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 Fri Nov 17, 2023
KW Excerpt: Kaiser Watch November 17, 2023: Brunswick Exploration Inc (BRW-V)
    Publisher: Kaiser Research Online
    Author: Copyright 2023 John A. Kaiser

Brunswick Exploration Inc (BRW-V: $0.980)

Kaiser Watch November 17, 2023: Is it a Peanut or a PMET?
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(0:00:00): What do you make of the Osisko group's plan to spin out its James Bay interests into a new company called Electric Element Mining Corp?

On November 15, 2023 Osisko Development Corp and O3 Mining Inc put out a joint news release about having spun out all their James Bay interests into a new company called Electric Elements Mining Corp. Both companies are ultimately controlled by Osisko Gold Royalties which controls about 40% of Osisko Development (ODV), and about 9% of Osisko Mining Inc which in turn owns about 25% of O3 Mining. Osisko Mining is now in a 50:50 joint venture with Goldfields to develop the Windfall gold deposit near Lebel-sur-Quevillon in southern Quebec. O3 Mining was created to own a collection of orogenic gold deposits near Val D'Or straddling the Larder Lake-Cadillac Break of which Marban is the flagship. O3 had only one James Bay project called Eleonore-Opinaca located to the west of the Eleonore project now owned by Newmont. O3 indicated this summer that it would put boots on the ground to assess the lithium potential, though it is not clear if it was able to do so in light of the forest fire closures. O3 will receive 2.4 million shares of EEMC for this property which seems to be a little rich compared to ODV's James Bay assets.

Osisko Development's flagship is the Barkerville gold project in British Columbia but at some point Osisko Gold Royalties transferred into it all the James Bay properties it acquired when it took over Andre Gaumond's Virginia Mines in 2015. ODV will receive 9,599,999 shares of EEMC for all these assets which includes the Plex and Anatacau projects optioned out 90% to Brunswick Exploration Inc into which have been bundled the 8 claims within the Mirage project though Brunswick would net only 75% of those claims. ODV has also done 100% farmout deals to ASX-listed companies like Loyal Lithium Ltd (Trieste) and Cygnus Metals Ltd (Auclair) which still have potential milestone payments. EEMC has also raised $4,108,702 through seed financing of 8,217,405 shares at $0.50 of which ODV insiders bought 1,400,000 shares. This leaves 20,217,404 EEMC shares issued which at the $0.50 financing price implies a valuation of about $10 million for the James Bay portfolio. The financing paper will be restricted for 4 months from whenever EEMC becomes a reporting issuer.

What the press release did not make clear is how and when EEMC will go public. One path would be a dividend in specie whereby ODV issues its block to its shareholders, who would receive 1 EEMC for every 9 ODV shares or similar ratio. That would leave Osisko Gold as the largest shareholder. If O3 did a similar distribution the ratio would be 30:1 or worse, hardly worth the bother. An alternative approach which allows O3 and ODV to maintain their stakes in EEMC would be to do an RTO with a shell, though that would involve more dilution. Yet another approach would be to do a merger with an existing James Bay junior with interesting or strategic properties.

An example that comes to mind is Harfang Exploration Inc in which Osisko Gold owned 6,928,572 shares as of November 9, 2021 when it ceased to be an insider, possibly because its stake dropped below 10%. Two months later the Harfang-LaSalle merger was announced and completed on Apr 19, 2022 with a 2.1554 rollback for Harfang which would have reduced the Osisko position to 3,214,517 shares. At some point Osisko Gold transferred the Harfang position to ODV. Andre Gaumond himself did not cease to be an insider of Harfang until July 2023 though he stepped away from Osisko much earlier. His last insider report showed him owning just over 1 million shares.

Gaumond was the founder of Virginia Gold which Goldcorp bought out for the Eleonore gold discovery that is now a mine, and he remained the head of the spinout Virginia Mines which held all the other James Bay projects that were mainly focused on gold targets in greenstone belts. These included parts of the Corvette property of Patriot Battery Metals Corp which now hosts a world class lithium deposit much more valuable than Eleonore which has been an overall disappointment and contributed to the perception that James Bay is a lame gold frontier. While with Osisko Gold he became a backer of Harfang for which he recruited Francois Goulet as CEO until he resigned in late 2021. Goulet, who worked for Gaumond during the Virginia years, has resurfaced as an exploration geologist working for Brunswick on the Mirage project. He once told me that back in the Virginia years when lithium was a pathetic $200 million annual market his boss sternly forbade him and fellow workers from collecting any samples from those bush and mosquito free ridges because "those were worthless pegmatites". Bob Wares partly snagged him because of his physical familiarity with the James Bay region and those outcrops which back then were the place to have lunch. Now those that turn out to be lithium enriched are the lunch.

Harfang has a decent James Bay portfolio of which the Serpent project has copper and lithium targets in the Mista area where a spodumene bearing outcrop was sampled this fall, with assays still pending. Harfang has initiated permitting for a winter drill program because the Mista copper target has a geophysical anomaly that needs to be tested whether or not the assays from the pegmatite outcrop justify drilling. The stock has come under inexplicable selling pressure since it published the outcrop news, trading 10.9 million shares since October 1, with Anonymous dumping 7.8 million while buying 3.1 million. The selling became ruthless during XPLOR week and CEO Ian Campbell has not been able to identify the seller and all the Quebec funds that he knows are long all seem mystified by the selling.

My own suspicion was that ODV was dumping its Harfang position though Ian thinks that is not the case. The likelier culprit is Monarch Mining Corp which bought $1.5 million at $0.55 (2,727,272 shares) when the Harfang-LaSalle merger closed in April 2022. Monarch's efforts to mine the Beaufor deposit have turned into a financial disaster and on November 3 one of its creditors moved to secure its $10 million loan. Monarch management will likely have known this was coming and would have accelerated selling Harfang during XPLOR week in order to make payroll. On November 14 Monarch filed for bankruptcy protection. What seemed like senseless and malicious selling, if done by Monarch, was a function of desperation and Monarch is now gone as a shareholder. The reason Anonymous has sold far more than Monarch had to sell would be because it was likely traders on the Anonymous buy side who are grinding out their positions for penny profits. Harfang has about $6 million working capital and about 61 million issued shares which translates into a cash breakup value of $0.10 with less than $3 million value implied for its James Bay portfolio. A merger with EEMC would thus be a good fit, though it would probably involve a rollback for Harfang shareholders which nobody would be overly keen about.

The reason, at least for now, why Harfang shareholders would sneer at a merger with EEMC is that the Osisko James Bay spinout news release offers no specific information about the resulting James Bay portfolio. ODV's web site section featuring its James Bay assets has not been updated for more than a year and still reflects what it looked like before Brunswick optioned Plex and Anatacau in November a year ago. The ODV James Bay map isn't even large enough to show the claims it has near Brunswick's Mirage and Winsome's Adina projects. This makes it hard to assess the lithium value potential of EEMC's James Bay portfolio, but we may soon see a very small component of it become quite valuable, namely those 8 small inlier claims that straddle part of the pegmatite corridor at Mirage.

When this KW episode was recorded I was merely hopeful that Brunswick's prediction that its $5 million financing announced October 30 would close on November 17 would be confirmed Monday November 20. But on Friday at 5 minutes before midnight Toronto time a short news release popped up on Stockwatch confirming that it had indeed closed and been boosted to $5.7 million. It stated that the proceeds will be used for phase 2 drilling at Mirage (currently 2 drills turning) and to test advanced targets in Q1 of 2024 starting with the Arwen spodumene bearning outcrop on the Elrond project whose critical mineral potential has been optioned 85% from Midland Exploration Inc. The exemption used requires a four month hold. Next week CEO Killian Charles will be presenting at a conference in London and it might be convenient to use a newer presentation than the lame one on its web site from early October when Brunswick last provided a meaningful update about Mirage. Shareholders expected an update ahead of XPLOR and were disappointed to be given a 3 week blackout while the private placement closed and the company did one on one presentations at various conferences. Given the eleventh hour publishing of the financing news release on Friday, it is reasonable to expect a major update on Monday that shows us whether Mirage is a Peanut or a PMET.

Where did I get that expression from? Last week one of my Quebec contacts who seems to know one of the Mirage geologists called me up to tell me a geologist had told him Mirage is a Peanut. He was confused by my unhappy response so he repeated himself: Mirage is a PMET. He owns a lot more Brunswick than he should, so I hope he wasn't hearing what he wanted to hear, just as I was hearing what I had begun to fear.

2022 Osisko Development Map of James Bay Holdings

Is pre-bankrupt Monarch the source of recent Harfang selling?

Harfang closeup map of Ameliane Li outcrop and Mista Cu targets

Harfang Map showing K/Rb ratio progression away from batholith and location of Brunsiwck's Arwen outcrop at Elrond

Photo of Harfang's Spodumene Outcrop at Serpent

Maps for Brunswick's Mirage project and surrounding area

Implied Project Value Chart for Brunswick's Mirage project

*JK owns shares in Brunswick Exploration Inc


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