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Kaiser Watch is a weekly 15-30 minute 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 in the form of a USD $450 Annual Individual Membership that at some point will increase substantially to reflect KRO's shift to a research platform. However, when the change happens active members will be grandfathered to renew indefinitely at the current rate provided they maintain a continuous paid membership. 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.
The James Bay Lithium Index had a downward bias this past week until the last couple days when it perked up, though it is still down 6.2% from its initiation date August 1, 2023. During the past week I found four more ASX listed juniors with exposure to the James Bay region and have added them as members, bringing the total to 62 members of which 50 are Canadian listed and 12 are ASX listed juniors. One recent new ASX listing had the chutzpah to name itself James Bay Minerals Ltd! I've included a list below. If anybody is aware of Canadian or Australian companies missing from the list, please send me an email at [email protected].
The price of lithium carbonate weakened slightly but the second plunge following the May rebound seems to be slowing, though with regard to the James Bay Great Canadian Area Play where the goal is large deposits of 1% Li2O or higher we should not worry about lithium carbonate price fluctuations so long as it does not drop below $5/lb such as what ushered in the lithium winter for Australian lithium pegmatite plays in 2018-2020. Even at $5/lb the rock value of 1% Li2O is $273 per tonne, equivalent to 4 g/t gold and 3% copper at current gold and copper prices. The goal in the James Bay region is to find 50 million tonne plus deposits grading 1% Li2O or higher, of which two world class deposits have already been delineated, Allkem's Galaxy-Cyr within its James Bay project and Patriot Battery Metals' CV5 within its Corvette project. If you are having trouble convincing others about the merits of the lithium boom, show them my Lithium Rock Value Matrix and ask them where any junior is going to find a large open-pittable gold deposit grading 4-8 g/t gold.
The price of gold, which seems determined to keep $2,000 as its ceiling, continues to torture resource junior investors who are gold bugs and spend most of their energy wailing about how the price of gold needs to be a lot higher. We don't need a higher lithium price because the story is all about the extraordinary demand growth that lithium is undergoing as a result of the energy transition and the fact that the car sector is shifting its production lines away from ICE to EV cars regardless of energy transition policies. Russia and Saudi Arabia, in their effort to get Trump elected in 2024, are helping out by curtailing oil supply so that ICE car drivers pay through the nose for gasoline.
If lithium ion batteries continue to power the EV sector, the world will need a six-fold supply expansion by 2030, 12-fold by 2035 if Toyota's boast of a solid state lithium ion battery which uses lithium metal in the anode instead of graphite becomes commercial reality. (Fans of FPX Nickel Corp should check out this Electrek September 14, 2023 article by Peter Johnson which confirms that the cathode of Toyota's solid state battery will need lots of nickel.) Quebec's James Bay region may rival Western Australia in terms of LCT-type pegmatite endowment. And that is a good thing, because Australia can't do this on its own, which is why Australian investors and companies are swarming into Canada's James Bay region, for they understand that the Lithium Mania 1.0 that profited them handsomely is about to repeat as Lithium Mania 2.0. To appreciate why Canadians are generally asleep at the switch I recommend viewing the MIF Vancouver May 2023 Panel Discussion. But as I tried to emphasize last week, there is no shame in waking up today, because only a few boats have put out to sea, and most are still idling at the dock or puttering in the harbor. There is so much latent opportunity!
Uranium is starting to create some joy for uranium bugs; its spot price at $66.25/lb U3O8 is now at the highest level since 2011. The Russia backed coup in Niger, which supplies 4.1% of the world's uranium, seems to be the tipping point, though apparently, according to a Financial Times LEX blurb, Russia has figured out how to constrain Kazakhstan's ability to supply the world from its seemingly unlimited in situ leachable deposits. But at the $49.70/lb average price for 2022 the value of 2022 production was only $6.3 billion compared to $49.2 billion for 2022 lithium supply at the average $32.26/lb price. Very little U3O8 or lithium carbonate gets sold at their spot price because producers deliver into long term contracts. But when you compare the supply evolution charts for uranium and lithium, and realize that consumer demand is driving lithium demand while regulatory red tape stymies the growth of nuclear power capacity and accompanying uranium demand, the real game is all about finding LCT-type pegmatites big and rich to be put into fast-track production. I urge investors to consider, what if the passion that invigorates the uranium juniors discovers the Canadian pegmatite lithium sector? There is one James Lithium Index member which has its feet in both the uranium and lithium worlds, some of the latter in the James Bay region joint ventured with an ASX listed company. It trades at $0.02-$0.03 and has 342 million fully diluted which will shrink if management has the fortitude to resist the plea of warrant holders to extend their free lunch another couple years. (Yeah, there is a reason why $450 for a KRO membership might be worth the money.) For uranium bugs this junior is a free lithium lunch.
The big story this week was the European Union decision to initiate a probe into whether or not Chinese EV makers benefit from unfair state subsidies. European makers of solar panels are now going bankrupt after a 2018 decision to remove tariffs from imported Chinese solar panels in order to drive the cost down and encourage installation of solar polar as part of the energy transition agenda. Europe's car industry, however, is much more important to Europe's economy than solar panel makers. While China heavily subsidized its EV sector so that it can escape its oil import dependency, the Europeans, operating in the world of laissez faire capitalism, have been much slower to develop their EV divisions. No European in their right mind would ever want to buy an imported low quality Chinese ICE car, but in adapting to the brand new EV technology the Chinese car makers like BYD underwent a quality revolution. These Chinese cars are good and well suited for Europe's small spaces, not so much for America's wide open spaces.
Xi Jinping's mishandling of the covid pandemic as a demonstration of autocracy's superiority over democracy along with other oppressive measures have pushed Chinese consumers into a funk. The result is EV over-capacity and, of course, China wants to sell the surplus to the rest of the world. If the Europeans impose heavy tariffs to offset Chinese subsidies to its industry, which include environmental rules that are not enforced so that powerless downstream victims eat the cost for the greater good of China, something not possible in the Global West, they may discover a new problem, which is that although China is not a major lithium producer, it is the dominant processor of lithium concentrates and producer of lithium ion battery precursor chemicals. Supply chain ignorance (indifference as in the geopolitically blind mantra of globalized free trade supposedly dominated by shareholder serving corporations?) is the fatal flaw of the Global West. Trump sounded the alarm during his administration, and Biden, acting on behalf of America, took the torch and has run with it to foster the KAG goal of Keeping American Great. This, however, is a problem for Europe, for IRA is designed to serve American interests, not those of Europe, and it has lots of subsidies available to American companies and friends of America.
This is where Canada should end up playing a critical role, not just as a producer of lithium concentrates from the James Bay region and perhaps other parts of Canada, but as a downstream processor of lithium concentrates and perhaps even battery plants. And also with regard to lots of other useful metals such as niobium, nickel, rare earths and copper to name the more familiar ones. Canada's environmental rules are second to none, and enforcement is not a farce like in China. When a mine is going to be profitable after complying with Canada's permitting system, nothing should stop it from happening.
This is Canada's opportunity to shine. Now is the time for Prime Minister Justin Trudeau to stop cruising in social justice cul de sacs and start making it clear that local stakeholders such as First Nations and foolish young people who don't understand geopolitics and where physical things they take for granted come from will not prevent Canada from becoming a critical minerals powerhouse for the Global West, and in doing so provide an economic foundation that sustains what it means to be a Canadian. It is time for Canada to cease being the perpetual also ran. And one way to do so is to abandon the aspiration to ethical purity, and accept that, when a decision to "make it so" is made, there will be losers and acknowledge such. No decision that is good comes without some degree of shame, for the core principles humanity takes for granted are an inconsistent set, something Nietzsche made a lot of hay out of, and which underpins his definition of tragedy. The path to redemption beckons Justin Trudeau, but it requires him to become a tragic figure.
This weekend while reading reviews about the new movie "Dumb Money", it occurred to me that all these young people in 2021 buying a junk company like Gamestop, only to eventually get blown up either by Gamestop returning to fair value before they sold or recycling their profits into some other junk company that repeated the Gamestop cycle, could make a lot of money by getting their heads around the James Bay Great Canadian Area Play, most of whose junior participants are still very cheap. By swarming into the James Bay Great Canadian Area Play they would also help shape the future in terms that benefit them and their children.
This is not a fraud fantasy like cannabis or blockchain, frauds because cannabis production and supply has no competitive barriers and will become a low margin business, and because blockchain applied as crypto currency is a solution in search of a problem. Climate change is a pressing problem. Reliance on Global East titans China and Russia for key raw materials is a pressing problem. Young people are ill-equipped to solve most other of humanity's existential problems, but as a collective they are well equipped to deliver partial solutions to these two problems by backing resource juniors focused on lithium and other critical minerals. Let the not so dumb money discover the James Bay Lithium Index as a leveraged way to change the world.
September 15 is the start of the moose hunting season in the James Bay region which ends October 15. This is not when planeloads of camouflage dressed white people descend upon the region to bag their trophy whose meat will be donated to local homeless shelters. Moose hunting is for First Nations members only. In KW Episode September 1, 2023 I talked about how Q2 Metals Corp and Ophir Gold Corp were scrambling to get as much prospecting work done as possible on their respective Mia and Radis properties straddling the Yasinski greenstone belt where they have confirmed outcropping LCT-type pegmatites before the start of moose hunting season. Not everybody, however, is affected by this month long moose hunting closure.
September 15 to October 15 is open season in the James Bay region for members of First Nations to hunt moose. I don't know if there are any kill limits, but there are practical limits as to how many moose one can kill, dress, and store in freezer. None of this activity is characterized as "sportsmanship", the white person hunter-gatherer fantasy of the individual using his or her wits to stalk and bag a wild animal not necessary for the hunter's survival. I have heard stories about wonton slaughter for the sake bloodthirsty satisfaction, but that is third rail territory I prefer to avoid. My interest is in how resource juniors can work around moose hunting season, and I have heard from a number of juniors, unlike Q2 Metals and Ophir Gold, that their boots on the ground prospecting is not affected. It boils down to the location of your properties.
The biggest concern from First Nations is helicopter noise frightening the moose away. There are three ways to hunt moose: 1) drive along the roads until you see a moose and blast it, as that pair does in the Koneline segment I highlighted in the first segment of KW Episode September 1, 2023 (I do urge everybody to watch this Koneline clip so that, when you are stuck arguing with somebody braying about how wonderful indigenous rituals are, you can show them an example and ask what they think), 2) use boats on rivers and lakes to scan the shoreline for moose they can blast with high powered rifles, 3) set up a camp in accessible (aka near a road) "favorite" locations they know moose like to frequent and wait for them to show up so that they can blast them from the comfort of their camp. I am not very keen about stalking moose from a truck or boat, but I do sympathize with the camp strategy because 1) it reflects strategic prior observation and planning, 2) the waiting by the group creates an opportunity for reflection that makes this non-stalking form of the hunt rather spiritual, and, 3) you only kill what comes to you (which is probably not a lot of moose), and, when you are done, it is time to go home so your freezer is stocked with fresh frozen meat. The camping group, understandably is most worried about noise from helicopters passing over their camps and frightening away moose that might finally be approaching their hangout.
Companies that have historically worked in James Bay have established relationships with the communities in the vicinity of their properties and consult the locals about where they do not want helicopter traffic that might spook their quarry. It's not like there is a total ban on helicopter usage, but there is a standing request that helicopters choose routes that do not impact moose hunting. That means Sept 15-Oct 15 is bad news for properties that straddle roads like the Trans Taiga, Billy Diamond, and various spurs, as well as waterways accessible by boat. Through consultation juniors can figure out where First Nations do not want helicopter traffic and design alternative routes. Yes that will cost extra money, but that is a small price to pay to allow First Nations to execute a seasonal ritual without disruption, especially given the size of the prize if your boots land on ground that proves to be an LCT-type pegmatite with large and abundant spodumene crystals.
Although some James Bay juniors have to cool their heels over the next four weeks, others will be very busy with ongoing prospecting of their properties. One of these, whose CEO Ian Campbell claims that his company's properties fall outside areas First Nations have "reserved" for moose hunting, announced on September 13, 2023 that Harfang Exploration Inc had identified outcropping LCT-type pegmatite with a broad range of spodumene crystal sizes associated with a similar boulder field on its Serpent project. Ironically, Serpent was the focus of Harfang's exploration during the past few years based on a gold in till anomaly whose apron highlighted an area in the western part of the property. Drilling failed to yield a commercial scale explanation for the gold anomaly and in late 2021 CEO Francois Goulet chose to retire, which set the stage for a merger between Harfang and another junior with an adjacent property whose CEO Ian Campbell inherited Goulet's job. Goulet in turn went to work for Brunswick which had secured options on land once owned by Andre Gaumond's Virginia Mines and for whom Goulet worked as a junior geologist. Gaumond is the "godfather" of Harfang so it has been a somewhat difficult journey for somebody who was an exploration pioneer in the James Bay region seeking to establish its credibility as a source of precious and base metal mines, only to realize that those annoying pegmatites within the greenstone belts, whose outcropping mosquito and bush free ridges he strictly forbade junior geologists such as his protege Francois Goulet to waste time and money sampling, are in fact the world class foundation of the James Bay district.
Campbell was familiar with LCT type pegmatites because he had worked on the Big Whopper pegmatite the late Don Bubar's Avalon discovered in western Ontario in 1996. Once he got his head around the Lithium Mania 2.0 concept he used geology and lake bottom-sediment data to identify several other lithium prospects in the James Bay region he staked for Harfang. But the Serpent property had generated its own reports of pegmatites in the field, so when the forest fire closures ended he sent his boots to this ground first, and, lo and behold, the pegmatite dyke system is extensive, shoots via XRF as LCT type, and has large visible spodumene crystals. Just to make everybody feel stupid, the pegmatite system is located in the southeastern part of the property, far away from the Serpent gold target and the inlier claim owned by the Campbell company Harfang absorbed in 2022 in order to control the entire footprint of the gold system. It is too soon to determine what the average grade of the Serpent pegmatite system will be, or what sort of tonnage footprint it represents, but the market responded positively to it, sending the price from a $0.15-$0.16 range to as high as $0.23 before closing the week at $0.185 where Harfang's Serpent project has an implied value of only $12 million. Given that Harfang has $5 million working capital, multi-project exposure to James Bay, a top notch management team and backers, and now evidence of LCT type pegmatite outcrop on one its 100% owned projects, with boots heading to other projects in the next 6 weeks not impacted by the moose hunt restriction, why is the valuation so cheap?
In the case of Harfang it is possible that the selling is by grumpy gold bugs programmatically required to exit anything to do with climate change and energy transition policies. This sort of ideologically driven stock supply should be red meat for the Gamestop crowd; the enemy of the future is selling stock because the company may have a major lithium discovery in the James Bay region! Canadian companies, however, tend to have a different explanation for inexplicable selling activity, and that is the flow-through concept.
Canada has a system designed to encourage investment in exploration, where money spent by a junior can be written off against ordinary income by the investor who provided the money, often with a multiplier as is the case with Quebec, with the caveat that the cost base for the equity position becomes zero, so that whatever you sell the flow-thru stock at, all of it is subject to Canadian capital gains tax. Capital gains tax in Canada, however, has no long or short term distinction and has a favorable fixed rate rather than the progressively increasing rate applied to income. This allows all sorts of complicated strategies, though the expected outcome of them all is to postpone tax consequences into the future. This injects into the Canadian resource junior market a perverse investment dynamic that has little to do with fundamental outcome expectations. Harfang has done flow-through financings, so it is at risk of liquidation by shareholder who have neither knowledge about nor interest in Harfang's gold potential, let alone its relatively new lithium potential. Again, this is an opportunity for the Gamestop "Dumb Money", buying stock that the financial engineers are dumping as worthless.
Another James Bay junior whose boots are pounding the ground and which is not affected by local moose hunting restrictions is Dios Exploration Inc. The stock should be trending up but is in fact sagging as a result of large scale selling through "anonymous". Who with a large position could possibly be selling at this stage in the story timeline?
The answer is so banal that it is a huge signal to post a bid below $0.10 and pray that you get lucky with a fill. In December 2022 Dios did a flow-thru private placement at $0.20 with two parties. One of the placees was a Toronto based entity called Marqeust that took 4 million shares at $0.10. The other 2.5 million was taken by the Maple Leaf group. When investors buy into a flow-thru fund they get a writeoff of their investment which starts at 100% and expands based on the province's special provisions. What happens to the stock in the flow-thru fund?
The Maple Leaf fund apparently transfers the entire stock portfolio into a general resource sector fund in which the FT fund holders receive units or shares they can elect to redeem or sell if it is publicly listed. That fund gets managed on the fundamental outcome potential of the companies in its portfolio. Given the way James Bay is shaping up I doubt the Maple Leaf fund manager will be in any hurry to sell its 2.5 million DOS shares.
Marquest, on the other hand, does a distribution in October which requires the fund holders to elect by some deadline to receive cash or shares. If 100% elect for shares all the stock ends up in the hands of individuals who will make independent decisions about those positions which does not constitute a structural overhang. This year, perhaps because of 5% plus interest rates being offered after a decade of near zero interest rates, apparently 70% of the Marquest fund has requested a cash distribution. This means Marquest must sell 70% of each stock position by the distribution date. In the case of Dios that is 2.8 million shares of which I estimate since last week about 1 million have been sold, leaving just under 2 million shares Marquest must still liquidate.
When the distribution date happens the fund holders who elected cash get a pro rata share of the cash pot while those who elected stock get a pro rata share of the remaining 30% of the original stock positions the fund purchased. Once we see another 1.8 million shares come out, probably through anonymous, Marquest will be gone. So I think if anybody wants to get a position below $0.10 without reaching for offers now is the time to post an open order.
Apparently none of the Dios properties are impacted by moose hunting restrictions due to their location. We probably won't hear any field results from Dios until late October when all the data has been received and analyzed unless something really obvious and big shows up. But how long will Dios and other James Bay juniors be able to prospect their properties?
As if it wasn't enough to lose 3 months of prime prospecting season to fire closures, and then in some cases another month to moose hunting season, now meteorologists are warning of an early hard winter arriving in October that will prevent random snow dumps from melting away. Once snow blankets James Bay boots on the ground are useless. If this weather trend prediction is correct, those companies hoping to get another 6 weeks of prospecting done after October 15 will be out of luck. The primary objective of serious James Bay juniors is to have an LCT-type pegmatite target sufficiently delineated to justify a drill program in Q1 of 2024 when the James Bay region is buried under a blanket of snow. From a market upside perspective, the bets on James Bay Lithium Index juniors will be about who will be in a position to drill a meaningful target in Q1 of 2024?
How can the Gamestop "Dump Money" learn to navigate the junior resource sector without getting nailed by juniors that have become over-priced because they are wasting shareholder money paying various social media entities to pump the stock, ones whose valuation is linked to an asset unrelated to the James Bay lithium exposure, or one whose flagship James Bay lithium play is farmed out, leaving the junior with a minority net interest that usually offers limited speculative upside during the early exploration stages? The key is to understand the rational speculation model and read my implied project value charts (IPV Charts) which visually show how a project's valuation on a 100% basis relates to the fair value certainty ladder for the different stages of the exploration-development cycle. An excellent tutorial is available in the Mining Stock Education Interview Bill Powers did with me in 2020, in particular the 21-46 minute segment.
The IPV Charts I have included for Harfang and Dios show that the 100% owned James Bay lithium projects have an implied project value of only $12 million (fully diluted X stock price X net interest) compared to $185 million for Brunswick's 100% owned Mirage project which for the moment is Brunswick's flagship play. Within two years Mirage could command a $1.75 billion valuation if it turns out host a deposit similar to Patriot Battery Metal's CV5 deposit. The Harfang and Dios prices can increase ten times from the current levels just by demonstrating they have a similar lithium tiger by the tail, and Brunswick can increase another ten times by delivering a lithium tiger identical to or better than CV5.
List of Members of James Bay Lithium Index as of Sept 15, 2023
Regional James Bay Map showing locations of Harfang's projects
Map of Harfang's Serpent Project showing Spoumene Discovery Location
Photograph of Serpent pegmatite boulder field and spodumene crystals
IPV Chart for Harfang Exploration
IPV Chart for Dios Exploration
Jim (0:13:08): What is the best way to play Rio Tinto's exposure to the James Bay Great Canadian Area Play?
Among the world's major mining companies Rio Tinto is the only so far to take a serious interest in the lithium sector. More than a decade ago Rio Tinto discovered the Jadar lithium deposit in Serbia which is similar to claystone deposits except that the grade is comparable to the better LCT-pegmatites. No other deposit like it has yet been discovered, and Rio Tinto invested a fair amount of effort in developing a flowsheet for the jadarite mineral that hosts the lithium. The Jadar project, however, is now in limbo after Serbia revoked the license, ostensibly because mining would alter the bucolic nature of the valley that hosts that deposit. Rio Tinto is on record stating that the world will need 60 Jadar equivalent mines by 2035 if the EV contribution to net zero emission goals is to become reality. Jadar is equivalent to Allkem's Galaxy-Cyr deposit and Patriot Battery Metals' CV5 deposit. In its statement Rio Tinto underlined that its projection assumed a solid state lithium ion battery that uses lithium metal in the anode instead of graphite would never become commercial reality. We now know that Toyota claims it has solved the problem, and if it can continue to bring the manufacturing cost down to the level where it can offer its popular Camry and Corolla models as affordable quality cars with excellent range and very short charging times in 2030 and beyond, the world will need 120 Jadars by 2035. And unless there is a miraculous DLE breakthrough that crashes the production cost below $5/lb lithium carbonate, a substantial part of the future lithium supply will have to come from LCT-type pegmatites. And that means the future lithium market will be worth $200 billion annually, up ten times from $20 billion in 2022 (assuming lower long term contract prices than the spot average for lithium carbonate), which in turn is up a hundred times from the $200 million value of lithium supply in 2005.
Rio Tinto gets this concept, but it is also reluctant to buy out Australian success stories such as Liontown, or emerging success such as Patriot Battery Metals. Instead it has chosen to do farm-in deals with juniors that have strategic land positions in Quebec's James Bay. Rio Tinto did its first deal with Midland Exploration Inc in June which I blasted in KW Episode June 16, 2023 because Midland gave to Rio Tinto the first pass opportunity to harvest low hanging fruit on its properties. In July Rio Tinto did a similar deal with Azimut Exploration Inc which I described as superior in KW Episode July 14, 2023 because Azimut retained the option once Rio Tinto vests for 70% to elect to reduce to a 25% carried interest, whereas Midland will have to contribute 30% of costs once Rio Tinto vests. The Azimut deal did not annoy me because it included only two properties, Corvet and Kaanaayaa, both located south of PMET's Corvette trend. Jean-Marc Lulin has dressed them up with 99% percentile lithium lake bottom sediment colors, but by themselves these numbers don't mean much because we do not know from where the sediments were transported. Midland in contrast included 10 properties scattered throughout the James Bay district which Rio Tinto selected for their LCT type pegmatite potential, including the Komo project west of Allkem's Galaxy-Cyr and Galinee east of Winsome's Adina project.
Both Azimut and Midland have since become a lot more enthusiastic about the lithium potential of the James Bay district where they have explored for gold and base metal deposits for decades. Azimut has staked a collection of new claims it calls the JBL group northwest of the Eleonore gold mine which it plans to explore on a 100% basis. Midland has not disclosed staking any additional James Bay properties for lithium potential, but it is now taking a close look at the properties Rio Tinto did not option. I suspect we will eventually hear more about Midland's 100% owned properties. But the question is, what is the best indirect bet on Rio Tinto being successful in the James Bay lithium district?
The hands down winner is Midland for multiple reasons. First, I do not think Azimut's properties will deliver any joy for Rio Tinto, and I was of the view that Rio Tinto would drop them in 2024 after Azimut has spent $3 million on them. However, the 3 month fire closure has pushed most of that spending into 2024, so Azimut will get to talk about its Rio Tinto farmout until at least 2025. As operator Azimut will of course do a very detailed exploration program that should generate lots of information about the non-lithium potential which was the reason Azimut staked them more than five years ago. Rio Tinto, in contrast, is operator of the Midland portfolio, and for the very reason I was annoyed by the farmout deal, has incentive to take a very hard and fast look to see if there is any low hanging fruit that can be quickly harvested. I would not be surprised if Komo and Galinee end up with drill programs in 2024, though the other properties could also deliver surprises. Within a year I expect Rio Tinto to have turned one or more of the 10 properties into discoveries that become the focus for discovery delineation. Since it is unlikely Rio Tinto will stay at 50% if it has a potential Jadar on its hands, Midland will be carried for the first $64.5 million exploration required for Rio Tinto to vest for 70%. And 30% of a $2 billion prize would be worth $6.75 based on 88.8 million fully diluted.
The second reason Midland is the better choice is the cheaper implied project value its exposure to Rio Tinto represents. Azimut's grassroots properties farmed out to Rio Tinto have an implied project value of $300 million based on 85.6 million fully diluted, a $1.05 stock price and a net 30% interest. In contrast Midland's portfolio of Rio Tinto farmouts has an implied value of $180 million, just over half that of Azimut, thanks to its $0.56 stock price. The reason Azimut is more expensive is that the company its being priced on the basis of its 100% owned Elmer gold project on which it has spent $25 million since 2020 without delivering a resource estimate. Elmer has an implied project value of $90 million. The problem with Elmer is that unless Azimut can duplicate the zone with similar discoveries within its shear corridor, Elmer is worth zero, and a black hole for exploration capital. This week Azimut secured an $8 million flow-thru bought deal which has prompted Agnico-Eagle to exercise certain rights to increase its equity stake from 10.06% to 12%. Azimut does not disclose what the money will be spent on, but you can be sure much of it will go into Elmer. For Azimut to become an interesting James Bay lithium play it needs to spin out Elmer as a separate company. As long as Elmer muddies the valuation water because we do not know what it is worth, Azimut offers poor speculative value even for its 100% owned lithium projects which share the $90 million implied project value of Elmer.
The third reason Midland is the better choice is that its remaining 100% owned James Bay projects carry an implied value of $50 million, which admittedly is 4 times what the market is assigning to the 100% owned projects of Harfang and Dios, but just over half what Azimut commands. To achieve parity pricing with, for example, Brunswick's Mirage project, Midland would only increase 4 times in price if it found a similar outcropping LCT-type pegmatite system. The fourth reason is that Midland is a prospect-generator-farmout junior with an extensive portfolio in the Abitibi greenstone belt with a number of those gold projects farmed out. Plus it has base metal farmouts in northern Quebec to Rio Tinto. Any one of these projects could deliver a discovery that justifies an upwards repricing of Midland's stock. Midland doesn't have the explosive upside potential of Harfang and Dios, but it has downside protection from as a result of its business model.
Jim (0:23:07): Will the James Bay Lowlands become a major diamond play?
The James Bay Lowlands should not be confused with the James Bay Lithium District which is in Quebec east of James Bay whereas the James Bay Lowlands are west of James Bay in Ontario. This vast area which drains northern Ontario is a water-logged black fly and mosquito infested region whose only communities are populated by First Nations. The only commercial activity to emerge from this region was the Victor diamond mine developed by De Beers which recently decided to shut down operations in the face of relentless criticism from the Attawapiskat First Nations and outside NGOs (see the anti-mining film After the Last River). The Ontario Cree are different from the Quebec Cree because the James Bay region was developed to produce hydro power for Quebec and the Quebec Cree have benefited from both the infrastructure and economic opportunity in their backyard. Northern Ontario in contrast is an absolute shit hole with no productive economy, and zero chance of developing one except through mining such as the Victor Mine. It is home to First Nation communities who subsist on government welfare payments, complain that they deserve more, and block any effort to create a real economy through mining. NioBay Metals' James Bay niobium project is in limbo thanks to a power structure within the Moose Cree First Nation that gives the upper hand to the NoCanDo members of the community.
During past periods of global warming when sea levels rose the James Bay Lowlands were covered by water, as a result of which the older basement rocks are hidden beneath a limestone cover that itself has zero mineral potential. The area from Moosonee south to Kapuskasing is known as the Kapuskasing Structural Zone. The KSZ was active between 2-1 billion years ago during which various intrusive bodies such as carbonatites made their way to surface. NioBay's James Bay deposit is an example of a carbonatite sufficiently enriched with niobium to be economic at current niobium prices which are not going lower because CBMM controls the niobium supply from its giant Araxa deposit in Brazil. VR Resources Ltd in recent years has explored the Ranoke and Hecla-Kilmer intrusions, the first as a potential IOCG system, and the second now as a rare earth system. There have been waves of exploration starting in the 1960s by large companies, including Selco which tested magnetic anomalies in the hope that they represented kimberlites. No kimberlites were ever found, and none of the carbonatites yielded commercial quantities of metal except the James Bay niobium deposit which was never developed because of its remote location and the superior Niobec niobium deposit in southern Quebec.
In September 2022 VR Resources drilled a longshot hole into large 1.2 km wide magnetic low anomaly called Northway which was never tested because there was no obvious explanation for what sort of orebody it might represent. It turned out to be a diatreme breccia body that erupted during the Devonian period before the area was covered by limestone, much younger than the carbonatite intrusions. Its magnetic low signature turned out to be due to the earth's magnetic poles being reversed during that period. When a magma cools and magnetite crystals form they line up according to the earth's polarity, which in this case was the opposite of the polarity when the basement rocks crystallized. It doesn't mean there is less magnetic material in Northway-1 than the country rock, just that the polarity is reversed. Because Northway-1 had the textures of a kimberlite, and was associated with a different emplacement period than the nearby much smaller alnoites Selco drilled in the 1970s, VR, on the hypothesis that a blind kimberlite field was hidden under the James Bay Lowlands' limestone cover, went on to stake 19 additional magnetic low anomalies ranging 100 m to 500 m in width.
On September 12, 2023 VR Resources Ltd reported caustic fusion results for the 30 metre crater facies interval from the first hole. The market reacted strongly because the company reported that a diamond fragment had been recovered. The company did not disclose the size of the diamond fragment recovered by caustic fusion, but apparently it is tiny and caught by the smallest sieve size which is usually 0.1 mm. That means it could be from another micro diamond that might have been caught by a 0.4 mm sieve, and thus is not indicative of macro grade potential. In any case, if you want to project a macro diamond grade from micro diamond results, you need a size distribution curve and that was clearly not yielded by the first sample.
The important micro diamond results will come from holes #2 and #3 representing 430 m of core, most of it in fresh diatreme breccia which is the magma chilling in the vent rather than being blown out and falling back into the country rock excavated pit. Because the first hole was so heavily altered it did not furnish a lot of recognizable indicator minerals, but eclogite and websterite has been confirmed. This is not going to be a traditional kimberlite with a peridotitic diamond population associated with harzburgite (G10) and lherzolite (G9) like most of the Ekati-Diavik kimberlites.
If Northway-1 is going to be a commercial kimberlite it will be more like Victor, Orapa and Venetia which lack the pryope garnet suite. These tend to me located on craton margins, which makes sense because eclogite forms from subducted ocean plate basalt that somehow gets shoved deep enough to occupy the diamond stability field where diamond formation takes place. The caustic fusion results for the larger volume of kimberlite will arrive later this year.
If Northway-1 is like Victor, the micro diamond results will be disappointing, because the smaller end of the diamond size distribution spectrum was missing at Victor. Because the websterite chemistry did not fit De Beers' knowledge base, it almost discarded Victor and the entire Attawapiskat field. But a decision was made to collect a larger sample in which indications of macro grade potential showed up. Although the grade was only about 25 cpht, further bulk sampling revealed an exceptionally high quality diamond population and Victor became a mine.
If Northway-1 is similar, its large size and the 200 m of post emplacement cover rock will make establishing macro grade and carat value very expensive and time consuming. Large kimberlites have the additional problem of frequently having multiple eruptive phases with a wide range of diamond content including none. Unless the remaining hole results do deliver a micro diamond distribution curve that allows us to project grade, raising the money for further exploration will be a hard sell. The most important information to expect from the remaining holes is a larger suite of indicator minerals whose analysis will firm up the conclusion that the Northway-1 magma is kimberlitic, meaning that it had its origin in the mantle well below the diamond stability field where a tight combination of pressure and temperature allows diamonds to form. That is only half the story, for the other half is whether any older diamond populations survived the thermal upwelling that spawned the carbonatite intrusions, or younger populations formed when the lithosphere cooled again.
Mike Gunning believes the next sensible step is to secure permits for each of the other 19 magnetic low targets which range from 100-500 m in diameter, and drill each one to see if it does represent a kimberlite. This would not happen until Q1 of 2024 at the earliest, with results not arriving until late Q2. If a kimberlite cluster is present, any one of them could be a commercial diamond pipe. It is perhaps too much to ask that the biggest pipe, Northway-1, be the one with sufficient diamond grade and quality to become a mine. The violence of Northway-1's eruption will have excavated a much deeper portion of the country rock than the smaller kimberlites, so these smaller kimberlites may be closer to surface and thus cheaper to assess with sampling. If the width of the anomalies represents the width of the pipe, it is worth keeping in mind that a 500 m wide pipe could represent over 500 million tonnes.
VR has $1.7 million working capital, enough to fund a 3,000 m dril program of 3 deep holes at New Boston in Nevada where based on new IP data VRR thinks Conoco's past efforts were based on a misunderstanding of the porphyry system's center, guided in part by a 1970s interest in molybdenum (before China emerged as a major moly producer in the 1980s). VR has permits pending for 2 holes into the untested eastern side where it thinks copper grade developed, and 1 hole into the western side dominated by molybdenum. The purpose of these holes will be to confirm the new hypothesized geometry of the system, and, with luck, intersect ore grade copper, though realistically the expectation should be to allow vectoring of a followup program. Gunning thinks the drill permits will be received in 2-3 weeks. The location next to the highway at Luning would allow drilling to be done in October-November. If this drilling gets done, positive visuals would be in hand by year end, giving shareholders Cu-Mo assay hopes for Q1 of 2024, even as an upcoming test of the other Northway magnetic low targets gets underway. The problem for VR is that the New Boston program will cost about $1 million, leaving the treasury rather low. The junior hopes to attract a strategic equity investor for the New Boston drilling; both Rio Tinto and BHP are interested in copper, and while BHP has pulled out of diamonds, Rio Tinto still has 60% of Diavik and in-house experience. Further encouraging Northway results from the remaining holes just might entice one of these majors. A copper mine in this part of Nevada is not going to generate any NoCanDo indigenous objections as a diamondiferous kimberlite field in the James Bay Lowlands inevitably would.
Map showing relative locations of James Bay Lowlands and James Bay Lithium District
Map of VR's James Bay Lowlands claims
Plan and Section of Northway-1 Magnetic Anomaly
Geological Section for Northway-1
Disclosure: JK owns shares in Dios and Brunswick; Dios, Harfang, Midland and VR are bototm-fish spec value rated; Brunswick is Fair Spec Value rated; Azimut is unrated
Kaiser Watch is a weekly 15-30 minute 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 in the form of a USD $450 Annual Individual Membership that at some point will increase substantially to reflect KRO's shift to a research platform. However, when the change happens active members will be grandfathered to renew indefinitely at the current rate provided they maintain a continuous paid membership. 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 8, 2023: Albemarle gets serious about Liontown
Jim (0:00:00): What did you think about the FPX Nickel prefeasibility study?
FPX Nickel Corp released the results of its Decar prefeasibility study on September 6, 2023 and they were very good for a mining project with a mining rate of 108,000-162,000 tpd. After tax NPV at 8% came in at USD $2.01 billion with an IRR of 18.6% using $8.75/lb as a nickel base case price (LME nickel has been range bound this year at $9-$10/lb). AT NPV at 8% discount rate is slightly below CapEx of $2.182 billion but close enough to clear that hurdle. The IRR at 18.6% is good for such a large project. The resource, now classified as probable which is higher quality than required for a PFS, is roughly the same as the PEA estimate but the LOM grade has improved from 0.121% to 0.13% nickel (DTR as opposed to total nickel grade). The 36 year mine life has been shortened to 29 years by expanding the operating rate from 108,000 tpd to 162,000 tpd in year 11. The PFS assumes selling most nickel concentrate to the stainless steel market with a 95% payability of the LME nickel price for contained nickel, while the mixed hydroxide product (6.5% of recovered nickel) is sold at 87% payability, presumably to the battery market. No revenues were assigned to the magnetite by-product. The cobalt and copper content in the ferro-nickel concentrate is also not included because it is only recoverable by processing the ferro-nickel concentrate with the nickel sulphate refinery.
FPX Nickel has included a refinery option with a scale that would annually produce 40,000 tonnes of nickel contained in a nickel sulphate product suitable for the battery sector. FPX does not disclose what cobalt price it assumes when it reduces the refinery OpEx with the cobalt and copper credits. The 300 tonnes of copper are meaningless, but 700 tonnes of cobalt dropping out as a mixed hydroxide product could be meaningful to a car maker using a battery that still requires cobalt, especially if being able to certify where it came from is important. The refinery is presented as an extra $448 million CapEx for a separate facility located in an urban setting where the talent needed to run a chemical plant is readily available. If you look closely at the refinery option numbers you can see the project NPV increases only $117 million from $2,010 million to $2,127 million while total CapEx swells to $2.67 billion, undermining the development hurdle that NPV should match or exceed CapEx. Furthermore, if the nickel sulphate refinery is presented as a standalone operation for a third party, its AT NPV of $117 million is woefully below the $448 million CapEx the third party would have to spend. The refinery option detracts from the economic value of the basic Decar mine producing ferro-nickel concentrate for the stainless steel market, and doesn't make much economic sense to an independent battery maker or battery precursor chemical company purchasing FPX's ferro-nickel concentrate at the $8.75/lb base case price. The inclusion of this economically non-sensical refinery option, however, is very important.
For whatever reason FPX chose not to spell out the annual nickel output for the two phases, quoting just 59,000 tpa LOM average, but by running the equation "operating rate x 365 days x grade x 88.7% recovery" for the 2 sets of operating rates and grades I get 47,203 tpa nickel output for Y1-10 and 67,133 tpa for years 11-29. What this means is that if the refinery option were developed at the proposed scale, and that would only happen with a hard offtake agreement that guarantees the refinery operator an annual ferro-nickel feed that contains 40,000 tonnes of nickel, during the first decade of production only 7,000 tonnes of nickel would be available for the stainless steel market.
FPX Nickel could have chosen any scale for the refinery option, but to choose this particular 40,000 tpa scale would have required external guidance. When FPX Nickel announced a $12 million investment by a mystery strategic investor last year CEO Martin Turenne let it be known that FPX would be listening to feedback of the mystery investor. Since there is no reason for a major mining company to be so secretive about a 9.9% equity stake in a company with a project it might eventually want to acquire and develop, nor for FPX management to need the wisdom of a mining company about how to build a basic open-pit mine yielding a ferro-nickel concentrate destined for the stainless steel market, and with nothing of technical importance possibly coming from the managers of a financial institution, it is fairly safe to conclude that the mystery investor is involved somewhere in the downstream supply chain of the EV sector, which could be a chemical precursor company, a battery maker, or even a car maker, of whom only the latter has any strategic need for secrecy about it backing a project that had not yet delivered a PFS.
This became more evident when this year FPX Nickel announced a $16 million investment by another strategic investor, this time Finland based Outokumpu, which specializes in producing relatively clean stainless steel for those markets which care about the ESG credentials of their inputs. The arrival of Outokumpu as a disclosed 9.9% strategic investor was a critical milestone, because a market concern has been that there might not be any stainless steel maker willing to utilize the Decar ferro-nickel concentrate, at least not without a deep payability discount. The PFS assumes that the nickel content of its ferro-nickel concentrate will be payable at 95% of the LME nickel price, even though Decar's nickel output will never pass through the LME or Shanghai refined nickel warehouses (the original Cliffs PEA assumed a much lower payability, though the concentrate was only 12% nickel compared to 60% today after FPX figured out how to apply a flotation circuit to the concentrate produced by magnetic separation). The Outokumpu financing grants the stainless steel maker an offtake right at market price for up to 7,500 tpa over 8 years at prevailing LME prices. Outokumpu would not have made its $16 million investment and asked for an offtake right if its due diligence had not confirmed that it can cost effectively work with the ferro-nickel concentrate. And since "cost-effective" is a function of what the stainless steel maker pays for the nickel feedstock, that 95% payability was probably worked out between FPX Nickel and Outokumpu before the deal was inked. Furthermore, given that Outokumpu could tap into global markets and secure nickel feedstock from any dirty source, possibly with a discount to the LME benchmark, asking for this benchmark linked right implies that Outokumpu sees economic and strategic value in having a nickel supply from Decar.
As I pointed out, the refinery option does not add much economic value to the PFS if a mining company were to build Decar, nor is it a rational proposition for a battery precursor chemical company. A more likely party to be interested in the sub-economic refinery option is a battery maker which will offset the low return from the nickel sulphate refinery through the markup it gets manufacturing batteries that include nickel in the cathode. Such a markup would not be vulnerable to accusations of "greenwashing" or geopolitical supply disruption.
There are, however, a number of battery makers and they face the risk that new battery configurations emerge with different metal inputs. The IEA, in its 2021 World Energy Outlook Special Report: The Role of Critical Minerals in Clean Energy Transitions, has a chart on slide 89 which shows how much of the different critical minerals each of the major lithium ion battery types requires. One of them is the lithium iron phosphate battery (LFP) which requires no nickel and less lithium than any of the other battery types. On slide 96 the IEA shows projections for 2020, 2030 and 2040 about the share it thinks the various battery types will represent for light duty (passenger cars) and heavy duty (trucks and buses) electric vehicles. The LFP battery is expected to gain only a fraction of the future light duty EV market but dominate the heavy duty EV market. Yet in 2023 we hear that the Chinese carmaker BYD is selling more LFP powered cars than the other battery types. And we hear that Tesla plans to offer LFP powered models to the American masses.
The LFP battery relies on graphite for the anode, which is why LFP cars are vastly inferior to a solid state lithium iron battery which uses lithium metal in the anode rather than graphite. In fact, in its 2023 report the IEA has switched to the view that the truck transport future beyond 2030 will be powered by hydrogen fuel cell technology, ironically, what Toyota has been working on at the expense of going beyond its hybrid offerings (Prius) into consumer EVs. So the question I ask, would a major battery maker be interested in making a strategic investment in a nickel project that will not be producing nickel before 2030?
I don't think a major battery maker would make a secret strategic investment in FPX Nickel to secure a future nickel supply unless it either possessed a killer battery technology that allows a solid state lithium ion battery to become reality, has a long term supply deal with a car maker determined to use a battery with nickel in the cathode in 2030 or beyond, or a relationship with a car maker that believes it has the key to a solid state lithium ion battery that still requires a meaningful nickel input for the cathode. That is why Toyota or a battery maker proxy remains my key suspect as the mystery investor. The NYT had an article on September 7, 2023 called Toyota, a Hybrid Pioneer, Struggles to Master Electric Vehicles which describes how Toyota is losing market share in China and North America because it has failed to provide a range of desirable EV models, choosing to stick to its hybrid offerings. Toyota has justified this stance by arguing that its hybrids have a lower carbon footprint than EVs and that current affordable battery technology just isn't good enough for wide scale adoption. That is why it was blockbuster news when a couple months ago Toyota boasted that it will begin selling a high end EV in 2027 with a 1,200 km range on a 10 minute charge made possibly through a solid state lithium ion battery which allows lithium metal to substitute for graphite in the anode. Toyota has not revealed what metals will be needed for the cathode, but if it still requires nickel, that has huge implications for FPX Nickel's Decar project.
Toyota is not going to salvage its shrinking car market share by offering an expensive competitor to the models Tesla currently sells in North America. It has dominated the car market with its Camry and Corolla models which the masses embrace because they are affordable and high quality. The solid state lithium ion battery breakthrough was not accomplished with a new configuration, but rather a manufacturing process breakthrough. The media tends to focus on the physical input costs for an EV which requires a much broader range of metals than an ICE car. The choice of the best battery configuration will be limited by the manufacturing cost. If a highly effective solid state lithium ion battery configuration has already been established, but is extremely expensive to make, then it is useless for the EV sector. But if Toyota has solved the manufacturing problem enough to offer a high end model by 2027, how long will it take before the manufacturing process has been further refined so as to make such a battery affordable to install in a Camry or Corolla? Is 2030, about the time when Decar should come on stream if its permitting cycle is not blockaded, a reasonable estimate for Toyota to launch a massive comeback with EV versions of its popular models built in Canada or the United States that blow away LFP powered cheap EVs? A lot of effort went into figuring out the refinery flow-sheet and the scale of the refinery option seems designed for a carmaker's future needs. We don't know what battery technologies will power cars in 2040 and beyond; it could even be the hydrogen fuel cells Toyota has been working on. But it is important that Baptiste is primarily a supplier to the stainless steel market and would continue to be so in 2040-2060 when it expands mining to 162,000 tpa, with an option to divert 85% of the first decade's nickel output to the battery sector.
Missing from the PFS news release is any talk about Decar being a clean source of nickel, other than the company pointing out that CO2 output will be 2.4 tonnes per tonne of nickel as a result of being able to use hydro power. That means the project as described is not achieving the holy grail of carbon neutrality. Concrete news about the carbon sequestration potential of the brucite rich tailings could stir future market interest. But, based on slide 196 in the 2021 IEA report, a 2.4 t CO2/t nickel footprint compares nicely to 11 tonnes CO2 for sulphide sourced nickel, 19 tonnes for HPAL processed laterite, and about 60 tonnes CO2 for matte nickel made via nickel pig iron, the primary production method used in Indonesia after massive investments by Chinese entities when Indonesia banned the export of raw laterite ore during the past decade. The Indonesian nickel is not only dirty because of its huge CO2 footprint, which is due to Indonesia's heavy reliance on coal powered electricity, but also because Indonesian nickel mines emit a lot of downstream pollution that hurts surrounding communities. Nickel sulphate from Decar would not only qualify for IRA subsidies because it is sourced from Canada which for now is deemed friendly by the United States, but also because the Decar nickel will have a certifiable chain of custody that would allow a car maker to plausibly claim ESG credentials for the nickel input. There will be no second-guessing questions that nickel sulphate made from refined sulphide concentrates ultimately came from the dirtiest nickel sulphide mine in the world operated by a country in the grip of a thug.
How does one convert the PFS outcome into a fair price for FPX Nickel Corp stock? Under the rational speculation model fair value is defined by the value of the expected outcome (the after tax net present value) multiplied by the certainty of that outcome. FPX has stated that the certainty of the PFS is plus or minus 25%. The project is now shifting to the permitting-feasibility study stage which is expected to lead to mine approval in 2027. The certainty ladder range for a project at this stage is 50%-75%, which is USD $1 billion to $1.5 billion or CAD $1.3 billion to $2 billion. Divide that by 258 million fully diluted shares and the fair value range is $5.00-$7.75 per share. The lower number reflects the 3 years Decar can expect to spend in the next stage of the exploration-development cycle. So why has the stock dropped a couple pennies to $0.38 since the PFS news where the market is assigning an implied value of only CAD $108 million to Decar?
The cloud hanging over the project is the Tl'atz'en Nation's unilateral declaration that its clearcut logged traditional territory is now sacred, and that it will not allow a mine to be built on it. On August 9, 2023 FPX Nickel announced that it was aware of a new development involving one of the First Nations groups with which it has had a cooperation agreement since 2012 and the stock tanked. Because of confidentiality agreements and a complex underlying turf war between different First Nation groups claiming overlapping "traditional territory" FPX is not in a position to shed light on the problem which I discussed in KW Episode August 11, 2023: Time for Canada to fix its First Nations Problem. Retail investors are spooked and institutional investors are too worried about China's slow motion implosion and the risk of a global recession arising from central bank monetary policies to take the resource sector seriously. FPX Nickel's strategic investors don't care because with $30 million working capital the company can fund all the permitting and engineering stuff required over the next couple years; their standstill agreements prevent them from buying stock in the open market. A potential competitor in the car or battery sector might want to secure a strategic equity stake, but probably will not do so by buying stock in the open market and triggering an upwards repricing of the stock to better reflect the implications of the PFS. The most obvious type of investor to take advantage of the Very Good Speculative Value offered by the current FPX Nickel stock price is a high net worth family office which doesn't have to explain its actions to anybody. But their eyes are on Ottawa where the Prime Minister has blathered a lot about critical minerals and climate change mitigation while at the same time encouraging Canada's First Nations to aggressively pursue their UNDRIP rights which in Canada involves asserting traditional territory control to 400% of the country (thanks to overlapping claims).
A recent Financial Times article wondered out loud why Canada, the second largest nation in the world by land mass, with a population similar to California but vastly better endowed with resources, ranks around 16th place in global GDP compared to fifth place for California. The failure of the federal and provincial government leaders to stand up and declare that local "stakeholder" objections will not stop Canada from becoming a major supplier of reasonably clean critical minerals so as to enable the 2050 net zero emissions goals to become reality is a key reason the market has shrugged at the PFS results. There is a growing sense that Canada has become a NoCanDo Nation.
ASX-listed Liontown Resources Ltd, which is building the Kathleen Valley lithium pegmatite mine in Western Australia, announced on September 4, 2023 that it had received and accepted a conditional and non-binding proposal from Albemarle to purchase the company for AUD $3.00 per share. This follows a similar proposal made on March 28, 2023 to purchase Liontown for AUD $2.50 per share which I discussed in KW Episode March 29, 2023. Liontown rejected the March offer because it was conditional on an exclusive due diligence period which denied the potential for a bidding war and exposed Liontown to downside risk if Albemarle subsequently declined to make a binding offer. The proposal occurred in the midst of lithium carbonate prices crashing from their $30-$35/lb range in 2022. This time around Liontown has agreed to grant Albemarle an exclusive due diligence period and signaled its willingness to accept a binding offer at $3.00, barring a superior bid. Both have agreed that $3 is Albemarle's final offer unless Liontown receives a superior bid, in which case Albemarle, with the benefit of having done due diligence, can up its bid. Liontown has not told us how long this due diligence period will be. Based on 2.2 billion fully diluted the AUD $3 per share price values Liontown at AUD $6.6 billion, which at current exchange rates is about USD $4.2 billion or CAD $5.8 billion.
This revised proposal which Liontown management appears willing to accept if it becomes binding after Albemarle completes its due diligence is an important development for the Lithium Mania 2.0 emerging in Canada, especially the James Bay district of Quebec. Liontown acquired the Kathleen Valley project in 2016 from gold producer Ramelius based on LCT-type pegmatite showings as part of Lithium Mania 1.0. Liontown is now in the midst of constructing an 8,000 tpd facility for its Kathleen Valley deposit which has a resource of 156 million tonnes of 1.4% Li2O. The mine, which is projected to cost AUD $895 million already funded by equity and credit, is expected to begin production in mid 2024, 8 years after exploration began. Keep in mind that this project's advancement had to navigate the lithium winter in 2018-2020 when lithium carbonate prices sank from the $10-$15/lb range to below $3/lb where the world will never see the supply expansion it needs to meet net zero emission goals via EV's that use the lithium ion battery. The lithium winter was caused when the supply mobilization from new Australian hardrock mines overwhelmed the demand requirements of the nascent EV sector. This imbalance reversed in 2021, leading to abnormally elevated lithium carbonate prices in the $30-$35/lb range in 2022 which is now trying to find a new equilibrium in 2023.
Liontown's Kathleen Valley story, a manifestation of Lithium Mania 1.0 in which Australians very profitably participated, is a poster child for the Lithium Mania 2.0 that is now unfolding in Canada and Brazil with regard to LCT type pegmatite deposits. For Canadian investors snoozing in the new found glory of 4%-5% savings deposit yields after a decade of near zero yields, understanding the Liontown story is a good way to rediscover the notion of rapid 1,000% plus returns in less than two years. The Canadian poster child is the Corvette project whose similar pegmatite showings in the James Bay region of Quebec Patriot Battery Metals Corp began exploring in 2021 (after doing nothing with it during Lithium Mania 1.0 while it held the option on it as an ambulance chasing junior). In July 2023 PMET delivered a maiden resource estimate of 109.2 million tonnes at 1.42% Li2O for the CV5 zone. The next day Albemarle stepped up to buy CAD $109 million in stock at CAD $15.29 per share to acquire a 4.9% equity stake and an agreement to discuss a future lithium hydroxide refinery somewhere in North America. The financing price implied a CAD $2.2 billion value based on 142 million shares fully diluted. PMET stock has since retreated into the $11-$12 share price range as the project shifts into the feasibility demonstration stage and the holders of a large warrant overhang at exercise prices below $1 per share figure out how to exercise the cheap warrants before they expire in December. A short report by Night Market Research has argued that the valuation is excessive given the stage of the project and Canadian risk factors such as arbitrary First Nation wishes and absolutist environmental policies that favor torching the planet to save a few fish.
At Friday's PMET close of $11.68 the Corvette project has an implied value of about CAD $1.7 billion. That is about 29% of the value Albemarle is assigning to Kathleen Valley, which is reasonable given the certainty range for a project at the PEA stage is 10%-25% of the projected outcome value (according to my rational speculation model). Given the similarity in size and grade between Kathleen Valley and CV5 (the proven and probable resource for Kathleen Valley is 68.5 million tonnes at 1.34% Li2O, most of it slated for underground mining), the Albemarle buyout proposal validates the current valuation of Patriot Battery Metals. This is important because the seemingly inbred timidity of Canadians discourages them from taking seriously anything homegrown. (Back in the eighties and early nineties when I worked as an analyst in the Canadian brokerage industry the running joke was that Canadians never accepted a Canadian discovery until it was validated by American buying; with regard to Lithium Mania 2.0 the validation will be created by Australian buying.)
Albemarle is the top diversified lithium producer not dependent on making battery grade lithium precursors in China which has built up excess battery making capacity. A recent Lex blurb in the Financial Times about Albemarle revealed confusion about the difference between the production of lithium and its conversion into battery grade feedstock. China's economy is spiraling into the toilet because Xi Jinping's Maoist vision for China as a totalitarian state enhanced by hyper-surveillance and an alliance with other authoritarian states such as Russia is crushing Chinese citizens into a defensive fetal position even as the rest of the world struggles to reduce its dependency on Chinese production. China's emperor for life has boxed himself into a cul de sac from which the only way to escape domestic insurrection is to create a patriotic distraction in the form of annexing Taiwan. Should it come to this, the excess Chinese lithium concentrate processing and battery making capacity becomes mere dust in the wind. Albemarle getting serious about Liontown goes far beyond enhancing long term shareholder value; it is a strategic move designed to establish it as a premiere supplier of battery grade lithium for the non-Chinese EV sector.
The high probability that the current $3/share proposal will result in Albemarle acquiring Liontown underscores the gain potential participants in the James Bay Lithium Great Canadian Area Play can hope to achieve if they make a similar discovery. And don't worry about too many such discoveries being made; Rio Tinto predicts that by 2035 the world will need 60 Jadars in production in order to supply the lithium needs of the EV production scale required to keep the world on track for its 2050 net zero emission goals. Kathleen Valley and CV5 are each equivalent to one Jadar (btw, the original Jadar is suspended in limbo because its location has been designated by Serbia as a permanent stage for future Heidi movies).
Rio Tinto's 2021 Jadar prediction assumes that the IEA is correct in its 287 page 2021 World Energy Outlook Special Report: The Role of Critical Minerals in Clean Energy Transitions. Slide 6 reveals that an EV will require about 206 kg of critical minerals (excluding aluminum and iron), of which about 10 kg consists of lithium and 67 kg consists of graphite. Rio Tinto's Jadar predictions are based on this lithium requirement, which I assume is represented as lithium metal (many of these demand projections in various venues never mention the lithium units, so it can be confusing).
That IEA report is a couple of years old and is a good illustration of how rapidly assumptions about energy transition related technologies are changing. That report imagines that future heavy duty EV vehicles will be dominated by LFP type batteries which will only feature modestly in light duty vehicles. But today we known the Chinese carmakers like BYD have shifted to LFP batteries for the mass market, and Tesla is contemplating selling LFP cars to the masses in North America. The IEA Energy Technology Perspectives 2023 report released last January in contrast predicts that in 2030 and beyond hydrogen fuel cell technology will dominate heavy duty transport vehicles.
Brand new, however, is Toyota's claim of a manufacturing breakthrough involving solid state lithium ion batteries that provide a 1,200 km range on a 10 minute charge. If true this would involve replacing the 67 kg of graphite in the anode with lithium metal. If the substitution works out to an equal volume basis, then, based on lithium's specific gravity of 0.53, about 23.5% of carbon's 2.26 specific gravity, the anode would require 16 kg of lithium metal, with 51 kg less weight of juice sucking battery material. Assuming the overall battery still needs 10 kg of lithium for the cathode and electrolyte, bringing the total to 26 kg of lithium metal for a light duty EV, the world would need 156 Jadar equivalent mines by 2035. If that became reality, the annual lithium market would easily be worth $200-$300 billion by 2035, more than ten times what it was in 2022, and a thousand times what it was in 2005.
If Albemarle does indeed swallow Liontown, its Australian shareholders will likely deploy a good part of that CAD $5.6 billion liquidity event into the James Bay lithium hunt because Australia cannot fulfill that looming supply gap with more low hanging fruit. And carmakers cannot afford to wait for claystone mines and direct lithium extraction of oilfield brines to demonstrate its lithium carbonate equivalent cost of production. Forget about Africa's LCT-type potential. Zimbabwe has not emerged from Mugabe style authoritarian control. Congo's pegmatite rich interior remains within reach of murderous warlords and corrupt politicians. And the Sahel is spiraling into a battleground between Russian and Islamic thugs. Carmakers thinking about lithium supply in 2030 and beyond when EV adoption goes exponential are all looking at Canada (also Brazil, but the Chinese will out muscle them there).
The only group not looking at Canada are the 95% of Canadians who do not qualify as indigenous. The 5% who claim to own 400% of Canada most certainly are looking at Canadian's lithium supply potential, and while that might explain why Canadians are ignoring Lithium Mania 2.0, they should wake up to the reality that if Canada is to become a major critical metals supplier, the money that pours into the pockets of the indigenous aristocracy will not come from shareholder profits, but rather from the pockets of the 95 percenters in the form of diverting the taxes federal and provincial governments will collect from profitable critical mineral producers. To preserve the idea that Canada's mineral riches will be discovered and developed by venture capital, Canada should adopt a rule that all federal and even provincial income taxes from mining operations should be earmarked for distribution to Canada's First Nations, with no percentage of the project required to be assigned on a carried basis to local First Nations groups, nor should companies be required to waste any effort on "co-operation" deals that are only binding on the companies. The government will collect plenty of tax revenues from the CapEx and OpEx part of the mining equation, which, to ensure development decisions are based on competitive economic factors, should not be required to be larded with inflated local First Nations service contracts. The 95 percenters cannot afford to let Canada become a NoCanDo Nation.
Table of Major Australian Pegmatite Deposits with 2 James Bay deposits added
IEA 2021 report table showing how much critical minerals required for EV
IPV Chart showing how PMET's Corvette valuation compares to Liontown's Kathleen Valley
Jim (0:27:35): How did the James Bay Lithium Index do this week?
The James Bay Lithium Index slipped this week despite the news about Albemarle's revised proposal for Liowntown and more announcements that juniors were getting boots onto the ground. Part of the drag comes from the gloomy news about China's shrinking economy and the threat of higher interest rates to curb inflation lowering expectations for metal demand in the near term. But the continuing drop in the price of lithium carbonate also doesn't help with the optics, though investors should familiarize themselves with my lithium rock value matrix.
Even if lithium carbonate drops to $5/lb, the rock value of an LCT type pegmatite grading 1%-2% Li2O is $273 to $545 per tonne. That's the same as 4.2 to 8.4 g/t gold at a $2,000 gold price. Nobody is ever going to find an open pittable hundred million tonne gold deposit with those grades. There are plenty of skeptics who pooh pooh lithium as having a high crustal abundance, as they do with rare earths and even scandium, but that merely reveals how ignorant they are about the cost of extracting lithium and concentrating it into a form usable for making batteries. Below $5/lb lithium carbonate the world will never see enough lithium supply to make lithium ion battery based EV deployment goals a reality unless there is some miraculous DLE process technology breakthrough. So consider $5/lb a worst case long term floor for the price of lithium carbonate, and then place your exploration bets on juniors with the assumption they will deliver LCT type pegmatite deposits grading 1% Li2O or higher. By the end of 2024 boots on the ground in James Bay may have identified a dozen such deposits with 50 million tonne plus scale implications, sending the valuations of those lucky juniors north of $1 billion. Never before has there been such a low hanging fruit exploration boom dominated by Australian and Canadian resource juniors!
The big news this week was that Brunswick Exploration Inc has started a 5,000 m drill program on its Mirage project where it has identified a 3 km long train of spodumene mineralized boulders down ice from a 2.7 km trend along which it has found multiple pegmatite outcrops with similar mineralization. In fact, according to the September 7 news release which had a conspicuous absence of graphics, this 2,700 m corridor of pegmatite outcrops is now 850 m wide, a result of additional prospecting in the past few weeks. They do not yet know the orientation and geometry of these pegmatite dykes within this corridor which question the scout drilling program will seek to reveal.
In the update Brunswick mentioned that it had found a new 175 m long outcrop 4.5 km up ice from the center of the 2.7 km long outcrop trend. They don't yet know what's under the boulder train to the southwest, but LCT type pegmatite outcrop has now been spotted along a 6 km trend from the up ice head of the boulder train. The less exciting outcome scenario is that this wide corridor is a mish mash of variously oriented pegmatite dykes whose spodumene crystal distribution and size will result in high pegmatite hosted lithium grades that will end up being diluted down when all the waste rock between the dykes is included in a bulk mining scenario. But at this stage of the game it is also legitimate to speculate in an anti-Hearst scenario. Brunswick this winter drilled about 2,000 m on a 65 m long outcropping pegmatite at the Hearst project in Ontario. The hope was that Hearst would be the tip of an iceberg, but the drill showed that along strike there was nothing and at depth the body quickly pinched out to nothing. It was as if the tip of an iceberg had fallen from the sky and buried itself upside down in the Ontario dirt. Well, why not dream about the opposite outcome? What if the outcrops within this 2,700 m by 850 m corridor are all local tips of a giant iceberg, turned into "tips" by glaciation and local topography? What if lurking highly connected beneath the surface is a Greenbushes body capable of sinking multiple Titanics? We don't know yet where within this bleakly pessimistic and hyper-optimistic spectrum the Mirage pegmatite field will turn out to sit, but by early October Brunswick will have a rough idea about the geometry, and by late October assays that will allow back of the napkin tonnage estimates.
James Bay prospecting activity after a 3 month forest fire closure is just getting underway. Brunswick's field crew has found a second spodumene boulder train 2 km west of the southwest oriented boulder train, suggesting a parallel pegmatite corridor which my plotting estimates suggest is within the property boundaries. Given the scale of the Mirage pegmatite field, Brunswick is now the hottest emerging discovery junior in the James Bay region. But the discoveries are just getting started. Brunswick found the boulder train during the first two days in the field in late May before getting kicked out because of the fire closures. And it was able to return to the field in late July because Mirage is in the eastern part of the James Bay region where fires were less a problem than in the western part. If Brunswick's drilling starts to give meaningful shape to its pegmatite dykes over the next few weeks, and the other juniors start reporting LCT type pegmatite outcrops later this month, we will see Lithium Mania 2.0 go crazy in the James Bay region in October, setting the stage for many winter drill programs in Q1 of 2024.
At the May MIF conference in Vancouver I hosted a panel of independent commentators such as myself, and some of the panelists shrugged that they had missed the boat, though one Trumper dismissed the energy transition as a liberal conspiracy by fretting that Wyoming is populated by bumpkins who had never heard of a tungsten enhanced saw that could cut a defunct wind turbine blade down to size for recycling (tungsten, unlike silver, is not a biblical metal).
Yes, they and myself included missed the PMET boat. But PMET is just one Jadar, and according to Rio Tinto the world needs 60 Jadars by 2035, and if my calculations are correct about how much more lithium will be needed if Toyota's boast about a solid state lithium ion battery is not bullshit, the world will need 2-3 times as many Jadars as Rio Tinto predicts. We only missed one Canadian boat. And Brunswick, which KRO members boarded a year ago, is only just leaving the harbor. The JB Lithium Index now has 57 members after I added three ASX listed companies this week. More are coming. If Brunswick's Mirage proves itself to be another Jadar (heaven forbid a Greenbushes!), which within 2 years can command a $2 billion valuation, and, after it gets walked through another 4 years of feasibility demonstration, can attract a $4-$6 billion valuation buyout by the likes of Albemarle, which in a couple years will have serious competition from major mining companies like Rio Tinto, BHP, Anglo American and perhaps even dirty metal producers like Glencore, there is still so much money to be made by latecomers. Brunswick has barely left the harbor and the other boats are just starting to put out to sea.
Kaiser Watch is a weekly 15-30 minute 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 in the form of a USD $450 Annual Individual Membership that at some point will increase substantially to reflect KRO's shift to a research platform. However, when the change happens active members will be grandfathered to renew indefinitely at the current rate provided they maintain a continuous paid membership. 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 1, 2023: Boots are Pounding James Bay Ground
Jim (0:00:00): What is happening in the James Bay lithium district?
The James Bay Lithium Index is still flatlining, down 3.4% as of September 1, 2023 from its August 1 establishment date, but I expect it to perk up next week after the Labor Weekend kicks off the back to work season and leaves behind the summer doldrums. Most serious juniors have announced they are putting boots on the ground and it will probably be mid September before we start getting news from the field. The main index chart is self-explanatory but the second daily performance chart needs an explanation. It uses a bar chart to show what percentage the index (currently 54 companies) is up or down from the prior days level for the past 120 trading days (currently from March 14 to September 1). The performance chart shows that the index, set at 1000 on August 1, 2023, has had a bias to the downside, with negative runs (red bars) more dominant than positive runs (green bars). In some sense the overall trend has tracked the price of lithium carbonate which undertook a bungee plunge in late December that did not stop until early May. It rebounded to $20/lb in early June but has since then been in a downtrend, currently at $13.12/lb. The lowest it got was $11.62/lbf on April 24. The hope is that it will achieve an equilibrium between $10-$15/lb so that investors can stop paying attention to the short term price trend. But even if the long term price settles into the $5-$10/lb range, for pegmatite deposits grading 1% that is still a rock value of $273/tonne - open pittable! Between now and the end of the year I expect to see the James Bay Lithium Index performance chart deliver green streaks that signal Canadian investors are figuring this greatest exploration boom in Canada.
I expect to be very busy covering developments in what I think may be the greatest and final hurrah for the Canadian junior resource sector. A plague of coups in Africa are putting that continent off limits to juniors. A plague of resource nationalism is making Latin America, including Mexico, an ever harder sell for investors. The economic outlook in China has raised concerned that China's economy may be sinking into a difficult to reverse downturn, which will dampen demand for base metal prices. Few have the patience for how long it takes to get anything permitted in the United States, not just by the US Forest Service which has always been painfully slow to the point of deliberate obstruction, but also the BLM. Canadian exploration has been plagued by forest fires, and when there aren't outright access closures, helicopters have been requisitioned to support forest fighting capacity, especially where far flung First Nations communities are threatened. And the First Nations themselves are becoming ever more aggressive about their aristocratic claim to most of Canada and are becoming an obstacle to permitting even drill programs, especially in some provinces that for now does not include Quebec.
The world's future lithium needs require a 600% expansion of supply by 2030, more if Toyota's solid state lithium ion battery breakthrough boast is true. Guaranteed lithium supply mobilization that does not require cross your fingers process technology breakthroughs such as with oilfield brines and claystones will depend on jurisdictions like Canada, and the James Bay district is shaping up to be a world class district. I expect a wave of investors to discover the James Bay Lithium Great Canadian Area Play between now and early next year, and I will be very busy covering developments because according to Rio Tinto, the world needs 60 Jadars by 2035; a Jadar is the equivalent of PMET's Corvette project just in the CV5 deposit alone. The 3 month suspension of exploration this summer has been a huge disappointment, which intensifies the prospecting rush now underway.
Fire access restrictions have been lifted everywhere but the trend we saw August 23 toward low fire risk (blue) in SOPFEU's assessment has reversed somewhat as of September 1. I recommend bookmarking SOPFEU to track the fast changing fire danger assessments. Most of the James Bay district now has a moderate fire risk (green) and the coastal area which was still rated high (yellow) a couple weeks ago has reduced to moderate risk. Oddly a north-south band of high risk designation has moved inland in the western part of the James Bay region. A new problem is that persistent rainfall has not yet settled into the region, and this is creating a health hazard risk for the burnt out areas which are covered with dry soot that easily becomes airborne. Some field workers are refusing to put their boots on the ground where they are going to inhale a bunch of carcinogenic soot, so most of the prospecting is focusing on areas untouched by fire. Next year after rain has washed away the soot these areas will be a prospecting wonderland because so much brush will have been burnt away. They say in the old days unethical prospectors would set fires to areas so that they could go prospecting the following year. Now climate change is the arsonist doing the dirty work of crooked prospectors.
There is an additional problem facing juniors in parts of the region, and that is moose hunting season which runs from September 15 to October 15. Two juniors called Q2 Metals and Ophir Gold which had hoped to be drilling right now are only now racing to refine their drill targets before taking a moose hunt break. To appreciate the cultural importance of the moose hunt I recommend watching the 57-69 minute segment of Nettie Wild's Koneline: Our Land Beautiful, set in northern British Columbia and featuring the Tahltan Nation. It interweaves two pairs of hunters, one pair using rifles to hunt moose, the other pair long bows to hunt sheep of which they have never bagged one during their annual traditional hunting ritual that started in 1975.
KRO James Bay Lithium Index Chart
120 Day Chart of Relative Performance of James Bay Lithium Index
Lithium Carbonate Price Chart
This Rock Value Matrix is the key to understanding Lithium Mania 2.0
Comparison of current James Bay Fire Danger with two weeks ago
Jim (0:08:29): Why did Q2 Metals and Ophir Gold think they would be drilling by now?
Q2 Metals Corp and Ophir Gold Corp respectively control the southwestern and northeastern portions of the Yasinski greenstone belt in the western part of the James Bay region. Both companies have been tagged with Fair Spec Value ratings because they have all the ingredients in place to deliver major upside for investors. Q2 Metals has $10 million working capital while Ophir has $5 million. Both juniors have permits to drill their Mia and Radis properties. Both have the problem that their teams only had boots on the ground for 2 days to collect samples from known pegmatite outcrops before being chased out by forest fire closures. At the moment Q2 Metals is in the stronger position because it has the benefit of outcrop sampling by the vendor during the two years prior to the sale to Q2 in late 2022. However, Ophir managed to get 1%+ values from the Navet and Chou outcrops during its 2 days, confirming that the pegmatites within its portion of Yasinski belt are also fertile. Both companies have achieved the step of turning their first order targets defined by archives and satellite imgaery to confirmed LCT-type pegmatite.
The short term problem both companies face is that their properties are in an area where moose hunting season unfolds from Sept 15-Oct 15 when it is best to cease exploration activity. Both mobilized during the past week - they share exploration camps - and are scrambling to better define their targets for drilling. In the case of Ophir a key is to sample a 300 ft by 90 ft pegmatite outcrop documented in 1975. When the crew arrived early June it assumed it could sample the trend systematically in the most efficient manner. In retrospect the boots should have landed on this outcrop on day one. But we will know by the time moose hunting season ends if this outcrop is LCT enriched and the first place to start drilling. Q2 already had plans for a 10,000 m drill program set to begin July, though this was premised on at least a month of target refinement. What is not yet understand about either Mia or Radis is the orientation of the pegmatite bodies, a problem that Brunswick also faces at Mirage and hopes to resolve with a September scout drilling program. The satellite imagery published by Q2 Metals suggests an Allkem style series of short en echelon dykes within the Mia trend. As long as the grade is above 1% Li2O, it doesn't matter which type it is, so long as the system persists along strike for multi-km.
The stocks are rated Fair Spec Value because the valuation already reflects the presence of high grade LCT type pegmatites within a conventional geological context. Q2 Metals is likely to drill in late October and continue as long as weather allows, resuming in January. Ophir, which has a lot more target development work to do, will likely not start drilling until Q1 of 2024. However, it does stand to benefit from whatever Q2 Metals learns from its 2023 drill program. I published Spec Value Rating Trackers for both companies this week (Aug 30, 2023: Q2 Metals Corp Spec Value Rating and Aug 29, 2023: Ophir Gold Corp Spec Value Rating) which explain the origin of these juniors and their particular advantages, but because neither has yet been promoted to Favorite status, these trackers are behind a paywall for KRO members only.
Map showing Mia and Radis propertties of Q2 Metals and Ophir Gold
Satellite Map showing possibler en enchelon structure of Mia pegmatites
Jim (0:22:33): Why did Brunswick Exploration take a beating on Monday?
Brunswick Exploration Inc captured the market's imagination during the prior week on news that boots on the ground had identified a 2.7 km trend of outcropping pegmatites up ice from a 1.7 km long by 200 m wide boulder train announced in June which itself has now been extended to 3 km down ice. Key to the excitement is that these outcrops have a similar impressive distribution of spodumene mineralization as the down ice boulders, supporting the conclusion that the source of the boulder train is within the Mirage property. Whether this is a series of short en echelon pegmatites perpendicular to the geological trend as is the case with Allkem's world class Galaxy-Cyr deposit, or a series of parallel elongated pegmatites such as PMET has with the world class CV5 deposit on its Corvette property, is not yet known. Brunswick is mobilizing a scout drilling program to sort out the geometry of these dykes and set the stage for a major discovery delineation program in Q1 of 2024.
On Monday August 28, 2023, however, Brunswick dropped a big cowpie on the market with an update about what its boots on the ground accomplished in other parts of Canada while its access to James Bay was blocked by fire restrictions. A big talking point for CEO Killian Charles has been how the company's prospect generating strategy of researching assessment work archives and matching verbal descriptions of pegmatite occurrences with commercial quality satellite imagery has revealed 800 outcropping pegmatites, none of which have been seriously explored, and any one of which could be the tip of a world LCT-type pegmatite iceberg. Well, the boots on the ground armed with an XRF gun could not confirm any of these pegmatites as LCT type located in Saskatchewan and Manitoba. In cases where the assessment work archives claimed to have observed spodumene there was no such mineralization present. Those pegmatites which registered beryllium and which might have rare earth or uranium potential are not what Brunswick is looking for. At best they are indications of a setting that spawned pegmatites from a granitoid intrusion, but one has to look farther off-board to find the LCT type that can become a future lithium mine. None of the targets in Saskatchewan or Manitoba delivered any joy, and where Brunswick had optioned claims from juniors like Eagle Plains and Searchlight, the absence of any obvious low hanging fruit has prompted Brunswick to drop those options. Yes these juniors got some pennies up front for what appear to have been worthless lithium properties all along, though closer exploration may reveal high hanging fruit, but Brunswick had a cheap crack at harvesting low hanging fruit and came up empty. The outcome is not a cause for celebration by either side.
The market did not like this news because it underlined the suspicion that historical documentation of a pegmatite, confirmed by satellite imagery, is not likely to be good enough. Yes, when you start with 800 such targets, the process of elimination should leave you with a few world class candidates. But when Brunswick declared that it was giving up on Saskatchewan and Manitoba, suspending its boots on the ground investigation of its Ontario targets, and allocating all its resources to its prospects in Quebec's James Bay region, that was a body blow to the idea that much of Canada has meaningful lithium potential. The market reacted negatively because the next question is, how do we know that your boots won't also crush all your other James Bay pegmatite outcrops?
But may Brunswick's exodus from these provinces is not really a thumbs down for mineral potential. The elephant in the room is the threat to critical mineral supply development posed by Canada's First Nations who Prime Minister Justin Trudeau has put on steroids with his embrace of UNDRIP, the United Nations Declaration of the Rights of Indigenous People. Take the time to read the July 13, 2023 CBC article First Nations won't be excluded from critical minerals 'gold rush,' say leaders to understand how Trudeau has sabotaged Canada's mineral supply potential. From past experiences like Alto's Oxford project in Manitoba which Ontario lawyer Kate Kempton torpedoed when she parachuted into town with stories about the need for archeological studies, and Fjordland's futile effort to get a drill permit for a nickel project optioned from Canalaska, I already know that Manitoba's First Nations are a major exploration obstacle for resource juniors. The CBC article tells you that a Saskatchewan pegmatite lithium boom will be still born, though the thrust seems to be more about capturing whatever DLE can extract from oilfield brines.
Some parts of Ontario have First Nations groups eager to participate in the mineral sector on simple commercial terms based on the fact that this is happening in their backyard and they have a strategic advantage. Others such as the First Nations in northern Ontario are split between supporting mineral development and pretending they are still engaged in traditional activities. Check out Stan Sudol's articles from last December describing the Ring of Fire situation: Northern Ontario’s Ring of Fire can save province’s auto sector and Ontario has moral obligation to develop Ring of Fire. Brunswick makes no suggestion that the First Nations obstacle course was a factor in its decision to focus on Quebec. And Quebec is no cakewalk as far as First Nations are concerned (moose and goose slaughter seasons are necessary why?), though a difference between the Cree in Quebec and those in Ontario is that the Quebec Cree have figured out how to collaborate with commercial developments in their backyard. That doesn't mean Quebec will not also collapse into a showdown between a DNA defined aristocracy representing 5% of Canada's population and the 95% without indigenous DNA about who gets to shape Canada's supply of minerals critical for the energy transition. It just means that the starting point will be a win-win rather than winner-take-all outcome.
Brunswick has decided to concentrate on the James Bay region of Quebec because PMET's CV5 maiden resource estimate and Allkem's Galaxy-Cyr resource update show that this is a world class lithium pegmatite district, whether the pegmatites occur as an enchelon set of dykes repeating along great distances within dilation zones of a regional structural feature, or as elongated parallel zones within these structural corridors. Currently Brunswick's James Bay strategy has three prongs: 1) optioning large land packages like Plex and Anatacau which cover greenstone belts Andre Gaumond's Virginia companies once explored for precious and base metals deposits, 2) staking claims on top of documented pegmatites corroborated by commercial satellite imagery, and, 3) serendipity deals such as Mirage which emerged because Bob Wares managed to remember that a long time ago Remi Charbonneau pitched him and others on these spodumene boulders in the middle of nowhere north of the Renard diamond discovery at a time when global supply of lithium was worth $200 million and dominated by Australia's Greenbushes pegmatite and Chile's salar brines.
The first strategy is similar to what Q2 Metals and Ophir Gold have undertaken with their Mia and Radis claims covering the 30 km Yasinski greenstone belt. But Q2 and Ophir already have confirmed high grade LCT-type pegmatite outcrop and will both be drilling by Q1 of 2024. Brunswick is only now getting boots on the ground at Plex and the Mythril property north of PMET's Corvette property optioned from Midland. Mirage is more a function of madness than method, though if it is another CV5, no Brunswick shareholder will complain. Again, it is important to keep in mind that Rio Tinto says the world will need 60 Jadars by 2035, and CV5 is only one Jadar.
The wild card for Brunswick is the second category of projects, namely properties it staked 100% using the same method as it applied to properties in Saskatchewan, Manitoba and Ontario. The Monday news included a description of what the Hearst outcrop proved to be all about after a 2,000 m winter drill program. Its small surface expression was the opposite of the tip of an iceberg because it was an upside down iceberg that pinched out at depth and had nothing along strike. Plus the lithium content was marginal and not spodumene. The only part of Ontario that seems to have world class lithium pegmatite potential is the northwestern part where Frontier Lithium has its Pak/Sparks deposit. But this area faces challenges in the form of remoteness and remote First Nations communities who prefer things to remain remote. But the James Bay region is different and the best way to frame this is to contrast the greenstone belts of the Abitibi region with those of James Bay. The deep seated structures within the Abitibi greenstone belt have yielded a 100 million ounce gold bounty. In contrast the greenstone belts of James Bay have yielded Eleonore, Eau Claire, and Azimut's award winning pencil deposit, Patwon, for which Azimut has not dared to provide a resource estimate. Looking for gold in James Bay is like tilting at windmills. Looking for lithium in the Abitibi is almost the same. But today looking for lithium in James Bay is like looking for gold in the Abitibi a century ago. Even though Monday's Brunswick news was greeted as a downer by the market, what Bob Wares in effect declared, forget everywhere else, if you want lithium, James Bay is the place to be!
Brunswick was made a KRO 2023 Favorite because it had assembled a broad portfolio of projects in Canada representing 800 pegmatites documented by past exploration. This was cool because it is only since 2021 that the world has recognized that the EV revolution is real, and begun to understand the lithium demand implications. Bob Wares and his team jumped onto this concept and parsed the archival universe. Hearing this past week that the pegmatites in Saskatchewan and Manitoba are all dogshit was not so cool. The implication that Brunswick's brute force process of elimination universe has shrunk to its 100% staked James Bay projects, the ex-Virginia Osisko optioned blocks, and the Mirage miracle, while cooling the market's enthusiasm for now, did spark interest in a bottom-fish junior called Dios Exploration Inc. This junior has a horrible web site, no corporate presentation, and issues strange sounding press releases; not even close to qualifying as a KRO Favorite. Nevertheless I have been encouraging paying KRO members to accumulate Dios as a bottom-fish since last September because once I saw this perennial James Bay precious and base metals explorer start acquiring lithium prospects, I took the trouble to contact CEO Marie-Jose Girard whom I have known since around 2000 when Ashton discovered the Renard diamond cluster.
Since being spun out of Sirios in 2002 so that it could focus on diamond exploration, Dios has plodded through the past couple decades as a survivor which has never done a rollback, and still has only 121.3 million shares issued. Fully diluted drops from 135.8 million to 125.7 million if 9,090,000 warrants at $0.20 expire unexercised on September 11. MJG, as we call her on the KRO Slack Forum, works closely with her long time exploration VP Harold Desbiens. During Q2 of 2022 she was focused on the K2 gold prospect next door to Azimut's Patwon gold discovery, the famous pencil deposit beloved by Agnico-Eagle and celebrated by AMEQ in 2022 as the discovery of the year. Like Azimut's Jean-Marc Lulin, she was dismissive of all this Lithium Mania 2.0 blather from the likes of John Kaiser and Bob Wares, and wasted no opportunity to pooh pooh CV5 because it was under a lake and in a remote location.
By September something or somebody had gotten to her (perhaps as she did the drill hole math she saw what was evolving at CV5?), and she began a stealth prospect generating strategy. What intrigued me was how MJG and HD were applying their deep knowledge about James Bay geology, which has nothing to do with kimberlites that come up where they do, and the glacial history which was very relevant to their quest for kimberlite clusters outside the Renard cluster controlled by Ashton. When I listened to how they were combining lake bottom sediment data published by the government with glacial transport history to vector in on geology that was permissive for the formation of LCT type pegmatites, sometimes seeing scant references to outcropping pegmatite in assessment files, and then hearing that they had a regional proprietary till sampling database which managed to capture lithium minerals despite these not qualifying as the sort of "heavy minerals" till sampling for diamond indicator minerals targets, I coined the term "second order" exploration to distinguish the Dios targets from those generated by Brunswick's "first order" exploration.
When you look at a Brunswick map showing the location of its "first order" generated claims, and compare with the slowly emerging locations of the claims Dios has staked, a startling pattern becomes apparent. All of the Dios properties are emerging within a giant hole devoid of Brunswick claims. The Dios market perked this week because some investors began to understand that there is something special going on at Dios. The Brunswick claims are all "first order" targets based on archival references to pegmatite showings confirmed by satellite imagery. These may indeed be low hanging fruit Brunswick could harvest in the remainder of the 2023 prospecting season. Brunswick as the early bird got all these worms, which is why it commands a valuation tenfold that of Dios and why KRO members own more Brunswick than Dios. But Dios as a late bird is going after fruit hanging mid-tree, harder to see and reach, but with no less potential to be world class. During the past week Dios sent boots onto the ground to start checking out these "second order" targets. The sad reality may be that when the field workers from Jody Dahrouge's geological service company hit the ground, nothing that qualifies as LCT-type grading 1%+ Li2O shows up, even where assessment files documented pegmatite. That is why Dios continues to drift as a bottom-fish, with mysterious blobs of stock periodically pounding the bids, a two person show with either no marketing skills or no time to deploy them. All that could change within a couple weeks.
James Bay Regional Map showing Brunswick's 3 strategy types
How the Dios projects occupy a hole in Brunswick's James Bay Property Map
Disclosure: JK owns Brunswick and Dios; Brunswick is a Fair Spec Value rated Favorite; Q2 Metals and Ophir Gold are Fair Spec Value rated; Dios is bottom-fish spec valued rated
