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Discovery Watch is a weekly 15-30 minute audio show produced by HoweStreet.com where Jim Goddard interviews John Kaiser about resource juniors with projects that have caught John's attention. The projects will not be limited to companies he has covered through the Spec Value Rating System. Jim and John will periodically circle back to review the projects and if necessary close them out as no longer worth watching. Check out the catalog of KRO Free Stuff. KRO offers a USD $450 Annual Individual Membership. This Discovery Watch session is available via YouTube or Podcast.
The shareholders who own 55% of Scandium International's 316.3 million issued shares and who do not have a seat at the boardroom table, and thus rely on bread crumbs the CEO drops inside the company's 10K and 10Q filings, of which the next one is not due until August 16, have been treated to fresh bread crumbs by Rio Tinto and Barrick to keep their hopes alive. On June 17, 2021 Rio Tinto announced that it has started operations at a new commercial scale demonstration plant at its Rio Tinto Fer et Titane facility in Sorel-Tracy in Quebec. The plant, which will produce 3 tpa of scandium oxide, was built at a cost of $6 million in less than 6 months. It has a modular design and Rio Tinto is already contemplating expansion of capacity. Rio Tinto revealed its scandium recovery plan in May 2021 a week after SCY put out a press release about its plan recover critical metals from the raffinate generated by SXEW copper oxide mines. Apart from grudgingly conceding that the US Patent Office granted a patent on April 27, 2021 for recovering scandium with its CMR method (an application covering a much bigger list of metals is still pending), SCY has published no further news about its efforts to secure a hosting site for its CMR plan. The Rio Tinto news that it is now in the scandium production business is very good news for SCY even if it never gets its CMR plan off the ground, for Rio Tinto's upside output limit from Lac Tio ore processed at Sorel-Tracy is about 50 tpa scandium oxide. And that means if Rio Tinto cracks the scandium offtake market chicken-egg problem by incrementally ramping up scandium supply, it had better start thinking soon about from where it can secure primary, scalable scandium supply before sleepy Alcoa wakes up and buys out SCY. Nyngan already has a mining lease for a 35 tpa output and can be scaled up to 125 tpa.
SCY's 2014 press release about its Honeybugle discovery south of Nyngan included enough bread crumbs to allow one to do a rough back of the napkin resource estimate which suggests Honeybugle could be bigger and richer than Nyngan. I've done a speculative DCF analysis of a 1,000 tpd Honeybugle scenario that borrows the Nyngan expansion scenario cost structure and it is safe to say that for SCY shareholders it is a good thing a more swift-footed junior willing to promote its story does not own Honeybugle. The Rio Tinto bread crumbs suggest that SCY should just stop wasting money pretending to be working on a CMR hosting deal and simply spend a few dollars on producing a resource estimate for Honeybugle and a metallurgical study to confirm that it is the same laterite ore as Nyngan. And wait for the buyout auction to begin. But Barrick provided some bread crumbs on its May 25, 2021 Nevada Gold Mines Investor Day which strongly indicate that SCY's CMR plan has made huge progress. Listen to the 8:47 minute Phoenix Video. Barrick first mentioned a critical metals recovery study with a "local partner" in its Q1 2021 presentation but did not mention the target metals nor the partner's name. That allowed the SCY CEO during the junior's AGM to answer a question by a member of the 55-percenter shareholder class with a dismissal that the partner could be anybody. Yet in the video Megan states that the Phoenix CMR study has identified zinc, nickel, cobalt and scandium as recoverable from the SXEW circuit's raffinate. Not only does that rule out any party but SCY, for who else would bother to recover a metal with an annual market of less than 25 tonnes worth only $50 million? It is very unlikely that Barrick's CEO Mark Bristow wants to compete with Rio Tinto in developing the Al-Sc alloy offtake market, but doing so incrementally with the help of its own master alloy proficiency is most certainly SCY's goal. But the really tasty bread crumb in this news is that the study is far enough along for Barrick and SCY to have identified zinc, nickel and cobalt as key target metals. Each deposit has a unique composition for which a leaching agent has been optimized, which means each mine's raffinate will have a unique collection of other metals unintentionally dissolved. The purpose of the study is to establish what SCY's ion exchange method can commercially recover from the raffinate, and that takes time, which obvious has already taken place or Megan wouldn't be talking specific metals. But why would Bristow publicly talk about this if a hosting deal still has to be negotiated with the SCY CEO who is a notorious over-optimizer and who just might play hardball with Bristow, potentially leaving him exposed to accusations by Barrick shareholders that he is fishing for fake ESG credits? My guess is that Barrick and SCY already have a deal in principle that both see as a win-win, and when the timing is right it will be inked and disclosed. So while SCY may have other reasons for feeding its 55-percenters tiny bits scraped off a stale Christmas cookie, Barrick is quite comfortable handing out an entire loaf of fresh baked bread. The graphics above show what Honeybugle is potentially worth, while the one below shows what the Nyngan expansion scenario is worth. Obviously Honeybugle would be developed many years later as scandium demand ramps toward 1,000 tpa Sc2O3, so you cannot stack these valuations, but if scandium demand reaches a tipping point where it can start going exponential, the market will start telescoping future value into a current, much higher stock price.
Disclosure: JK owns Scandium Intl and Wolfden; Scandium Intl is a Bottom-Fish Spec Value rated Favorite, Wolfden is a Good Spec Value rated Favorite; Eskay Mining is Fair Spec Value rated.
