteration simply means that hydrothermal fluids passed through the rock and transformed its mineralogy; it does not say anything about precious or base metal content, though without an alteration envelope you have little chance of finding a metallic deposit.
Detecting alteration halos is an important exploration tool, especially in a modern era where surface prospecting will have identified any outcropping precious or base metals mineralization. It is a good tool for seeking out blind deposits whose metallic budget is hidden beneath the surface. For example, Mike Power's Silver Range Resources Inc is scouring southwestern United States for peripheral alteration evidence of low sulphidation epithermal systems. Another one of my bottom-fish picks is looking at Nevada's Walker Lane for peripheral evidence of blind porphyry systems whose peripheries can sport epithermal gold-silver deposits that by themselves have little economic potential but could be an indicator of a copper system possibly rich enough to be underground mined.
Arizona Gold has provided a scaled comparison between the Aster data at Philadelphia and that from AngloGold's Silicon and Merlin systems in southwestern Nevada. The Silicon and Merlin deposits are near each other and have respective open-pittable resources of 4 million and 9 million ounces. Both have little surface mineralization. Bob Felder's team generated the Silicon play on the basis of such peripheral analysis but ended up optioning 100% to AngloGold for a 1% NSR because investors don't like this type of story. The two Aster alteration anomalies at Philadelphia are farther apart than at Silicon-Merlin, but occupy a similar overall footprint. While drilling carries on at Philadelphia Arizona Gold's crew will begin field work at Philadelphia East to upgrade this as a target. Its viability as a potential target will be enhanced if the current drilling confirms the Red Hill Hypothesis. The next big step will be finding out what the rock looks like within the Red Hill CSAMT anomaly and if they do support the presence of a major feeder system; the market will be pleased if there is plenty of stockwork veining. Because everything is oxidized at Philadelphia there will not be any sulphides boosting visual hopes for gold grades; we will have to wait for assays.
Philadelphia Red Hill Model comapred to Silicon Model
Geology of Philadelphia and location of Red Hill target
Section of initial planned Drill Pad #1 holes and relation to CSAMT Anomaly
Scaled comparison of Aster anomalies for Philadelphia and Silicon-Merlin
Jim (0:09:02): Did PJX Resources ever get extra drills onto Dewdney Trail for its Sullivan 2 Hunt?
PJX Resources Inc last updated us about drilling its Sullivan 2 target at Dewdney Trail in early September which I discussed in KW Episode September 6, 2024. At the time the market did not like the news that PJX had not delivered a sniper kill shot with the first three holes, and during the subsequent cone of silence has become sullen about the prospects for Sullivan 2 as I pointed out in KW Episode October 2, 2024. As of now all that we officially know is that semi-massive pyrrhotite (an iron sulphide) exhibiting vent characteristics with traces of spahlerite and galena (the zinc and lead sulphides) had been intersected. This exists at the base of the 160 million tonne Sullivan deposit so was technically encouraging.
This week one of my spies in the Cranbrook area drove by the valley where PJX is supposed to be drilling and spotted no evidence of drill rigs on the mountain side. Since I thought they could drill until early November this worried me because it could be a sign they packed it in early after hitting dusters. I managed to get hold of CEO John Keating who was in the field and so our call was a fragmented one of sequences where I could not hear what John was saying. He did concede that drilling had indeed stopped because they were worried about equipment getting stranded on the mountain side due to a possible early onset of winter.
Then he surprised me by saying they had used 3 rigs to complete 16 holes, some of which were still being logged ahead of shipment for assaying. On September 5 PJX had stated "we are working with New Age Drilling Solutions to bring additional drills to the property and expand testing" but never told anybody how that worked out. It turns out they added a second heli-rig to drill from platforms attached to the mountain side, and, because they had a suspicion the stratigraphy, which dips into the mountain towards the northeast, folds back in on itself so that it dips upside down to the southwest under the valley floor, added a third ground rig to drill. This rig would have probed the valley floor east of the former Estella vein mine. I have modified a conceptual section from earlier this year in an effort to illustrate what I think PJX means by folding.
Keating is not going to put out a visual description until he has the assays because without assays they cannot put together meaningful sections (this is not like reporting spodumene mineralized intervals in a pegmatite). So we are looking at late November or early December to find out what was accomplished. He avoided saying anything helpful about what had been encountered but seemed in a buoyant mood. I asked him why there is no driller or helicopter crew generated buzz in the Cranbrook area where the ex-Cominco mafia keeps an ear open for news about Sullivan 2 hunts. He says he read them the riot act, pointing out that we are in a severe bear market and having a contract next year ought to be something drillers and pilots should be grateful about. Since loose lips float portfolio profits I suspect there is a simpler explanation. Had they pulled 50-100 m of mineralized engine block there would be nibbling at the PJX offer; instead we have large bids waiting to catch flow-through paper the fund managers have to sell by the end of the year, perhaps earlier (looks they won't have enough time to sell into good news). If there was anything in the core box that looked like zinc-lead enriched massive sulphides, it probably came with a complex geological context, not a simple layer cake with a massive sulphide horizon.
Reading between the lines I would speculate that they have a better understanding of the system's geometry than they did at the start, but they will not know what to do next until they have all the assays and can put it together with sections. As far as the ground rig is concerned, the fact that all drilling has stopped suggests that the ground rig has killed or diminished the hypothesis about folded over stratigraphy that could be drilled all winter. As far as resuming work next year, the 5 year permit is a blanket type which allows them to build a drill pad anywhere in the area of the permit, provided a biologist comes out first to "sweep" the immediate area looking for plant or wildlife on a list of designated "sensitive" species, a process which takes a couple weeks. The delay in getting this permit was frustrating, but it sets the stage for a vigorous drill program in 2025, though we will have to wait until December to find out if we should care.
Kaiser Watch is a weekly audio show produced by KaiserResearch.com with Jim Goddard and John Kaiser discussing the junior resource sector. The show has three parts: the first is a general topic, the second discusses developments involving the KRO Favorites which as of January 1, 2022 are no longer exclusive to KRO members, and the third is a peek inside the members only KRO Bottom-Fish Workshop. KRO is transitioning into a Do-It-Yourself research platform that covers all Canadian and Australian resource listings and which also features a Bottom-Fish Workshop where John Kaiser highlights juniors with solvable "missing pieces". Companies that graduate from the Workshop may become part of the Annual Favorites collection whose profiles and related commentary are unrestricted for non-members. Visit the KRO Favorites Dashboard for quick access to all the unrestricted Favorites related content. KRO is not sponsored or compensated directly or indirectly by public companies. The business model is based solely on membership fees which have changed for 2024 as a transition to a $200 per month auto renewal program in 2025. During 2024 individuals can register for a KRO membership at a non-refundable price of $450 for a term that expires December 31, 2024. All active KRO members will be grandfathered to renew annually at $450 on Dec 31, 2024. Sign up here for this limited $450 offer. Kaiser Watch is available at Kaiser Research YouTube and as a Podcast downloadable from KaiserResearch.com. Each episode will be made available through the publication of a Kaiser Media Watch blog report which will provide links to specific questions and include supplementary graphics. All episodes will be archived at Kaiser Watch.
Kaiser Watch October 9, 2024: Rio Tinto to become Lithium Major
Jim (0:00:00): What is the significance of Rio Tinto's $6.7 billion cash bid for Arcadium Lithium?
Rumors surfaced in mid September 2024 at the Denver gold show that Rio Tinto was exploring a buyout of either Albemarle or Arcadium Lithium plc. Albemarle, which peaked at $335 in late 2022 when it sported a market value of $40 billion, at $100 has a market value of about $12 billion and traded as low as $72 during the summer. I was not excited about Rio Tinto potentially swallowing Albemarke, a US company that is a fully integrated lithium producer with hardrock mines in Australia and salar brine operations in Chile. It made a failed hostile bid for Liontown's Kathleen Valley project in 2023 and has invested $113 million in the equity of Patriot Battery Metals Corp. The US might file anti-trust objections to a Rio Tinto bid for Albemarle though probably a Trump administration would hardly be interested in protecting domestic EV related sector businesses from foreign ownership. From the perspective of resource juniors focused on lithium projects it would be much better if Albemarle and Rio Tinto were competing major integrated producers of lithium from mine to battery grade products.
In that regard Arcadium Lithium, following last year's merger between Allkem and Livent, seemed to be a better target for Rio Tinto because 1) it has salar brine operations in Argentina, 2) it operates the Mt Cattlin pegmatite mine in Australia, 3) it has 100% of the development stage Galaxy and 50% of the Wabouchi (Nemaska) pegmatite deposits in the James Bay region of Quebec, 4) it operates 3 refineries in China, Japan and the United States to convert technical grade carbonate into battery grade hydroxide, 5) it is developing a spodumene to hydroxide conversion facility at Becancour in Quebec with its Nemaska partner, and, 6) it has developed downstream capacity to produce specialized lithium products of which lithium metal could become very important if solid state lithium ion batteries are commercialized. Such an acquisition would get Rio Tinto integrated exposure to lithium supply from Australia, Argentina and Canada and it is unlikely to be opposed for anti-trust reasons because it actually creates a powerful competitor to Albemarle. And, of course, it would create two potential buyers of juniors which develop significant pegmatite deposits in Canada, particularly in Quebec.
On October 9, 2024 Arcadium Lithium announced that it had accepted a cash buyout offer from Rio Tinto at USD $5.85 per share at a 39% premium to the VWAP price since the merger between Allkem and Livent on January 4, 2024. The offer, which is not expected to close until mid 2025, values Arcadium at about $6.7 billion on a diluted basis. If the takeover is completed, it turns Rio Tinto into a major lithium player, an aspiration it has had for some time but which was frustrated by the valuations created in 2022-2023 for potential acquisition targets when lithium carbonate soared into the $30-$35/lb range. That level was never sustainable, one, because far too many LCT-type pegmatites were in the money at that price, and, two, because it helped make EV cars unaffordable to allow mass adoption. I had counted on lithium carbonate prices settling into the $10-$15 range where 1%+ Li2O pegmatite deposits are in the money if there are no flow-sheet or infrastructure issues. The lithium carbonate price began to collapse below this range in December 2023 and now both battery grade and spodumene concentrate prices are at half what is needed to supply existing demand, with zero supply expansion potential. The move by Rio Tinto is important because it shows that one of the largest mining companies in the world takes seriously the idea that the future lithium market will be in the order of $100-$200 billion annually, which would make it the fifth most important metal after iron, gold, copper and aluminum based on 2022 prices and production.
The move by Rio Tinto also signals a bottom for the lithium supply sector, though we will likely have to wait until January 2025 to find out what the American political landscape looks like in terms of energy transition goals. It is important to note that the acquisition of Arcadium Lithium allows Rio Tinto to serve the rest of the world's EV car sectors. Rio Tinto's only lithium assets are the Rincon salar brine project in Argentina's Salta province acquired March 29, 2022 for $825 million from a private equity group led by Sentient and the world class Jadar deposit which Rio Tinto would like to develop as an underground mine. Rio Tinto is currently developing Rincon at a starter scale which is projected to start producing 3,000 tonnes of battery grade lithium carbonate annually by the end of 2024. The plan is to expand output to 50,000 tpa LCE.
Jadar is an unusually high grade version of claystone (2.5% Li2O) discovered in 2004 when lithium was still just a 20,000 tpa Li metal equivalent global market worth about $200 million. Rio Tinto spent a lot of time and effort developing a flow-sheet but has been unable to turn Jadar into a mine. Located 164 km from Belgrade in a farming valley, Jadar has been blocked by the anti-mining lobby apparently bankrolled and handled by Russian interests not keen to see a major European source of lithium for its domestic EV sector. The proposed mining scenario would produce 58,000 tonnes of battery grade lithium carbonate. Rio Tinto is optimistic about the EV sector's future and has previously stated that by 2035 the world's net zero emission goals will require the supply of 60 Jadar equivalent mines (3,480,000 tonnes LCE) which would be about 650,000 lithium metal equivalent output compared to 185,580 tonnes produced in 2023. That would require a 3-4 times expansion of current supply.
Rio Tinto's projection came with a caveat that it assumes solid state lithium ion batteries would never become reality. A solid state lithium ion battery can use lithium as the anode instead of graphite with superior performance and without the fire risk caused by dendrite growth which would puncture the casing of a flammable liquid electrolyte. Various groups such as Toyota are working to commercialize a solid state LiB and even the Chinese battery producer CATL which loves to pump LFP and sodium batteries as the future has joined the race to deliver solid state LiB by 2030. Given the extra lithium required for a solid state LiB, Rio Tinto's demand projection could prove only 50% of the future reality, which would make the future production worth between $70-$140 billion within a $10-$20/lb LCE range. It is worth noting that in its September 19, 2024 Investors Day presentation Lithium Arcadium predicts LCE demand to be 3.5 million tonnes by 2030, much more aggressive than Rio Tinto's 2021 forecast. And this number will not include meaningful extra solid state LiB demand. So it is not unreasonable to imagine that during the 2030s if EV sales do displace ICE sales in the rest of the world as they are already doing in China, the annual lithium market will be worth $100-$200 billion. While the other major mining companies like BHP, Anglo American and Glencore dwell on iron and copper, Rio Tinto is now moving to be part of this emerging new market. It may take another year to jumpstart market interest in Canada's lithium juniors, but the drivers are now in place.
Map showing geographical distribution of Arcadium's lithium assets
Key lithium assets of Arcadium Lithium
Furture Lithium Demand Outlook according to Arcadium Lithium
Lithium Supply Evolution Chart and Lithium Carbonate Price Chart with lithium winters highlighted
Jim (0:12:58): Is Q2 Metals shaping up as the next major lithium discovery in Quebec's James Bay region?
Q2 Metals Corp is shaping up to deliver the next world class lithium discovery in Quebec's James Bay region. I assigned a bottom-fish spec value rating to Q2 Metals in November 2023 based mainly on its Mia project in the James Bay region when there was still hope that lithium carbonate prices would stabilize in the $10-$15/lb range where the better deposits could be developed to supply future demand growth. On February 29, 2024 Q2 announced an expensive deal to acquire the Cisco claim group for $2.4 million, 60 million shares and $12 million exploration in stages over 4 years. A private group had discovered spoudumene outcrops over a large area and drilled 6 holes in 2023 within a small area. Although the grades were high and the location much farther south than that part of James Bay which hosts Corvette and Galaxy, and only 10 km from the Billy Diamond Highway, I thought it was a rich deal that smelled of desperation. Furthermore, I did not like their presentation of assays as "cumulative" lithium grades which seems to have been a response to the market's unfair crucifixion last year when Q2 reported Mia drill assays as a series of short intervals rather than an average which included the waste rock. In the pegmatite exploration game investors like to see thick intervals of continuous mineralization at 1% Li2O or higher, not a stacked series of narrow dykes whose average grade that includes the waste between tends to be below 1% Li2O. Although the initial map showed that high grade outcrops had been found over a large area, there was no evidence of continuity, and the holes did not cover a footprint with meaningful tonnage implications.
Apart from a brief rally after the announcement the market decided that so far the Cisco play was a hill of beans. Q2 Metals initiated a summer drill program at the end of May designed to sort out the orientation and geometry of the Cisco target, and reported spodumene intervals on June 17 for holes #7-10 which suggested the pegmatite body had a northeast-southwest strike though the company was still unsure about true width. On July 3 Q2 reported spodumene intervals for holes #11-14 which were important because the strike expanded from 200 m to 750 m. This also became the basis for announcing a set of unit private placements ranging from $0.25 for common to $0.475 for charity flow through, which raised $6.9 million when it closed in early August. This paper becomes free trading in early December by when Q2 will have published all assays for the 2024 summer drill program at Cisco.
On August 12 Q2 reported spodumene intervals for holes #15-18 which showed that the pegmatite was dipping southeast and thickening in that direction; that was when the market began to see the emerging geometry of the initial Cisco pegmatite target. On August 19 Q2 reported assays for holes #7-10. Although the company isolated assays for mineralized intervals, it also presented them as "cumulative" intervals such as the impressive cumulative interval of 181.1 m of 1.67% Li2O. The next day someday at the BCSC blew a fuse and forced Q2 Metals to retract its past "cumulative" statements because they were misleading. Indeed, if you are not a careful reader of the words and pay attention to the data tables, you would think in "continuous" terms. This is not the same as "grade smearing" where a few short very high grade intervals separated by waste rock are averaged out to create the illusion of an ore grade bulk tonnage system as Sun Summit did last week with JD results (122.53 m of 2.11 g/t Au was actually 1.53 m of 121 g/t Au near the bottom of a hole that otherwise averaged 0.61 g/t Au over 121 m). The irony is that Q2's hole #10 contained a continuous interval of 120.3 m of 1.72% Li2O between 200.0-320.3 m which needed no embellishment.
On September 11 Q2 reported spodumene intervals for holes #19-21. What caught the market's attention was that hole 21 had a 341 m "continuous" spodumene interval starting at 196.6 m down hole depth. On September 24 Q2 reported spodumene intervals for holes #22-23, the last of the season. On October 1 Q2 reported assays for holes #11-18. What stood out was hole #18 which had 215.6 m of 1.69% Li2O "continuous" starting at 202.5 m depth. Bye bye "cumulative", hello "continuous", and the market noticed. What was really important about this news release is that for the first time they provided sections which revealed that at depth this body traced along 850 of NE-SW strike was dipping to the southeast and thickening substantially.
I have juxtaposed the A and B sections next to the drill plan to make it easier to see the geometry the Q2 Metals team headed by Neil McCallum now see unfolding at Cisco. The company has also provided a map showing the outcrops with high Li2O values occurring within a 1.9 km by 1.5 km area encompassing 23 outcrops. How these outcrops hang together is not yet known because only a footprint of 850 m by 600 m has drill holes into it. When the final assays are in we will be in a position to conduct rough tonnage footprint calculations.
There are about 207 million fully diluted Q2 Metals shares so Cisco is sporting a $271 million implied project value at $1.31 compared to $628 million for Patriot Battery Metals Corp at 143M FD and $4.39. PMET has delivered a PEA which requires spodumene concentrate prices to double from their current level and is now in the value trough of feasibility studies and permitting. PMET has to plod through feasibility study work and make sure the local Cree nation stays on side with development. Its upside is now a function of market perceptions with regard to EV sector growth and future lithium demand. The stock did respond on the upside to the Arcadium Lithium buyout news because now Albemarle has potential competition.
Q2 Metals' Cisco project is much farther south than Corvette and the pegmatite system is not under a lake. Eventually they will have to rename Cisco with a Cree mouthful, but it has just entered the discovery delineation stage. Its limits are not yet known but we have an early indication of the geometry which, if grade holds up with the deeper holes, promises world class scale tonnage. Q2 Metals Corp is now in S-Curve territory and the new James Bay discovery champion. Between now and 2025 the market will have to digest about 18 million warrants between $0.305-$0.60 that expire between Dec 19, 2024 and Feb 23, 2025, as well as the August private placement when it comes free trading in early December. Although the stock sagged somewhat on Wednesday when the Rio Tinto bid for Arcadium Lithium was announced, Q2 Metals Corp stands to benefit from Rio Tinto's de facto declaration that lithium is going to be a major future metal market.
Regional and Local Maps of Q2 Metals' Cisco Project Location
What was known about Cisco when Q2 Metals acquired it
Comparison of Holes #7-10 assay disclosure before and after BCSC crackdown on "cumulative" disclosure nonsense
Assays for Holes 7-18 at Cisco
Critical Cisco sections and how they relate to Drill Plan
Closeup Drill Plan of Cisco target area drilled in 2024
Spodumene Intervals for pending holes #19-23 at Cisco
Table of Warrants expiring Dec 2024 - Feb 2025
IPV Chart for Cisco Project of Q2 Metals
Jim (0:25:26): Did we learn anything from Brunswicks's initial drill results from this summer's drilling at Mirage?
Brunswick Exploration Inc announced initial results on October 8, 2024 for its summer drill program at the Mirage project in Quebec's James Bay region and the market was not impressed. Brunswick has completed 23 holes for 4,871 m but they are largely infill holes or modest stepouts within the set of dykes tested in late 2023 and in early 2024. This time around Brunswick has provided a drill plan with all the holes labeled, so we can see what to expect. The northeast striking Central Zone seems to be two different dyke sets, one that dips shallowly to the northwest and thins out at depth, and a stacked dyke system that dips in the opposite direction. Although the company seems to know what the word "stacked" means, Brunswick seems to be relying on an AI spell checker which has been trained on the CEO's presentations about billions of staked pegmatites, any one of which could be the next Greenbushes. Both in the text and in the drill plan the word "stacked" has been replaced with "staked", as in "staked dykes system". Is the Brunswick AI agent trying to tell us that Brunswick is still just a staking play and not a discovery delineation story?
The market shrugged at the initial summer results. This is the first news since July 23 when Brunswick reported on additional down ice till sampling and prospecting which revealed another spodumene enriched giant boulder. The Mirage pegmatite dykes that have been drilled lack the micaceous nature of the spodumene boulder field whose source remains unexplained. The summer drilling did not venture onto the ground to the northeast which is optioned from Electric Elements, the lithium spinout from the Osisko group which is still private. As far as I can tell, since completing the winter drill program, Brunswick has been treading water and depleting its treasury. It was thus odd that the stock moved up the day when the Rio Tinto bid for Arcadium Lithium was announced. I think this is a sign that Bob Wares and Sean Roosen, now that Rio Tinto is acquiring a major stake in Quebec's James Bay region and stepping up as a major lithium player, will roll up their sleeves and cobble together a new James Bay champion for next year.
Mirage 2024 summer drill results and drill plan revealing "staked dykes system"
Maps showing 2024 summer drilling and unresolved spodomene boulder trains at Mirage
Disclosure: JK does not own any of the companies mentioned; Brunswick is a Fair Spec Value rated Favorite; Q2 Metals was Bottom-Fsh Spec Value rated; Arcadium Lithium is unrated
Kaiser Watch is a weekly audio show produced by KaiserResearch.com with Jim Goddard and John Kaiser discussing the junior resource sector. The show has three parts: the first is a general topic, the second discusses developments involving the KRO Favorites which as of January 1, 2022 are no longer exclusive to KRO members, and the third is a peek inside the members only KRO Bottom-Fish Workshop. KRO is transitioning into a Do-It-Yourself research platform that covers all Canadian and Australian resource listings and which also features a Bottom-Fish Workshop where John Kaiser highlights juniors with solvable "missing pieces". Companies that graduate from the Workshop may become part of the Annual Favorites collection whose profiles and related commentary are unrestricted for non-members. Visit the KRO Favorites Dashboard for quick access to all the unrestricted Favorites related content. KRO is not sponsored or compensated directly or indirectly by public companies. The business model is based solely on membership fees which have changed for 2024 as a transition to a $200 per month auto renewal program in 2025. During 2024 individuals can register for a KRO membership at a non-refundable price of $450 for a term that expires December 31, 2024. All active KRO members will be grandfathered to renew annually at $450 on Dec 31, 2024. Sign up here for this limited $450 offer. Kaiser Watch is available at Kaiser Research YouTube and as a Podcast downloadable from KaiserResearch.com. Each episode will be made available through the publication of a Kaiser Media Watch blog report which will provide links to specific questions and include supplementary graphics. All episodes will be archived at Kaiser Watch.
Kaiser Watch October 2, 2024: Which Favorite will triumph by year end?
Jim (0:00:00): How have the 2024 KRO Favorites done at the end of the third quarter?
As a group the 11 companies in my 2024 Favorites Collection were down 15.9% as of September 30, 2024. The highest was up 10.5% on May 17 and the lowest was down 22.3% on September 10. During the same period gold is up 26.5% while the TSXV Index is up 5.1%. It is a dismal performance in absolute and relative terms. It really makes me wonder what value I create through the weekly or sometimes bi-weekly Kaiser Watch. I am currently working on an IT experiment whose goal is to make the Kaiser Research web site very fast which is necessary if I am going to market it as a research tool in 2025 at $200 per month. If this works I will give everybody a chance before the end of the year to sign up for 2025 at USD $450. As far as the dismal performance of the 2024 KRO Favorites are concerned, this KW Episode will look at what we might expect from the individual companies by the end of 2024.
Jim (0:01:25): What has dragged down your KRO Favorites Collection this year?
The main cause for the poor performance are the three lithium juniors who are 27% of the index. Brunswick Exploration Inc is the worst, down 77.7%, followed by Patriot Battery Metals Corp down 58%, and Winsome Resources Ltd down 45.7%. Their flagship projects are all in the James Bay region of Quebec. The price of lithium carbonate and spodumene concentrate is half what is needed, not just to mobilize new lithium supply to meet net zero emission goals by 2030, but even to keep existing bedrock mines in operation.
Sentiment toward the lithium sector and the energy transition will not turn positive until we know the outcome of the US election, and that may not happen until 2025 because the Republican Party has already declared that any outcome other than a victory for Trump is a stolen election, a position that Shady Jaydy confirmed during the vice-president debate. Trump's declaration that climate change is a hoax and his groveling support for the fossil fuel sector guarantee that if the electoral college delivers a tyranny of the minority the EV sector will be stalled for some time. I do not expect any help from the three lithium Favorites during the fourth quarter but they may represent fantastic bottom-fishing opportunities during December's tax loss season.
Brunswick is still an exploration junior which has yet to deliver any game changing results this year. A 5,000 m summer drill program was initiated at Mirage, but from the description of its scope I do not expect news of a substantially expanded pegmatite footprint. Brunswick has chewed through $1.8 million in overhead during the first six months, including nearly $500,000 on investor relations. Brace yourself for a dilutionary flow-through financing by year end or a rollup deal merging various James Bay players with rollback haircuts for all. Both Patriot Battery and Winsome have delivered PEA level economic studies for JackieChoo and Adina whose NPV and IRR clear development hurdles, but only because they used spodumene concentrate prices double current spot prices. KW Episode September 6, 2024 takes a close look at Patriot Battery's Corvette PEA. I have not had a chance yet to look closely at Winsome's Adina scoping study, but it also uses a base case price double current spot levels. The current low lithium carbonate and spodumene concentrate prices are not sustainable unless the lithium ion battery ceases to power electric vehicles, something I view as unlikely. The western market is obsessed with spot prices, and currently it is contemplating a potential de facto ban on electric vehicles in the United States under a possible Trump administration. The rest of the world will continue to embrace EVs produced mainly by China whose EV sales are already 38% of domestic car sales. A big question is what role Canada will end up playing in the supply of the rest of the world's lithium needs if the United States is not going to be a consumer. We need to see an election outcome that favors energy transition goals to see a revival of interest in the EV sector and the question of where future lithium supply is supposed to come from.
Charts for lithium carbonate and concentrate (6% spodumene) prices
Jim (0:06:40): How have your non-gold exploration juniors done?
The three key non gold exploration Favorites are Canalaska Uranium Ltd for uranium, Hercules Metals Corp for copper, and PJX Resources Inc for zinc-lead-silver. Canalaska is only down 8.1% and this year it has delivered the most promising drill results of the three juniors. The focus has been on the Pike Zone on the Wewst McArthur project within a graphitic pelite corridor at the unconformity between the sandstone of the Athabasca Basin and the basement rock. Until last week Canalaska was delivering radiometric readings only for a narrow slice of the uranium enriched corridor, which has limited the market's ability to do back of the envelope estimates for an emerging tonnage footprint. I have done an Outcome Visualization which shows what a McArthur clone (1,062,000 t @ 16.46%) mined at 200 tpd would be worth at the current U3O8 price of $81.88/lb. That number is nearly CAD $7 billion which would translate into a future Canalaska stock price of $27.30. The IPV chart shows that the market is pricing West McArthur at the low end of the fair speculative value range for such a future outcome still at the discovery delineation stage. The $0.70 stock price and implied $178 million value (100% basis - Canalaska is at 83.3%) makes it clear that the Pike Zone has not attracted S-Curve activity. This means that the market does not yet believe Canalaska can deliver a McArthur clone.
It looked like the summer drilling program was off to a good start, as discussed in KW Episodes July 12, 2024July 19, 2024. Canalaska has the ability to release real time radiometric eU3O8 assays, and with two quick news releases the geometry of the Pike Zone was begininning to take shape. But then Canalaska pulled down a cone of silence which it did not lift until two months later with a press release on September 17. Unfortunately that was only about more holes within the narrow slice across the uranium enriched corridor. Given the policy of releasing real time radiometric assays, this was not very good news, because the absence of eU3O8 updates implied that stepout holes were coming up empty. The hope for a McArthur clone outcome was beginning to fade.
Then on September 26 Canalaska released 4 holes with very high uranium grades at the unconformity 100 m to the southwest of the initial Pike Zone slice. These holes were drilled during the past six weeks, and, despite their importance, were not released as radiometric assays as the core ended up in the box and the probe was dropped down the hole. The market has responded only modestly to this stepout news, perhaps because there are 3 earlier modest grade holes that appear to have tested at least part of the middle of this 100 m segment. Drilling has now stopped for the season, but will resume in early January 2025 with two rigs, increasing to three rigs with the goal of adding additional fences across the unconformity corridor within this 100 m segment, as well as stepping out to the northeast and south west. There are no more radiometric assays to come, just the geochemical assays confirming the eU3O8 assays. Canalaska hopes to be in a position to deliver a maiden resource estimate during H2 of 2025.
What is clear is that Canalaska has changed its strategy of real time assay reporting, which may be a good idea because in batching holes in a new segment of the mineralized corridor Canalaska gives the market a chance to see what has been accomplished in 3 dimensions rather than isolated fragments spread over time. If followup drilling can connect these two segments with high grade mineralization at the unconformity, the world class scale of this discovery will hit a perceptual tipping point and we will get S-Curve market action. Uranium itself has sunk to $82/lb which is still fine for Athabasca Basin style high grade deposits, and the sentiment toward nuclear energy remains positive, regardless of the US election outcome.
Implied Value Charts for West McArthur visualized as a McArthur outcome
Pike Zine comparsion between September 17 and 26 news releases
Drill Plan showing location of pending drill holes at Hercules
Jim (0:16:17): What about your two gold exploration juniors, Arizona Gold and Solitario?
Arizona Gold & Silver Inc is down 23.9% thanks to the extraordinary sluggishness of the BLM permitting system. The Philadelphia project in Arizona has reached a stage where there really is nothing left to drill on the strip of patented claims that cover the high grade Philadelphia vein. Arizona Gold needs to step onto BLM ground to the east in order to intersect the downdip extension of the vein and make the high grade underground mineable resource grow bigger. These holes will pass through a hanging wall area which they call the Red Hill target that has the potential to host a bulk tonnage gold system. The company has drawn comparisons with the Silicon deposit in Nevada where AngloGold has outlined over 4 million ounces. The target has a tonnage footprint of 40-100 million tonnes which at an average grade of 1.5 g/t gold would host 2-5 million ounces gold.
The BLM did not grant permits for building road access and two drill pads until early June, with the extra stipulation to make sure no gopher tortoises were lurking in the vicinity. By the time that was done in early July a heat dome had settled over Arizona. With the temperature at lethal levels Greg Hahn refused to let drilling start, hoping for a cooling trend. I discussed the situation in KW Episode August 1, 2024, as well as the implications of the bankruptcy of Elevation Gold Mining Corp which died because the 0.4 g/t grade at the nearby Moss Mine was just too low. Well, temperatures have not dropped in Arizona. In fact in the East Bay this week we are enduring a temperature range of 100-110 Fahrenheit.
Without drilling nothing can change at Philadelphia, so the market lost interest over the summer. On September 18 the company bit the bullet with a 10 million unit financing at $0.30 with a full 3 year warrant at $0.40, which the company boosted to $4.6 million on September 30. Autumn has begun and temperatures will drop, even in Arizona, so I expect the junior will finally start drilling during the next couple weeks. Fortunately there are no seasonal constraints at Philadephia, and if assays confirm the bulk tonnage potential by December, Arizona Gold could be off and running, helping overcome the deadweight of the lithium Favorites.
I talked about Solitario Resources Corp, which is up 21.1%, extensively last week with regard to its Golden Crest maiden drill program in KW Episode September 25, 2024. Solitario is in the midst of a 12 hole drill program seeking geological context in the third dimension for the high gold values at surface. The highest surface values were at the Downpour target in the eastern part of the initial Golden Crest Plan of Operations approved by the USFS this year. What was missing from the assays for the first 3 holes was a mineralized crosscutting structure that fed these lithologically controlled zones. So more vectoring holes are needed in this area. The rig is now testing targets in the western part where gold values are weaker at surface but pathfinder elements such as arsenic and antimony are very elevated. The gold at Golden Crest is micron sized and the Paleozoic sediments appear to be oxidized all the way to the Proterozoic basement rocks at about 400 m depth. So the core in the box will yield no visual secrets. The rest of the dozen holes planned this year could thus deliver big surprises which send Solitario soaring by year end. The market, however, seems to have settled into a stance of waiting for next year when the company hopes its Ponderosa Plan of Operations will be approved by the USFS. The surface gold values in the eastern part of Golden Crest covered by the Ponderosa POO application are phenomenal. Unless the remaining holes in the current drill program deliver a barnburner hole, the stock could be an excellent accumulation target in December. However, in November we should find out if Nexa is going ahead with a major drill program at the Florida Canyon zinc-lead-silver project in Peru. The market currently assigns zero value to Solitario's 30% carried interest in Florida Canyon because the perception is that Nexa is in no hurry to develop it. A major drill program testing peripheral targets to see what longer term resource delineation potential exists would signal that Nexa is getting serious about Florida Canyon.
Comparison of Red Hill model with AngloGold's Silicon deposit
Drilling strategy at Philadelphia on permitted BLM land
Jim (0:22:58): How have your advanced gold junior Favorites, Vista Gold and West Vault, done?
The upside for West Vault Mining Inc and Vista Gold Corp hinges on what the price of gold is doing, or better said, what the market thinks gold will continue to do. West Vault is up 9.5% while Vista Gold, the most recent addition to the Favorites Collection is up 46.4%, the best performer at the end of the third quarter. Both companies have permitted shovel-ready gold deposits with recently updated economic studies. I have reproduced their ore schedules and cost figures in a spreadsheet and used the discounted cash flow (DCF) model to see what happens at different gold prices as high as $4,000 per oz. West Vault's Hasbrouck has a CAD NPV per share range of $3.21-$4.53 for 10% to 5% discount rates using $1,800 as a base case gold price, which soars to a range of $8.13-$10.68 at the current gold price of $2,648 per oz. Although West Vault's NPV and IRR clear development hurdles even at $1,800 gold, its stock price is $1.02. Vista Gold's Mt Todd project has a USD NPV per share range of $4.21-$8.73 for 10% to 5% discount rates also using $1,800 as a base case gold price, jumping to $16.30-$25.97 at the current spot price. Like West Vault's Hasbrouck, Vista Gold's Mt Todd clears NPV and IRR hurdles at the base case price, and fabulously so at the current spot price. So why is the market ignoring the fundamental value of these two companies which should be trading 3-5 times higher current levels?
One reason, and this is reflected by the overall weak market response among resource juniors with an advanced gold focus, is that the market does not believe the current gold price and higher is a new reality. It seems to expect a plunge back below $2,000. KW Episodes August 23, 2024 and September 25, 2024 I offer reasons for this skepticism and why I think we are in the midst of a fundamental upwards repricing of gold into the $3,000-$4,000 range regardless the outcome of the US election. The other reason specific to West Vault and Vista Gold resides in the difference and similarity of the Hasbrouck and Mt Todd projects. The market thinks Hasbrouck's 72,000 oz per year projected production is too small to attract the interest of even an intermediate gold producer (100,000-500,000 oz annual production). And the market thinks Mt Todd's 400,000 ounce annual production at $1 billion CapEx is too big for an intermediate producer. The similarity between the two deposits, namely a grade below 1 g/t, is the reason a major is unlikely at this early stage of a secular gold bull market to be interested in acquiring and developing Mt Todd.
For ordinary investors such as those who monitor Kaiser Watch episodes the current price of both juniors is an incredible bargain, provided you accept the premise that gold is in the midst of a sustainable fundamental repricing in real terms, not just a harbinger of future inflation that would turn Hasbrouck and Mt Todd back to marginal gold plays. Tracker July 18, 2024 provides a complete explanation for my recommendation of Vista Gold Corp as a Good SDpec Value Favorite, while Tracker April 13, 2023 does the same for West Vault Mining Inc.
In the case of West Vault it may be too soon for an intermediate to make a bid for the company, especially given that the price must acceptable to West Vault's biggest shareholder, Sun Valley's Peter Palmedo. The stock is in something of a catch 22 situation caused by the fact that Palmedo would never agree to a price lower than 3-4 times the current price, but no intermediate producer can justify offering a 300% plus premium over market. The stock will reprice upwards on relatively low volume once the market has undergone a gestalt switch in terms of its perception of gold's long term price range.
Vista Gold Corp recently put out a news release which had two aspects. The first was about the South Cross Lode zone drilling in the northern part of the Batman deposit which they now know is a distinct zone different from the closely spaced but lower grade sheeted veins of the Batman zone. South Cross involves more widely spaced but thicker veins with better grade, and the goal of this program was to quantify how best to measure this zone which might have future underground mining potential which the Batman average grade of 0.77 g/t does not offer unless there is a very big real increase in the price of gold.
The aspect that initially troubled me was talk about doing a feasibility study for a smaller scale mining plan of 12,000-15,000 tpd that might have a CapEx of $400 million rather than the $1 billion plus for the 50,000 tpd scenario supported by the feasibility study updated in March 20024. The difference is that the smaller scale would produce 150,000-200,000 ounces versus 400,000 ounces annuallt. A couple years ago Vista Gold was being pressured by the financial establishment to bring in a partner to develop Mt Todd, which would be a disaster in terms of upside. For example, if a partner earns a majority interest in Mt Todd by funding CapEx, Vista Gold would be a dog for years waiting for a mercy killing by the partner. The smaller scale scenario broached by the recent news release left me wondering if Vista Gold is planning to turn Mt Todd into a "do-it-yourself" project, an approach that is anathema to Peter Palmedo whose Sun Valley is a major Vista Gold shareholder but not large enough to control its destiny.
During mid September Vista Gold participated in the Beaver Creek conference where a company does a 15 minute presentation, following which qualified investors sign up for a 25 minute private Q&A meeting with management. Vista Gold churned through 43 such meetings of which a quarter were corporate entities. The "corporates" consisted mainly of intermediate producers and their message was, "we like Mt Todd, but we will have a hard time persuading our overlords that paying a premium for Vista Gold and spending $1 billion CapEx to develop Mt Todd is a good idea, especially at this awakening stage of a secular gold bull market which is not yet pricing us as it would if it believed it was real. Can you make it smaller?".
With the majors trying to gobble up the intermediates, it will be at least a year before they start looking at low grade large gold output plays like Mt Todd. The majors are now stalking the intermediates and are not interested in billion dollar CapEx deposits like Mt Todd with grades below 1 g/t. The intermediates in turn are thinking of ways to avoid the premature clutches of a major. Since Vista Gold is trapped in this game of waiting for a secular gold market to be confirmed, management has decided to spend the time doing a feasibility on a smaller scale mining scenario with a $400 million CapEx an intermediate could handle. The company is currently doing internal tradeoff studies to see what is the best tonnage through scenario, which will be completely shortly. It expects to have the feasibility study done before the end of Q2 2025. Why would updating the cost numbers for a smaller scale mining scenario take 9 months? The feasibility study needs to be 43-101 compliant which requires third parties to crunch the various components of mine, and that does take time.
By announcing this smaller scale feasibility study Vista Gold has broadened the pool of potential buyers to include the intermediate producers. By creating options in the form of 200,000 ounce versus 400,000 ounce Vista more than doubles the pool of potential buyers without jeopardizing the the larger mining scenario which within a year could be within reach of even some of the intermediate producers. Meanwhile the intermediates can get serious about their due diligence so that if one of them bites first the others can jump into the fray with better bids. It is a strategic move by Vista Gold to encourage investors to buy the stock and move it into the $3-$5 range where the likely NPV for the smaller scale scenario matches the likely CapEx. By then if the secular gold bull market has awakened further, the intermediates will have posted gains beyond the 60%-120% they have garnered since the mid February lows and will be in a better position to use their paper as acquisition currency. The majors in turn will be trading at more than their current 40%-60% gains from their February lows and much more inclined to pursue the intermediates. Vista Gold has the most obvious potential to drag the KRO 2024 Favorites Collection into the money by the end of 2024.
NPV/share Sensitivity to Gold chart for Vista Gold's Mt Todd project
After-tax NPV Sensitivity to Gold Price for Vista Gold's Mt Todd project
NPV/share Sensitivity to Gold chart for West Vault's Hasbrouck project
After-tax NPV Sensitivity to Gold Price for West Vault's Hasbrouck project
Jim (0:31:11): What about Colonial Coal, your star Favorite for most of the year?
Colonial Coal International Corp was my KRO Favorites star performer for most of this year, peaking at $3.47 on July 31 where it was up 86%, after which it abruptly developed a down trend that bottomed at $2.11 on September 27, close to the low of late June. At the end of the third quarter it was up only 28.4% at $2.44. It does, however, have potential to drag the 2024 Favorites Collection out of the mud if it attracts a buyout at $5 plus by the end of the year.
The stock developed an uptrend in July after the Canadian government approved the sale of Teck's Elk Valley coal assets to Glencore (see KW Episode July 5, 2024). In KW Episode April 26, 2024 I discussed a decision by Colonial Coal to retain Citibank to manage the sale of the company whose key assets are the Huguenot and Flatbed metallurgical coal assets in northeastern British Columbia. The hope was that an Asian steel producer would buy Colonial Coal in order to secure a stable long term supply of metallurgical coal.
The situation became complicated after BHP launched a hostile takeover bid for Anglo-American on April 25, 2024 which the South African government was not very excited about. Over the next five weeks the bid increased from $39 billion to $49 billion but BHP gave up on May 29 (see Reuters May 30, 2024 for a timeline of developments). Since then Anglo-American has scrambled to sell non-core assets such its De Beers diamond stake, the platinum group division and as its coal assets so that it could concentrate on its copper assets which were what BHP was seeking. Anglo-American initiated a formal sale process on July 9. This effort has focused on its coal mines in Australia, which was compromised somewhat when on June 29 the Grosvenor Mine caught fire. Anglo had set September 9 as the date when it would start receiving bids, but Anglo did not start receiving binding bids until September 26 and predicted it would be mid November before it will decide which of the final binding bids it will accept.
The planned Anglo-American coal sale helped stall the bidding activity around Colonial Coal's undeveloped assets in northeastern BC which have only been taken to the PEA level. The issue is that Anglo also has substantial undeveloped metallurgical coal assets in northeastern BC that partly surround the Flatbed and Huguenot projects (see the map). The market's view seems to have been that whoever buys the operating Australian mines will probably resell the BC assets, which in effect postponed latent appetite to acquire Colonial Coal and its Huguenot and Flatbed deposits. This may have triggered the downtrend that started in August.
This downtrend appears to be reversing because Anglo-American has already reduced the number of potential bidders it will entertain. One of the prominent bidders is Glencore, which has decided not to spin off its coal assets after shareholders protested. Glencore has both thermal and metallurgical coal assets, but was skunked in late 2022 when the Canadian government rejected its application to develop the Sukunka deposit in northeastern BC. If Glencore is the winning bidder for Anglo-American's coal assets it will likely develop the BC assets. That would be bad news for the Asian steelmakers hoping to pick up these "breadcrumbs". Now that Anglo's sale timeline is better defined other potential developers of metallurgical coal mines who are not in the running for the Anglo assets will be turning their attention back to other assets, of which Colonial Coal's assets are the ones for sale. CEO David Austin hopes to attract a bid in the $5-$10 range, higher if a competitive auction ensues. So I would not be surprised if by the end of 2024 Colonial Coal ends up the top performing KRO Favorite.
Map showing metallurgical coal assets in NE BC and location of Anglo-American properties
Disclosure: JK owns shares of PJX, Solitario and Vista Gold; Arizona Gold, Brunswick, Colonial Coal, Hercules,Patriot Battery, PJX, Solitario and Winsome are Fair Spec Value rated Favorites; Canalaska, Vista Gold and West Vault are Good Spec Value rated Favorites
