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Kaiser Media Watch Blog - September 1, 2024 to September 30, 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 September 25, 2024: Golden Crest coming into focus
Jim (0:00:00): What was the mood like at the Metals Investor Forum in Vancouver last week?
The Metals Investor Forum took place in Vancouver on September 20-21, 2024 at the Marriott Parq Hotel near the stadium and adjacent to a casino, which is off the downtown beaten track but reasonably accessible for investors coming in by Skytrain from the Lower Mainland to the east or Richmond to the south. Normally it takes place at the Rosewood Hotel located at Georgia and Howe streets, or, in the case of the January show, at the Fairmont Hotel across from the Convention Center. Given the sour mood of retail investors and the intrinsic laziness of the financial establishment my turnout expectations were bleak. On Friday morning, however, I was pleasantly surprised to see the presentation hall 75% full, which is impressive given that the space is much larger than the Rosewood hall.
MIF has now posted most of the newsletter writer, corporate and Q&A presentations at its MIF YouTube Channel. Its own web site is forward looking for upcoming conferences and does not provide any easy way to find past conferences apart from a YouTube link which takes you to a default "playlist" page which is pretty much useless if what you care about is the content from the latest conference. So click on the above YouTube link, then select "videos" and then "latest" to get the September presentations. To access my presentation and those of the companies in my session go to the KRO Blog Comment MIF Sep 21, 2024: Adapting to an End Times Scenario and how Resource Juniors can play a Critical Role which also includes links to the presentation and Backstage Interview for Silver North Resources Ltd. I used to set up a conference page within KRO listing all the presentations to make it easy for investors to find the talks that interested them, but after MIF Toronto March 2020 I decided that this was the responsibility of the MIF organizers, not mine. If you are one of the companies, an investor who attended but could not sit in on all the presentations, or an investor who could not physically attend but want to check out what was available, send an email to [email protected] and ask him why MIF with its much better resources cannot provide at least the equivalent of what Kaiser used to provide.
The reason I like to participate in MIF conferences is because the recording of the presentations is very professional, and the availability on YouTube expands the reach of all this human effort far beyond the physical turnout. These days it is tough for a retail investor to drag himself or herself to a physical conference involving resource juniors because we are now in the thirteenth year of a bear market that started in late 2011, ignoring a few false rallies along the way in 2016, 2020 and early 2022. The pleasure of these conferences during the 1990s, 2000s and the early part of the 2010s was that there was always a buzz, an element of excitement, a sense that if you could just intersect with the right people you could pick up the keys to making a lot of money through the resource juniors. This is not happening these days.
Going to a conference has become something akin to visiting a memory care home and trying to find somebody still plugged into reality, but ending up questioning one's own capacity to judge one has found such a person. What has not helped is that many of my peers are stuck in a Doug Casey style loop of libertarian elitism which views everything through the prism of "liberalism" stealing from individuals "full of merit" to support losers "lacking merit", never mind that the latter characterizes much of Trump's base, which, to be fair, does capture the extreme cynicism that has characterized the traditional audience for resource juniors, at least as far as gold is concerned, and which these days manifests itself through the "silver" cult. I admit it is refreshing to see that some of my peers and corporate executives are embracing silver in terms of a useful industrial metal rather than a substitute for something truly useless such as gold. Silver is not a substitute for gold which is a unique asset class, and gold should be respected as such while silver should be celebrated as part of the functional solution to whatever burdens humanity's future.
One reason we do not see a bull market exploding for resource juniors focused on gold despite gold reaching record highs is that the traditional audience consisted of self-satisfied Republicans who treated gold as a type of "lollipop" sucking on which helped vent their frustration over having to share some of the fruits of their success through. But Trump has managed to hijack the Republican Party and turn it into a "retribution" vehicle for society's losers against the "elites" which Trump pretends are "intellectual" but at the end of the day are "economic". The price of gold is rising not because Doug Casey's elitists are buying gold ahead of fiat currency debasement and hyper-inflation, but rather because the rest of world sees the Republican Party's devolution to MAGA thought as an acceleration of America's decline from the role of global hegemon it established after World War II. Despite being whom Casey had in mind with his reference to "Boobus Americanus", the traditional American gold bug audience intuitively knows that gold's uptrend is not something to celebrate. Bitcoin, which is a soft digital mirage priced in US dollars that refers only to itself and is of little interest to the rest of the world accept to facilitate criminal or clandestine transactions, today has much greater appeal to the former hard asset crowd. The surprise down the road may be the embrace of gold by an audience that has historically shunned gold as a "barbarous relic".
The theme of my talk was a pessimistic one along the lines that the climate change goal of net zero emissions by 2050 is hopeless, that the focus will soon shift to adapting to runaway global warming, and that the dysfunctional politics of the United States will throw victory to the Global East and leave America flailing to survive in a new reality where globalized trade has collapsed, where America the Great stands alone if Trump is elected, and apart from the ability to unleash Armageddon, ends up exposed as the Emperor without Clothes because the biggest economy in the world depends on raw material supply which comes mostly from almost everywhere but the United States. And this is a problem regardless which party wins the 2024 election, because the Democrats are crippled by an extraordinary myopia that keeps them from flushing NIMBYism down the toilet. And it is a problem for smug Canadians who ignore the implications of Justin Trudeau adopting UNDRIP which assigns aristocratic DNA based supremacy to less than 5% of the population, and in effect paralyzes Canada's ability to become a major supplier of raw materials critical to the viability of the Global West.
As one contemplates a Project 2025 juggernaut seeking to convert the United States into a Christian theocracy, and the eventual realization by the Project 2025 architects that America does not have control of the raw material supply needed to sustain its economic and military superiority, and as one listens to all this rubbish talk about how Americans who occupy the upper half of the Belief Horseshoe are going to move to Canada as a refuge from autocracy, I cannot but help think of a pitiful nation called Austria that Hitler's Nazi Germany simply annexed with a stroke of a pen. When I talk to fellow Canadians about the prospect that American tanks will roll across the 49th parallel and simply expand the United States into 60 plus states, with Canada's acquiescence to UNDRIP suspended, they think I am nuts.
The perceptual problem is that nothing really serious has happened in the Global West since the end of World War II. The real problem is that Global West populations only have textbook knowledge of the past; those who experienced the horrors of the first half of the 20th century are gone. It is now boring theoretical knowledge. I have the benefit of being the child of Germans who were children during the Nazi period and who left after the war to start a new life in Canada. Thanks in part because I was hurled into kindergarten speaking only German during the 1960s, I was exposed to bullying based on my German origin. I did not understand why but as I grew up I did and have made an effort to understand the cause of the shame I inherited. My effort to understand that history has put me in a position to see with horror what is unfolding before our eyes, and be disinclined to view this as just "fun and games". Yes my "knowledge" is also of a textbook nature, but it is tied to a visceral childhood experience, which is not the case for most Global West people alive today. In Global East and South nations people do experience contemporary versions of old horrors, but their suffering is far removed from the minds of the growing army of right wing populists in the Global West.
I only briefly touched on this theme in my MIF talk, whose purpose was to argue that as America adapts to the reality of runaway global warming, and, whether it is Harris or Trump who is the next president, the reality is that the Global East alliance of China, Russia, Iran and ultimately most of the Global South will continue to marginalize the role of the United States on the global stage, and that mobilizing raw materials from within secure Global West jurisdictions will attain existential status. I argue that the nature and flexibility of resource juniors makes them uniquely suited to pursue and achieve this existential goal. So while current structural problems suggest that the Canadian resource eco-system is dead by 2030, the big picture dynamic suggests an unprecedented revival of interest in this tiny sector. The resource junior sector is undergoing a near death experience whose turnaround will create the biggest secular bull market ever for this sector because the handful of surviving mining companies cannot. During the interim the driver will be sharply higher metal prices, but in the longer run the support will come from the emergence of large, institutionally owned and publicly traded "deposit banks" as I outlined in KW Episode September 12, 2024: A Paradigm Shift for Resource Juniors.
This paradigm shift is premised on the fusion energy dream achieving commercialization by 2040, just in time to deliver a massive drop in energy unit costs just as energy demand to cope with soaring temperatures and infrastructure renewal goes through the roof. It may not happen, but China is now chasing this dream because its long term survival hinges on it. The paradigm for future mining will be that it is not higher real metal prices that drag deposits which are marginal at the current energy cost structure into the money, as happened during the China super cycle, but rather a sharp decline in real energy costs that drag deposits in secure jurisdictions into the money, deposits already delineated with their future optimal mining plans figured out, deposits sitting in "deposit banks" waiting to be sold to actual mining companies to develop. The future of the resource junior eco-system hinges on exit strategies for exploration outcomes not good enough at prevailing prices but worth developing when fusion energy becomes reality.
Many people may not agree that in big picture terms the resource juniors are poised for a major bull cycle. The case for "useful" metals is obvious when you look at my raw material supply charts. The case for gold is not so obvious until one considers how important the US dollar is not just for global trade, but also for the challenge of price discovery. The Global East is already scrambling as a result of US mandated sanctions to shift trade transactions away from the USD. Global South nations which wish to trade with Global East nations such as China and Russia are understandably reluctant to rely on the nascent RMB and RUB currencies. Gold is a special asset class whose above ground stock growth is declining annually in percentage terms thanks to depletion of "low hanging" fruit and the reality that the cost of energy is stable while the energy cost of extracting ever higher hanging fruit (ie lower grade or metallurgically challenged)continues to rise. Barring a fusion energy revolution which collapses energy costs by 90% or more, mining new gold or any other metal will become ever more expensive. While the supply growth of Bitcoin is mathematically fixed, the supply growth of gold is fixed by energy costs. Bitcoin is a meaningless asset class because it can be cloned endlessly. Alchemists have struggled to "clone" gold for millenia, but our knowledge of science now explains why this dream will never happen.
Gold is the ideal bridge from a single reserve currency to a multi-currency global transaction order. Gold's price is not going up because the Republicans that used to attend Rick Rule's Hard Assets conferences are converting their cash into gold ownership because they fear America's rising debt will turn America into a Zimbabwe style failed nation. It is going up because nations and very high net worth individuals are buying gold as a bridge that helps them survive a shift to a new world order where America no longer matters other than as a spoiled child with its finger on the nuclear Armageddon button, a bulkier version of Putin's Russia.
We currently have a situation where gold repeatedly lurches to a new high followed by a modest retreat, with a market response in the intermediate and major gold producers biased on the downside whenever there is a gold price retreat. There is very little activity in the gold juniors, be they advanced ready for production juniors like KRO Favorites West Vault Mining Inc and Vista Gold Corp, or exciting exploration juniors like Solitario Resources Corp. The resource junior bull market is still latent, but on Friday September 20, 2024 it looked it was quickening.
Kaiser Research is an information platform which covers all Australian and Canadian resource listings, which enables me to extract the traded value for resource listings from the general daily statistics published by the stock exchanges. I rely on the daily TSXV trading activity data which does not include the volume traded through the alternative trading systems that pollute the market as a fair transaction utility. So I was surprised Friday night when I say TSXV resource listing traded value soar above $80 million, more than double the $20-$40 million daily range that has characterized 2024. This was higher than two other spurts, one in late February after gold clawed its way back above $2,000, and the other in mid May when there was a 3 day run of $60-$70 million daily traded value. I have provided a screenshot of the TSXV trading data from August 1, 2024 to the present.
I maintain a set of daily Top 100 lists for the resource listings on the various exchanges such as volume, value, and percentage and absolute gainers and losers. The most useful is the Top 100 value traded list which helps KRO members see what sort of companies dominate traded value. I have provided a screenshot of last Friday's TSXV Trade Value list (the yellow indicates a press release was published). What I hoped to see was a diversified distribution of traded value which would signal a broad based inflection in market sentiment. Alas, it turns out that the top trader by far was Vizsla Silver Corp which traded $31.7 million worth of stock. The second was Artemis Gold Inc with $15.3 million traded which is 3-4 times what the company normally trades. So together these 2 companies accounted for $47 million of the traded value. On Monday traded value had dropped below $40 million. Vizsla's traded value surged on Friday because on Thursday it closed a $65 million bought deal done at $2.60, a discount from the $2.90 price achieved on Friday September 13. The bought deal was announced on Monday. If there is any good news about Friday's Vizsla trading surge it is that there were no block trades greater than 200,000 shares, with the stock trading as high as $2.76. There was appetite for the stock from buyers unable to partcipate in the financing, which would be American residents. Volume this week has dropped to 5% of last Friday's volume, a sign that the bull market light is not yet flashing green.
To better understand the market's hesitation in embracing a secular gold bull market I looked at the SPDR Gold Trust ETF created by the World Gold Council in 2005 to broaden investor access to physical gold. The GLD ETF is fully backed by gold, though although each share started at one tenth of an ounce, the amount has eroded over time due to administrative costs. There are a dozen financial entities with the privilege of either delivering GLD shares in exchange for physical gold or delivering physical gold for GLD shares. They play an arbitrage role that forces the GLD ETF price to closely track the physical gold price. The different time zones between the NYSE and LBMA where the bullion price gets fixed each day means that the GLD can end up trading at a premium or discount to the physical gold price. When it trades at a discount the financial entities buy the GLD shares in the market and short physical gold, and vice versa if a premium develops. If the trend persists inter-day they put the surplus GLD or physical gold to the ETF. I track the daily change in the GLD ETF gold holdings and plot the change as a daily positive or negative bar. Individual changes are meaningless, but a series of gold losses or gains and their extent reveal investor sentiment toward gold. The other chart presents the daily gold holding and traded volume. The scale of gold holdings and traded volume is conveniently similar so I can plot both holdings as a blue line and volume as a red bar. Recently I created a version which plots the daily traded value because, given gold's current price above $2,500 compared to below $500 in 2005, I wanted to see the value of activity over time. The value traded during the past 5 years is well below what was happening 15 years ago, which is odd given that in 2010 global GDP was just over $60 trillion while in 2023 it was $105 trillion. All three chart types have the daily LBMA gold price.
When I look at the scale going back to 2005 one can clearly see 2009-2012 as a period when the GLD ETF grew to about 40 million ounces (Dec 7, 2012 was the peak at 43,511,415 ounces) and held until 2013 when the gold bull cycle abruptly ended, with holdings sinking to 20,260,462 ounces on Dec 17, 2015. Gold holdings climbed briefly above 40 million ounces in 2020 when the prevailing narrative was the same old one of "fiat currency debasement" due to government spending to stave off the economic consequences of the Covid pandemic shutdown. By August 2020 the gold uptrend had peaked and GLD ETF holdings began to decline as gold sagged back below $2,000. The Russian invasion of Ukraine in late 2022 caused a short-lived spike above $2,000 and in ETF gold holdings, but by mid 2022 when the Federal Reserve cranked up interest rates to subdue inflation that had shot above 8% investors bailed out of gold in favor of short term treasury bills which were suddenly yielding 4% or better after a decade if yielding near zero.
In Q4 of 2022 when Putin began rattling his nuclear weapon sabres the gold price downtrend reversed though GLD ETF holdings continued to decline. During gold's bottom in mid February the GLD ETF had lost 2.1 million ounces from the start of 2024. But since late August there has been only one day when the gold holdings declined and that was by a very small amount. In fact, as of September 26, 2024 the GLD ETF was done only 64,110 ounces from the start of 2024. When you look at the holdings change chart for 2024 it just looks like noise, indicating that although the gold price is trending up, this is not on the radar of investors who should be flocking into the GLD ETF. When you look at the holdings and volume traded chart with a time scale starting in 2020 there are no obvious trends indicating Global West investors are excited about gold. And yet the gold price keeps rising and only in the past months have western ETFs begun to gain ounces, suggesting that a slow awakening is underway.
This divergence between gold ETF activity and the gold price trend coincides with the emergence of the Global West versus East narrative. China's "best buds" alliance with Russia and the failure of Global West sanctions on Russia to make much difference as Global South nations eagerly snapped up discounted Russian raw materials marked the onset of a new post Cold War great power game which pits autocracy represented by the Global East against democracy represented by the Global West, with the Global South trying to figure out which allegiance best serves its interests. The elephant in the room is that despite all the talk about de-globalization of trade, the global economy still relies heavily on international trade (all those Republican and Democrat hats and flags embalzoned with Made in the USA are actually Made in China at a fraction of the cost to make them in the United States). If the geopolitical conflict between Global East and West turns hot, disrupting the global movement of freight, the Global West will crumple to its knees.
For almost two decades I have argued that the gold price should be viewed as a function of general anxiety best measured through the value of the above ground gold stock relative to the current USD denominated global GDP. The gold price is now in uncharted territory, and, after gold spent a quarter century at $400 plus or minus $100 while the "hard assets" pundits brayed about $2,000 gold and a flood of demand like trying to force Hoover Dam's water through a garden hose, the general public view seems to be "so what, how long before it retraces back below $2,000?" There are still the diehard gold bugs who predict $5,000 plus but their predictions tend to be linked to the old narrative of "fiat currency debasement" and imminent hyper-inflation. Both of those outcomes are possible, but in their case the higher gold price simply reflects inflation which does not leave the cost of mining unaffected. The hard question is, what would allow a real price move to $4,000 happen, a move in a climate of muted cost inflation? I have three charts that show how this is possible, and in the escalating conflict between Global West and East, very probable.
The first chart stacks the value of the above ground gold stock (calculated on the basis of the annual average gold price) on top of global GDP in USD (not adjusted for inflation). It also plots the gold price as the annual average and high and low. What stands out is the $850 peak in 1980 at a time when Iran had humiliated the United States with its Islamic revolution and hostage crisis. Inflation was also soaring at the time. That period looks quaint 45 years later but I remember it as very intense and it was when I experienced my first resource junior bull market. This is followed by two decades of sideways movement until the 2000s when the China super cycle begins. With a recent peak of $2,664 for gold it looks like a lot has changed, though what has changed is that during this period mining has doubled the above ground gold stock, all of which is theoretically available for sale, with only a fraction fabricated into some useful function, unlike silver, most of which is doing something useful. A casual observer would look at this chart, concede it might go higher, but it is a bubble which will not last. So don't talk to me about gold mines which need to operate 10-20 years, and even less about resource juniors whose discovery would take 5-10 years to reach production.
The second chart is the same as the first chart except that I have plotted the annual average, high and low value of the gold stock as a percentage of GDP. In that chart what took place between 1978-1982 looks monumental compared to what has happened since 2006. At the peak $850 gold price in 1980 the gold stock's value was 24.4% of GDP. In 2011 when gold peaked at $1,878 amidst concern about "fiat currency debasement" caused by quantitative easing, the gold stock's value was 13.7%, just over half what it was in 1980. Today at $2,664 the gold stock is 16.2% of projected 2024 GDP while the 2020 covid peak reached 15.2%.
In the third chart I have gone back to the first chart and calculated what the gold price would be if the gold stock value were 24.4% of GDP based on the 1980 peak and 3.7% of GDP based on the 1999 low of $253. This translates into a peak of $4,009 and low of $557 for 2024. If we assume gold production stays flat at the 2023 output of 96.5 million ounces and apply the IMF GDP forecasts through 2029, we would see $4,805 gold in 2029 if anxiety remains elevated at the level it achieved in 1980. Keep in mind that in this approach gold is not viewed as a hedge against inflation, but rather as a hedge against uncertainty, which makes a real price move to $4,000 plus entirely plausible and very meaningful to the producers, the exploration juniors, and advanced juniors whose economic studies done at $1,800-$2,000 base case prices barely meet development hurdles. The question is, assuming gold continues to trend higher, what is the threshold where the market begins to accept that a major repricing of gold in real terms has happened and is here to stay?
Table of TSXV Market Acitivity Statistics Aug 1 - Sept 26, 2024
Top TSXV Value Traders for Sept 20, 2024
Annual GDP Chart broken down as Global West, East and South
SPDR GLD ETF Chart of Daily Volume and Holdings with Gold Price
SPDR GLD ETF Chart of daily change in gold holdings
SPDR GLD ETF Chart of daily value traded with gold price
TSXV Value traded for resource and non-resource listings for 2024
SPDR GLD ETF Chart with daily gold holding changes in 2024
SPDR GLD ETF from 2020 with holdings and volume
Chart showing annual Global GDP and Value of Gold Stock with Gold Price Range
Chart of GDP and Gold Stock Value with Gold Stock Value as % of GDP
GDP and Gold Stock Value Chart showing Gold Price at % high and low going forward
Jim (0:07:53): What did Solitario report for its Golden Crest project during the Denver Gold Forum last week?
Solitario Resources Corp released assays on September 16, 2024 for the first 3 holes drilled on its 100% owned Golden Crest project in the western part of South Dakota's Black Hills region. After the market closed on Monday CEO Chris Herald gave a 23 minute Presentation at the Gold Forum previously known as the "Denver Gold Show". Anybody who owns Solitario or is interested absolutely must watch this presentation because for the first time the company is presenting the Golden Crest story in big picture terms rather than fragmentary snapshots. I have taken screenshots and assembled key graphics here because many of these images are not yet available on Solitario's web site. During the final third Chris talked about the Florida Canyon and Lik zinc-lead-silver projects, two advanced assets to which the market is assigning zero value and will eventually be worth $1-$2 per share when Nexa decides to proceed with developing Florida Canyon. Another way to look at Solitario is as an undervalued zinc play with the Golden Crest gold exploration play a free bonus that could send the stock the $100 if indeed it hosts a mirror image of the 90 million ounce gold system in the eastern half of the Black Hills of which the Precambrian aged iron formation hosted Homestake deposit accounted for 68 million ounces. The stock was up on Monday on decent volume but the price has since declined despite gold making new highs above $2,600. Solitario is a Fair Spec Value Favorite (though once I have conducted an Outcome Visualization for Florida Canyon I suspect it will qualify for a Good Spec Value rating based on that asset alone). While the initial drill results did not include no brainer world class gold intersections, they did deliver meaningful intervals that set the stage for further drilling in the Downpour target area.
The significance of the news is that it gave the company the opportunity to present the scale of this 35,000 acre exploration play whose at surface untested existence is stunning given how much gold is present next door. The Golden Crest area has eluded serious exploration because the cover rocks are younger sediments than present in the Wharf area where the Deadwood Formation is present at surface, the Precambrian basement rocks which host Homestake are under a 400 metre plus layer cake of Paleozoic sediments which appears be oxidized all the way to the basement, the gold appears to be micron sized so that panning by prospectors during the Homestake gold rush days yielded no color whatsoever, and much of the area is covered by scrub and overburden. The area was quickly stigmatized as "tombstone" and avoided serious exploration.
Homestake did drill 3 deep holes into the basement during the 1990s which confirmed that the right Precambrian host rocks were present but which did not assay any gold. Homestake did not bother to assay the above lying Paleozoic sediments, despite having done BLEG surveys which hinted at the presence of gold, possibly because it was so focused on the basement hosted Homestake style gold mineralization. This BLEG data, however, is what prompted a prospector to bring the Golden Crest concept to Solitario in August 2021 which optioned the initial parcel on easy terms but included a 2% NSR (half of which can be bought for $1 million) that could prove extremely valuable. Since then as Solitario waited for the USFS to approve a plan of operations it has collected thousands of soil samples, numerous rock samples, and trench samples along the logging roads. The presentation included a new graphic for the southern portion of Golden Crest which depicts rock sample gold values and areas anomalous with pathfinder elements such as arsenic, antimony and thallium.
The graphic includes a series of red north-south lines which the company, on the basis of geophysical and surface data, believes to represent deep seated crustal breaks which would have played a critical role as gateways for fluid flow. In fact, Herald speculated that these are a southwest continuation of similar east-west oriented structures associated with the Wharf and Homestake systems in the northern part of the Black Hills. These split into western and eastern trends separated by an area of weak gold and pathfinder values where structures seem to be absent. I have Within the approved Golden Crest POO the western trend has lower rock value than the eastern trend whose most intense area is now part of the Ponderosa POO application (outlined in green). The Downpour target appears to be an extension of this area, as does the Wildrose target area to the northeast which came to light early 2024 and is not included in the Ponderosa POO. Herald is optimistic that the Ponderosa Poo will be approved by June 2025; the Golden Crest POO application's approval was delayed an extra year when the USFS became distracted by the uproar created when a private group applied for permits near a popular reservoir to the southeast that is the playground for Rapid City resident. Herald insists that the 80 sq km alteration footprint ranks among the largest gold mineralized hydrothermal systems in the world. Had Homestake troubled to assay the sedimentary horizons it would likely have got results similar to what Solitario reported for Downpour which would have focused its attention on this last giant at surface American gold exploration frontier three decades ago.
In the second graphic I have juxtaposed the Golden Crest POO map from the government application map with the approved drill platforms Solitario provided in the Gold Forum presentation. The 3 Downpour holes were drilled from Platform A and pushed through the layer cake into the Precambrian basement. Herald has told me that the basement rocks in this area are not the Homestake style that Homestake encountered else on the property (Solitario has found the locations of those holes). Gold mineralization occurs as several near surface horizons within the outcropping Mission Canyon formation where a 36 m trench averaged 17.6 g/t gold. The sections for holes #1 and #2 reveal a northwest oriented fault named the Downpour Fault which has displaced the stratigraphy downwards about 100 m on the eastern side. Solitario believes this fault to be post-mineral. The 3 horizons labeled Oedu, Oedm and Oedl are the upper, middle and lower Deadwood Formations of which the Lower Deadwood hosts the Wharf system being mined by Coeur. Hole #1 intersected anomalous gold at the base of the Lower Deadwood while holes #2 and #3 had short anomalous intervals in the basement. Hole #4 was drilled from Platform DD a short distance to the north from Platform A. At this stage Solitario is only drilling deep enough into the Precambrian basement to confirm its presence and is not trying to track down the Precambrian 1.7 billion year old Homestake mineralization, just the Tertiary aged mineralization from about 50 million years ago.
If there is any reason why the stock sagged after an initial flurry of excitement it is because the third dimension did not replicate the higher grade at surface, evidence that this bear market is still dominated by sniper kill shot expectations. Herald also mentioned that the 234 m trench cut along a curving logging road between the Geyser and Spur target areas which averaged 0.82 g/t gold is the most consistently mineralized set of trench values over such a large distance he has ever seen. This area, which falls within the Ponderosa POO application, has the potential to host a multi-million ounce open pittable gold resource similar in scale to what Coeur is mining at Wharf, but higher grade. Solitario has completed hole #5 at Platform R which appears to be the Mirage target which has anomalous pathfinder values at surface but is underlain by an IP anomaly interpreted to sit between 300-400 m depth where the Deadwood formations are expected. Herald will not reveal what this hole encountered, which could surprise us 3-4 weeks from now when assays are due. The rig is currently drilling at Platform S which appears to correspond with the Matchstick target. Solitario expects to complete a dozen holes as part of the 5,000 m 2024 drill program. The press release included a table of the top 10 targets of which only two fall within the Golden Crest POO. Downpour has already been drilled an Eleventh Hour which is at the northern end of the Golden Crest POO will be drilled last due to late season accessibility. The stock is now a better buy than ever because the market thinks 1) Downpour is as good as this round of drilling will get, and, 2) the USFS will not approve the Ponderosa POO in time to allow drilling of its targets in 2025.
Chris Herald spent about a third of the presentation on the Florida Canyon and LIK zinc projects in Peru and Alaska. LIK is a 50:50 JV with Teck about 15 km from Red Dog on which about $40 million has been spent. Both are among the highest grade undeveloped zinc deposits in the Global West. LIK is unlikely to be monetized any time soon, but Florida Canyon in which Nexa can earn 70% may finally see some action in 2025. Nexa completed an unpublished PEA in 2017 and has spent $60 million since optioning it in 2006 after Cominco had spent $17 million (Florida Canyon was a grassroots discovery by Solitario in 1993-1995). Florida Canyon is a Mississippi Valley type system that has a zinc to lead ratio of about 8:1, which bodes well for a future when EVs have replaced ICE cars and a mountain of recycled lead acid batteries with no new offsetting usages crushes the lead price. The property has three other target areas of which San Jose 15 km to the north is the most promising while Tesoro to the east is most accessible. Nexa's budget committee is assessing a major drill plan for 2025 whose purpose is not so much to expand the size of the Florida Canyon resource, but rather to help Nexa establish the scale of the Florida Canyon mill so as maximize the life of the mine in this remote region of Peru. The option deal is very strong for Solitario because Solitario is carried to a production decision, the pre-production cost is not recoverable, and Nexa will loan Solitario's 30% share of CapEx which will be repayable from 50% of Solitario's share of cash flow. These terms make it likely Nexa will propose a buyout before developing Florida Canyon. We have heard this story about a proposed major drill program in each of the past few years, so expectations are low this time around Nexa will finally become aggressive about advancing Florida Canyon. But if Nexa finally gives the green light in November, that will prod the market into assigning value to Florida Canyon.
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 September 12, 2024: A Paradigm Shift for Resource Juniors
Jim (0:00:00): What will you be talking about at the upcoming Metals Investor Forum in Vancouver on September 20-21?
The Metals Investor Forum will take place in Vancouver on September 20-21, 2024 at the Marriott Parq Hotel near the casino and stadium. An indicator of how bearish the resource junior sector is can be seen in the fact that Saturday is only a half day with my session beginning at 11:30 AM. My talk will have two parts. The first part will be a walk-through of all the structural problems plaguing resource juniors and which I believe threaten the extinction of the Canadian resource junior eco-system. A week ago I addressed many of these issues in an interview conducted by Investing News Network’s Charlotte McLeod (John Kaiser: Gold Price Trigger, Junior Miner Challenges, 4 Stocks I'm Watching. The topic that has everybody mumbling these days is: why, given that gold is above $2,500 and making new highs, is there a complete lack of market interest in gold resource juniors from retail to institutional investors?
In the case of non-gold resource juniors the lack of interest resides in a gloomy outlook for China's economic growth, concern that the extra demand required to meet energy transition goals will never happen because the world will give up on that expensive challenge whose effectiveness is uncertain, and the United States will sink into a recession that also mutes macroeconomic demand. These are real concerns, but what investors from retail to institutional seem unwilling to appreciate is that the geopolitical conflict between Global East and West can only worsen, and will eventually result in a rupture of global trade that exposes the Global West's intense vulnerability to raw material supply from the Global East and the Global South, most of which will align itself with the Global East led by China. The trigger for spiking market interest in non-gold juniors will be a system shock whose most obvious contenders are China annexing Taiwan and Russia completion its acquisition of Ukraine with its sights then set on the rest of Europe. The election of Putin Poodle Trump and Junkyard Dog (JD) Vance could be an early trigger, but the election of Harris-Walz will do little to resolve a conflict which is driven by the Global East agenda of proving Trump's slander that America is No Longer Great.
In the case of gold I suspect the trigger has to be an uptrend that challenges $3,000. Gold is up more than 25% from its mid February 2024 low, but the optics do not register with an audience that saw gold increase 500% from its 2003 level when the China super cycle became evident. Gold inflation adjusted from $400 in 1980 would be $1,554 per oz today, and at $2,575 the real price gain is 66%, but the reality of 3 decades of mining gold has harvested the fruit that the move from $35 to $400 made low hanging, so that most of the ounces in the ground today are high hanging fruit. A move into the $3,000-$4,000 range, even if accompanied by low inflation, makes the real price gain only 93%-157%, but the optics would likely trigger the willingness of the audience to abandon its fear that gold will drop back below $2,000.
During the past week I had an epiphany of sorts while I mulled the implications of an article I read somewhere that China is throwing its government subsidized weight behind fusion energy research. There have been recent US government funded breakthroughs and private sector startups have initiated fusion energy research, but there is nothing underway in the Global West with regard to fusion research comparable to the Manhattan Project's race to achieve a nuclear bomb before the Nazis did. That race was won by the Americans and demonstrated by the destruction of Hiromshima and Nagasaki. Since then there has been no hostile nuclear weapon detonation, though Putin has signaled that this era has come to an end. But that is another story.
Fusion energy is different in that winning this race serves the survival of the winner by potentially delivering a drop in energy costs by an order of magnitude. China embraced the EV transition because of its strategic vulnerability with regard to importing oil to fuel an ICE powered transportation fleet. If a geopolitical conflict between China and the United States ever became hot, the United States could shut down China's transportation system by knocking out seaborne oil cargoes and blocking the paths to China's ports. Beijing invested heavily in EV by subsidizing both research and the formation of multiple EV carmakers. These carmakers led by BYD now have the ability to deliver cheap EVs to the rest of the world for a price that makes them "good enough" in terms of range and charge times in a way that the western carmakers have failed. The Global West has recoiled at this import threat to their domestic carmakers by erecting major tariffs. Work by groups like Toyota indicate that in a few years there may be solid state lithium ion batteries that make Global West EVs good and cheap enough for mass consumer adoption. But that may not happen. The message staring us in the face is that without the EV replacement of ICE the goal of net zero emissions by 2050 will not happen.
One might ask, but with the Chinese EV sales approaching 50% of annual car sales, is China not making a major contribution to the net zero emission goal? The problem is that China relies heavily on coal power for electricity, coal domestically mined. It cannot shift to natural gas as is happening in the United States courtesy of fracking shale oil deposits because for whatever reason this technology does not seem to work in China. China is the leader in developing nuclear energy capacity, and is the main demand growth driver for uranium, though it lacks a domestic supply of uranium. But Kazakhstan is nearby and quite willing to supply China. China's hydroelectric capacity cannot be counted on because of potential changes in water flow due to climate change. Nuclear energy has long development timelines and a very high energy unit cost. If China's shift to EVs and other renewable efforts cannot alone achieve the net zero emission goal, runaway global warming will increase electricity demand by an order of magnitude to provide the air conditioning boost needed to make human existence feasible in many places. There is also the issue that higher temperatures and extreme weather will accelerate the aging of infrastructure. What China recognizes is that in the context of unmitigated global warming there will need to be a massive expansion of energy supply infrastructure, its transmission network, and renewal of all other decaying infrastructure in order just to sustain current prosperity.
In addition to this replacement and expansion cost, there is the additional problem that while China is a major producer of most raw materials, for some like copper, a key part of electricity, it is lacking. In a globalized economy that is not a big deal because you just buy what you need from the biggest producing nations. But China is also smart enough to know that it may take a very long time to win the battle between Global West and East, during which globalized trade collapses, and there is no guarantee that the Global South, which is a major raw material supplier, will side with the Global East. The key to raw material self-sufficiency is to be able to produce what a nation needs from its own land or that of close allies. Metals are distributed in the earth along a grade spectrum from crustal abundance to rich orebodies. The cost of getting metals out of the ground boils down to the energy required to convert in ground to usable above ground. Some high grade deposits have discrete boundaries, but many such as porphyry systems have large zonation envelopes where the cutoff grade defines what is economic to mine. If you can reduce the energy cost by 90%, you substantially expand the footprint of economic ore without an offsetting real price increase. While there may be objections to creating ever bigger open pits like Bingham Canyon, a 90% drop in energy costs would turn economic a lot of higher grade underground systems whose extraction would not create the visible eye sores of giant open pit mines. None of the existing energy sources can ever make 0.3% underground mineable copper economic to mine, but a radical 90% drop in the cost of energy such as fusion promises would put such deposits into the money.
China is turning fusion energy research into a modern day Manhattan Project because if it succeeds, it has the key to securing its survival on a hot planet with raw materials secured from its own land, and the key to a major productivity boost that secures its greater ambition of becoming the hegemon that displaces the United States from its current role. If China visibly begins to make progress, it should ignite a fusion research race that the Global West has no choice but to join unless it thinks it is so clever it can steal China's breakthroughs as they happen. The risk with that strategy is that United States will be in a lagging mode of unpacking Chinese fusion innovation from a welter of information that may be a tapestry of misinformation. Unless America ends up stuck with a president who operates in the realm of "concepts of a plan", namely none, the United States will join the fusion energy race on a Manhattan Project scale.
The outcome of the Fusion Energy Project will not be manifested in commercial reality before 2040, which spurs the question, what relevance is this to the extinction trajectory of the Canadian resource junior eco-system which suggests it is dead by 2030? The answer resides in the simple question that arises from the future success of the Fusion Energy Project, "what do we do now?"
Assuming work has been done to develop the EV fleet with the existing infrastructure, as China is well advanced at doing, and the electricity transmission has been expanded to deliver ever greater amounts of electricity, all that would seem to remain is to turn on the electricity supply taps. The immediate benefit will be to use the energy generated to process seawater in order to recover the tritium and deuterium isotopes of the hydrogen atom that are the key to fusion. The secondary benefit will be the resulting freshwater by-product, a critical raw material that currently is not part of the global trade market but whose supply will be disproportionately impacted by climate change. As fusion energy begins to generate its own fuel with massive by-product implications that help feed humanity, the initial hideous CapEx will experience a rapid payback that feeds fusion capacity expansion. The electricity needed to power those AC units that keep humanity alive will flow to the demand destinations, and the project of adaptation to global warming will be achieved. And with the arrival of fusion energy the carbon loading trend due to fossil fuel combustion will reverse.
None of that is relevant to Canadian resource juniors except in the sense that this will require a major expansion of metal supply, especially with regard to metals involved in energy transmission such as copper. But that is more than a decade down the road. How will today help resource juniors that are pressured toward extinction as a concept?
The paradigm shift that is required is to ask yourself, what if the Fusion energy race delivers success around 2040 for both the Global West and East? If energy is the key input to raw material cost extraction, where do we deploy the resulting bounty of super cheap energy? In a context of globalized trade the answer is to flow capital to the jurisdictions which have the richest deposits in terms of grade times tonnage. That makes sense until one declares, sorry, those rich deposit areas are not available to us because they are under control of the Global East. In this scenario, the Global West must shrink its raw material supply potential sources closer to home, namely its allies. The consequence of such a move is that the best deposits no longer controls the cost curve. Recognizing the current economic inferiority of a deposit is the essence of the paradigm shift that I propose will pull the resource juniors out of their extinction gaps.
The biggest issue holding back the development of younger audiences for resource junior exploration is the current reality that an exit strategy exists only for a discovery good enough and large enough to be put into production at prevailing metal prices. Not only does discovery exploration involve initial success chances of less than 1%, but the need to go deeper in well explored jurisdictions like Canada and the United States increases the initial exploration cost to develop a target and vector into the richest part of the deposit. Feasibility demonstration costs even more, but if it is apparent after delineation that a discovery will have an extraction cost above or near prevailing metal prices, funding for further work evaporates and there is no exit strategy. The stock crashes and burns, becoming a "sleeper" story. This more than likely outcome of no exit path for resource junior shareholders discourages audiences from bankrolling the early stages of discovery.
Consider, however, the interplay of three major forces: the potential rupturing of global trade by a persistent and worsening geopolitical conflict between Global West and East, the exponentially rising energy costs of adapting to runaway global warming, and the possibility that the Fusion Energy Project will deliver commercialized reality? Would it not make sense for Global West nations to have an inventory of deposits that have been delineated and their development scenarios worked out, even to the level of environmental assessment despite evidence during the feasibility demonstration stage that at existing energy costs and prevailing metal prices that deposit cannot be profitably mined? Consider, however that if fusion energy became reality and collapses the extraction cost up to 90%, these deposits would be in the money and ready to develop without the usual minimum five years to a prefeasibility study.
The majors, however, will not be interested in buying deposits that are marginal at prevailing metal prices unless there is a massive real price increase such as was created by the China super cycle. They are also not going to invest in grassroots exploration. That really is the task of the resource junior eco-system. So we are back to our problem, what is the exit strategy for discoveries that prove to be middling unless either anther China style super cycle comes along, or a fusion energy breakthrough happens 15 years down the road?
During the Cold War the Unted States built up stockpiles of metals in order not to be caught short key metals if a major supply disruption happened. It has been suggested that the United States might do that again, but some objections would be that this would distort market prices, which end users would not like, and cause prices to sag once the stockpiling stops. It also puts the onus on government bureaucrats to figure out how much of what metal to stockpile, some which are in the form of oxides that are not stable over long warehousing periods. There is also the question of the demand scale of the requirements for adapting to runaway global warming which will be much bigger than any stockpiling capacity.
An alternative approach could be the creation of companies similar to royalty companies except that their task is to acquire and inventory marginal deposits that have made it to the feasibility demonstration stage. The investors in these "deposit banks" would be institutional. Unlike royalty companies whose royalty assets are at the mercy of the actual owner of a deposit, the deposit banks could sell individual deposits to a mining company down the road. The importance of these deposit banks to the resource junior eco-system is that juniors which deliver a marginal deposit could be bought out for $50-$100 million a rather than the $500 million plus that a world class discovery would attract from a major. Since most juniors start out with a $5-$10 million valuation, such an exit would be a respectable win over a relatively short period, and the winnings would likely be recycled in another competent junior. There have been juniors that styled themselves as "deposit banks", but these have always been premised on the speculation that another China super-cycle style boost in real metal prices would drag their worthless deposits into money. This was Ross Beaty's "Lumina Model". But what I have in mind is that these "deposit banks" are private sector entities that collectively serve a strategic purpose for the Global West premised on the success of the Fusion Energy Project. So what we are betting on is not so much higher real metal prices to drag pounds and ounces in the ground into the money, but a collapse in real extraction costs that drag such deposits into the money. Only a story like the Fusion Energy Project could deliver on that bet, and the need for a Fusion Energy Project, already initiated by China, has grown skyhigh.
Chart contrasting US share of raw material supply with combined China-Russia supply
Relative share of Global Raw Material Supply by Global West, East and South
Jim (0:11:27): What is Silver North Resources working on right now?
Silver North Resources Ltd, headed by CEO Jason Weber and chairman Mark Brown, is the only company in my September 2024 MIF session in Vancouver. Nevada Organic Phosphate Inc, which was part of May 2024 MIF session in Vancouver, was supposed to participate, but had to bow out when it discovered that the BLM staff member who was supposed to shepherd the Murdock Mountain drill permit application upstairs through the hierarchy was going on a two week vacation. This meant the final decision was unlikely to be published until after the MIF weekend, and because NOP did not know if it was going to be athumbs up or thumbs down, had no reason to stand on the podium and repeat the same story as in May, except that during the following week it could be greeted by bad news. It is an example of how the American approval process is a world unto itself completely disconnected from the world of resource juniors hoping to get the right to make or break a hypothesis about ounces or pounds in the ground that could be commercially extracted. Meanwhile the window to get a drill program done before winter descends upon the Leach Mountain Range shrinks. And that makes the proponents of America's NIMBY crowd happy.
Silver North has managed to get drill permits to make or break its upside potential in the Yukon. It holds 100% of the strategically located Haldane project in the Yukon west of the Keno Hill silver-zinc-lead mine operated by Alexco until Hecla Mining bought it out in late 2022 for $100 million in stock. Hecla, which paid more than double that to also buy out Wheaton's silver stream, is now working to bring mining supply to the existing mill's capacity. Hecla's revival of the Keno Hill district has made Haldane topical and is a key reason Silver North has shifted from the prospect-generator-farmout model to focusing on turning its flagship into a 100% owned discovery. KW Episode February 29, 2024 provides background on the Haldane story.
The Keno Hill district is characterized by northeast striking veins within a quartzite host that have undergone secondary faulting that created jogs within which very high grade silver shoots have formed. The trick is to find where exactly these shoots repeat. The Haldane property covers a mountain whose oxidized portion of vein sets similar to Keno Hill has been preserved, which made the deeper sulphide extensions a more elusive target. Haldane is an exploration target because its bounty is much better hidden than at Keno Hill to the east. High grade silver was mined at the southern end a long time ago but the project has seen only 28 drill holes, half of them conducted by Silver North. Drilling has confirmed multiple mineralized veins similar to those of Keno Hill; the spacing of the holes was such that only 600 m of cumulative 12 km strike has been tested. Higher density drilling is needed to reveal the location of high grade shoots which can grade above 3,000 g/t silver.
A 4 hole program started in September will test the West and Main faults, and revisit the Bighorn target first intersected in 2019. Ideally Silver North wanted to mount a $2 million drill program so that statistics lets it find those high grade shoots within the West and Main faults. But the bear market made fund raising on that scale with reasonable terms impossible. So the drilling will be done strategically with holes that intersect both faults, though that still leaves them stranded as sniper kill shots which when unsuccessful the market punishes ruthlessly. The Bighorn target is different in that it has only one hole drilled in 2019 which had decent but not great zinc-lead-silver results. But this was a new area and its geology is poorly understood. The one hole Silver North plans for Bighorn could get lucky, but its main importance is to shed more light on the geology of this area for an expanded drill program when market appetite for such exploration stories has returned. Silver North interests me as a bottom-fish because it has a modest goal of delineating 30 million ounces of silver at Haldane, which is not enough on a standalone basis, but which would be of great interest to Hecla as ore trucked to its Keno Hill mill. Based on 64 million shares fully diluted Haldane is carrying an implied value of about $6 million. If Silver North demonstrates enough mineralization to attract a buyout from Hecla, the exit strategy reward could be worth $50-$100 million. That is not a world class go to the bar and high five everybody outcome, but it is the sort of return needed on a more frequent basis to revive market interest in resource juniors.
Silver North also has farmed out its Tim project in southern Yukon to Coeur Mining which can earn 80% by delivering a positive feasibility study and construction decision by 2028. However, given the seasonal nature of exploration in the Yukon, and the required First Nations consultation cycle for exploration permits, consultations mandated for the explorers but optional for the First Nations groups, there is zero chance that Coeur could get work done by 2028 that qualifies as a feasibility study. Furthermore, no construction decision can be made without a permit in place based on the final mining scenario whose costs will dictate a production decision. This type of second stage farmout term will disappear in Canada because of the role First Nations play in the destiny of all exploration projects in their jurisdiction. Bottom-fishers should assume that a 51:49 JV will emerge after Coeur has spent $3.5 million. Coeur has drilled 6 holes this summer which have confirmed the 2 km scale of a zinc-lead-silver carbonate replacement system similar to the Silvertip Mine it operates to the south in BC. Assays are pending though their key importance will be to persuade Coeur to pursue an expanded program in 2025. While there are no synergies between the Haldane and Tim projects, Hecla's potential interest in Haldane and Coeur's potential interest in owning Tim outright creates an interesting dynamic for bottom-fishers hoping for a "strategic" premium based buyout.
In KW Episode August 16, 2024 I took a look at Perpetua Gold Corp and described how this reclamation project with a gold mine funding it is also a key plank in reducing America's antimony import vulnerability. The by-product antimony credit will take care of only a third of America's antimony consumption, which in the context of a globalized market is a nothing burger. However, when I toured the project in 2018 I learned that there are high grade antimony vein zones outside the pit walls with zero gold importance that in an emergency could be accessed by an underground adit. On September 15 China will restrict exports of antimony which officially is being done to protect domestic needs in light of depletion of existing deposits, but in reality it is another brick in the wall shutting off the Global West from Chinese dominated supply of critical minerals.
There is no reason to whine and complain. Deglobalization is now a structural trend and the United States will also end up restricting exports of raw materials for strategic self-serving reasons. China broke out as an antimony supplier in the late 1980's and dominated global supply from 1995-2015. Now its supply is supply is a quarter of its heyday and yet its economy keeps grabbing a bigger share of global GDP at the expense of the United States. If Stibnite gets developed it not only reduces the antimony import dependency, but it sets the stage for "emergency" extraction.
I watched the Harris-Trump debate for signs that either candidate understood the problem of raw material security of supply. Kamala Harris exhibited a hint that she did when trying to explain why she no longer opposes shale oil fracking. If Donald Trump were asked about this problem and what he would do about it, he would blather about how a vice-president is responsible for everything that is problematic about America today (you mean that if you are elected JD Vance is the true president?), and, if that sounded nonsensical, immigrants are the root of all problems. Despite government agencies such as the USGS documenting the situation so clearly only a bag of hammers could fail to comprehend the danger, America in general is oblivious, and that is across the political spectrum which of course I see not as a linear spectrum but rather as a belief horseshoe where the left and right true believer prongs seem to be merging these days. But how can one blame them? In 2022 the nominal value of metal supply was worth about $1.3 trillion or about 1.3% of the $100 trillion global GDP. There is a mutated Shakespeare line, "my kingdom for a sword", which should be thought hard about by all members of the Global West, because you can rest assured that this is very much on the minds of the leaders of the Global East.
But there are green shoots of hope. The big news for Perpetua is that the United States through its proxy the United States Forest Service (USFS) has finally ended the perpetual permitting treadmill by completing the final environmental impact statement (FEIS) and issuing a draft record of decision (DROD) authorizing Perpetua's Stibnite gold project on September 6, 2024. Based on the USFS schedule published in July of this year the final record of decision (ROD) is anticipated by the end of 2024.
The market reaction has been muted, partly because the market believes America's NIMBY attitude toward mining never gives up, but also because the market is unsure what cost escalation since the 2020 feasibility study and changes to mining plan has done to the economic viability of the project at current gold and antimony prices. During the past week the antimony price has risen sharply to $13/lb, an all time high. At last year's average price of $5.49/lb the 83,000 tonnes of production had a value of about $1 billion, which is quite small. At $13/lb the global value more than doubles to $2.4 billion. Still, even at this price the antimony by-product credit is only a fraction of Stibnite's revenue stream. Stibnite lives and dies according to the price of gold. In August I applied a 40% cost escalation to the CapEx and OpEx outlined in the 2020 FS, and discovered that while the project is dead in the water at the 2020 $1,800 gold base case price, it works at the current $2,500 level. But was that cost escalation too pessimistic or too optimistic?
It has been suggested to me that this assumption is not unreasonable, and so I have redone the DCF sensitivity model using current metal prices. Perpetua's Stibnite project handily clears all development hurdles at $2,575 gold where it should command an NPV per share valuation in the range of CAD $38-$56 compared t $12.21. The market, however, seems either unwilling to believe that the USFS will deliver a final record of decision by the end of the year, or thinks gold is headed back below $2,000. In either scenario the current valuation of Perpetua would seem generous. But, understanding the antimony angle is key to appreciating that a final ROD WILL be issued, and, understanding what is unfolding on the geopolitical stage is key to recognizing that the real price of gold is heading higher, more so if the Putin Poodle in Chief and his Junkyard Dog (JD) Vance end up in charge of America's destiny and turn America into a pitiful theocracy.
With China shutting down exports of antimony, which, given the low value of this metal's annual output, is hardly going to cause pain for a hybrid state-corporation, there will be a panic scramble for this "obscure" metal used in fire retardant applications, bullet casings, and as part of energy storage innovations that have not yet been commercialized. A market hopelessly addicted to metal price optics is now scrounging for juniors with an antimony angle. The promotion path is to focus on gold deposits with a potential antimony by-product credit, which is apparently where Russia's antimony supply came from before it invaded Ukraine. But that is only relevant for existing mines or advanced deposits like Stibnite. The antimony by-product does not change the economics anywhere near as much as the price of gold does, which is back above $2,500. What it does change is the government urgency about getting projects like Stibnite developed. The antimony supply problem is a reason to dismiss the risk a final ROD will not be issued for Stibnite, and to take seriously that the government may lend Perpetua the money needed to develop Stibnite while the majors keep their distance.
If you feel an urgent need to have exposure to "antimony" with the hope of making a lot of money at the same time, you need to pretend that antimony in an early stage gold project is important. In that case I recommend taking a close look at Endurance Gold Corp and its Reliance project in southwestern British Columbia. The system is high within the orogenic deposit model where antimony occurs. Endurance does not talk about antimony because it is still a gold exploration play whose upside resides in delivering gold intersections and showing that it has a multi-million ounce gold system that deserves to be developed. Endurance Gold is currently rated as Bottom-Fish Spec Value because it has not yet delivered that "critical mass" where the market believes that to make it bigger and better you just need to add money. In my view the geological context of Reliance is such that its ongoing drilling programs will deliver that tipping point. If it makes you feel better to own something with antimony involved, I suggest placing a bet on Endurance Gold which has fundamental discovery upside potential unaffected by the possibility that China may change its mind about using antimony supply as a tool to squeeze the Global West.
Antimony Supply Evolution Chart showing the Rise and Fall of Chinese Supply
Chart showing the share of Global 2022 GDP shares by key raw material sectors
Perpetua's Stibnite NPV at 40% cost escalation at different gold prices
Perpetua's Stibnite NPV/sh at 40% cost escalation at different gold prices
Jim (0:17:22): Solitario has indicated it will release the first assays from its Golden Crest project on Monday. What should we be looking for?
Solitario Resources Corp put out a brief news release on Thursday September 12, 2024 that it would be discussing the results of the first 3 holes on Monday afternoon at the Denver Gold Show. That got KRO members mumbling in the KaiserResearchOnline Slack forum along the lines of "why would CEO Chris Herald be promising that unless he was sitting on good results, and, if so, why has he not already released them?" I was curious myself and managed to get hold of Solitario's Chris Herald. Solitario started drilling mid July and is now on the sixth hole. The first 3 holes were drilled from one drill pad at the Downpour target. He confirmed my assessment that they cannot tell anything about the gold potential from the core visuals, and the gold does appear to be micron sized, a key explanation why early 20th century prospectors using pans as a prospecting tool overlooked the high grade values at surface. By the time assaying surface samples had become the norm the western part of the Black Hills area had sunk into perceived gold-less oblivion. Solitario's main goal is to log the geology and start understanding it because nothing is known about it in the third dimension in this area.
The company has been very cautious about revealing the big picture at the 33,000 acre project, publishing results with closeup maps that are difficult to locate within the general property map, but there have been enough fragments, which, when tied in with the locations in the USFS approved plan of operations document, have allowed me to guess with reasonable confidence where everything is located. The mashed up graphics included here have been presented in earlier KW episodes, but I repeat them to refresh everybody's memory. Solitario has also provided conceptual cartoons about what it thinks the geology is doing between the surface and the Precambrian basement that hosts the 65 million ounce high grade Homestake deposit (now depleted) in the eastern half of the Black Hills, but this first round of drilling will focus on revealing what the formations actually are compared to surrounding areas and how thick they are.
As of Thursday Solitario had assays for 2 holes and had not published yet because it was awaiting the third hole which they expected Friday. Chris suggested there may be a press release out Monday before the open, so the market will already know the gold results before the webcast at the Denver Gold Show after the market close. In a sense it reminds me of Quinton Hennigh's gutsy live broadcast of his Novo night crew jackhammering the Pilbara conglomerate in search of a gold nugget. But this is the opposite end of the gold content spectrum: nugget versus assayed gold. It is highly unlikely the gold intersections are crap, but the question will be how wide at what grade. Furthermore, they will have drilled angle holes under the surface showing trends, but because the have no idea about the angle of the structural controls, they could easily have undershot them. It is highly unlikely that these first holes were sniper kill shots, though maybe that changed over the weekend when the third hole assays arrived. The key thing is that you just cannot tell whether the core in the box will run anything. This is a cerebral geology drama coming up.
They are looking for structural controls and lithological changes, the first to figure out the gateways along which the mineralizing fluids are traveling (they cannot identify them through surface work, just infer them from sampling trends, which reveals nothing about the angle of any structure that has delivered high values at surface), and the second because a tighter formation higher up could cause the fluids to bleed sideways into the more porous horizon to form what Chris calls "replacement" horizons (yes this does sound like Carlin type deposits). This is a game of mapping the characteristics of each sedimentary horizon and trying to nail the structures cutting through the stratigraphy.
Chris Herald would not say anything about what the geology has taught them, but did concede that a key focus on Monday during the Denver webcast will be to discuss what they have learned. While there is a chance they got lucky with the initial 3 holes, a more realistic expectation is that they learned a lot about the geology, and everybody with some understanding of geology will be watching closely on Monday. This is a classic treasure hunt where exploration drilling incrementally reveals clues about where the treasure chest might be buried.
After drilling the first 3 holes at Downpour they have been drilling other targets, including one 500 m north of Downpour, probably trying to get close to the Wild Rose target, most which appears to be within the still pending second plan of operations application. There seems to be a mineralized northeast trend between Downpour and Wildrose so they were likely hunting for confirmation of a structural control. They drilled another target he wouldn't identify and are now drilling what he called a "riskier" target, which would be Mirage which is risky because gold at surface is very weak but arsenic is elevated, and they have an IP anomaly close to the projected Precambrian basement where the Deadwood formation that hosts the Wharf system is located. The IP anomaly's suggestion that sulphides are present could turn the Mirage into the opposite of a Mirage. Note that for now they are not probing for Homestake style iron formation gold deposits in the Precambrian basement that would be 1.7 billion years old. The gold mineralization at surface is evidence of a much younger mineralizing event similar to the 65 million year age of the Wharf system in the Deadwood formation. All the stratigraphy is of a Paleozoic age (541-252 million years ago), and the upper horizons at Golden Crest are missing to the northeast in the Wharf area, but would have been traversed by similar aged mineralized fluids. The fact that they find such high grade values at surface makes everybody curious about what sort of gold "sponges" were present within the sedimentary layer cake sitting on top of the basement rocks.
The exploration strategy is to hit as many different targets as possible to secure geological information and a sense of how gold behaves within the different rock types. Golden Crest is a target rich environment and they are just getting started. It would be nice if they got lucky in one of the initial holes, but we are in a nasty "lottery ticket draw" style market that treats results as all or nothing, which is evident in last week's negative response to John Keating's initial update for the drilling done by PJX Resources Inc at Dewdney Trunk. The Dewdney Trail SEDEX target will have a distinct sedimentary horizon where Sullivan 2 is located, and will visually reveal itself in core when intersected. It is possible that PJX can do some serious damage to the Sullivan 2 hypothesis if it is able to drill sufficiently well-placed holes before winter shrouds the mountain slope. But in the case of Solitario the current drill program cannot kill Golden Crest and discourage a fresh round of drilling next April. Plus the company has $10 million working capital and will not have to go begging for a dilutionary financing to continue work if the market yawns at "encouraging" geology or a bigger picture catastrophe frightens away risk capital.
These are 2 different styles of discovery exploration plays. Once PJX tags into the mineralized SEDEX horizons the visuals in the core box will tell management (and the drillers, the rumor vectors) what is happening as delineation unfolds, and Dewdney Trail will turn into an old-fashioned rumor soaked discovery play. Once Solitario hits a well mineralized horizon, only the company geologists will have an inkling about what to expect from assays based on core logging, and because it is only an inkling that assays can demolish, it will be assays that drive the story. The Golden Crest play will gain a massive audience if the company communicates that it is gaining an understanding of the geology, and the market concludes that its vectoring of followup drill holes has a high probability of good assay results. That is why the geology part of the Monday Denver Gold Show webcast is so important.
Mashup showing Plan of Operations and location of Downpour target
Conceptual Section showing Downpour Target (Platform A) and Mirage Target (Platform B)
Regional View showing 1st POO with location of Mirage target and scaled 2nd POO targets
Conceptual Section of Mirage target based on Wharf system in Deadwood Formation
Disclosure: JK owns shares of Solitario, Nevada Organic Phosphate, PJX and Endurance Gold; Solitario and PJX are Fair Spec value rated Favorites; Nevada Organic, Silver North and Perpetua Gold are Bottom-Fish rated
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 September 6, 2024: From Corvette to JackieChoo to KapiKisk?
Jim (0:00:00): Why did Patriot Battery Metals rename its Corvette lithium project to Shaakichiuwaanaan?
Patriot Battery Metals Corp changed the name of its Corvette lithium project in Quebec to "Shaakichiuwaanaan" on July 31 ahead of releasing a PEA on August 21, 2024. Its phonetic pronunciation is as follows: SHAA-GI-CHI-WAA-NAAN which is not quite what you would come up with applying English pronunciation to the syllables as spelled. The 5 syllables are gibberish to me; I stall at about 3 syllables and end up with a JackieChoo. In Cree, however, the parts break down into meaningful words. Shaakichiuwaanaan means climbing a hill or a mountain and refers to three hills in the vicinity of the project. If they renamed it "A BigHilltoClimb" I would remember it in a heartbeat. But unlike management and employees of PMET I am not being paid to spend time memorizing it so for me it will remain the Corvette or perhaps the JackieChoo project. I do understand the purpose behind renaming the project in the Cree language. With the publication of the PEA, which envisions a two stage open pit and underground mining operation, the project shifts into the permitting and feasibility study stage. PMET believes it can have the feasibility study done by September 2025. The speed with which Canada's regulatory system issues a mining permit does depend on the extent local stakeholders, in particular First Nations, support development. The name change shows respect for the Eeyou Itchee Cree people.
However, the PEA suggests a better name might be "kâ-pîkiskwęcik ękosi" (Ka Pee Kisk Wechick Ecozy) which according to the online translation service Rephrasely means "Dead in the Water". The stock has now sunk below $4 even though at an 8% discount rate the project has an after-tax NPV of USD $2.23 billion or at a 0.76 exchange rate and 143 million fully diluted a value of CAD $20.50 per share. The IRR which is not affected by the discount rate came in at 34%. Initial CapEx came in at USD $578 million and the expansion CapEx to allow underground mining of the high grade Nova Zone (200-500 m depth) to begin in the third year came in at USD $383 million for a total of USD $961 million. This number assumes the project will not be eligible for a USD $165 million investment tax credit. But the base case economic outcome clears key development hurdles such as NPV matching or exceeding CapEx and the IRR matching or exceeding 15%.
The stock is sinking because the base case price of $1,500 per tonne 6% spodumene concentrate is nearly double the current spot price which has sunk to $785 per tonne after nearly touching $6,000 per tonne in 2022, a level that was never sustainable in the long run. PMET included an NPV sensitivity bar chart in its PEA release which shows that at $800 per tonne Corvette has a negative NPV of USD $165 million. That is why Ka Pee Kisk Wechick Ecozy or Dead in the Water may be a more appropriate name (see Rephrasely).
The company chose $1,500 as its base case price because that is what is needed to make energy transition goals that include EV adoption rates by 2030 a reality. The PEA news release included a chart which shows that JackieChoo is the 8th largest pegmatite deposit in the world in terms of grade and tonnage. However, at the current spodumene concentrate spot price only Greenbushes is operating in the money, and barely so. If you accept the current spot price as the long term reality there will be no future pegmatite lithium-sourced supply. What reasons might one have to believe that the current lithium spot price is the new long term reality?
One reason is optimism that research into Direct Lithium Extraction applied to oilfield brines by the likes of Exxon will achieve a breakthrough that allows the NZE projected requirements of 5-10 times current lithium supply to be mobilized profitably and quickly at the current price. The car makers would love that because they are becoming aware of the hideous development timelines for hardrock deposits in secure jurisdictions such as Canada and the United States (forget Europe, eternity does not qualify as a timeline).
Another reason is that apart from China the EV revolution that accelerated in 2021 has stalled. The western car sector is folding its EV hand in the face of cheap Chinese EV supply potential where the price makes those cars "good enough" for the mass market because the western car makers' product is just not good enough for the masses at their price. Toyota made the right choice in sitting out the EV revolution while both expanding its hybrid models and doing leapfrog R&D on a solid state lithium ion battery which will be good enough for western mass markets in terms of range, charging time and safety. Global West nations are erecting tariffs to block Chinese imports, but the outcome will be that the car makers go back to producing ICE cars. Even Volvo has ditched its goal to produce only EVs by 2030. In this line of reasoning the EV sector is dead in the water. Ideally they all join Toyota back at the R&D drawing board.
Yet another reason is the prospect pushed by Chinese battery maker CATL that the lithium ion battery will be replaced by a battery that does not require lithium, such as the sodium based one it is developing. This would be a technology disruptor that crashes the lithium price and turns all lithium mines into writeoffs.
And then there is the possibility that Trump becomes the president in 2025 and not only pulls the plug on all energy transition goals but goes the extra mile to create obstacles to the adoption of clean energy technologies and measures. However, capitulation could happen regardless of the election outcome. All we need is to witness climate change worsening every year, to the extent that chasing energy transition goals ends up being seen as hopeless in making a difference, so why bother? China would keep expanding its EV fleet because its oil import dependency is a strategic vulnerability. But the rest of the world might just settle into an End Times mentality where praying for divine intervention does not cost anything, and which nobody can refute as worthless because there is always tomorrow.
There is also the potential for the geopolitical conflict between Global West and East to turn hot, where globalized trade collapses because autocracies like China and Russia succeed in annexing their backyards, Taiwan and Ukraine for starters, and the Global West led by the United States chooses not to acquiesce. When the great power game gets seriously underway, perhaps not just Global West versus East but MAGAmerica against everybody, climate change and energy transition goals will become the least of everybody's worries.
These are not necessary outcomes. It is possible that Trump, Putin and Xi disappear into the sunset, taking their power goals with them and letting the world get back to the goal enjoying life and creating prosperity. It is possible that Toyota commercializes a solid state lithium ion battery that gives the ordinary consumer a 1,200 km range on a 10 minute charge at the cost of a Corolla or Camry much sooner than 2030. The lithium ion battery thanks to physics is the best battery solution so that would kill off cheaper but inferior new technologies. It is possible that DLE of oilfield brines ends up with a high unit cost and never scales to feed the 5-10 fold supply expansion needed to make mass adoption of LiB based EVs a reality during the 2030s.
The lithium space is in an air pocket that could change dramatically on the upside in 2025. The market has a hard time grasping the idea that the spot price in the case of lithium does not matter. That is no surprise because the world has never seen demand for a metal expand so quickly thanks to a new technology backed by existential necessity.
At last year's average $16.89/lb LCE price the global lithium output of 185,600 tonnes lithium metal equivalent was worth $37 billion. If we assume $10/lb as the long term reality that value would be $20 billion, 3 times the value of 2023 uranium supply. If pegmatite is supposed to provide the bulk of the future lithium supply we need a future price of $10/lb as a minimum, which is roughly indicated by the spodumene concentrate base case price used by PMET. However, if the EV revolution is back on track in a couple years, that means that in a half dozen years the annual market for this element would be worth $100-$200 billion. This has never happened in history. It was the premise for Lithium Mania 1.0 (2015-2018) and Lithium Mania 2.0 (2021-2023). The human brain does not want to compute such radical change, especially in view of the negatives hanging over the market about the future of energy transition goals. The next four months are going to be rough for PMET and the lithium juniors, but it is reasonable to expect Lithium Mania 3.0 to emerge from the latest lithium winter by 2026. Meanwhile lithium juniors will suffer from the poor lithium spot price optics and the lost momentum of the EV growth trajectory.
Updated Resource Estimate for the CV5 and CV13 OP and UG Resources
PEA NPV at various discount rates and key factor NPV sensitivity at 8%
Open and Underground Mining Schedule for JackieChoo
PEA CapEx and OpEx for JackieChoo
Why Dead in the Water is a better name than Shaakichiuwaanaan
Chart showing that JackieChoo is the 8th largest pegmatite deposit in the world
Lithium Winter Price Charts for spot lithium carbonate, spodumene con (6%) and hydroxide
Unprecedented metal supply evolution chart for lithium with 5-10 times more needed for LiB based EV Revolution
Jim (0:18:41): What is the latest development for PJX Resources and its Sullivan Two Hunt?
The sad news is that on Tuesday, Bob Termuende, a keen Sullivan 2 Hunter, passed away at the age of 94. He and his son Tim were founders of Eagle Plains Resources Ltd in 1999 as a prospect generator that survives today without a rollback and with multiple spinouts to its credit. Eagle Plains published an obituary on September 4, 2024. I talked to Bob last week and asked him if he had heard any gossip from his ex-Cominco pals about how drilling was going for PJX Resources Inc at its Dewdney Trail project in southeastern British Columbia. CEO John Keating had announced on July 8 that PJX had finally received an expanded drill permit but there had been no news since then and in a case of high expectations no news is not good news, especially with a project in the backyard of Cranbrook where everybody dreams about a Sullivan 2 discovery.
The original 161 million tonne Sullivan deposit discovered in 1896 had run out of ore in 2001 and is now a reclaimed mine with a museum that I visited last year. But because this sort of deposit occurs in clusters for over a century prospectors and juniors have explored for Sullivan 2 in southeastern BC wherever Lower to Middle Aldridge stratigraphy outcropped. But only zinc-lead silver veins and vent puddles were found. PJX got the community buzzing last October when it announced its prospectors had found massive sulphide boulders with high zinc-lead grades and the fragmental textures characteristic of a SEDEX system, one whose sulphides were exhaled through a vent onto the sea floor. The boulders were in the talus at the base of a mountain slope whose lower face consisted of a igneous rock called syenite that had intruded about 160 million years ago; the upper half of the mountain consisted of 1.5 billion year old Middle Aldridge sedimentary stratigraphy that dipped 40 degrees to the east.
The community was stunned because the boulders meant somewhere up the mountain was a horizon of bedded seafloor mineralization similar to that of the Sullivan deposit. How could that be? Every Lower to Middle Aldridge outcrop has been prospected for SEDEX style mineralization in this part of the world. If Sullivan 2 outcropped it would have been found. All that had been found were discordant veins such as the former nearly Estrella Mine which crosscut the stratigraphy. The Hunt for Sullivan 2 had become one of drilling geochemically blind geophysical targets such as Eagle Plains attempted last year at its Vulcan project, DLP attempted at DD in 2021, PJX attempted at Vine in 2019, and Highway 50 tried at Monroe in 2018. It turned out that at Dewdney Trail the syenite was a dyke that intruded perpendicular to the stratigraphy, shielding it from prospectors like a curtain. The boulders must have popped out from small erosional windows in this curtain. PJX planned to drill from above to find where within the shrouded Aldridge layer cake the mineralized horizon was located.
Bob had not heard anything so during the weekend he drove out to the valley at the base of the mountain and used his telescope to search for drill rigs. He posted a distant photo to our Slack forum with the locations circled. Yes drilling was underway. A few days later he passed away, leaving it to the rest of us to dream about Sullivan 2.
On Thursday September 5, 2024 PJX published an update indicating that the first 2 holes had been duds but the third one had intersected 20 m of true width sulphide mineralization, mostly pyrrhotite with trace chalcopyrite and sphalerite. The stock sold off, trading 1.3 million shares to a low of $0.15. The sniper shot, instead of hitting an elephant, had slammed into elephant dung.
According to John Keating of PJX the drill pad was built above the peripheral outcrop which they found last year to the north of the talus pile. The mineralization had decent zinc-lead grades but was not magnetic like the talus boulders, and thus not a lateral extension of a Sullivan 2. It turned out physically impossible to build the drill pad directly upslope the talus field. The stratigraphy dips 40 degrees to the east and they are drilling 55 degree angle holes (I've shown an arrow indicating the direction of the dip but you have to imagine it as dipping into the mountain, not pointing to the sky). The first two holes aimed at the outcrop did not deliver similar mineralization, but the third hole aimed more toward the slope above the talus did hit fragmental sulphides indicative of a vent at the end of the 275 m hole. The sulphide is mainly pyrrhotite and pyrite which dominates in the lower part of the vent at Sullivan.
The news release was issued because PJX was concerned that the locals would find out about the intersection, and, because the locals are watching for clues that PJX is vectoring in on Sullivan 2, they would have unfair "selective" knowledge. As it turns out the news release backfired because it was treated with dismay by shareholders hoping for a sniper kill shot. What PJX does not yet know is the geometry of the system; they are going to drill another hole from this pad to triangulate where they are. The copper is evidence of the hotter vent environment. They know there is folding but not enough to know whether to go up or down to find the Zn-Pb massive sulphides that would have deposited above the phase that spewed the largely barren iron sulphides.
I have clipped a plan and section graphic of the Sullivan deposit from John Lydon's 2007 paper Geology and metallogeny of the Belt-Purcell Basin (you can download the pdf from this web page). Note the "iron core" in the plan view. The purple at the base of the deposit is pyrrhotite which is what PJX appears to have encountered. Although this is not yet ore, they are excited because they have evidence of a venting environment. They have not yet reached the most intense part of the magnetic anomaly. I think their hope with the first 2 holes was that the outcrop would be a distal part of the main system and once they intersected it they could simply track it back to the main horizon above the vent. No such luck, they will have to drill many more holes to sort out the 3D geology. Keating is thinking of adding a second rig. We now have 3 pieces of the Sullivan model and the game going forward is to watch for additional puzzle pieces such as the tourmalinite "pipe" beneath Sullivan which formed well before sulphides did and which is believed to have served as a key gateway for the later sulphide rich fluids.
In terms of the negative market reaction it reflects dashed hopes of instant gratification and makes stronger the nagging fear that Dewdney Trail may also just be a vent puddle like FORS. There is also the flow-through liquidation problem. I have heard that at least one of the three funds that bought 60% of the $0.10 FT unit financing is gone. The way these funds work is that the FT portfolio gets rolled over into a mutual fund in which the investors hold units that they can redeem for cash once the 4 month hold period is over. Flow-through really only works as a tax deferral mechanism because the cost base becomes zero and any money received from the sale is a capital gain. Q4 FT fund offerings are thus preferred because the capital gain consequences from liquidation four months later in the subsequent year do not have to be tallied until the second year. Given the bad resource junior market since mid 2023 there are probably lots of redemption requests which forces the fund manager to keep selling the portfolio contents.
These mutual funds are basically garbage cans not managed for upside gains, but only in terms of a quest for liquidity. PJX is probably an anomaly in these portfolios because at today's price it is still showing a profit from the financing price of $0.10. It is interesting what happens to the warrants. When an investor redeems a fund unit that investor gets cash based on the percentage of the fund's value that unit represents. If warrants are decently in the money they get exercised and the stock promptly sold. The $0.20 warrants are now not in the money and represent an extra 8 million shares overhang while redemptions continue. Once a unit is redeemed the investor loses any right to potential future profit from the warrants. It is thus conceivable that the sucker who holds out as a unit owner while everybody else redeems ends up with title to the entire pool of worthless warrants. But since these are 2 year warrants and PJX does have a story that could deliver a homerun before they expire, the holdout could get very lucky, though I'm not sure this has ever happened.
